Aer Lingus workers were informed yesterday that the 5.5 per cent pay increase due next Monday under the Programme for Prosperity and Fairness (PPF), will not be paid.

The decision, which had been anticipated, was relayed to staff as the board of the airline was being briefed on the company's deteriorating trading position at its regular monthly meeting. The agenda was taken up with measures to address the impact of "recent tragic events" in the US on core business.

A spokesman for the airline said the board would be kept fully briefed on the ongoing effects on the business and the measures being taken.

Further cutbacks and fleet reduction may be necessary, the company warned, on top of the cuts of approximately 25 per cent announced last week for the coming winter and next summer.

Initial action to match costs and resources to the reduced level of operations has already begun. This includes:

non-payment of the 5.5 per cent due under the PPF;

termination of major capital projects;

cancellation of cadet pilots and apprenticeship programmes;

letting go of temporary staff;

renegotiating contracts with suppliers - and in some cases cancelling them;

review of product specifications to remove all unnecessary costs;

a total embargo on all expenditure not vital to operational safety and security; and

all spare time study support schemes being withdrawn.

Studies are being put in place to determine other measures that may be implemented to ensure the airline's cost base is reduced by at least the same level as schedules.

"This in effect means that we will have to cut our labour and overhead costs by at least 25 per cent if we are to stand any chance to survive as an airline," the statement said.

The terrorist attacks have had a savage impact on bookings. Last week, Aer Lingus's overall "load factor" was down more than 20 per cent on the same period last year. And the number of "no-shows" (booked passengers who do not fly) is running at "unheard-of" levels: last Sunday, 29 per cent of passengers booked on transatlantic routes did not turn up.

The picture in terms of advance bookings is equally grim. Bookings are down "very significantly" for October, November and December - with business traffic worst hit. On Monday last, bookings for October were 48 per cent down on the same day last year. "There is no evidence that there will be any upturn in the next 12 months," Aer Lingus said.

Meanwhile, the European Commission announced yesterday it would approve a list of "permitted national initiatives" to assist airlines on Wednesday, October 10th - five days before the scheduled meeting of the Council of Transport Ministers, which will discuss measures to help airlines in dealing with additional security and insurance costs.

The Commission will also propose the creation of a single European airspace. Brussels sees the creation of a "single sky" that puts Europe's high-altitude airspace under centralised air traffic control as a practical way of improving airline efficiency.

It could, however, meet strong resistance from unions representing national air traffic controllers.