Struggling Irish flag carrier Aer Lingus has moved a step closer to implementing a rescue plan, but even this may not be radical enough to reverse its losses.
The airline was already planning to axe 2,000 of its 6,000-strong workforce. Now it has accepted proposals put forward by a special body recognised by industry and the unions, the Labour Relations Commission (LRC), that recommended a 15-month pay freeze for employees, as well as changes to employee annual leave, public holidays and sick days. The LRC also proposed that the airline's board and directors should have their fees and bonuses frozen during the life of the plan.
John Mattimoe, analyst at Dublin-based Merrion Stockbrokers, says the job and wage cuts should save around I£40 million ($50 million) annually. But he has seen "very little progress so far" on changes in working practices. Mattimoe would like to see an end to top-heavy seniority-based staff structures in flight and cabin crew and a more streamlined management structure. Such changes, which would bring the Irish carrier in line with work practices at other airlines such as British Airways, could produce an additional I£40 million saving. In Mattimoe's view, nothing less will do to get the cost base down to a level that will make the airline competitive.
Losses for 2001 at Aer Lingus are expected to be around I£70 million and 2002 looks worse. Cuts will have to be deep enough for Aer Lingus to become a largely regional carrier feeding big global players in an alliance. It will have "to compete on price and cost" on short-haul routes with low-cost carriers such as Ryanair. Frills such as free in-flight catering and links to major airports will have to come at a much lower cost than now, says Mattimoe.
Unions are still pondering the restructuring plan. One outstanding issue is the proposed employee share option scheme, which the Irish government intends to introduce once it has secured the sale of up to 35% in the airline to private investors. Unions are still seeking a larger chunk of the airline than the government's offer of 9.9% over the 5% stake employees already hold.
Given European Commission rules preventing state aid, the Government says it has no choice but to bring in private investors. The government is exploring both a trade sale to another airline - likely to be a member of the British Airways and American Airlines-led oneworld alliance - and a public sale of shares on the stock market.
Source: Airline Business
