Breen questions Aer Lingus on Restructuring Plans

November 19th, 2009 - Pat Breen

At Last Weeks Joint Committee Meeting On Transport, Deputy Breen question Aer Lingus Chiefs on their Restructuring Plans for Shannon, Read the Transcipt of that Meeting here:

JOINT COMMITTEE ON TRANSPORT

19th NOVEMBER 2009

Proposed Restructuring of Aer Lingus and Pilot’s Pay Levels: Discussion.
Chairman: I draw the attention of witnesses to the fact that members of the committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. Members are reminded of the parliamentary practice that members should not comment on, criticise or make charges against any person outside the House or any official by name or in such a way as to make him or her identifiable. Members are also reminded that civil servants, while giving evidence to the committee, may not question or express an opinion on the merits of any Government policy or policy objective or produce or send to a committee any document in which a civil servant, a member of the Defence Forces or a member of the Garda Síochána questions or expresses an opinion on the merits of any Government policy or policy objectives. The committee has agreed that the meeting will conclude at 4 p.m.
I welcome Mr. Enda Corneille, director of corporate affairs in Aer Lingus and Mr. Michael Grealy, director of human resources in Aer Lingus, Captain Evan Cullen, Captain Donal Young and Captain Simon Croghan from the Irish Airline Pilots Association, Ms Christina Carney, assistant general secretary of IMPACT, Mr. Barry Cunningham from the Aer Lingus cabin crew and Mr. Paul Ryan and Mr. Eugene Creighton from the Department of Finance. I propose to invite Aer Lingus to make a short presentation.
Deputy Timmy Dooley: I think that Mr. Creighton is from the Revenue Commissioners and not the Department of Finance.
Chairman: He is described as being from the Revenue Commissioners division of the Department of Finance. We will allow the pilots to make their submission first. Is that agreed? Agreed.
Captain Evan Cullen: I thank the committee for the opportunity to make a presentation. I propose to run through an introduction to the Irish Airline Pilots Association. It was established in 1946 and we are also a member of the International Federation of Airline Pilots Associations. Through it we have a seat on the International Civil Aviation Organisation, one of the two non-governmental seats in the United Nations body, where we have an input into aircraft design, air law and so on across all nation states which are signatories to the UN-ICAO axis.
We have 1,200 members, the overwhelming majority of whom are Aer Lingus and Ryanair pilots. Our objectives, as stated on our website, www.ialps.net, are to provide a body of expertise, to advise on matters relating to air transport, improving legislation in the industry, particularly that which affects professional pilots, maintenance of professional standards, the provision of information and opportunities to our members and the defence of an adequate lifestyle.
On Aer Lingus restructuring, we concede there is a fundamental problem with Aer Lingus and we also want to be part of the solution. However, a number of facts are not in the public domain and need to be aired, which is why we sought this hearing. We sent the committee a document which outlines our misgivings about the green field plan which has no strategic future. As pilots and shareholders, that is, major stakeholders, it does not give us a vision as to what the future should hold. It is the same mantra we heard before, with the exception of a new outsourcing provision to the United States and the United Kingdom.
The outsourcing has already commenced. Approximately 32 non-Aer Lingus pilots are currently flying Aer Lingus aircraft on routes which were heretofore flown by Aer Lingus pilots. I refer members of the committee to page 3 in the pink document. The indexation is quite simple and is in the top right-hand corner. That is an internal memo from Astraeus Airlines. That internal memo shows how Aer Lingus engaged with Astraeus Airlines during this summer while it refused to talk to us about any of its plans to restructure the airline.
The major issues were as follows. The operating loss reported for the first half of 2009 up to June was €93 million. There is another way of looking at that €93 million to which I shall return. Another highlight was the cash burn from €803 million from June 2008 to €440 million remaining in June 2009. This is despite a 10.7% reduction in the staff costs per passenger. I again refer members to page 6 of the pink document. The other main issue I would like to discuss is the level playing field on labour costs.
I refer members to page 8 which puts into context the operating loss for the first half of 2009. It is not for the purpose of criticising anybody or to create a difficulty here, but I just want to outline some facts. If members look at the bottom line, each of those negative numbers, including the €13.62 million in January 2009 and the €14.8 million in February 2009, shows the losses to Aer Lingus because their fuel hedging cost money above the spot price of fuel. All these data are readily available through the IATA websites. It is publicly available information. For some reason it is not generally seen in the media. The total cost on Aer Lingus for fuel hedging for six months was €92.4 million. It should be noted that the total operating loss for the six months was €93 million.
The next major highlight was the net cash burn which went from €803 million to €440 million. I bring attention to two items in that. First, uniquely in the industry Aer Lingus spent €184 million on two brand new aircraft and it bought those aircraft for cash. There was no aircraft leasing or loans. It was a cash deal on the balance sheet. We are not aware of any other airline that conducted a similar transaction. Most airlines engage in leasing. After the results for the first half of 2009, some 75% of one of those aircraft was leased so that cash went back on the balance sheet. There was also a once-off severance programme of €97 million. Suffice it to say that pilots have been excluded from every severance programme since 2002 and so we got no part of that €97 million.
On the level playing field, I draw members’ attention to a letter from me addressed to the Minister for Finance, Deputy Brian Lenihan, which is contained on page 9. In that letter we raised our concerns that contrary to the criteria for determining the status of workers contained in the official guidelines the practice of treating pilots as being self-employed continues. As many of our members are doing this, we are aware of pilots who are employed, essentially offshore, on individual contracts. They form companies either as groups or singularly. They are then essentially retained or contracted through an agency to provide labour to other airlines. The practice does not happen in Aer Lingus. However, that has the effect of avoiding a great deal of tax and social charges in the Irish economy. I refer members to another document that should be circulated to them. It is dated Tuesday, 28 September 2009 and is a translation - the original is on the back - of a letter from Spanish transport unions to their Ministers for finance and labour. Essentially it draws attention to the same activity whereby pilots and cabin crew are excluded from tax and social charges in Spain at a great cost advantage to the airline concerned.
On the commitment of our 530 member pilots in Aer Lingus, through an investment vehicle called Tailwind, we gathered together almost €30 million from our members through loans and various savings. This was part of a defence strategy to block the Ryanair takeover bid in 2006 and later again in 2008. Our personal losses are in the region of 80%. That was the level of commitment we showed to an independent Aer Lingus and maintaining policy of a minimum of two airlines for air access to Ireland. Clearly other groups in the airline did not participate in what we did and the PowerPoint slide contains a reference to golden parachutes.
A further demonstration of our commitment to the airline was a 4% to 8% pay cut in 2008. The last offer we made before the current discussions commenced is addressed in page 17, which shows a letter from me to the chairman of Aer Lingus dated 3 July. Members will see in the second half of that page that we offered to work for four weeks without pay, subject to a number of caveats. Central to that was that the executive and senior management would do the same and that the Shannon to John F. Kennedy International Airport route would remain open for at least 12 months from October 2009. That is a further demonstration of the commitment of our members to the future of the airline.
As I understand it we are now in the “greenfield” process of talking under the auspices of the national implementation body and the Labour Relations Commission. As pilots, we have indicated quite strongly to the company that we will yet again invest in the future of this airline. We have one main caveat on all these discussions and that is that the outsourcing be terminated and that there be no more outsourcing either in the UK or in the US. Members should be familiar with what we call the “Aer Lingus snake”, which is essentially a threat to the existing Aer Lingus workers that aircraft will be registered offshore and join the UK register for the purposes of making us in Ireland redundant.
I shall summarise the key points. We are a key employee group and are also shareholders in this organisation. We have demonstrated our commitment to its independence through Tailwind, pay cuts and our offer to work for free for a month this year alone. We need guarantees that the outsourcing will be terminated and we will also need guarantees that the joint venture in the US shall not be crewed from the US.
Chairman: We shall now hear a submission from IMPACT, after which we will come to Aer Lingus.
Mr. Barry Cunningham: I thank the Chairman and committee members for facilitating our attendance at this meeting. I will make a brief statement focusing on several key issues which are a cause of serious anxiety and anger to cabin crew employed by Aer Lingus. On the new pay structure, the company plans seek to destroy the cabin crew job as a career. The proposed new pay scales for cabin crew start at €16,754 and rise to a maximum of €18,754. This salary is appalling and not one on which one can build a career or a life. It would not even be a worthwhile job.
On the matter of off-shoring jobs, the company, as already outlined by the pilots, is planning on off-shoring cabin crew jobs to America and has threatened compulsory redundancies as recently as last night. In the past two months Aer Lingus has made 63 temporary cabin crew members redundant. The company, having become privatised and raised capital, has not expanded at all in Ireland. This week it advertised for cabin crew in Washington; one of the requirements for eligibility was that applicants must be American citizens or possess the legal right to work in the USA. I draw the attention of members to appendix 1 of the document provided.
The pilots have already dealt in detail with the Astraeus licence. While the board of Aer Lingus may believe the purpose of the new licence is to allow the airline to operate routes outside Europe, management has made it clear that the threat to move the whole Aer Lingus operation outside Ireland is definitely real.
The company has proposed exiting from the current pension scheme and developing a new defined contribution scheme. This is threatening all the pension entitlements of deferred pensioners and current staff. We believe the numbers involved to be in the region of 7,000, many of whom have served Aer Lingus for 30 years and rightly expect to be able to live on their pensions when they retire.
The company plan is to effectively close the Shannon cabin crew base. IMPACT is certain that with proper strategic commercial planning, both long-haul and additional short-haul traffic can be generated and the company can become profitable. There has been a systematic diversion of customers away from Shannon to Dublin by Aer Lingus.
Cabin crew in Aer Lingus are not oblivious to the current financial difficulties in the Irish economy and within Aer Lingus. As recently as last November they agreed a productivity deal that was worth €15 million to the company, which was equivalent to a contribution of €10,000 per cabin crew member. The company now proposes even more severe cuts, one of which is that the salaries of cabin crew, no matter what they are at present, will remain frozen for the rest of their careers.
While the company proposes these draconian cuts in staff costs, it has not developed other strategies in terms of revenue generation to get us through the coming years. The company has allowed money to flow down the drain since January without decisive action. We live in the real world and, as we have proven time and again, we are prepared to engage with the company under the auspices of the Labour Relations Commission and conclude an agreement.
Chairman: I thank Mr. Cunningham and call on Mr. Enda Corneille from Aer Lingus.
Mr. Enda Corneille: I thank the Chairman and committee members for their invitation to appear before the committee. I will give a brief update on the green field plan and answer members’ questions on strategy.
The background to the plan is that the Irish and global economies are experiencing an unprecedented downturn. The aviation industry in general is in turmoil. The chairman of British Airways this summer described the trading environment as the worst ever. Airlines across the globe are reporting their worst ever results. Fares are continuing to fall and customers are increasingly sensitive to high fare levels. In the first half of this year we reported a loss of €93 million. That was a period during which traffic grew by 2%; however, average fares fell by 17%. That is the key issue. Our costs are too high. We have a duty to the plc to address all of these challenges to shareholders, employees and customers. The future is in all of our hands and we must embrace a new strategy. If we do not, we face a bleak future.
The new strategy is in two parts: the first is to do with reducing cost and the second with generating revenue. I will not dwell on the headlines; it has been pretty well reported that the industry is in turmoil. It is also a fact that airline demand correlates with GDP, and it is no surprise that given the turmoil in the consumer markets, aviation is not unaffected. IATA, which is the global body representing aviation, usually makes one forecast of outturn per year for all its members. For this year it made its first forecast in December 2008, stating that the global aviation business would lose €2.5 billion in 2009. It is now on its fourth forecast, under which the projected loss is €11 billion. The issue for Aer Lingus is that the gap between the fair yield we can generate per passenger and the cost of providing the seat is widening. This is something we must address.
I will hand over to my colleague Mr. Grealy for details of the greenfield plan.
Mr. Michael Grealy: On 7 October the board of Aer Lingus announced details of a restructuring plan, which the previous speakers have referred to as the greenfield plan, with the objective of reducing our operational costs and ensuring the continued viability of the airline while at the same time attempting to retain everything that is good about our brand. We feel strongly that we need to reduce costs and remove some legacy work practices in the organisation which are simply uncompetitive. Our competitor base has significantly lower operating costs than we do. We also need to improve our cash conservation for the future and, in particular, reduce annual operating costs by €97 million on a sustainable, annualised basis from 2010 onwards.
We see the plan as having two stages: the first, as I have just mentioned, is the reduction in operating costs. If we can achieve that - and only then - we feel we, as an airline, have an opportunity to set out a strategy that will provide the business with the means to return to revenue growth, give all of our shareholders and stakeholders clarity and direction on the position of the airline, and set out a schedule of actions that will achieve the growth we would like for the airline. Our key message is that if we do not implement the greenfield plan we cannot have a sustainable strategy for the airline. The plan is an absolute prerequisite to an independent and successful Aer Lingus in the future.
What the plan involves is pay cuts, job cuts and increases in productivity as well as a number of costs unrelated to staff. We must also work to change and modernise work practices in the organisation and improve the revenue earned. We have already mentioned a figure of €97 million. The number of job losses projected in the organisation over the next two years under the plan is 676.
Mr. Enda Corneille: Aer Lingus is and will remain committed to preserving the Shannon region as an important catchment area in our network. However, the losses at Shannon remain of grave concern and the operation in its current form is not sustainable. We are currently evaluating all means and models of developing traffic to, through and from Shannon for both long-haul and short-haul flights. Opportunities have recently arisen in this regard and we have been working on this for some time. We have been engaging with the local airport authority in exploring ways to improve our role at Shannon. To borrow a comment from Captain Cullen, we too seek a level playing field in terms of our ability to operate at the lowest possible cost with regard to regulated charges. Only through constructive dialogue with all stakeholders - local, national, political and governmental - can a joint solution be found to enable us to maintain and extend operations at Shannon. We will take questions on this later.
Chairman: I will confine everybody to questions, including myself. My first question is directed to Aer Lingus management. The pilots’ main point was that outsourcing in the USA and the UK should not go ahead and, in particular, the guarantee that exists through Astraeus be terminated. To the pilots’ union I point out that the company says it must change work practices and remove legacy work practices. Is the union prepared to go along with that requirement? In addition, the level of pay starting at €16,000 seems to be extremely low; perhaps the representatives would comment on that. My question to IMPACT is about the possibility of an alternative to the proposals to employ American citizens or those who have a right to work in America. We all want to see IMPACT workers continuing to work for Aer Lingus but realistically and in terms of the cost base, can that be achieved?
Mr. Michael Grealy: I will address the issue of the Astraeus contract, which the IALPA representatives referred to as UK outsourcing. We have entered into an arrangement with the Astraeus company in the UK to achieve an airline operating certificate, AOC, in that jurisdiction. We need to do that for commercial reasons, to allow us to fly from the UK to destinations other than those we currently serve. We also need to do it for reasons of convenience relating to our proposed joint venture with United Airlines, which requires a separate AOC to the Irish AOC we currently have. To achieve a UK AOC, we have entered into a contract with Astraeus for a period of months. That will allow us to continue our operations in the UK while we wait for the licence to be awarded by the Civil Aviation Authority in the UK. There are no plans for anybody other than Aer Lingus employees to fly Aer Lingus airplanes, after the termination of the Astraeus arrangement.
Chairman: On the issue of the very low level of pay—–
Deputy Thomas P. Broughan: That is a disingenuous answer. Who will those people be?
Chairman: The Deputy will have an opportunity to ask his question.
Deputy Thomas P. Broughan: It is ridiculous.
Chairman: It has been suggested that the starting pay rate will be €16,754. Is that accurate?
Mr. Michael Grealy: That is the proposed entry level for cabin crew under the new arrangement. It is accurate. It is a benchmark number. It is significantly ahead of our competitors in the Irish market that are in a similar position.
Chairman: What do they start with?
Mr. Michael Grealy: They start with at least 10% less.
Captain Evan Cullen: IALPA has already made proposals to Aer Lingus to address the cost base on several issues. I do not understand what is meant by legacy issues. The vast majority of Aer Lingus pilots work to the maximum legal limit. One cannot get them to work more than 900 hours in any 12 consecutive months. The vast majority of Aer Lingus pilots work to that legal limit, which is the only thing that restricts their productivity. The legacy issues that have been mentioned may include the distribution of that 900 hours across the roster. In other words, the scrapping of all the legacy issues would not provide one additional hour of work. It might give the airline the ability to mess with our lives a little more than we want them to. The elimination of the legacy issues would not lead to additional productivity. IALPA recently put proposals to the airline that would reduce its cost base to €30 million per year over the next five years. We have accepted from the first day of the plan that we will be worse off next year than we are this year.
I would like to speak about Astraeus. It is important that everything is put on the table here. People have suggested that a dialogue took place. The Astraeus internal memo makes it clear that Aer Lingus and Astraeus operated behind a veil of secrecy during the summer of 2009, while they trained pilots to do our jobs. It is incorrect to say that Aer Lingus needs Astraeus if it is to make an application for a UK AOC. It would have been far cheaper for instructor pilots in Aer Lingus to get a UK Civil Aviation Authority rating. A two-week course would have been needed to upgrade the licences of existing Aer Lingus pilots. The secrecy surrounding the use of Astraeus speaks volumes for what is going on here.
Ms Christina Carney: The Chairman asked whether there are alternatives to Aer Lingus’s proposal for offshore jobs in America and to the salary scale. I find it unbelievable that any employer here would think it is reasonable for a salary scale to start at €16,500 and to reach a maximum level of approximately €18,000 after a certain number of years. How can an organisation that is partly owned by me and by everyone else in this country stand over such a scale? How can it expect young and not-so-young men and women to do an extremely important job for such a salary? I will set out the alternative for the Chairman. Following discussions between November 2008 and January of this year, we reached agreement on a new scale for cabin crew, starting at €23,800 and reaching a maximum level of €28,800. We think that is fair and reasonable. It was agreed for all new employees.
I would like to make a comment on the Aer Lingus submission, which was referred to as a strategy for generating revenue. The company has not expressed any new ideas to us about what the strategy might involve. It has concentrated on cutting staff costs and racing to the bottom. It is so sad that Aer Lingus, which represents Ireland, treats its staff like this.
Deputy Fergus O’Dowd: Do the representatives of Aer Lingus, IALPA and IMPACT who are present accept that the Members of the Oireachtas want them to succeed in their talks next week? That is the key to it. They are all here today because they have something in common - they want the airline to succeed. That is what the country wants as well. Do they accept that is the bottom line? It cannot be a case of greenfield, or no field at all. There must be consensus, agreement and movement on all sides. From what I am hearing, it seems that the key issue is the outsourcing of jobs to the United Kingdom.
I would ask a question of the gentleman from the Department of Finance. I will phrase it carefully because I do not wish to mention any companies. An employer in the Border region, where I live, told me recently that he employed 200 people before the disastrous downturn in the economy, but he is having to let many of them go and make redundancy payments to them. He is planning to source a new company on the other side of the Border and to re-employ his workers there at a lower wage. That is the only way he can survive. Is such a process legal? I do not intend to name the company, obviously. It is clear that there must be a significant reduction in Exchequer receipts, and we must have a less competitive economy, as a result of what is happening in many companies. Does the Department of Finance have a legal view on the matter? Should we put strategies in place to deal with it effectively?
Chairman: I will leave the questions for the Department of Finance to the end.
Deputy Thomas P. Broughan: I asked five weeks ago for all parties involved in this issue to attend a meeting of this committee. I am really disappointed that the chairperson, Mr. Colm Barrington, and the chief executive officer, Mr. Christoph Müller, did not turn up here today on behalf of Aer Lingus. Two messenger boys for the management, in effect, have been sent here to answer our questions.
Chairman: A question please, Deputy.
Deputy Thomas P. Broughan: When Aer Lingus was faced with the threat of a takeover by Ryanair, it sent its chief executive and chairperson to this forum.
Chairman: A question, please.
Deputy Thomas P. Broughan: They are not prepared to come before us now. It is a grave discourtesy to this committee that the new chief executive officer and the chairperson are not in attendance. That is the first point. Do the management representatives agree that one of the legacy issues at Aer Lingus is the legacy of desperately poor management? We have already heard from IALPA that the management of the airline has burned up €400 million in cash.
Chairman: I would like the Deputy to ask some questions.
Deputy Thomas P. Broughan: I am asking a question.
Chairman: Eight members are offering.
Deputy Thomas P. Broughan: I know that, but I am the spokesman of a party that voted against the privatisation of this airline.
Chairman: The Deputy asked for this meeting to finish at 4 p.m. Rather than making a speech, he should ask some questions.
Deputy Thomas P. Broughan: Yes. How on earth did the management of the airline lose €400 million in cash? That is the first point. Did Aer Lingus get the approval of the Minister and the three directors who represent the people of this nation, who are represented in turn by the members of this committee, for the Project Greenfield on which it has embarked? I will go into the Dáil in approximately an hour to question the Minister about this matter on the floor of the House. Did the airline get the permission of the Minister to embark on this project? Do the witnesses agree that the offshore project involving Astraeus will use a model like that used by Irish Ferries and Ryanair? I am prepared to name the company as Brookfield. Everything about it has the scent and structure of Ryanair. Aer Lingus will become a poor man’s Ryanair. How many jobs will be retained in Dublin, Shannon and Cork when the desperate Project Greenfield is embarked on?
My final question is on the pension situation. Mr. Corneille is going to walk away from Aer Lingus pensioners and those currently working at all levels in the company, from back-room staff to pilots and cabin staff. The main pension fund is already short by €35 million per year. Is he not simply dumping it out of the aeroplane along with good pay and conditions? Is he not dumping the brand we love and of which we were proud, as we were of our team in green last night? We will end up with a poor man’s Ryanair and the net result will be the latter taking over Aer Lingus.
Mr. Enda Corneille: I will answer two of the Deputy’s questions and my colleague will answer the other two. Project Greenfield is about protecting as many jobs in Aer Lingus in Ireland as possible. It was approved by the Aer Lingus board and was not put to shareholders so that it could be approved unanimously. We had a cash balance of €803 million at the end of the first half of 2008 but that was reduced to €440 million by the first half of 2009 as a result of losses, severance payments and two aircraft which we paid for in cash because the financial market rates would have meant we would have lost money over the longer term.
Deputy Thomas P. Broughan: So Aer Lingus incinerated €400 million.
Mr. Enda Corneille: We took the decision in the best interests of the company and, having leased some of the aircraft, the cash is back on our balance sheet. Project Greenfield is designed to ensure the brand continues long into the future and that we can develop it with a clear strategy to deliver revenue consistently through the cycle and give normality to Aer Lingus staff. It is designed to put the airline on a proper footing for the long term.
Chairman: Can the witnesses please answer Deputy O’Dowd’s questions?
Mr. Michael Grealy: In respect of the question on offshore jobs, there are no plans for anybody other than Aer Lingus pilots to fly Aer Lingus aircraft. Once we have secured the UK AOC, 100% of Aer Lingus aircraft will be flown by Aer Lingus pilots.
A member asked about the off-shoring of jobs to the US. There is a proposal for United Airlines and Aer Lingus to enter into a joint venture. It would be a separate legal entity and does not amount to an off-shoring of jobs to the US but is an entirely new initiative, separate from both companies though jointly owned by both. Talks have taken place between the two companies in the past few weeks and there is a tentative plan to begin flying on the Washington-Madrid route in March 2010. The plan is at an advanced stage.
Captain Evan Cullen: The joint venture with United Airlines is clearly designed to be US-based and we would not have the work permits or the citizenship to even apply for the jobs. We have made the point to Aer Lingus time and again that if the airline were to be transferred on the US AOC there would be an obligation on Aer Lingus to put three pilots into the cockpit as opposed to two under the Irish AOC. It is not true to say that it will be a separate legal entity. It will enjoy all the benefits of the Aer Lingus operation and the Irish AOC but the aircraft to be used are ones we currently operate and it will be impossible to legally fly them.
It is also worth noting the considerable cost advantage Aer Lingus has with its pilots. Virtually every transatlantic airline with which we compete is obliged to carry three pilots where we have two.
Deputy Timmy Dooley: I welcome all of the delegations. As others have said, everybody is here today to ensure the best outcome from the current situation. To be parochial, I want the services currently in Shannon to be protected. I also want to protect jobs.
Chairman: A question please, Deputy.
Deputy Timmy Dooley: What is Aer Lingus doing in regard to those issues? I welcome what its representatives have said about protecting Shannon as far as possible but I would like them to expand on that. Does it intend to retain direct flights crewed from Shannon? Does it intend to market the service in a better way than currently? Our view, and that of Impact, is that many passengers are driven towards Dublin. Does it intend to use the customs and border patrol facility? It is being developed at considerable cost to the State and is of great benefit for the purposes of competing with other airlines operating out of Shannon. Will the company consider scheduling a flight earlier in the day to compete with the American carrier? Has it given any consideration to using a smaller aircraft to better cater for the level of demand and protect services and jobs? There was a time when alternative jobs were available but at this point the protection of jobs is critical.
Deputy Michael Kennedy: Captain Cullen said 32 non-Aer Lingus pilots were currently engaged. Do any of them fly out of the Republic of Ireland?
Captain Evan Cullen: Not at the moment. They currently operate the flights we used to operate out of Belfast and Gatwick. Meanwhile, 100 pilots in Dublin who want Aer Lingus jobs in Gatwick and Belfast are under threat of redundancy.
Chairman: We will ask Aer Lingus to answer that point.
Deputy Michael Kennedy: Does that mean those pilots are doing nothing and getting paid?
Captain Evan Cullen: No. That is not the case.
Deputy Michael Kennedy: My next question relates to the Washington joint venture. Is it not discriminatory to exclude Irish employees? If the advertisement states that one must be a US citizen or have a US work visa does that not automatically exclude Irish citizens from applying?
Who made the decision to purchase two aircraft for €184 million in time of recession and the in the likelihood of the services not being needed?
Mr. Enda Corneille: We are looking at all the things referred to by Deputy Dooley. We are carrying out a fundamental review of our operation at Shannon. In summer time there is significant business into and out of Shannon but in winter the service is loss making and has been for the past ten years. Our competitor on the New York route operates a much smaller aircraft and has economies that we do not have with our 315-seat A330. We are looking at a variety of options for securing services throughout the year which take into account the type of aircraft, the type of operation and how and where we crew it.
CBP is an active issue for us and will put further cost onto the operation but will not deliver significant revenue. We must ask whether it makes sense but the work is ongoing. At the same time we have ironed out many of the operational issues on the US side. We will make a decision on that in the coming weeks but certainly the study on Shannon and where we go is under way.
Mr. Michael Grealy: I will answer the questions on Astraeus and the work for pilots. Aer Lingus wants Aer Lingus pilots to fly in the cockpit in Aer Lingus aeroplanes all of the time. Not one single Aer Lingus pilot job will be lost as a result of the initiative with Astraeus.
Deputy Michael Kennedy: Even if the aircraft is transferred to London or registered in England.
Mr. Michael Grealy: If they are registered in the UK under the Aer Lingus AOC they will be flown by Aer Lingus pilots. In respect of the US joint venture, the first tentative job offers that have been given to pilots in the joint venture are for Aer Lingus pilots in Dublin who have applied for the jobs.
Deputy Michael Kennedy: What about the cabin crew and the current advertisement? Why are potential Irish redundant employees being excluded?
Mr. Michael Grealy: The jobs are based in Washington, subject to US laws.
Deputy Michael Kennedy: If the staff are willing to take them up, surely that should be an option.
Mr. Michael Grealy: If qualified staff apply for the jobs then they are welcome to them.
Deputy Michael Kennedy: Surely Mr. Grealy will agree that if one must have American citizenship or a work visa in the US which is not easy to get, one automatically excludes any current redundant or future redundant cabin crew.
Mr. Michael Grealy: The jobs are based in Washington and they are subject to US labour laws.
Deputy Michael Kennedy: If they are willing to go to Washington—–
Mr. Michael Grealy: The jobs are based in Washington. They are local jobs available to people in a Washington base. That is the proposal.
Chairman: Therefore, if Aer Lingus pilots have applied they would be debarred from those jobs.
Deputy Michael Kennedy: Is there any provision in US law that demands—–
Chairman: Mr. Grealy will respond.
Mr. Michael Grealy: The US labour laws demand that whoever takes up jobs in the United States has the appropriate papers to work there. They need a visa and they need a US green card.
Chairman: That effectively rules out Aer Lingus’s existing pilots.
Captain Evan Cullen: Yes.
Mr. Michael Grealy: If pilots have got green cards and many of our pilots have, they will qualify. The situation for pilots is very different from that of cabin crew.
Chairman: I know Mr. Grealy will come back in on that issue. I call Deputy Cuffe.
Deputy Michael Kennedy: In terms of—–
Chairman: I have given the Deputy a great deal of latitude.
Deputy Michael Kennedy: We are here to get answers.
Chairman: I know that. I will allow the Deputy back in again.
Deputy Ciarán Cuffe: There are two things one is best advised not to see and that is the framing of legislation and the manufacture of sausages. I think today we could add a third - the making of contracts of the type that have been presented to us today.
This is a can of worms but it may be a legal can of worms. Is the Department of Finance happy with contracts of the type we have been shown today and has its view changed since its correspondence a year ago that has been presented to us? If the starting salary of cabin crew being offered today is €16,754, what would it have been five years ago and has it changed?
Deputy Noel Ahern: Aer Lingus has staff, pilots and cabin crew, based in Belfast, London and New York. Having listened to the two sides of the story I do not understand the reason outsourcing is being set up. I have heard what has been said but there is total contradiction between what the delegates say and what the pilots say. I observe that all the staff are rightly suspicious and nervous. It does not add up. The pilots have mentioned that the company could have got its AOC another way with a couple of weeks training of existing staff based in Gatwick. Despite the fact that the delegates say jobs will not be lost in the long run I could not agree. Does management think it can treat staff badly and yet retain the respect, affection and support of the Irish community? It is destroying the brand—–
Chairman: Thank you, Deputy.
Deputy Noel Ahern: There is competition out there and there are choices. This will not hold the respect of the individual passenger.
Deputy Terence Flanagan: I thank the visitors for appearing before the committee. As a Deputy representing a constituency close to the airport I have had many representations from pilots and cabin crew who are very concerned about their jobs. Why did not the management accept the offer of pilots and cabin crew to work for free for four weeks, given that it accepted the seriousness of the situation and its intention is to help the airline survive? How many aeroplanes have transferred to the UK register? What are the plans in respect of transferring more aeroplanes in the future? How many non Aer Lingus staff fly aeroplanes at present and what will be the position in future? Has the board of Aer Lingus approval from the Minister for Transport and the Government as a 25% shareholder of Aer Lingus? Have the Revenue Commissioners approved this deal and the Ryanair deal of paying employees offshore? What amount of revenue will be lost to the Irish Exchequer as a result? Why were aeroplanes purchased rather than leased which obviously has resulted in running down the cash resources?
Chairman: That has already been explained.
Deputy Terence Flanagan: It was not sufficiently explained.
Mr. Enda Corneille: The greenfield plan was put to the board and the board endorsed and approved it unanimously. We have taken a decision to seek a UK AOC for several reasons. We want to be free to develop traffic from our UK base at will and fly to destinations outside the EU. I accept there is a means of doing that under the Irish AOC but we have decided that we want to do it under a UK AOC. Another reason is that the joint venture with United Airlines will be a separate legal entity and needs its own AOC. Using its selling ability and our ability to deliver the operation, there is an opportunity for the business. That is the reason we are taking this commercial opportunity. In terms of seeking approval for the application of the UK AOC, that is not something for which we have sought approval. We discussed the matter with the Department and the IAA and they are aware of our position.
Deputy Terence Flanagan: How many were transferred over?
Mr. Enda Corneille: Two have transferred over out of a total of seven.
Deputy Terence Flanagan: Will seven be the final total?
Ms Christina Carney: It is incumbent on all of us to give the complete information. The cabin crew will be excluded from applying for the jobs in America. The aeroplanes going to America were paid for by the Irish people and staff. The 63 cabin crew who have recently been made redundant would have been delighted to have been given the opportunity to operate on those aeroplanes but they were not given that opportunity. It is clear there is danger that the Aer Lingus we know will lose its reputation if pilots, cabin crew and other staff are treated so badly that they cannot continue to attract customers.
Chairman: Does Captain Cullen wish to comment?
Captain Evan Cullen: First, the basis of a UK AOC makes little sense. Under the UK AOC, Aer Lingus would have to adhere to the UK Civil Aviation Authority rules of operation. Those rules are much more onerous than those of the Irish Aviation Authority. Aer Lingus and Ryanair enjoy considerable cost advantage against airlines such EasyJet and British Midlands because the Irish Aviation Authority has a much different view of flight time limitation rules than the UK Civil Aviation Authority. Therefore the cost base is not an argument. Second, if the joint venture with United Airlines is a separate legal entity, it must have a separate AOC. If that aircraft operating certificate is a US one, crewing levels for pilots must increase by 50%. These are legal facts.
Just to show how genuine Aer Lingus management has been, I refer members to page 3 of the pink-covered booklet. The last sentence of the internal Astraeus memo states: “Work in these areas has been underway for some time and we are pleased that the veil of confidentiality can finally be lifted.” That veil of confidentiality was with regard to Aer Lingus workers, who were not informed their work was being outsourced and that Aer Lingus management had been putting together these plans for a number of months - since long before it approached us.
Chairman: In response to the comments about the American set-up, has the association made any attempt to talk to the American authorities about allowing a limited number of Aer Lingus employees to crew the aeroplanes without debarring American citizens from the job? That is a fair point. If Aer Lingus intends to base aeroplanes in the USA, some arrangement should be put in place to make sure Aer Lingus crew have an opportunity to apply for those jobs.
Deputy Michael Kennedy: As a corollary of the Chairman’s point, has the Irish Government established any barriers in terms of who may be employed by foreign airlines operating out of Ireland?
Chairman: I ask Mr. Grealy for a quick answer.
Mr. Michael Grealy: In the case of the proposed extended code share with United Airlines, the first eight pilot jobs of 16 are open to and will be filled by Aer Lingus pilots.
Deputy Michael Kennedy: What about the cabin crew?
Mr. Michael Grealy: Cabin crew jobs are open in Washington and will be advertised in Washington.
Chairman: Has Aer Lingus made any attempt to—–
Mr. Michael Grealy: We will welcome applications from suitably-qualified, Irish-based Aer Lingus cabin crew.
Deputy Ciarán Cuffe: What were the wages worth five years ago? What was the wage scale five years ago for cabin crew?
Mr. Michael Grealy: I do not have that information available immediately.
Deputy Ciarán Cuffe: I ask Mr. Grealy to provide that information.
Mr. Michael Grealy: I will make it available.
Deputy Terence Flanagan: I also asked a question.
Deputy Ciarán Cuffe: The second question was to the Department of Finance. I asked whether the Department and the Revenue Commissioners were happy with the contractual arrangements.
Chairman: We will allow the representatives of the Department and the Revenue Commissioners to speak at the end.
Deputy Pat Breen: I will try to be brief. I represent the same constituency as Deputy Dooley, in which live many of the cabin crew who have sacrificed so much in the Shannon area through the years. If Aer Lingus pays cabin crew a salary of €16,000 it will obviously get yellow-pack workers. The Aer Lingus shamrock has a special reputation and must be protected. The cabin crew are great ambassadors for us.
Deputy Dooley has touched on certain issues already. The longer Aer Lingus avoids using customs and border protection, CBP, on the Shannon route, the more customers it will lose, because people are waiting for two to three hours in New York.
Chairman: A question, please, Deputy.
Deputy Pat Breen: There is always a build-up to a question, Chairman. I have met the American authorities in this regard and spoken to personnel in JFK. There is no reason we cannot use CBP. The management says it will be more expensive, but will it not be passed on to the customer anyway? I ask the representatives to consider that urgently.
I am delighted to see Aer Lingus is interested in developing further services in Shannon. With regard to the void that could result if a Ryanair deal is not concluded at the airport, is Aer Lingus seriously interested in developing short-haul services out of Shannon? It has learned its lessons from what happened with the Shannon-Heathrow route. Perhaps there is now the possibility of filling that void. Is Aer Lingus having discussions with the Shannon Airport Authority about the development of short-haul routes?
There have been recent reports that Aer Lingus is about to sell long-haul aircraft. It is reported that six or seven aircraft could be for sale. Is that true? Deputy Dooley referred to changes in aircraft. Aer Lingus has Airbus A321 aircraft which, if extended with bladder tanks, could be used on the Atlantic routes. Is the airline considering using a different type of aircraft on these routes?
With regard to timing, Continental Airlines has learned that flying out earlier in the morning is the secret to increasing connectivity and getting the passenger out on time. There is now a void with regard to Delta’s 30,000 customers. Is Aer Lingus considering a review of the operation, specifically the timing of flight EI 111 out of Shannon? My information is that the company has not listened to its customers as the American airlines have. Continental is now considering putting a second aircraft on the transatlantic route for the summer. Aer Lingus should learn from that.
Deputy Shane McEntee: I will not make a statement. The representatives mentioned plc, staff and customers. The priority should be customers, staff and then plc. That is the way I look at it, as should anyone. There is a difference between this and other plcs in that the Government owns a 25% share in it.
Is this already a done deal? Are we wasting our time in here? Has the Minister, Deputy Dempsey, backed Aer Lingus’s proposals? The representatives stated that at the moment Aer Lingus has no intention of bringing other staff in. Can they give us a guarantee that only Irish pilots and staff will be present when I go to Belfast, Shannon or Dublin? That is what Irish people want. I am disgusted at one thing. Aer Lingus has got the blessing of this committee every time we met with its representatives, but it did not tell us of its plans to employ people from another country to run our airline. I feel betrayed in this regard. The airline got our backing when it was here the last time.
Senator Martin Brady: I wish to ask the Aer Lingus management at what stage the unions were notified of the plans. Do the representatives believe the company would need the agreement of the associations to proceed? If it goes ahead with its plans, will there be a lowering of staff morale?
Many people have spoken about the business of basing pilots and cabin crew in Washington. The Aer Lingus representatives said everything would be fine and then later said that if applicants meet the proper requirements in terms of green cards and so on, they could apply. That is not even a case of “Live horse, get grass”. In that situation, there will be a surplus of staff back at the ranch. What does it propose to do in that case? Do they think the company has acted fairly towards the people who represent the workforce?
Mr. Enda Corneille: I will take Deputy Breen’s questions first. The answer to his question about Shannon is “Yes”, we are examining short-haul opportunities. I purposely included this in today’s presentation. There may be a gap in the market from March and that is something we are considering.
The Deputy’s point about the type of aircraft is a good one. At certain times of the year we may be operating the wrong kind of aircraft - one that is too big for the demand. Continental Airlines operates a Boeing 757. The A321s are among our oldest short-haul aircraft, so there is a cost issue in terms of fitting them out. However, we are considering innovative ways of serving that market.
The timing of flight EI 111 is also being considered. The issue, vis-à-vis Continental and Delta Airlines, is that 75% of our business is point-to-point - people get off in New York or Boston - while 75% of their business consists of connected flights. Thus, a 9 a.m. departure from Shannon for a Continental passenger is far more important because he or she is catching a connecting flight to somewhere else. The point has been made not only by our staff but by others as well and is being actively considered.
With regard to the Deputy’s question about CBP, we do not believe, given the current demand, that we can pass the cost on to passengers. To be honest, if we could pass on €10 we would be doing it at the moment, but we do not feel we can. Pricing is that tight. It is a matter of considering the cost and deciding whether we can allay it. Conversations are going on with a number of bodies about whether the cost can be subvented, reduced or eradicated. The concern is that placing significant costs on an operation that is already making a loss puts further pressure on it. That is a decision we will be taking over the coming weeks.
Deputy Pat Breen: Do the representatives agree that the two-hour delay for passengers at JFK or Boston Logan Airport is a considerable problem?
Mr. Enda Corneille: I absolutely agree.
Deputy Pat Breen: It will affect the company’s numbers at the end of the year and make the route less attractive.
Mr. Enda Corneille: That is part of the consideration.
Deputy Pat Breen: I see it as urgent.
Mr. Enda Corneille: It is.
Mr. Michael Grealy: To answer Deputy McEntee’s question, covered partly by Senator Brady, this is not a done deal. We are in active negotiations with the unions and we hope to achieve what we seek to achieve by agreement with the unions over the coming days. It is not a done deal per se; it will be done by agreement and negotiation. Regarding crews and who flies airlines out of Irish airports, it has always been locally employed staff. We have no plans to do otherwise. It will always be locally employed staff.
Deputy Shane McEntee: Will it never happen otherwise?
Mr. Michael Grealy: We have no plan—–
Deputy Shane McEntee: That is not an answer. Can a commitment be given just as we gave a commitment to support Aer Lingus when it made a presentation to us? We want a commitment.
Mr. Michael Grealy: The staff flying out of our bases will be locally employed. Those flying out of Irish airports will be locally employed staff. In Gatwick they will be local staff.
Deputy Shane McEntee: Has the Government backed the plans of Aer Lingus? Has the Irish Airline Pilots Association sat down with the Minister for Transport to discuss this question?
Mr. Enda Corneille: I answered the question already. This was put to the board and it was approved unanimously. The Government is represented on the board by three directors. It was not put to the Government for approval because the Government is a shareholder and the plan was not put to shareholders. It was put to the executive team and the board and unanimously approved by the board.
Deputy Shane McEntee: There are three representatives of the Government on the board. Did they back it?
Mr. Enda Corneille: There are three Government board members, as there are members who represent the ESOT.
Mr. Michael Grealy: In respect of Senator Brady’s final question concerning the proposed extended code share with United Airlines, that is an entirely new venture and it does not involve an outsourcing of existing jobs in Aer Lingus. It is an entirely new initiative.
Mr. Barry Cunningham: I have one question for Mr. Corneille and one for Mr. Grealy. Some 102 members of staff are facing redundancy in Shannon by December. I would like Mr. Corneille to address this question in respect of his comments on future growth in Shannon. These people need to know their future very quickly. Is the company prepared to withdraw its advertisement for cabin crew in Washington until such time as we become involved in negotiations? According to the company plan, some 229 people are facing redundancy.
Mr. Enda Corneille: My colleague, Mr. Grealy has set out that we are in active negotiation with all groups. It would be improper to go into detail in this forum or to negotiate through this forum. It is better done behind closed doors.
Deputy Michael Kennedy: What about the question on American future employment? Surely, Aer Lingus can say it is reasonable that Irish employees are entitled to apply for these jobs.
Mr. Enda Corneille: I am being specific about the question of the future of Shannon staff. That is part of the greenfield proposal. It is being negotiated under the auspices of the LRC.
Deputy Michael Kennedy: We are talking about the Washington to Madrid line.
Mr. Enda Corneille: I am answering the question on Shannon.
Deputy Michael Kennedy: A question was asked about Washington. Does Mr. Corneille not consider it reasonable that Irish employees should be allowed to apply for these jobs?
Mr. Enda Corneille: The advertisement has been published. As Mr. Grealy said—–
Deputy Terence Flanagan: Is it going to be withdrawn?
Mr. Enda Corneille: Can I answer the question? Suitably qualified candidates—–
Deputy Michael Kennedy: That means one must be a US citizen.
Mr. Enda Corneille: I want to be clear. We have over 100 members of staff in Aer Lingus who work in the US. This is an international airline. This is a commercial opportunity that will generate return for all Aer Lingus stakeholders. It is a joint venture.
Chairman: We will ask the Revenue Commissioners and the Department of Finance to respond. We will then grant a second question to some members. Is it not possible to negotiate some deal with the American authorities so that a small number of Aer Lingus staff can apply for these jobs and can be given visas to enable them to do so? It is a pity that we will be flying Aer Lingus planes out of the US but denying many people the opportunity to crew the planes, as stated by IMPACT. Surely the Department of Foreign Affairs can assist us in this initiative.
Mr. Michael Grealy: We will take this on board and we will examine this possibility.
Captain Evan Cullen: There is no legal requirement for Aer Lingus to employ people in Washington under US law. There are plenty of examples of European airlines that have their staff based in the US to crew the airline.
Chairman: Does Captain Cullen agree that the pilots will be agreeable to the terms and conditions that apply in the United States base?
Captain Evan Cullen: The pilots have applied on the basis of the terms and conditions advertised by Aer Lingus. The point is that many of the pilots will not get past the green card requirement.
Chairman: That is an issue that can be taken up.
Captain Evan Cullen: The fundamental point is that there is no requirement on Aer Lingus to do what they are doing in order to crew this operation.
Chairman: Perhaps there is room for—–
Deputy Michael Kennedy: Within reason, Irish employees, whether employees or cabin crew, should be engaged in respect of the Washington to Madrid line.
Chairman: The point is well made. Deputies Broughan, O’Dowd, Cuffe and Flanagan asked questions.. I invite Mr. Ryan to respond.
Mr. Paul Ryan: Deputy O’Dowd referred to re-employing former employees in a new entity outside the State. Given the freedom of establishment in the EU, there is no impediment to employers doing so. One cannot stop companies leaving Ireland, nor can one stop them coming to Ireland. There is a reverse flow from the UK in respect of a number of companies at the moment. The implications of this are that any corporation profits and wages will be taxed at UK tax levels. This includes social insurance.
Deputy Cuffe asked our views on the contract circulated by the Irish Airline Pilots Association. He asked if we could update the position since the Minister’s letter. The background to this is that the pilots wrote to the Minister last year and he responded on 17 November. The letter inquired about a definitive position on the designation of pilots by a particular company. We cannot comment on the tax affairs of a particular company. The Minister set out the position on it, saying that there is no statutory definition of employment or self-employment. It depends on whether an individual is engaged under a contract of service, such as an employee, or a contract for service, meaning the person is self-employed. The Minister’s letter also pointed out that this is a tricky area and there is no particular formula for deciding whether a person is an employee or an employer.
An employer status group was set up under the Programme for Prosperity and Fairness. A code of practice helps on this matter. The Revenue Commissioners, IBEC, ICTU and a number of Departments, including the Department of Finance, are included in this. The Minister cannot comment on the case of an individual taxpayer but each case must be examined on its merits. He asked the pilots to submit to Revenue the precise details of the arrangements so that Revenue could examine it. At our last update, some two weeks ago, no submission had been made to Revenue.
Regarding Deputy Cuffe’s question on the contract sent around today we only saw this at 3.30 p.m.. There is no way we can comment on it.
Deputy Thomas P. Broughan: A submission was made to the Competition Authority by the Irish Airline Pilots Association.
Mr. Paul Ryan: I am not aware of that.
Chairman: The Department can respond in writing to the committee on this point.
Mr. Paul Ryan: We will. Regarding the specific Revenue questions, Mr. Creighton will respond to Deputy Flanagan.
Mr. Eugene Creighton: I will address the tax aspect of the three questions raised by the Deputies. It is Revenue policy not to comment or speculate on the tax affairs of the individual taxpayer. My comments should be seen in this light. My comments are indicative and general in nature as to the tax treatment that may apply in a given set of circumstances.
Deputy O’Dowd’s query concerns a company transferring to Northern Ireland. My colleague from the Department of Finance gives the EU reason this cannot be stopped.
Clearly the employees who transfer from the South to the North will pay UK PAYE and national insurance contributions at UK rates. This does not absolve them of their Irish tax liability. If those employees are resident in the South they are still fully liable for tax in the South. They will get a refund from UK revenue of the PAYE they pay in Northern Ireland and will be fully liable for tax here in the same manner in which they were taxed before.
On the company front, there way be some benefit in relocating to Northern Ireland, in terms of the rate of national insurance contributions as against the employers’ rate of PRSI - I am not familiar with the particular rates - but the new company which will be established in Northern Ireland will be liable for UK corporation tax. It is likely to remain part of a larger group. The headquarters of the group may or may not remain in the South of Ireland. Depending on how the transaction is structured, most of the profit arising in the Northern Ireland subsidiary may flow back to the Southern headquarters of the company, which would remain taxable at 12.5% here. I am not sure one could argue that the corporate structures put in place will determine where the tax will go.
Chairman: Is the delegation sure it is getting all the tax it should be getting? What is the position if, for example, a company called Air Dublin started trading in the morning and decided to employ its staff out of Gibraltar, and had an arrangement whereby it sub-contracted everything to its staff who would pay the taxes themselves and would be located in Ireland?
Mr. Eugene Creighton: This issue was raised earlier and the Chairman refers to the question of whether a person is employed or self-employed. Without getting into specifics, there is a major difference between a person deciding to be self-employed and someone who is contracted to work for a company as a pilot or otherwise, or a company engaging another company to provide particular services. In the case of a person who decides to become self-employed, regardless of how he or she labels himself or herself - there is no statutory definition of “employed” compared with “self-employed” - a considerable body of case law will determine the facts. Revenue will look at all the facts and circumstances.
As we come across such cases we will apply the case law, as we see it, and if we think contractors are, in effect, employees of a particular company we will require it to pay PAYE and PRSI as for a normal employee. If the company disputes that finding it is open to it to appeal the decision. In the media in the last week or so—–
Deputy Thomas P. Broughan: In regard to the largest airline in Europe, namely, Ryanair, Revenue has never levied such taxes on it although it is registered here. It is rubbish. Ryanair has small companies based in Gibraltar. However, the problem is that Revenue cannot lay a finger on Ryanair. If there are multinational staff and 50 jurisdictions, it is a fantasy island.
Mr. Eugene Creighton: There can be a situation whereby a company engages a person directly as a contractor and the person involved is also self-employed. Another situation is where a company engages another company, which may comprise one person or an intermediary company which supplies a number of people to the principle contractor, to provide services to the original company. Such a situation is different and it may be that the tax liability of the person employed by the intermediary company is fully liable for tax in Ireland if the person employed by the intermediary company is resident in Ireland. It does not change things.
On the specific questions asked, Deputy Cuffe raised the issue of contracts. I cannot comment on particular contracts. We seek to identify who is the employee and who is the employer. If the employer is an intermediary company which is established in Ireland, we will require it to apply PAYE and PRSI to the wages paid to the employee. If the company is established abroad, which was the example given, and its employees are resident in Ireland, they are still fully liable for Irish taxation.
Chairman: That clarification is important because it is important that there is a fair playing pitch across the spectrum for all of the companies involved in the aviation industry.
Mr. Eugene Creighton: Absolutely.
Deputy Thomas P. Broughan: The real point is that the benefit is not to the workers but to the company. That is the problem and is why the company can impose such ferociously bad conditions on its cabin crew, pilots and all its other staff. The problem is that the beneficiary is the mother company.
Mr. Eugene Creighton: The Deputy is suggesting that the real problem is not a tax problem. That may be the case.
Deputy Thomas P. Broughan: The problem for Aer Lingus management is to try and match that. I know the Chairman wants to conclude the meeting. A major aviation event we have seen in recent weeks is the proposed merger of Iberia and British Airways, which is headed by the former Aer Lingus chief executive, Willie Walsh. I understand British Airways will take the lead role with a stake of 55% and Iberia will take a stake of 45%. Is the path on which the delegation is embarking a device to back Aer Lingus or a similar company into such an alliance in a couple of years and then, as we have seen with some of its predecessors, management can ride off into the sunset with golden handshakes? It is not long ago that Dermot Mannion came before the committee. He bailed out and left the company to its own devices. Is the modus operandi to have a good—–
Chairman: I will allow Senator Brady to ask a quick question and we will then round up the meeting.
Senator Martin Brady: I asked a question which was not answered. Perhaps it is not possible to answer it. At what stage did negotiations take place? Was this plan flagged to the union? It is a very relevant question because I come from a union background. One can only proceed if one gets agreement. One cannot proceed if there is total confusion between staff representatives and management. I may be wrong.
Chairman: A quotation was given regarding that issue.
Deputy Terence Flanagan: Does Mr. Creighton feel there is a loophole relating to Irish-based companies paying PAYE who are willing to set up offshore companies which should be closed by the Minister in the Finance Bill? Can he advise us of the checks and balances Revenue has in place? This will be a complete nightmare and will impose an extra burden on Revenue if it has to chase employees who are paying taxes in other jurisdictions in order to get money for the Irish Exchequer.
Chairman: The witnesses can respond to those questions. We appreciate the witnesses appearing before the committee. Aer Lingus is held in the highest of esteem thanks to its great workers and that it is a good company. This committee is at one in wanting to see a strong Aer Lingus into the future. We have no illusions about the challenges it faces and, consequently, change has to come.
The one thing we want to see today is the Aer Lingus snake, as it were, cut off by the throat. The bottom line is that while a transition to a new UK air operator certificate and a new Aer Lingus was mentioned we do not want to see a new Aer Lingus, rather, we wish to see it continue as it is. I know negotiations are continuing. We wish the delegations well.
We appreciate costs must be cut and new work practices introduced but there must also be respect for the staff of Aer Lingus and a flexibility which will ensure Irish staff continue to serve on Aer Lingus aircraft. We wish the delegations well in their endeavours together and hope there will be a successful outcome. I invite the three groups to make some final comments and then refer to the questions which were asked. This time, we will allow the union representatives to speak first.
Captain Evan Cullen: My final comment is that this House can do a lot about a level playing field. It is about time a level playing field was put in place for workers who are as mobile across Europe as we are. Clearly many of my colleagues would feel there is not a level playing field and we are being asked to compete on terms which are not available to employees in this country.
Ms Christina Carney: We appreciate that the committee facilitated our attendance today. To answer the question as to when the unions were made aware of the company proposals, that was 7 October, even though they were being planned for many months before that. In the future we may ask for further assistance from the committee to discuss pensions in Aer Lingus. It deserves far more time than I have been able to give it today. It is extremely serious and we would welcome an opportunity to brief the committee if it would allow.
Chairman: That is not a problem. Both sides are welcome at any time. We want to try to be of assistance. We appreciate that making these comments in public are difficult. However, I believe it has been a useful exercise for Members of the Oireachtas.
Mr. Michael Grealy: I thank the Chairman. From the Aer Lingus perspective, we need this plan. It is a prerequisite to keeping our aircraft flying and keeping our staff employed at the numbers we propose. We hope that through negotiations with our colleagues in the staff representative groups, we can come to an arrangement whereby the greenfield project can be implemented and we can avoid the dire consequences that would emerge of job losses and so on. We look forward to a successful outcome and thank the committee for the opportunity to speak today.
Mr. Enda Corneille: I echo my colleague’s comments. To address Deputy Broughan’s question, this is about securing the long-term future of Aer Lingus as an independent carrier and as a profitable airline that can deliver value for all shareholders, staff, customers and all stakeholders. It is not about backing it into any entity. It is about preserving our independence and stretching the brand across Europe. It is a fantastic brand. We believe in it and think it has a terrific future, but we need to get our costs right.
Chairman: I shall leave the last word to the Revenue Commissioners. Deputy Terence Flanagan had a question about loopholes.
Mr. Eugene Creighton: Deputy Flanagan’s question was about paying people offshore and Revenue not being aware of it. I shall reiterate again, merely being paid offshore does not remove one from the Irish tax system. Someone who is resident here is fully liable here. The person is required to make a tax return and pay his or her taxes like anyone else in the community.
Deputy Terence Flanagan: Will employees be advised? Will there be follow up in respect of them if they do not decide to make a settlement with the Revenue?
Mr. Eugene Creighton: Informational powers are available to the Revenue Commissioners to find out, for example, the money moving from the Irish company to pay the intermediate company to pay the offshore employees. That information is available to Revenue. The names of the people involved would also be available to Revenue. If it should show up in terms of us running a compliance check on whatever area we were looking at, those informational powers can be used to establish whether the people who should have made a tax return actually made a tax return.
Deputy Terence Flanagan: Will there be no loss to the Exchequer?
Mr. Eugene Creighton: It is never perfect.
Deputy Michael Kennedy: Is a cross-check done on the list that would be supplied by the foreign operators to Revenue? Does Revenue cross-check that those people are discharging their PAYE tax?
Mr. Eugene Creighton: That is not an obligation. If there is a PAYE obligation on a non-resident company to apply—–
Deputy Michael Kennedy: I accept that the company is doing its job.
Mr. Eugene Creighton: They are following whatever rules apply in that country.
Deputy Michael Kennedy: What about the employee who is resident in Ireland and is getting money from Gibraltar or wherever it may be? Does Revenue know those people exist? Does it write to them asking them to tell it that they have discharged their duty for 2008, for example?
Mr. Eugene Creighton: No, we would not write to them. It would be—–
Deputy Michael Kennedy: Why not?
Deputy Terence Flanagan: Is it not a loss to the Exchequer otherwise?
Mr. Eugene Creighton: First, there is an obligation on them to submit a tax return and pay their tax as is the case with any other person. Second, we need to look at sectors and see where the leakage might be. If we identify a sector where there may be leakage, we would seek to establish across the entire sector from where the payments out of Ireland are coming, to whom abroad they are going and who is in receipt of these funds. That can be done if there is a sense that people are not making tax returns or paying their tax.
Deputy Michael Kennedy: Is Mr. Creighton happy that the vast majority of people are discharging their tax requirements?
Mr. Eugene Creighton: I believe it is fairly well established that our levels of tax compliance are quite high.
Deputy Andrew Doyle: Are the Revenue Commissioners aware of existing arrangements where joint ventures between Irish and US companies are set up whereby the employees of that company can be resident and be paid from here and work for up to 90 days in the US, turn around, come home for a week and go back in? I am aware of other national companies that operate those sorts of arrangements. It cuts right through the necessity for citizenship, green cards or working visas. They have a 90-day visa as long as they are paid from here and they pay all their taxes here. I have held my tongue on this one. Mr. Corneille did not address the consequences of non-agreement, which is really the Armageddon. If there was goodwill in addressing this as well as the Astraeus issue, it would be possible to engage in meaningful negotiations with the staff representatives. Is Mr. Creighton aware of that?
Mr. Eugene Creighton: On a personal level, I believe I have a general awareness of the point the Deputy is making, if I understand it correctly. I would not have any information in respect of a specific case. In general—–
Deputy Andrew Doyle: ESB International does it.
Mr. Eugene Creighton: It depends on the circumstances and the way this thing is structured. One can only look at the facts and the structure. There can often be two employments involved, one of which is here and one of which is elsewhere. Without looking at the facts of the case, it might not be obvious what the arrangements in a particular case are and the resulting tax consequences. Specific reliefs are available for people seconded here from abroad. For reasons of skills shortages or whatever we may need those types of employees. I do not believe the Deputy is talking about that particular relief which was introduced, I believe two weeks ago.
Chairman: From all that has been said by Mr. Ryan and Mr. Creighton, the Revenue Commissioners are well on top of their brief and we have no need to worry on that score.
Deputy Timmy Dooley: We do not want to inflict the Revenue Commissioners on anybody else.
Chairman: I thank all of our guests from Aer Lingus, the Irish Airline Pilots Association, IMPACT, Revenue and the Department of Finance. We wish them well in their negotiations and we hope we will see a positive outcome.

The joint committee adjourned at 4.20 p.m. until 3.45 p.m. on Wednesday, 2 December 2009.