Aer Lingus 2011 Annual Report Download - page 23

PRINCIPAL RISKS AND UNCERTAINTIES Aer Lingus Group Plc
Annual Report 2011 21
Risk Impact Mitigation
Pensions The IASS is a multi-employer scheme with fixed
( Continued ) contributions made by the employers and employees in
accordance with the trust and deed rules. At 31 December
2011 it had 14,680 members, comprising 4,519 active
members, 5,344 deferred members and 4,817 pensioners.
Approximately two thirds of members are current or former
employees of Aer Lingus. The statutory minimum funding
standard (MFS) is an actuarial valuation of the funding
status of the IASS if it were to be wound up under current
legislation at a given date. At 31 December 2011, the IASS
was estimated by the trustee’s actuary to have an MFS
deficit of approximately ¤700m (2010: deficit ¤400m).
Approximately two thirds of any deficit is attributable to
employees or former employees of Aer Lingus. The
estimated deficit has increased significantly over the course
of 2011, primarily due to increases in the estimated cost of
purchasing annuities for pensioners in a wind-up and a
decline in IASS asset values.
Aer Lingus and the other sponsoring employers have no
obligation to contribute anything other than the fixed rate
of contribution to the IASS and in the absence of the
assumption of additional voluntary commitments, the
trustees will be required to take measures to improve the
scheme’s financial position. If, as seems likely given the
current funding position of the IASS, such measures result
in a reduction in member benefits, it is likely that there will
be an adverse effect on employee relations. There is
therefore a risk that the Group would become involved in
industrial disputes with its employees, which would be
significantly detrimental to the operations of the airline and
its financial performance. It is also possible that the
Group’s position that it has no responsibility for the deficit
in the scheme could be subject to legal challenge on
various grounds from various potential claimants. Any such
challenge would be strenuously defended. Lengthy
litigation could ensue. If, contrary to the firm legal advice
that the Group has received (that such a challenge is
unlikely to succeed), a Court were to find against the
Group in any such litigation, significant or very significant
loss could arise. No proceedings have been issued to date
and it is not therefore practicable to estimate the financial
exposure, if any, to the Group should such claims be made
and succeed.
At 31 December 2011 the Pilots’ Scheme had 895
members, comprising 431 active members, 118 deferred
members and 346 pensioners. The most recent triennial
actuarial valuation performed by the trustee’s actuary
showed an MFS deficit at 31 March 2009 of ¤217m. As
part of the Greenfield agreements negotiated in late 2009
under the auspices of the LRC, Aer Lingus and the Irish
Airlines Pilots Association agreed certain changes to the