Aer Lingus Group plc

ISE: EIL1                    LSE: AERL

Aer Lingus recommends IASS Proposal to shareholders

EGM scheduled for 10 December 2014

Dublin & London, 18 November 2014: The Board of Aer Lingus Group plc ("Aer Lingus", the "Company") has today issued a circular convening an Extraordinary General Meeting ("EGM") of shareholders and seeking approval for the proposed solution to address issues arising from the funding deficit in the Irish Airlines (General Employees) Superannuation Scheme (the "IASS").

The EGM is scheduled for 2pm on 10 December, 2014 at the Radisson Hotel, Dublin Airport, Co. Dublin, Ireland. The circular (including the notice of EGM) is available on the "2014 EGM" section of the Aer Lingus investor relations website: http://corporate.aerlingus.com/investorrelations/

Shareholder Circular and Notice of EGM

Aer Lingus is convening the general meeting of shareholders to seek approval for the proposed solution to address issues arising from the funding deficit in the IASS. The proposed solution includes a once-off aggregate payment by Aer Lingus Limited of €190.7 million to new defined contribution pension plans for active and deferred IASS members (the "IASS Proposal").

The Board of Aer Lingus views the issues arising from the IASS funding deficit as representing a real and significant risk to the success of the Company and considers that the proposed solution, as set out in the shareholder circular, delivers benefits for all stakeholders.

Specifically, the IASS Proposal is expected to deliver the following benefits:

·    Substantially reduce industrial relations risk faced by Aer Lingus;

·    Provide clarity as to the likely total financial and legal impact of resolving funding issues in the IASS;

·    Provide a sustainable solution for the IASS that otherwise may be forced to be wound-up;

·    Put future pension provision for general employees (i.e. non-pilot employees) of Aer Lingus on a sustainable footing; and

·    Stabilise certain future staff costs over a multi-year period.

Aer Lingus Chairman, Colm Barrington, commented:

"Following four years of complex, multi-party negotiation, we are pleased today to issue a circular to shareholders which outlines the proposed solution to address the issues arising from the deficit within the IASS. As previously outlined, we believe that this solution, which represents a compromise by all parties, is the only solution which is capable of being implemented.

The IASS is no longer a viable scheme for the provision of pension benefits for our employees. A key objective of our IASS Proposal is to establish a modern, single employer pension arrangement which will be fit for purpose in the context of the highly competitive European airline sector.  

The Board of Aer Lingus recommends shareholders vote in favour of this resolution at an EGM scheduled for 10 December 2014. This proposal will provide a level of clarity on pension benefits as well as providing a measure of cost stability for Aer Lingus. The solution will also mitigate significant industrial relations risks for Aer Lingus."

Events since Publication of the Expert Panel Report

In March 2014, an Expert Panel was formed under the joint sponsorship of two Irish Government departments, the Irish Business and Employers' Confederation and the Irish Congress of Trade Unions ("ICTU"). The purpose of the Expert Panel was to investigate how a final resolution of the industrial relations issues relating to the IASS could be achieved following the inability of the parties to implement the recommendations issued by the Irish Labour Court in January and May 2013, respectively. The Expert Panel issued its recommendations on 16 June 2014.

On 27 June 2014, Aer Lingus announced that it accepted the recommendations of the Expert Panel on the basis that the Expert Panel's report represented a full and final solution capable of acceptance by all the parties and which would definitively address the funding issues in the IASS.

Since 27 June 2014, Aer Lingus has engaged with daa, the IASS Trustee, ICTU and the trade unions to formalise agreements reflecting the matters set out in the Expert Panel Report and related matters.

This has resulted, inter alia, in the following steps now being completed:

·    Aer Lingus Limited has entered into a conditional agreement with the IASS Trustee and a memorandum of understanding and collective agreement with its key trade unions;

·    Aer Lingus Limited, daa and the IASS Trustee have undertaken a comprehensive communications exercise with IASS members to explain the IASS Proposal;

·    The IASS Trustee has undertaken a consultation process with IASS members and following the conclusion of this process has submitted an application to the Pensions Authority to reduce IASS pension benefits in accordance with the IASS Proposal, subject to approval by Aer Lingus shareholders at the EGM; and

·    ICTU has notified Aer Lingus that the outcome of the ballot conducted amongst affected Aer Lingus Limited employees was that the majority of votes were cast in favour of the IASS Proposal.

On the basis that the above steps have been achieved, the Board of Aer Lingus believes that it is now appropriate to seek approval for the IASS Proposal from the Company's shareholders.

The proposed IASS solution does not relate to the Irish Airlines' (Pilots) Superannuation Scheme (the "Pilots Scheme"). Aer Lingus has engaged in discussions regarding the Pilots' Scheme with the trustee of the Pilots Scheme and IALPA. These parties have signed a funding proposal for submission to the Pensions Authority and this funding proposal does not involve any capital contribution by Aer Lingus either within or outside of the Pilots Scheme. The trustee of the Pilots Scheme is awaiting the decision of the Pensions Authority regarding the funding proposal. 

Key elements of IASS proposal

·      Once-off aggregate payment of €190.7 million by Aer Lingus Limited to new defined contribution arrangements for current and former employees

·      Cessation of benefit accrual in and employee and employer contributions to the IASS effectively "freezing" the IASS

·      Continuation of IASS investment strategy so that existing scheme assets will target a capital value equal to its liabilities on a minimum funding standard basis over a 25 year period

·      Application to the Pensions Authority by the IASS Trustee to reduce member benefits

Next steps

The implementation of the IASS Proposal is subject to the following conditions which are currently expected to be satisfied by 31 December 2014:

1.   Approval of the IASS Proposal by Aer Lingus shareholders;

2.   Following approval of the IASS Proposal by Aer Lingus shareholders, confirmation by the IASS Trustee that the Funding Plan and Section 50 Application are effective; and

3.   Following the confirmation by the IASS Trustee that the Funding Plan and Section 50 Application are effective, the Pensions Authority accepting the Funding Plan and making the relevant direction following the Section 50 Application.

If the above conditions are not satisfied, this will result in an inability to implement the IASS Proposal.

Effects of the IASS Proposal

If approved by shareholders, the IASS Proposal will involve a once-off exceptional charge of €190.7 million in Aer Lingus' consolidated income statement and the recognition of a provision, also with a value of €190.7 million, in the Company's consolidated statement of financial position.

The proposed once-off contribution of €190.7 million will be placed in an escrow structure which will be disclosed as a restricted cash balance in Aer Lingus' consolidated statement of financial position.

Aer Lingus Group plc has a strong balance sheet and, as at 30 June 2014 had a gross cash balance of €1,034.4 million and total net assets of €813.2 million.

ENDS

Conference call details:

Aer Lingus will host a conference call for institutional investors and analysts at 2.00pm GMT on 18 November 2014. Dial in details are:

Ireland                                       +353 1 696 8154

United Kingdom                         +44 203 139 4830

International                               +1 718 873 9077

Confirmation Code                      83509166#

Note on forward looking statements

Certain statements contained in this announcement and the circular are or may constitute ''forward-looking statements''. Such forward looking statements involve risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Aer Lingus or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are typically identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "would", "should", "intends", "estimates", "plans", "assumes" or "anticipates" or the negative of such words or other variations of them or comparable terminology, or by discussions of strategy which involve risks and uncertainties. Such risks, uncertainties and other factors include, among others: general economic and business conditions, adoption, or a delay in the adoption, of new legislation, changes in technology, government policy, regulation, ability to attract and retain personnel and natural and man-made disasters. These forward-looking statements speak only as at the date of this Circular. Except as required by applicable law, the Listing Rules, the Market Abuse Regulations, Transparency Regulations, the Irish Stock Exchange, the London Stock Exchange or the UK Listing Authority or by any appropriate regulatory body, Aer Lingus expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aer Lingus' expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

For further information please contact: