Ryanair 2012 Annual Report Download - page 48

48
for pay increases (on average 2%) effective April 1, 2012. Those employees not covered by an existing
agreement have had their pay frozen for a period of one year, until compensation is reviewed again in April
2013. These steps may lead to a deterioration in labor relations in the Company and could impact the
Company‘s business or results of operations. The Company also operates in certain jurisdictions with above
average payroll taxes and employee-related social insurance costs, which could have an impact on the
availability and cost of employees in these jurisdictions. Ryanair crew in continental Europe operate on Irish
contracts of employment on the basis that those crew work on Irish Territory, (i.e. on board Irish Registered
Aircraft). A number of challenges have been initiated by government agencies in a number of countries to the
applicability of Irish labor law to these contracts, and if Ryanair were forced to concede that Irish jurisdiction
did not apply to those crew who operate from continental Europe then it could lead to increased salary, social
insurance and pension costs and a potential loss of flexibility. In relation to social insurance costs, the European
Parliament has approved amendments to Regulation (EC) 883/2004 which will impose substantial social
insurance contribution increases for both the Company and the individual employees. This change came into
effect from late June 2012. While this change to social insurance contributions relates primarily to new
employees, its effect in the long term may materially increase Company social insurance contributions and
could affect the Company‘s decision to operate from those high cost locations, resulting in redundancies and a
consequent deterioration in labor relations. For additional details see — ―Change in EU regulations in relations
to Employers and Employee Social Insurance could Increase costs‖.
Ryanair currently conducts collective bargaining negotiations with groups of employees, including its
pilots, regarding pay, work practices, and conditions of employment, through collective-bargaining units called
―Employee Representation Committees.‖ In the U.K., BALPA unsuccessfully sought to represent Ryanair‘s
U.K.-based pilots in their negotiations with the Company in 2001, at which time an overwhelming majority of
those polled rejected BALPA‘s claim to represent them. On June 19, 2009, BALPA (the U.K. pilots union)
made a request for voluntary recognition under applicable U.K. legislation, which Ryanair rejected. BALPA had
the option of applying to the U.K.‘s Central Arbitration Committee (―CAC‖) to organize a vote on union
recognition by Ryanair‘s pilots in relevant bargaining units, as determined by the CAC, but BALPA decided not
to proceed with an application at that time. The option to apply for a ballot remains open to BALPA and if it
were to seek and be successful in such a ballot, it would be able to represent the U.K. pilots in negotiations over
salaries and working conditions. For additional details, see ―Item 6. Directors, Senior Management and
Employees—Employees and Labor Relations.‖ Limitations on Ryanair‘s flexibility in dealing with its
employees or the altering of the public‘s perception of Ryanair generally could have a material adverse effect on
the Company‘s business, operating results, and financial condition.
The Company is Dependent on External Service Providers. Ryanair currently assigns its engine
overhauls and ―rotable‖ repairs to outside contractors approved under the terms of Part 145, the European
regulatory standard for aircraft maintenance established by the European Aviation Safety Agency (―Part 145‖).
The Company also assigns its passenger, aircraft and ground handling services at airports other than Dublin and
certain airports in Spain and the Canary Islands to established external service providers. See ―Item 4.
Information on the Company—Maintenance and Repairs—Heavy Maintenance‖ and ―Item 4. Information on
the Company—Airport Operations Airport Handling Services.‖
The termination or expiration of any of Ryanair‘s service contracts or any inability to renew them or
negotiate replacement contracts with other service providers at comparable rates could have a material adverse
effect on the Company‘s results of operations. Ryanair will need to enter into airport service agreements in any
new markets it enters, and there can be no assurance that it will be able to obtain the necessary facilities and
services at competitive rates. In addition, although Ryanair seeks to monitor the performance of external parties
that provide passenger and aircraft handling services, the efficiency, timeliness, and quality of contract
performance by external providers are largely beyond Ryanair‘s direct control. Ryanair expects to be dependent
on such outsourcing arrangements for the foreseeable future.
The Company is Dependent on Key Personnel. The Company‘s success depends to a significant extent
upon the efforts and abilities of its senior management team, including Michael O‘Leary, the Chief Executive
Officer, and key financial, commercial, operating and maintenance personnel. Mr. O‘Leary‘s current contract
may be terminated by either party upon 12 months‘ notice. See ―Item 6. Directors, Senior Management and
Employees—Compensation of Directors and Senior Management—Employment Agreements.‖ The Company‘s
success also depends on the ability of its executive officers and other members of senior management to operate
and manage effectively, both independently and as a group. Although the Company‘s employment agreements
with Mr. O‘Leary and some of its other senior executives contain non-competition and non-disclosure
provisions, there can be no assurance that these provisions will be enforceable in whole or in part. Competition