Aer Lingus warns pay claims could put €1bn strategy at risk

IAG could switch eight promised Airbus jets to low-cost unit, says airline

AER Lingus could lose out on a €1bn aircraft investment to a new low-cost IAG subsidiary if staff continue to demand substantial pay increases, the Sunday Independent has learned.

Aer Lingus chief operating officer Mike Rutter warned that if the airline cannot remain competitive IAG could give eight promised new Airbus aircraft to Level, a new low-cost carrier it has set up in Barcelona

Last week Aer Lingus announced it had ordered the new IAG-financed Airbus aircraft. The new fleet will double its transatlantic traffic to 4.5m passengers and see it hire 800 new staff by 2020.

But asked by this newspaper what impact an ongoing standoff over pay could have, Rutter warned: “If Aer Lingus is unable to remain competitive in the medium term, then as a rational parent company IAG has the ability to move these aircraft to launch new routes and grow the networks of other IAG companies, of which Level would be most relevant in this context.”

Level was launched in March and offers €99 fares from Barcelona to Los Angeles, San Francisco and Buenos Aires, with plans to expand to other European cities.

Aer Lingus has warned about “unreasonable pay requests” and its “structurally unsustainable” model compared to competitors such as Ryanair and Norwegian’s Irish-based transatlantic subsidiary.

Rutter did not rule out that Aer Lingus would consider establishing the same type of subsidiary used by Norwegian to operate the aircraft rather than hiring staff under existing terms and conditions.

“Aer Lingus remains committed to its current resourcing model providing that we can maintain cost competitiveness and improve productivity,” said Rutter.

A standoff over pay and profit-share demands has rumbled on at the airline in recent months with trade unions demanding pay increases. The Labour Court has recommended that staff should receive an 8.75pc rise over 39 months — well below the 19.1pc demanded by trade unions. But local union representatives have refused to give Siptu permission to recommend acceptance of the deal to staff, it is understood.

The aircraft order — worth €1bn and paid for by IAG — is seen as the firmest example yet of the fulfilment of the huge promises of growth that Willie Walsh made when he was looking to quell political opposition to his proposal to buy Aer Lingus.

A reversal of the aircraft order would be seen as a massive blow to the airline’s ambitious transatlantic plans.