Aer Lingus 2013 Annual Report Download - page 122

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The key elements of the IASS Proposal are:
 The IASS Proposal should attempt to achieve the target levels of benefit set out in the Interim Recommendation. These target benefits
should be achieved through a combination of (i) IASS benefits (reduced by the imposition of coordination and any further benefit
reductions which the IASS Trustee considers appropriate); (ii) investment proceeds from a proposed once-off Aer Lingus Limited
contribution of €110 million (see next bullet point); (iii) employer and employee contributions into a new and separate defined
contribution scheme for the benefit of Aer Lingus Limited’s current employees (see next bullet point) and (iv) the Irish State pension;
 Subject to certain agreements and required approvals being obtained, a once-off lump sum of €110 million should be contributed by Aer
Lingus Limited to individual pension funds within a new and separate defined contribution scheme for the benefit of Aer Lingus
Limited’s current employees who are members of the IASS. This contribution of €110 million was proposed by the Labour Court in the
Final Recommendation for the benefit of current employees. Each employee will be expected to confirm their acceptance of the
arrangements before any payment can be made in respect of them;
 The payment of the April 2013 annual salary increment should be delayed until September 2013. Following the payment of this
increment, annual increments should be replaced by cost stabilisation payments outlined in the Final Recommendation over the period
to 2017 providing cost predictability and certainty over this period. Aer Lingus Limited has paid the April 2013 increment with effect
from September 2013; and
 Subject to certain agreements and required approvals being obtained, a once-off contribution by Aer Lingus Limited of €30 million
would be made available in respect of former employees of Aer Lingus Limited who are deferred members of the IASS. Each former
employee will be expected to confirm their acceptance of the arrangements before any payment can be made in respect of them.
Notwithstanding the Interim Recommendation and Final Recommendation and Aer Lingus Limited’s involvement in discussions to resolve
funding issues in the IASS, it remains Aer Lingus Limited’s position with respect to the IASS, and which is supported by firm legal advice,
that it has no legal or constructive obligation other than to continue to pay the fixed rate contributions as set out in the trust deed and rules of
the IASS. However, the deficit in the IASS is such that current and deferred members face the loss of a very large part of their expected
pension benefits if this scheme is wound up under current legislation. In this context, Aer Lingus Limited believes that the IASS Proposal
balances the interests of all parties, including shareholders, employees and customers.
Specifically, it is expected that the IASS Proposal would:
1. Significantly improve the current and future pension prospects of Aer Lingus Limited employees who are members of the IASS;
2. Address the risks faced by Aer Lingus Limited arising from the potential for serious operational disruption through industrial action and
the potential for protracted litigation in relation to pension matters; and
3. Provide Aer Lingus Limited with cost predictability and certainty over the period to 31 March 2017 as well as provide a basis for
industrial relations stability.
Any implementation of the IASS Proposal is dependent on a series of further complex steps. These steps include (but are not limited to) the
following agreements being reached and approvals being achieved:
 Agreement with the trade unions;
 Agreement by the IASS Trustee with the sponsoring employers;
 Aer Lingus Group plc shareholder approval to make the proposed once-off contributions totaling €140 million;
 Trade union member ballot approvals;
 The successful conclusion of a range of implementation steps by the IASS Trustee amongst others; and
 Approval by the Irish Pensions Regulator (the “Pensions Board”) of a funding proposal to implement the benefit reductions proposed by
the IASS Trustee
Assuming the above agreements with the IASS Trustee and the trade unions can be concluded, the directors of Aer Lingus Group plc plan to
issue a circular to all shareholders and convene an extraordinary general meeting (“EGM”) to seek approval from shareholders to make the
proposed once-off contributions totaling €140 million. It is important to note that the proposed payments totaling €140 million remain
subject to this shareholder approval and will not be made in the absence of such approval. While Aer Lingus Limited is committed to
seeking a solution that can be implemented in a way that balances the interests of all parties, including shareholders and employees, the
process is complex and there is no certainty that agreement can be reached between the various parties. If the required agreements and
approvals are achieved, Aer Lingus Limited would then implement the IASS Proposal.
Recent developments
Aer Lingus Limited has engaged directly with the trade unions since the issue of the Final Recommendation in May 2013 to formalise an
agreement reflecting the matters set out in the Interim Recommendation, the Final Recommendation and related matters. Aer Lingus
Limited has also engaged directly with the IASS Trustee in order to (i) confirm its agreement to move forward on the basis of the IASS
Proposal (including changes and reductions to future benefits); (ii) seek confirmation that the IASS would be closed to new members and
that benefit accrual and employer and employee contributions for existing members would cease; and (iii) seek confirmation from the IASS
Trustee that it is their intention to invest the IASS’s assets in an appropriate bond based portfolio to achieve a broad matching between the
IASS’s projected cash inflows and outflows.
In July 2013, Aer Lingus Limited became aware of correspondence issued by the Pensions Board to the IASS Trustee indicating that the
outline proposal which the IASS Trustee had discussed with the Pensions Board would not be an acceptable basis for a funding proposal.
Aer Lingus Limited continued to engage with the IASS Trustee and other relevant parties over the remainder of 2013 and into 2014. In
October 2013, the IASS Trustee held a meeting with employer and trade union representatives where it set out proposals to address the
funding issues facing the IASS in a manner which also attempted to address the concerns raised by the Pensions Board. On 20 February
2014, the IASS Trustee provided Aer Lingus with a copy of the draft funding proposal which the IASS Trustee is preparing for submission
to the Pensions Board.