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Aer Lingus makes €32.5 million exceptional provision

Dublin, 24 February 2011 Aer Lingus Group plc (“Aer Lingus”, “the Group”) today announces that it is making an exceptional provision of €32.5 million in its financial statements following negotiations with the Irish Revenue Commissioners (“Revenue”). This amount relates to PAYE, PRSI, interest, penalties and related costs arising from payments to 715 staff under a restructuring programme negotiated in 2008 at the Labour Relations Commission and implemented in 2009.

In 2008, Aer Lingus proposed to outsource the majority of its Dublin based ground operations as these operations were uneconomic by reference to prevailing norms in the airline industry. Discussions with the SIPTU union, facilitated by the National Implementation Body and later the Labour Relations Commission, led to a collective agreement in November 2008 on a significant restructuring of ground operations. This restructuring was agreed by Aer Lingus management at the time on the basis that the severance payments made to staff under the restructuring programme would qualify as a redundancy under the relevant legislation, with related rebates for Aer Lingus and termination of employment tax relief for affected staff.

In 2009, 913 staff were made redundant and 715 of those employees successfully applied for new roles within the Group, with changed duties and lower salaries. 

By late 2010, it had become clear that both Revenue and the Department of Enterprise Trade & Innovation were seriously questioning whether the members of staff who left and subsequently applied for new roles and returned to Aer Lingus should be considered to be redundant under the relevant legislation. An urgent review was commenced of the terms on which these redundancies were agreed by all of the parties involved at the time.

Having reviewed the matter and taken appropriate advice, Aer Lingus concluded that it is in shareholders’ and the Group’s best interests to seek a settlement of the matter.  In negotiations yesterday, Revenue confirmed their intention to seek to recover PAYE and PRSI which they considered should have been deducted from termination payments to employees in 2009. Although settlement negotiations continue, Aer Lingus concluded following that meeting, that it should now make an exceptional provision of €32.5 million in its financial statements in respect of the likely cost of dealing with this matter. In making this provision, Aer Lingus is conscious of the risk that in disputing an assessment issued by Revenue, the Appeals Commissioner could impose a higher liability if the case were found against the Group.

Aer Lingus accepts that it gave assurances to staff at the time that any terminations of employment should qualify as legitimate redundancies and that staff members made their decision on the basis that any tax liability in relation to the programme would be limited. On this basis, Aer Lingus believes that it is inappropriate to seek to recover any amounts from staff.

We are deeply disappointed and frustrated that the Group must now provide for and settle this liability. However, the Group believes that in taking this course of action, the potential financial costs are lessened, and as such, this represents the best approach for Aer Lingus and its shareholders, given the circumstances. The review of the matter is continuing.