Shareholder backlash over Aer Lingus pension payout plan

Institutional shareholders have criticised Aer Lingus over the proposed €190.7 million cost of settling its long-running dispute with workers over the deficit in the staff pension scheme.

The backlash came during an investor roadshow that followed the publication of the airline’s first-half results on July 30th.

Aer Lingus has about 15 institutional investors and it is understood about two-thirds of them expressed strong reservations about the proposed deal, which is almost €50 million higher than the €140 million once-off settlement flagged by the airline last year.

The pension dispute has also cost Aer Lingus €1.9 million in legal and professional fees this year and €10 million from industrial action by workers.

The institutions told the company that the so-called staff cost stabilisation measures, which form part of the deal, are not enough to justify such a hefty payment and that there aren’t sufficient guarantees of industrial peace in the future.

Deficit of €167m

In addition, they raised concerns about the likely costs of addressing the €167 million deficit in the separate pension scheme for pilots.

One institution told Aer Lingus’s executives the settlement was “way too generous” while another highlighted that it represented more than a quarter of the company’s market value.

Aer Lingus has a market cap of €692 million. The airline’s share price closed down 3.3 per cent in Dublin yesterday at €1.27 and has fallen by almost 9 per cent in the past month.

The proposed €190 million offer by Aer Lingus followed months of deliberation by an expert panel asked to mediate on the scheme, which is operated jointly with the Dublin and Shannon airport authorities and is €715 million in deficit.

Its proposals have already been rejected by Siptu at the DAA as not going far enough.

The backlash from institutions places Aer Lingus in a tricky position. It now has little room to negotiate amended terms with unions.

In a roadshow presentation to US investors in June, Aer Lingus described the pension dispute as the “last legacy issue” for the airline.

“Resolution of this issue will facilitate normalisation of the Aer Lingus balance sheet and enable an above-average return on equity for our shareholders,” it added.

In its first-half results, Aer Lingus said it had “reluctantly” accepted the expert panel’s recommendations adding that after “four and a half years of discussions . . . there is simply no realistic alternative”.