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ISEQ lower: Where to Aer Lingus now?

Friday, February 15 09:14:40

The ISEQ is lower this morning at 3667, down 13 points as European markets mark time ahead of the G20 meeting.

Where to Aer Lingus following the failed Ryanair bid, NCB discusses:

Aer Lingus has informed staff that it will halt all pay increases, including the payment of increments, until the pension dispute is resolved.

Analysis: The payment of increments and other pay increases has been on hold at the company for the past three years under a cost containment programme. Such increases were expected to resume in April this year.

Aer Lingus has now proposed that for the next four years normal pay progression would be replaced by a stabilisation programme worth E16m. Aer Lingus argues that such a savings programme would enable it to invest in the pension scheme. Currently, the deficit of the IASS scheme stands at E789m. Changes to actuarial assumptions (discount rate, pensionable pay increases etc) could reduce the deficit signifcantly.

This scheme includes both employees of Aer Lingus (two thirds) and the DAA (one third). Any final settlement is likey to see the burden shared some way between the company and the members of the scheme. It is reported that trade unions are seeking an investment of E130m by Aer Lingus into the scheme. Aer Lingus insists that it has no legal obligation to increase its contributions to the scheme, but to ensure better industrial relations some type of payment, most likely into a new scheme, is likely in our view.

Conclusion & Action: Aer Lingus management has indicated that the pension deficit is a key issue that it is looking to resolve this year. While this latest move (halting pay increases) may prove provocative it is likely to concentrate minds, especially if it is followed up by direct discussions. We believe a reasonable settlement over the pension issue would be positive for the share price. The Irish Pensions Board requires also schemes in deficit to put in place a funding plan by this summer, so we would expect to see progress on this issue by then according to NCB Stockbrokers.