Aer Lingus has outlined proposals to cut employees’ pay for those earning above €35,000 per year and introduce a new defined contribution pension scheme for the future service of all employees as part of a ‘transformation plan’ designed to significantly cut costs.
The first stage of the plan is aimed at delivering substantial operating cost reduction, enhancing productivity and implementing changes in the group’s pension arrangements.
Cost savings will be made by reducing variable pay and allowance for staff, and making banded reductions in basic pay for employees earning above €35,000 a year. Under the proposals, staff earning between €35,000-€40,000 will be subject to a 5% reduction, those earning between €40,000-€50,000 a 7% reduction and employees that earn above €50,000 will see their pay cut by 10%.
A 10% pay cut has also been proposed for the company’s senior management and directors.
In addition, the challenges posed by deficits in the Irish Pilots Superannuation Scheme and the Irish Airlines (General Employees) Superannuation Scheme, into which Aer Lingus currently makes fixed payments on a defined contribution (DC) basis, has prompted the company to propose introducing new pension arrangements for staff.
The proposed DC scheme will apply to the future service of all employees, while attempting to recognise, through higher contribution rates, past service to the business. On average, it has been suggested that this will cost the company no more than its contributions to the existing schemes.
The company will now consult with employees on its proposed changes to pay and pension arrangements.
Christoph Mueller, chief executive at Aer Lingus, said: “The outlook in each of our current core markets is poor and, in line with the macroeconomic outlook, we do not expect any near-term recovery. Against this backdrop, Aer Lingus cannot continue with an operating cost base which is structurally uncompetitive when compared to that of its closest peers. A significant differential in operating cost is not sustainable.†
“Our plan to reduce our operating cost base and change work practices will secure Aer Lingus’ future as a viable and strong airline that can prosper in one of the most competitive travel markets in the world. We regret the impact the proposed plan may have on our employees, however, we must transform the business now to ensure that Aer Lingus has a business model for the long-term and can deliver value for all stakeholders.”
However, the Services, Industrial, Professional and Technical Union (Siptu) has criticised the proposals. Gerry McCormack, Siptu national industrial secretary, said: “On the basis of the statement by the company, we cannot see any basis for pay cuts, job losses or changes to the pension scheme on behalf od Siptu members.”
Teresa Hannick, Aer Lingus branch organiser, added: “The 10% pay cut proposed for senior management and directors at the company is no more than a superficial and patronising exercise, if employees earning more €35,000 are going to suffer pay cuts. The new chief executive Christoph Mueller is on a basic salary of €475,000 a year, plus share options and other perks which will be worth €4 million over the next four years. This will be paid for largely by Siptu members who are on the average industrial wage.
“A 10% pay cut in basic salary will amount to a reduction from €9,135 a week to €8,222 for Mr Mueller, while his other generous benefits remain untouched. In contrast, the average Siptu member will see his or her basic weekly pay reduced from €692 to €623.”
The news follows British Airways’ announcement of planned pay cuts for new cabin crew.