Committee Reports::Interim Report - Aer Lingus::28 June, 1994::Appendix


Submission from TEAM Aer Lingus

28 June 1994





Davy Stockbrokers

Robbie Kelleher

Aircraft Maintenance Associates Ltd

Graham Howett

Stoy Hayward

Peter Hemington

Commercial Paper

Peter McGuinness

Finance Paper

John Howard

Restructuring Paper

John Mooney

Labour Relations Commission


TEAM Aer Lingus

Report Prepared by Davy Stockholders

June 1994


TEAM Aer Lingus was established in April 1991 at a time of great optimism, not only for the airline industry, but for western economies in general. However with the benefit of hindsight we now know that, at the time of launch, many of the major economies had already moved into recession or were on the brink of doing so.

As a result, air travel and aircraft usage have fallen well short of expectations. Airlines themselves suffered financially and this inevitably reduced both their demand, and the prices they were willing to pay, for aviation services, including aircraft maintenance.

Hence TEAM now operates in a market that is smaller and far more competitive than envisaged at the time the company was established. Third party revenues fell by 18% in 1993/94.

These difficulties were compounded by a fundamental alteration in the relationship between TEAM and Aer Lingus. Contracts with Aer Lingus will yield less than £30 million in the current year, compared with over £50 million a few years ago and over £70 million envisaged at the time TEAM was set up.

The inevitable consequence is that TEAM has incurred serious losses. In the two years to the end of March last pre tax losses reached almost £60 million. Some of this reflected exceptional provisions, but, even excluding exceptionals, the loss in the last financial year exceeded £13 million. End year debt was £64 million and shareholders funds were negative to the tune of £18 million. Without guarantees from Aer Lingus the company would already have been declared insolvent.

The position has deteriorated further since last March. In the first three months of the current financial year losses will exceed £3 million. Banking facilities have been fully utilised and there is no means of financing the losses that have been projected for the two months July/ August. These are estimated by the company to be £5 million, if the current uncertainties concerning the company are not dispelled. In lay man’s terms the company is just about to run out of cash.

Solving TEAM’s problems will require action to reduce its cost base, as well as improving its long term marketing and sales strategy. The immediate requirement, however, is to reduce costs. TEAM cannot compete adequately at present in its existing markets on the basis of its current cost structure. It is implausible to argue that new products and new markets can be exploited if market shares cannot first be rebuilt in its core products.

At the heart of TEAM’s cost problems is the failure of its current structures to reflect the seasonal nature of its business. Many of the recent LRC proposals are designed towards addressing that defect and are the minimum required to begin the process of rebuilding the financial viability of the company.

TEAM Aer Lingus was established in April 1991 at a time of great optimism, not only for the airline industry, but for western economies in general. However with the benefit of hindsight we now know that, at the time of launch, many of the major economies had already moved into recession or were on the brink of doing so.

As a result, air travel and aircraft usage have fallen well short of expectations. Airlines themselves suffered financially and this inevitably reduced both their demand, and the prices they were willing to pay, for aviation services, including aircraft maintenance.

Hence TEAM now operates in a market that is smaller and far more competitive than envisaged at the time the company was established. Third party revenues fell by 18% in 1993/94.

These difficulties were compounded by a fundamental alteration in the relationship between TEAM and Aer Lingus. Contracts with Aer Lingus will yield less than £30 million in the current year, compared with over £50 million a few years ago and over £70 million envisaged at the time TEAM was set up.

The inevitable consequence is that TEAM has incurred serious losses. In the two years to the end of March last pre tax losses reached almost £60 million. Some of this reflected exceptional provisions, but, even excluding exceptionals, the loss in the last financial year exceeded £13 million. End year debt was £64 million and shareholders funds were negative to the tune of £18 million. Without guarantees from Aer Lingus the company would already have been declared t.

The p has deteriorated further since last March. In the first three months of the current financial year losses will exceed £3 million. Banking facilities have been fully utilised and there is no means of financing the losses that have been projected for the two months July / August. These are estimated by the company to be £5 million, if the current uncertainties concerning the company are not dispelled. In lay man’s terms the company is just about to run out of cash.

Solving TEAM’s problems will require action to reduce its cost base, as well as improving its long term marketing and sales strategy. The immediate requirement, however, is to reduce costs. TEAM cannot compete adequately at present in its existing markets on the basis of its current cost structure. It is implausible to argue that new products and new markets can be exploited if market shares cannot first be rebuilt in its core products.

At the heart of TEAM’s cost problems is the failure of its current structures to reflect the seasonal nature of its business. Many of the recent LRC proposals are designed towards addressing that defect and are the minimum required to begin the process of rebuilding the financial viability of the company.


Market prospects looked very good at the time of establishment

TEAM Aer Lingus was established as a separate entity in April 1991 and was largely a transformation of the previous Maintenance and Engineering Division of Aer Lingus. Since the 1960’s this division of Aer Lingus not only carried out the maintenance and overhaul work for the national airline itself but also generated significant revenues from third party maintenance contracts.

At the time of the establishment of TEAM, there was a high degree of optimism, not only for the airline and aircraft maintenance sectors, but for economies at large. The decade of the 1980’s had proved to be one of almost uninterrupted growth in many of the major world economies. Many commentators ascribed a significant portion of the strong economic performance of the 1980’s to the benefits of structural reforms that had occurred in the early part of the decade, particularly in the US and UK. Many went even further and suggested that, as a result of the reforms, the western world was embarked upon a sustained period of growth that would no longer be punctured, from time to time, by periodic recessions of the type that had characterised the evolution of most economies in the 1960’s, 1970’s and early 1980’s.

Such a scenario had particularly bullish implications for the airline industry. The period of rapid economic growth in the 1980’s was also one of substantial deregulation in the airline industry and the combination of strong income growth and lower air fares was sufficient to generate very significant increases in the numbers travelling by air. Indeed the conventional wisdom in the industry was that the elasticity of demand for air travel with respect to GNP was 2, in lay man terms that meant that the numbers travelling by air would increase twice as fast as GNP. Given the prognosis for GNP this implied that the numbers travelling by air would increase by 5/6% per annum up until the turn of the century.

The implications of such a forecast were clearly highly favourable for industries whose business was the provision of services to the airline industry. For example, the success of GPA at the time reflected the obvious increase in aircraft financing services that went hand in hand with a growing airline fleet. Equally for the aircraft maintenance business, an increasing aircraft fleet worldwide implied a significant increase in demand for aircraft maintenance services. Moreover this favourable demand scenario was enhanced by a market place which seemed to contain a limited number of quality suppliers at the time.

But with the benefit of hindsight the timing could hardly have been less favourable

As we look back now, with the benefit of hindsight of course, the timing could, in fact, have hardly been less favourable. The optimism of the late 1980’s has proved to be ill founded and, in the event, nearly all of the major economies have experienced a period of recession in recent years. The hope that economies could go on expanding indefinitely, without encountering periods of recession from time to time, has proven to be over optimistic. Indeed the recent recessionary experiences have been very similar to many of the previous recessions of the post war period.

The first economy to experience a downturn was the United States. Statistics now available allow us to identify late 1989/ early 1990 as the peak of the previous cycle. The rest of the ‘Anglo Saxon’ economies followed quickly and, in particular, the downturn in the UK was well underway by the end of 1990. The economies of Japan and mainland Europe were later in the cycle but signs of economic weakening were evident there by the early part of 1992, at the latest.

In retrospect, therefore, TEAM was launched at a time when many of the major world economies had already turned down and many others were on the brink of recession. In the event, therefore, TEAM had, very early on in its new life, to contend with market conditions which were far less favourable than had been anticipated at the time of formation.

Not surprisingly demand for aircraft travel failed to match the optimistic projections of the late 1980’s, with the initial effect being most obviously felt by the airlines themselves, and they quickly responded to the new circumstances in an attempt to limit the consequent financial effects. Some aircraft were taken out of service completely and orders for new aircraft were reduced. That immediately had a knock on impact on those providing services to the airline industry - manufacturers, lessors etc. Perhaps the highest profile casualty of these developments was the failure of the proposed public flotation of GPA.

Inevitably of course it had an impact on the aircraft maintenance industry. With reduced air miles being flown the demand for maintenance was lower than it otherwise would be. Moreover airlines attempted to reduce financial pressures further by lowering the prices they were prepared to pay for maintenance and, some, attempted to enter the third party maintenance market themselves.

Increased supply and reduced demand normally results in price weakness and those basic laws of economics were to work forcibly in this industry as well. Prices available for work undertaken by TEAM are a good deal lower now than they were at the time of establishment. In 1992 TEAM were able to contract for work at $57 to $60 an hour while current market rates are of the order of $40 to $47 an hour.

Structural problems

Relationship with Aer Lingus fundamentally changed

Aer Lingus requirements significantly reduced

Apart from a market place that was very different from that which had been anticipated, TEAM has had to contend with a very different relationship between it and Aer Lingus, its main customer. In the first instance the volume of maintenance work undertaken by Aer Lingus is very much lower than forecast at the time of incorporation of TEAM.

As part of the plan implemented to restore financial viability Aer Lingus has itself conducted a review of its fleet requirements. Following the review it has stabilised the number of B737-EFIS aircraft at 16, has retired all the B737-200 aircraft and will not operate the B767’s originally acquired for long haul on the proposed Dublin - Los Angeles route. In addition a decision has been taken to cease usage of the B747-100’s and replace them with newer Airbus A330 series aircraft.

This restructuring of the fleet will greatly reduce the maintenance requirements of Aer Lingus. Manhour volumes from Aer Lingus in the Draft Budget 1994/95 are down by up to 60% compared with actual for 1993/94.

In addition to these lower volumes pricing agreements between TEAM and Aer Lingus have had to be fundamentally reviewed. Originally many of the contracts were priced on a cost plus basis. However, again in the context of its own viability plan, Aer Lingus has had to look at all aspects of its cost base and ensure that services being bought are being acquired on the most competitive terms possible. It is common practice in large corporate organisations, with subsidiaries that trade with one another, that any subsidiary has the option to source product outside of the group if it can do so on more favourable terms. In such a spirit the pricing arrangements between TEAM and Aer Lingus are now such that Aer Lingus could not obtain maintenance services at more competitive rates than those available from TEAM.

Aer Lingus revenues down to less than £30 mill

The combined impact of lower volumes and keener pricing has been to significantly reduce the revenues from Aer Lingus - down from over £50 million a couple of years ago to less than £30 million this year. When TEAM was established it was forecast that revenues from Aer Lingus would exceed £70 million in the current year.

In retrospect it was a structural defect for the original company to be established on the basis of a contract with Aer Lingus which was not commercial and fully at arms length. Establishing a company on the basis of the previous arrangements gave a false impression of the true financial strength of TEAM at the outset.

Major financial problems emerge

Against a background of such a weak market generally, as well as the fundamental change in the relationship with Aer Lingus, the financial performance of TEAM fell well below initial expectations. Some of the more important financial numbers are summarised below.

Losses of almost £60 million in the last two years

Financial performance at TEAM (£ millions)

Year End March








Operating profit




Pre tax profit




Year end debt




Shareholders funds




Without Aer Lingus TEAM would already be declared insolvent

After making a small profit in its first full year of trading TEAM has incurred substantial losses in the two years since. In the year ended March 1994 the pre tax loss was £32.1 million. Of this some £15.4 million relates to restructuring provisions, reflecting the cost of early retirements. In addition there was almost £3 million in other provisions, some of which reflects bad debt provisions on Nigerian contracts. Excluding these exceptional costs the underlying loss was still in excess of £13 million.

Just as worryingly, the deterioration in the profit and loss account was associated with significant cash outflows from the business. In the two years to end March total outflows amounted to almost £35 million. In the process net debt had risen to £64 million and shareholders funds were negative to the tune of £13.8 million. Combined losses of £54.5 million since inception have more than wiped out the initial share capital of the company of £40.6 million.

By any standards losses and debts of this magnitude are very serious indeed and, without Aer Lingus Group guarantees, the company would already have been declared insolvent.

Of particular concern is how close the company is to breaching its short term borrowing limits. These facilities currently amount to £13 million in total and were utilised to the extent of £12.3 million at the end of March last.

Losses of almost £3 million in March to June.

£5 million projected for July/August.

We understand that the position has deteriorated further since March. Partly because of a seasonal fall in business volumes during the summer months, and partly because business has been lost because of the current uncertainties, losses in the three months to end June will amount to over £3 million. Because of some prepayments by the Aer Lingus Group, as well as management of creditor balances, a breach of banking facilities has been avoided.

If the current uncertainties are not resolved, the company expects losses over the next two months to exceed £5 million, a figure that could not possibly be financed out of current facilities.

Quite simply the company is set to run out of cash in the very near future.

Future Options

Must be a combination of short and long term measures

Clearly this situation cannot continue and options must be considered to rectify the problems, otherwise a solution will be imposed by the company’s bankers. Over simply at times, media coverage of the issue has presented the management and unions as having two alternative approaches to the issue - one focussing on the need to reduce costs as a means of eliminating the imbalance between revenue and expenditure, the other focussing on improving sales and revenues to achieve a similar objective.

The reality of the current market place is that TEAM cannot compete effectively with its current cost structures

In reality any solution must embrace a combination of both. Whether or not improved marketing and a re-shaping of the product slate at TEAM can improve revenues significantly is a matter for some considerable debate and discussion. In that context we have no difficulty in embracing the unions’ assertion that there is a need to urgently develop new markets and new products. Such a proposal is clearly covered by clause 24 of the recent LRC recommendations.

However, even if it is established that there are significant opportunities to expand the revenues of TEAM these will take time to achieve and are unlikely ever to be achieved unless the renewed and revitalised marketing efforts are founded on a cost base which allows the company to compete effectively in its existing markets.

The reality of the current market place is that TEAM cannot compete effectively with its current cost structures. If it cannot build a business and restore market share in its existing markets it is highly unlikely it can do so in new markets and new products. If this were a private company shareholders would be unwilling to inject equity on the hope that new products and markets could solve the financial imbalances, without first demonstrating its capacity to compete in its core markets.

New markets cannot be built without first re-establishing market share in core products

Perhaps an interesting parallel is that of Waterford Glass in the late 1980’s/early 1990’s. The combination of the onset of the US recession and adverse currency movements caused a sharp fall in sales and the company incurred significant losses. However the ability of the company to rebuild market share was inhibited by a cost structure that was too high and too inflexible. But in recent years that cost structure has been reduced and made more flexible and, based on this lower cost structure, the company has successfully introduced new products which have helped to rebuild sales. The company was restored to profitability last year and this year hopes to return to the sort of margins it was capable of achieving in the past.

The relevance to the TEAM situation is this. Without the alterations to the cost base, the building of new markets and the launching of new products would have been impossible and, in all likelihood, the manufacturing facility as we now know it, would not exist in Waterford.

The key to the reduction in unit costs at TEAM is more flexibility in its work practices, which would properly reflect the seasonal requirements of the business it is involved in. Not surprisingly, airlines wish to achieve maximum usage of the fleet during the peak summer travelling season and defer heavy maintenance to winter months. At present some 65% of TEAM’s workload occurs in the second half of its financial year.

Structures must reflect the underlying seasonal nature of the business

A number of the recent proposals by the LRC were designed to change work practices so that the normal work schedule of the employees more closely corresponds with the needs of the customers. Other competitors are structured in this fashion and unless TEAM can do the same they will continue to find it difficult to compete in the market place.

Indeed in many ways the proposals of the LRC are the minimum required to restore financial stability to the company. Assuming these proposals are implemented management forecasts envisage the following evolution of the main financial targets.

Financial projections for TEAM* (£ millions)

Year End March








Operating profit




Pre tax profit




Year end debt




Shareholders funds




Losses are still projected for both this year and next and shareholders funds are forecast at less than £12 million in March 1997, still a highly leveraged company by any of the usual standards.

Clearly the base that would be re-established by the implementation of the LRC proposals would have to be built on substantially before the company was restored to a level of financial performance that, in any meaningful sense, could be deemed to be satisfactory.

Davy Stockbrokers, Davy House, 49 Dawson Street, Dublin 2. Telephone 679 7788 Telex 93968 Fax 671 2704. REUTERS PAGES DAVA-N. Davy Stockbrokers is a member of SFA and the International Stock Exchange. Copyright © Davy Stockbrokers 1994. No part of this document is to be reproduced without written permission. This publication is solely for information purposes. This document has been prepared and issued by Davy Stockbrokers on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst all reasonable care has been taken in the preparation of this document we do not guarantee the accuracy or completeness of the information contained. Any opinion expressed (including estimates and forecasts) may be subject to change without notice.

A Review of the Report - “DESTINATION THE FUTURE”


This paper provides an assessment of the revised report from the Aer Lingus Craft Group of Unions (Union Report). The Union Report supplements an earlier document of October 1993 entitled “Realising the Future”. The report is better presented than its predecessor in physical terms, in respect of its consistent authorship and its strategic perspective. However, it offers more assertions than arguments; where specific points can be addressed by AMA as being within its area of professional expertise then they are addressed - they are otherwise ignored. It is assumed that unsupported assertions may rest upon detail which was included in the first (October) Union Report and elements of AMA’s commentary upon the October Union Report are therefore included in this paper to aid perspective.

Finally, it should be noted at the outset that the tenor of the report is co-operative and recognises that solutions will require Management and staff to work together.

Appended to this paper are the qualifications of AMA and the author to address the topic and client list a brief overview of the current market situation as it applies to TEAM.



The sections of the Report which are relevant to AMA and are evaluated below are:-

1.The Financial Story - points 7,8 and 10 are reviewed; this section is substantially the province of Stoy Hayward financial consultants.

2.10 Steps to a New Take-Off - points 6,7, and 8 are reviewed as a) being within AMA’s province and b) having substance.

3.The Market.

The Financial Story

To comment upon points 7, 8 and 10, taken together: Operating profits is an expression usually employed to disguise real losses and certainly these results were ‘sustained’ during one of the worst trading periods of aviation history. It is, however, no basis for satisfaction since the competition can only be won by making real profits and the observations here tend to divert the focus from the necessity for cost reduction. The natural result of an oversupplied market is that the Company will seek and obtain business from customers with lower credit ratings and an increase in slow payment and doubtful debt will result. The African debt of circa £11M has to be seen in the context of over £400M of total business in that region. The balance of debt turns over within industry average time.

Point 10, taken individually, is unreasonable.

Hangar Checks

The market is not strongly influenced by technical “quality”: no company can operate in this business unless they can deliver the quality standard upon which the airline industry operates. TEAM is no ‘better’ and no ‘worse’ than its competitors in this respect: they are a respected member of the airline maintenance industry, professional, but these attributes merely represent the entry ticket to the business.

Airlines select a maintenance facility for their hangar checks against the following criteria and in this order of priority:

1.Turn-round time - the faster, the better;

2.Flexibility/responsiveness, such as in accepting slight delay in aircraft arrival without slipping aircraft completion; such as in accommodating supplementary work defined after aircraft arrival:

TEAM’s competitiveness in both these areas has deteriorated;

3.Access to spare parts inventories:

TEAM is strong on 737 material, less so on 747 material and is otherwise not able to demonstrate quick access; the dominant factor in the equation ultimately is:

4.Labour price.

Labour Pricing

TEAM’s apparent selling price for a man-hour must well exceed £30 (US$45) if it is to recover its present unit labour costs, administrative overhead and make a contribution to its fixed capital expenses, in land/hangar and in tools. Profit would not emerge until average labour yield exceeds $50.

TEAM’s Marketing management is well-experienced in disguising its “real” selling prices by ‘packaging defined-work-for-a-defined fixed price’, but all TEAM’s competitors presently offer labour at rates under $50, including the logically more expensive KLM Holland (who have won Virgin’s new Boeing 747-400 against TEAM) and Lufthansa (who are penetrating the Middle East and African markets where TEAM was historically strong).

Section 41 takes an experienced team 42-45 days to perform and an inexperienced team around 80-85 days. There are currently at least 10 experienced organisations and the residual customers will only accept the ‘experienced’ downtime unless the task is combined with others such that a total downtime of (say) 90 days is acceptable. TEAM Marketing are very aware of this objective and would advocate the expenditure on tooling and preparation for Section 41 if such a prospect were to become solid. Turning to work volumes on S41, it should be noted that many older aircraft will not, in practice, be modified; they will be scrapped and the 9 million man-hours forecast will prove extremely optimistic.

Cargo Conversions are simply not available to organisations who do not own the relevant STC (Supplementary Type Certificate enabling the certification / registration of the modified aircraft) or own the aircraft and intend to operate them post-Modification. There are so few exceptions as to enable them to be ignored. TEAM does not have the resources to create such an STC, are not and will never be in the Cargo Conversion Market.

The suggestions that TEAM ‘must move into the modification business’ and that ‘Management is refusing to take this step’ do not hold up. Firstly, TEAM is in the modification business in a big way and secondly, a justification is needed to warrant investment in Section 41; caution is appropriate because the prospect of securing such work is low.


The report is strong on assertion and light on supporting facts and argument. A number of the statements labelled ‘Fact’ are not so. The aspiration to see a more efficient and successful TEAM appears to be shared with Management but there is no substance offered on the means to get from here to there. AMA believes that:

1.Earlier, claimed productivity gains are substantially ephemeral.

2.Working flexibilities and work practice changes agreed to date do not in practice provide what is required in these areas.

3.Flexible working, responding also to seasonal requirements and leaving overtime as only the ultimate backstop is required if TEAM is to be competitive.

4.An increase in the effective hours worked by each man of approximately one third is required if TEAM is to be competitive.

10 Steps to a New Take - Off

Step 6:

The current trend in the industry is towards outsourcing because it is regarded as the best way to achieve competitive pricing and competitive performance. It is normal practice for the early candidate functions for outsourcing to be unskilled or semi-skilled or to be non-core activities. Thus, building and vehicle maintenance, for example, are normally outsourced. Other, more established candidates, are those for which in-house performance would be clearly uneconomic from a combination of high cost of set-up and low arisings. Resistance to the process of rational outsourcing is not in the economic interests of TEAM.

Step 7:

The background to the customer debt was described in the comments on ‘The Financial Story’. Management are clearly concerned, on an ongoing basis, with the clearance of specific debt and the minimisation of debt in general. The proposed ‘immediate action’ is not specific.

Step 8:

The development of new markets and new products is an appropriate objective and is shared by both Management and Unions. See comments below.

The Market

1.Market size has reduced. The upturn in airline passenger traffic has to date (largely) been absorbed in higher load factors and by new-delivery aircraft. Older aircraft are still subject to grounding when major maintenance becomes due by many carriers, particularly, of course, those taking deliveries of new aircraft.

2.Competition is intense and it is growing in global terms, with civil-market exits like Chrysler, Lucas/Tracor and Lockheed, Norton more than balanced by capacity coming on-stream in Asia, Eastern Europe, South and Central America. It is currently estimated that the Industry is one-third over-capacity. That means one third empty.

3.The ‘New Markets’ identified require closer examination before being adopted as the heart of a market-driven recovery plan. 747 Floor Beam and Lap Joint Modifications are already within TEAM’s capability; Pylon Modifications are anticipated and R&D has been undertaken; Section 41 and cargo conversions remain. Taking these in turn:


The following is extracted from pages 16 and 17 of AMA’ commentary on the previous (October ’93) Union plan.

Points of Agreement Between the TU Report and the TEAM Plan

1.The need for productivity improvement.

2.The need to maximise available revenue.

3.The need for product line development e.g. Section 41.

4.The need for improved service from Support Units.

5.The need for a Total Quality Programme.

6.The need for an improved ALAT/TEAM contract.

7.The need to present TEAM as a modification and heavy maintenance centre.

8.The need to prioritise the investment of available capital in development and improvement of productive facilities.

Commentary and Conclusion

The TU Report reflects a genuine effort to promote the long-term well-being of TEAM and should be respected as such. It contains many constructive suggestions, particularly in the detailed proposals for product development and the enhancement of the utility of existing test equipment. Some of the proposals are inexpensive and should be implemented immediately; others will require market survey work and cost analysis which should be initiated without delay.

A weakness of the report is that it contains no credible unit cost reduction programme or, indeed, any financial analysis of the recorded data contained therein. It should be noted that cost savings based on specific changes such as a new roster pattern or redefined shift premiums are savings which can be confidently anticipated, whereas savings based on ambitions to reduce waiting time and lateness may not, particularly in an environment of high fixed cost and low probability of significantly increasing business.

The reports rests heavily upon the unsubstantiated expectations that a market exists for every manhour made available by TEAM and that a market exists for every product envisaged to be offered by TEAM. None of these suggestions is valid.

The Report understandably addresses the issues from a staff viewpoint which tends to make it authoritative in the context of improvement potential at departmental level and more aspirational than realistic at the macro level. Thus the suggestion that all available productivity gains are achievable within existing TEAM/TU agreements and that such gains can be converted into productive manhours which will be sold to a willing market.

There is no apparent recognition of the realities of the marketplace and the competitive environment. The stark facts are these:

1.The cost base of TEAM is too high and must be reduced in unit cost terms to be competitive.

2.The projected sales embodied in the TEAM Plan are challenging in today’s marketplace. TEAM Marketing are among the best in the Industry and are unlikely to miss reasonable opportunities.

3.The business is changing; for example, selective use of contract labour protects jobs rather than threatens them; When ‘make’ or ‘buy’ analysis results in a decision for outsourcing, this protects the long-term future of the company; staff/management agreements must be flexible enough to accommodate the changing environment; everyone, staff and management, would have a financial stake in the bottom-line success of their company.

The points of agreement between the TEAM Plan and the TU Report should be built upon and detail recommendations in the TU Report should be evaluated and wherever appropriate should be embodied in the TEAM Plan.

A Final Comment

The foregoing remains as valid now as when written in November 1993 and in our view provides a platform from which to initiate a joint approach to the future. Continued efforts to produce an alternative to the management plan will not achieve this goal but, more fundamentally, neither will the continued avoidance of the reality of today’s situation in respect of performance, and the need for change. The past is, and must remain, the past.


TEAM’s activities cover 3 quite distinct business sectors:

Line Maintenance in DUB

(Agreed pricing has been established for this service);

Component overhaul; and

aircraft hangar checks, for both of which TEAM must attract work in a global marketplace, trying to persuade customers to send their components or to fly their aircraft specially to DUB for maintenance. The competitive positions in broad summary are these:

Component Overhaul

Labour cost represents perhaps one-third of typical invoices: spare parts consume most of the money and a repair centre must hold very large stocks. TEAM therefore specialises in repair of components fitted to the fleet of Aer Lingus and has developed some success in Boeing 737 despite severe competition from the original equipment manufactures and from large airlines such as British Airways and Lufthansa.

The scope for expanding the volume of this work is limited:

If TEAM try to enter an aircraft type’s components which are not operated by a ‘tied’, committed partner-Customer, they will suffer negative credibility when competing with a better-placed repairer-airline;

Many airlines dislike ‘scattering’ components and prefer a ‘one-stop-shop’ approach, sending all work - component plus engine plus aircraft hangar checks - to one source;

Other airlines elect to administer separate arrangements on a part-by-part basis.

The capital investment that would be needed, in special tools and equipment, to enter new component repair can be wholly disproportionate to the labour revenue. For example the new Aer Lingus Airbus 330’s electronics equipment requires a piece of test gear costing IR£3M, which may secure jobs for 5 people. It is clearly better for Aer Lingus to contract for these repairs either with the equipment manufacturers, under extended warranty, or with a larger airline.

The truth of competitors’ actual, achieved selling prices is, naturally, commercially confidential. AMA believes that midsummer 1994 asking prices for Boeing 747 major airframe work in Europe are in the range of $40, in the US $35 and in the Far East $35 - in Singapore for Section 41 work on Boeing 747 their original slogan was:

Get a 41 in 42 (days) (for 43 ($) )

but we know that Singapore Aerospace will now readily compromise this target.

For Boeing 737 work, labour yield in Europe may rise to $40 but capacity is widely available from $33: for a really heavy job, making a long ferry flight worthwhile, yet lower rates are available in USA and the Far East.

In AMA’s judgement TEAM can only hope to retain their core Virgin 747 work and to win new work, whilst sustaining unit labour costs higher than many competitors, if flexibility/responsiveness can be brought up to best industry practice. That requires attendance patterns and labour loading practices that place the right man on the aeroplane at the right time, driven by the convenience of the Customer, not of the repairer.

A factor in Shannon Aerospace relative success in entering the 737/MD80/757 market has been such flexibility: others have been the large fleets of its parents.


24 June 1994



Present Position:




Age: 49, Married, 2 Children: Girl 19, Boy 16


MSc (Aircraft Design/ Air Transport Engineering),

Cranfield Institute of Technology

Career Position prior to founding AMA:

11/84 to 3/90

Managing Director, Hong Kong Aircraft Engineering Company Ltd (HAECO)


As a member of the Board of this Swire Group Company the MD had complete profit and administrative responsibility, reporting to the Chairman. Between 1984 and 1989 Turnover increased from HK$680m to HK$1550m and Profit from HK$89m to HK$276m. The Company was the world’s largest independent aircraft maintenance company, employing in 1989, 5500 staff and engaged in the repair and overhaul of large transport aircraft (particularly Boeing 747 and Lockheed L1011) and the associated engines, components and accessories.

Career Chronology:

1963 - 68

Technician Apprentice


Hawker Siddeley Aviation Ltd

1968 - 72

Senior Work Study Officer


British European Airways

1972 - 74

Management Development


Hong Kong Aircraft Engineering Company Ltd (HAECO)

1974 - 75

Tristar Programme Co-ordinator



1975 - 76

Maintenance Superintendent



1976 - 78

Overhaul Manager



1978 - 84

General Manager, Marketing




Responsible for the commercial, marketing, sales, product support and contracts activities of the Company and a member of the Senior Management Group. Between 1979 and 1984 Turnover increased from HK$264m to HK$680m and Profit from HK$39m to HK$89m. Additionally responsible from 1979 for the formation and development of the Management Services function, providing computer and systems support across the Company.

February 1994


AMA Group Client List

Marshall Aerospace

Aer Lingus Group

Rolls Royce


Aeronavali (Venice)


Westland Aerospace

Royal Norwegian AirForce



Fortis Aviation

Coudert Brothers

Harbottle & Lewis

Aviation Capital Enterprises

London Business Aviation

British Aerospace

World Oil & Gas Resources


Prime Strategy Consultants


Tyrolean Airways


Fred Olsen Lines

The Directors

TEAM Aer Lingus Limited

Dublin Airport

Co Dublin


26 June 1994


Dear Sirs

TEAM Aer Lingus Recovery Plan

You have asked us to write to you in connection with the recovery plan of TEAM Aer Lingus Limited (“TEAM”, “the Company”) We understand that the Labour Relations Commission (“LRC”) has, after review of submissions by inter alia TEAM’s management and by the Aer Lingus craft group of unions, produced proposals for restructuring the employment conditions of TEAM’s workforce aimed at securing the company’s future.

Your instructions to us were to review the proposals both of the LRC and of the unions and comment on both of them as to whether they give the Company the opportunity to achieve viability and go forward into the future as a profitable business. The sources of information for our work are set out as Appendix 1 to this letter. We have reviewed the financial information referred to in Appendix 1 for the purposes of this letter. However, in the time available, we have not inquired into the basis of preparation of the information, nor have we carried out audit or other “due diligence” type work on it.

Our report is set out below under the following headings:


2Stoy Hayward and its involvement with TEAM

3Overview of current situation

4The LRC proposals

5The craft union proposals

The Directors

TEAM Aer Lingus Limited

26 June 1994


Current position

1.1The issues here are:

Although well respected by its customers and competitors, the Company addresses a global market of which it only has a small share. The market shows a high level of volatility and at present, there is a considerable degree of overcapacity in it. Rates achievable are therefore low.

The Company’s fixed cost base is too high in relation to current workload. The results of work by Airline Maintenance Associates (“AMA”) are that labour costs are high in world terms largely, we understand, because labour effectiveness is low. Additionally, the capacity given by the new Hangar 6 facility, although impressive, is expensive and only required at peak times.

The Cahill plan foresaw the dramatic fall in turnover of over 20% that the Company suffered in 1993/4. It set out to improve labour effectiveness and thereby allow the Company to be profitable in the longer term at current market rates. Although there have been a considerable number of redundancies, little progress has been made in reducing costs. This appears to result from the breakdown of discussions between management and the unions. As a result of these factors, the Company made an operating loss of IR£12.9m in 1993/4, against the IR£1.6m loss expected in the plan. Further redundancy provisions and interest charges lifted the final loss for the year to IR£32.1m.

After cash outflows of IR£40.9m, IR£10.5m and IR£12.8m in 1991/2, 1992/3 and 1993/4 respectively, the Company now has debts of IR£64.2m, including IR£39.3m due to Aer Lingus, which has provided it with substantial financial support during the last year. The Company’s balance sheet is now dangerously weak. The cash outflows, which arose both from the Company’s underlying losses and from over-optimistic investment decisions taken in the past, clearly cannot go on. A proposed injection of IR£31.4m, including equity of IR£25m, will improve matters somewhat. However, we believe that the Company’s shareholder would be wrong to make such an injection unless TEAM’s management has demonstrated that it has made changes which will enable it to generate both profits and cash in future.

The LRC proposals

1.2With some exceptions, these proposals appear to be largely consistent with the action plan developed by TEAM’s management on the basis of the Cahill plan. Detailed financial projections have been prepared by TEAM’s management on the assumption that the LRC proposals are implemented immediately. These have the following characteristics:

The Company returns to profitability at the operating level in 1994/5 and at the pre tax level in 1996/7. The projections appear to assume immediate full implementation of the LRC proposals and their associated cost improvements. We understand that this is because time lags built into the projections have now elapsed. Therefore, we believe that the profit turn around projected is very optimistic.

The Company’s financial position stabilises, but despite the substantial equity injection mentioned above, overall remains poor.

1.3The proposals therefore give the possibility that TEAM can return to profitability and can begin to generate cash in order to reduce its heavy borrowings. However, you should be aware that even with adoption of the proposals, the Company’s borrowings will continue to remain at a high level. Further, after implementation of the proposals, the profits and cash projected to be generated by the Company are not substantial in relation to its borrowings. Therefore, we believe that further continuous action will be needed in order to secure the Company’s future. However, it is also clear to us that although they may not go far enough, the LRC proposals do represent the beginnings of a way forward for the Company. Delay in their implementation will lead to the Company incurring further heavy trading losses. This will have serious consequences for TEAM’s continued viability.

The craft unions’ document

1.4The unions’ document is well presented and suggests that the unions and their members have a high degree of commitment to the future of the Company. While we would not reject all of the unions’ criticisms of the Company’s past management, much of the content of the document is generally aspirational in nature. Constructive proposals in it are few and far between, and those suggestions it does put forward are not explained in detail, or supported by projections setting out their financial impact.

1.5Please do not hesitate to contact us if there is any further information or explanation that you require.

Yours faithfully



Stoy Hayward

2.1Stoy Hayward is one of the largest UK firms of accountants and business advisers. It provides services in the following areas: Audit and Accountancy; Tax Consultancy; Corporate Finance; Corporate Recovery and Insolvency; and Management Consultancy. The practice has a particular specialisation in the tourism and travel industries. A list of some of its clients in this sector is attached as Appendix 2 to this document.

2.2Stoy Hayward is the UK member of Horwath International, one of the largest international accounting firms. Horwath International has 211 offices in 74 countries. Like Stoy Hayward, the international firm specialises in the tourism and travel sector.

Our involvement in TEAM

2.3We were commissioned to carry out a review of the non-airline activities of the Aer Lingus group in June 1993 by the group’s then new management team. This included a significant amount of work on the financial affairs of TEAM, on which we reported in July 1993. We also provided help in the development of the Cahill plan. This latter work largely consisted of project management assistance in the preparation of the plan and limited accounting assistance in preparing the financial projections that accompanied it. These projections were prepared on the footing of the commercial assumptions developed by TEAM’s management with the advice of AMA. Our work on TEAM’s financial affairs was carried out in association with AMA, who concentrated on analysing TEAM’s market and benchmarking its cost levels.



3.1Our understanding of the key features of TEAM’s market and the Company’s positioning with respect to that market is as follows:

Its main customer, Aer Lingus, now has a relatively young aircraft fleet. Additionally, in 1993 Aer Lingus’ new management renegotiated its contract with TEAM. This contract had previously not been arms length and did not incentivise TEAM to control costs. As a result of fleet changes and restructuring of the contract onto fair commercial terms, TEAM’s sales to Aer Lingus fell from IR£56.0m in 1991/2 to IR£40.8m in 1993/4.

The third party aircraft maintenance market is highly volatile. Customers comprise largely smaller independent airlines or African and Asian flag carriers. As such, they are generally the first to suffer during times of economic downturn and often lack financial stability. TEAM has suffered from this.

The market has a substantial amount of overcapacity at present. Many competitors are subsidised by state or municipal funds and are situated in low wage economies. Customers are footloose, either within a region in the narrowbody market, or globally in the widebody market. TEAM’s market share is small and it cannot exert any control over market prices.

The Company appears to have had a strong image in the third party market as a supplier of high quality maintenance services to smaller airlines.

Although TEAM is still successful in winning third party business, margins are poor and, we have been informed, currently appear to be declining. We understand that current work is being bid for at rates of c.IR£30 per hour, although actual turnover per chargeable hour in 1993/4 in third party aircraft overhaul (“AOH”) was IR£33.1, in line with the IR£33.0 expected by the Cahill plan.

Internal matters

3.2Important internal issues that we have become aware of include the following:

Management is in transition, with a new chief executive and new managers in many posts. It has taken management some time to come to terms with the opportunities offered by TEAM’s independent status. In the course of our work last year, we formed the view that the Company’s senior management, although strong in the areas of marketing and engineering, gave insufficient priority to other commercial issues and to finance. We had doubts as to whether they were sufficiently vigorous to achieve the required cost reductions. We understand that since then the Company’s senior management has been significantly restructured.

The Company’s workforce is highly skilled and has a reputation for producing a high quality product. However, the conclusions of work carried out by AMA were that the effectiveness of TEAM’s workforce is low in world terms and their cost is high. Key issues included:

- Shift and holiday patterns lead to high overtime payments being necessary to deal with the Company’s highly seasonal AOH workload. Overtime payments represented 19.7% of total direct wages in 1993/4 in AOH and Component Overhaul (“COH”) combined, surprising given the fact that the Company is working far short of capacity. This compares unfavourably with sister company Airmotive, where production patterns are similar, but where direct staff work much more flexibly.

- Agreements with the workforce prevented management from accurately monitoring unproductive time.

- There were surplus levels of supervisory staff and residual trade demarcation barriers. Additionally, changes were required to work card formatting.

The capacity given by the new Hangar 6 facility was effectively required only for very short periods of the year. This substantially increases the Company’s fixed cost burden.


3.3Important concerns are:

According to draft accounts for 1993/4, the Company lost IR£12.9m at the operating level, compared to a loss of IR£1.1m in 1992/3. The reason for this increased loss is the fall in turnover of IR£25.2m from IR£111.5m to IR£86.3m, accompanied by a reduction in operating costs of only IR£13.4m. While operating costs include some asset write downs and provisions, essentially the major items are direct labour, other direct production costs and administration costs. We understand that a large part of the cost fall achieved in 1993/4 is due to those costs which vary directly in proportion to turnover, such as material costs.

The Cahill plan expected a slightly greater reduction in turnover in 1993/4, by IR£32.5m to IR£79.0m. However, it also expected a greater reduction in operating costs, by IR£35.9m to IR£80.8m, giving an operating loss of IR£1.6m. Most of the cost reductions expected were in the area of direct and indirect labour costs. Although significant numbers of staff have left the Company, the cost reductions have not been achieved to the level expected.

The draft accounts show a retained loss of IR£32.1m. This is made up of the operating loss of IR£13.0m, correction of an underprovision for restructuring costs in 1992/3 of IR£6.4m, provision for further redundancies of IR£9.0m and finance/tax costs of IR£3.7m. The Company’s balance sheet now shows that it has net liabilities of IR£13.9m and is therefore technically insolvent.

At the start of 1993/4, the Company had net finance debt of IR£51.4m, 282% of its net assets of IR£18.2m. The projection for 1993/4 in the Cahill plan expected a cash outflow of IR£11.0m, to be offset by an equity injection of IR£25m. In fact a cash outflow of IR£12.8m was experienced during the year. Most of this was due to payments under the restructuring programme. Otherwise, the business was broadly cash neutral for the year, with reductions in trade balances owed by Aer Lingus, which had been behind in its payments at 31 March 1993, offsetting the operating losses. No equity injection was received, leaving finance debt at IR£64.2m. However, most (IR£39.3m) of this was amounts due to Aer Lingus, up from IR£18.4m in March 1993.

The balance sheet is clearly in a very poor state. However, we believe that it would be wrong for the Company’s shareholder to restructure the balance sheet by way of an equity injection until TEAM can show that it has taken the steps necessary to achieve profitability.


The Cahill plan

4.1A key part of the Cahill plan was the three year cost reduction plan developed to introduce international standards of labour effectiveness to TEAM. This was driven by the requirement to reduce charges to the parent company to reflect more closely rates available in the market. Additionally, given the capital investment in the Hangar 6 facility, it was clear that TEAM’s route to long term profitability lay in increasing its share of the third party market. To do this, TEAM would have to improve competitiveness. The only way that this could be achieved would be to improve working practices to best international standards.

4.2The plan set targets for each of the main activity areas as follows:

An increase in AOH labour effectiveness from 1200 manhours per annum (55% of paid hours) to 1350 manhours (62%) by 1996/7.

A reduction in line maintenance staff numbers from approximately 250 to 147 as soon as possible.

Although the other operating units generally had higher effectiveness levels already, significant gains were planned to be achieved by 1 April 1994.

4.3The principal means by which these targets were to be achieved were as follows:

Removal of surplus layers of supervisory staff.

Removal of residual demarcation practices.

Revisions to shift and attendance patterns.

Revisions to work card formatting and content.

These proposals were planned to result in a reduction in TEAM’s staffing of approximately 250. In addition, TEAM’s management proposed to continue its ongoing programme of reskilling certain employees.

4.4These targets were developed into a more detailed action plan by TEAM’s management in conjunction with AMA. This plan was revised in the light of changing circumstances, but key final proposals included:

Revisions to pay: 10% pay cut and freeze on national increases to 1995; shift rates cut by one third; overtime rates cut from double to time and one half or from time and one half to time and one quarter as appropriate; and bank holiday pay halved.

Increased flexibility: staff to work 6 day, 48 hour week in busy season; up to 2½ months paid leave in summer, timing at management’s discretion; elimination of demarcation between supervisors and other staff; electronic clock-in; and aircraft handler and maintenance assistant grades abolished.

The LRC proposals

4.5These proposals were not agreed by the union representatives of the workforce. Since, the LRC has produced a set of final settlement terms. We have not had access to the full LRC report, but have seen its recommended terms. These largely accord with TEAM management’s proposals, with the following major exceptions:

No overall pay cut is proposed, but a pay freeze is recommended to July 1996.

A standard rate of time and one half is to be applied to all overtime, including the extra 8 hours to be worked per week in the busy period.

4.6An updated set of financial projections covering the period to 31 March 1997 has been prepared by TEAM’s management reflecting the LRC proposals. These are summarised overleaf (all figures in IR£m).

Projections for TEAM















Operating (loss)/profit





Pre tax (loss)/profit





Net cash (outflow)/inflow before equity injected





Borrowings before equity










Capital injection










4.7In broad terms, these projections reconcile back to those included in the Cahill plan, but with the benefits of the cost reduction programme delayed by approximately one year, together with the effects of various known changes since the date of the original plan.

4.8We have carried out a brief review with the intention of understanding the implications of these projections for the Company, although in the limited time available we have not been able to check the projections in detail in order to ensure that they represent the LRC proposals accurately. In summary, we believe the key issues raised by the projections are as follows:

Turnover is projected to decline over the next two periods. This fits in with management’s view of the market over the coming period. Despite this, cost savings enable the Company to return to profitability at the operating level in 1994/5 and at the pre tax level in 1996/7.

After an injection of IR£31.4m and a cash outflow in 1994/5 of IR£29.6m largely due to redundancy payments, borrowings stay at approximately their current level.

The turn-around in profitability projected for 1994/5 is based on immediate full implementation of the LRC proposals. Realistically, we believe that this is unlikely to be achieved and therefore the projected profit improvement is very optimistic.

4.9The implications of these projections are as follows:

The LRC proposals appear to provide the Company with a route by which it can return to profitability and generate cash.

Even after a very substantial capital injection, the Company’s financial position will remain very poor. This suggests that more radical action than that set out by the LRC proposals is required. However, any delay in implementing these proposals, or others designed to have a similar effect, could lead to very serious consequences for TEAM’s continued viability.


5.1The craft union proposals in relation to the future of TEAM are set out in their document “Destination the Future”. This document is well presented and shows a clear commitment to the future of the Company on the part of the unions and their members. However, we also consider that there are a number of shortcomings as to its content.

5.2We identified the following key issues during our review of the document:

It contains a substantial number of criticisms of management’s past performance. Some of these are justified. However, substantial changes in management personnel have taken place over the last year or so and so the relevance of the criticisms is now open to doubt. Further, the criticisms generally are not put constructively and therefore are only of limited help in devising a strategy to take TEAM forward.

The document appears to be predicated on the assumption that TEAM can trade its way out of its current financial problems without addressing its cost structure. In our view, the issue of costs is the most important facing the Company at present.

The solutions presented by the document are generally vaguc and aspirational in nature. For example, although the unions have apparently identified savings of IR£14m, the document does not set out where these savings might arise and how they might be achieved. The document also refers to the unions’ ideas on how to achieve cost savings, greater productivity and increased activity levels. However, the means by which these will be brought about are not explained, beyond general references to increased focus on sales and marketing, new product lines, better customers and a restructuring of procedures and accountability.

The craft unions’ proposals are not supported by projections showing the financial effect of the changes that they suggest. This is despite the fact that we understand that their financial advisers were given access to TEAM’s finance department and management accounting information. It is therefore difficult to assess how soundly based their proposals are in the context of the Company’s precarious financial position. Further, both the extent and the timing of their likely impact on the Company remain unclear.




The draft financial statements of the Company for 1993/4

The trading and cashflow projections of the Company for the three years ending 31 March 1997

Our report on the financial affairs of the Company dated July 1993

The Aer Lingus “Strategy for the Future” document of June 1993, commonly known as the Cahill plan

The recommended terms of the Labour Relations Commission dated 14 June 1994

The document “Destination the Future” produced by the Aer Lingus craft unions

Discussions with and information provided by certain of the directors and senior management of the Company, principally John Howard, Finance Director




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TEAM is in the international aviation market with IR£53.2m of its market or 68% of its turnover expected to be earned from foreign operators in the next year.

The market environment in which TEAM operates has deteriorated seriously since the Company’s foundation. The situation three years later is that supply of third-party maintenance is far exceeding the demand. This over-capacity is likely to continue for some years to come. In this environment, TEAM’s inability to change with the market has made it uncompetitive.

The reasons for the down-turn in the fortunes of this sector of the aviation industry have been well documented. They include:

The world recession that followed the Gulf War. This reduced international travel demand and consequently the growth in the world aircraft fleets.

An accelerated withdrawal of older aircraft from the world fleet, (bad for maintenance companies), due to spiralling fuel and maintenance costs. For example, the number of grounded aircraft is 1,103 as of January 1994 compared to 962 as of January 1992.

New entries to the third-party maintenance market. These include: British Airways - Cardiff; Shannon Aerospace and Garuda to mention but a few. There has also been the re-entry of major airlines like British Airways and the entry of contractors who were previously servicing military aircraft.

There is continuous and sustained effort by both aircraft operators and manufacturers to reduce maintenance costs and down-time without impinging safety standards - this in effect means price reductions.

The intense competition that now exists in the aircraft maintenance market has forced the industry to change the way it does business. There is a classical “shakeout” occurring in the industry which will result in winners and losers.

Those organizations that fail to change will be forced to exit the market.

Part of the dramatic change that TEAM has had to face arises from the decision of Aer Lingus to replace its older fleet of B737-200 and B747-100 aircraft with modern Boeing and Airbus equipment - maintenance man-hours are up to 60% lower than the 1993/94 actual.




This is a major structural modification required on all older generation B747’s when the aircraft has reached 20,000 landings.

The work consists of:

a.Replacement and re-enforcement of selected structure in the nose area of aircraft - Body Station 140-520 (See diagram attached).

b.To accomplish this work a complete strip of fixtures and furnishings is required to gain access to the affected areas.

c.The structure involved includes body skims, tearstraps, frames, doublers, splices, sills, stringers, intercostals, stiffeners, etc.

d.For most affected components the existing parts are replaced with parts of improved shape and increased thickness.

The down-time and man-hours in the marketplace for this work is now highly competitive:


42-45 days

Boeing Standard - 28 days



Boeing Standard - 27,500


Man-hour rate




US$1.15m - US$1.20m approx

The competitors are: KLM; Lufthansa; FLS; Bedek - Israel; HAECO - Hong Kong; SASCO/Singapore Airlines; ASTAA - Australia and in the United States - Northwest; United Airlines; Mobile; Page Avjet and Evergreen.

TEAM studies, based on Boeing’s experience, show that we need to carry out five of these modifications before we can manage to reach the “competitive” down-time and man-hours.


Our first check is estimated to take 48,000 man-hours with ALL work practices improvements implemented.

Total “unrecovered” cost will be 50,000 man-hours over the five checks which will cost US$2.475m.

The overall cost of getting the Section 41 business is US$4.5 million and is made up of:



Loss of unrecoverable man-hours for the first five aircraft


Loss arising from uncompetitive pricing for the first five aircraft


Training of staff - Payroll/Expenses







The value of business based on “trained staff” and meeting competitive man-hours and down-times is:




TEAM Charge

Labour and miscellaneous material


Market Rate

Labour and miscellaneous material



per individual check based on TEAM’s current cost structure


There is also the presumption that we can find customers willing to commit their aircraft to increased ground time during the “training” period on a “free” basis to TEAM.

There is no evidence to show that if Section 41 is combined with other work that we are likely to earn a premium from say the ‘D’ check that might accompany the Section 41. At present the ‘market rate’ prevails and we need to remember that it is a ‘buyer’s market’.


The overall market in terms of aircraft candidates for Section 41 work was 684 units, 203 of which are already complete - this leaves a balance of 481 units.

If aircraft are excluded from operators who have their own in-house capability, older aircraft which are presently grounded and an estimated number of aircraft will be ‘scrapped’, then the real available market is 280 units.

Based on past experience of the number of zones completed this will equate to 5.6 million man-hours (not 9 million as stated by the Craft Unions).

The expected annual market share may be distributed as follows:

Strong ‘third-party’ maintenance bases e.g. SASCO, HAECO, ASTAA, etc


Operators with in-hours capability e.g. Lufthansa, KLM, Air France, PAL etc




TEAM will need to ‘price aggressively’ to obtain any of this business and might expect to gain between 10 and 30 aircraft over the 10 to 15 year period. On average this will approximate to 40,000-60,000 man-hours per annum and could account for 7% of our total aircraft overhaul business.

Initial write-off costs will be US$180,000 for aircraft check which combined with the ongoing ‘uncompetitive’ price makes the realisation of any potential from this sector totally dependent on achieving a lower cost base and flexible marketing conditions.






This is a new modification which will commence in late 1994 and is dependent on the manufacture and issuance of the modification kits by Boeing. B747 has had problems with struts over several years. A total of 26 Airworthiness Directives and 58 Service Bulletins have been issued. Two fatal accidents involving EL AL and China Airlines have resulted in the issuing of a strut modification package as a final fix. This programme must be accomplished within 7 years from the end of 1994. Older aircraft must be modified within three years from end of 1994. The content of the modification varies and man-hours required are between 9500 and 14,000 with an aircraft down-time of 34 elapsed days. The programme is applicable to approximately 1,000 of the existing B747 aircraft fleet.


Number of aircraft to which modification is applicable



Operators with In-house capability



Balance available to third-party maintenance



Average work content per aircraft



Total available market



Duration of programme (from end of 1994)



Average available manhours per year



TEAM’s analysis has shown that the total available market is nearer 6.7 million man-hours rather than the 15 million suggested in the Craft Union’s document.


Primary Contractors

KLM, BA, Lufthansa, Air France, HAECO, SASCO, Singapore, ASTAA, IAI - a total of nine.

Secondary Contractors

Evergreen, Air Canada, South African Airlines, Qantas, Air New Zealand, TRAMCO, Mobil, Lockheed, Page Avjet - a total of nine.

Preliminary review would indicate that the primary contractors (including TEAM) would get 72% of the business and on an equal share basis this will equate to 69,000 man-hours per annum.

The programme is expected to peak in 1995 and consequently primary contractors could expect over 100,000 manhours each in the first two years. Many of the primary contractors have large fleets to which mod is applicable and this could minimise their activity in the market place. The strut modification will tend to be carried out during the down-time of an annual ‘C’ or ‘D’ check.

The above estimated market man-hours assumes that we can get the same share of the market as our primary competitors, if we:

a.get into the programme as early as possible and establish our reputation.

b.Ensure that we are market leaders in strut mod like SASCO and HAECO in Section 41.

c.Offer fixed prices and guaranteed down-times that are attractive in the market.

All of this assumes that our cost structure is competitive and that we have flexible working conditions.




Cargo Conversions involve the adaption of passenger aircraft. Most of the activity in this sector presently is in the B737-200, -300, B727, DC-8 and B747 aircraft. Conversions are also offered on BAe 146, DC-10 and L10-11 aircraft. Most of the conversion activity takes place in North America. Alenia in Italy has a longstanding agreement with McDonnell Douglas for cargo conversions on Dc-8 and DC-10 aircraft. To enter the cargo conversions market a facility must have an STC (Supplemental Type Certificate) issued by the FAA. To obtain such a certificate would require an extensive investment in Engineering. Other possibilities exist such as purchasing the design and kits from holders of STC certificates.


The facilities which have modified the B747 for freighter operation are Boeing, Bedek and Chrysler Technology. Boeing use their own STC and will not allow others to use it. EL AL developed their own at a reported cost of $3M three years ago. These have been in the market looking for cargo conversions and have not been successful. They have recently got a conversion but they have used the GATX STC. The inability of Bedek to secure work is an indication of the state of the market.

GATX, a US based leasing company has also developed its own STC as it hoped there would be a large demand for B747 freighter aircraft. This market has not developed and GATX has several aircraft, which it purchased for subsequent conversion, presently stored.


This programme is dominated by the US based Pemco Aeroplex. Pemco has been in the business for several years and has converted over 20 aircraft and have a backlog of 20 more. Several companies have examined this market and would like to get a share of the action. To enter the market would require an investment of up to $5M and would require access to a B737-300 for up to 12 months while development is in progress. Pemco are not interested in joint ventures or licensing of their STC.

B737-200, B727, DC-8

STCs for the above types are available on the market and many companies in North America carry out cargo conversion. Due to the availability of STCs competition is very keen. Many companies use experienced contractors who specialise in this and labour rates are in the region of $30-$35 dollars per hour. This is a market we can follow up but we must have a low cost structure and ability to bring in contractors with the necessary experience.




This is only applicable to 143 aircraft. Of this number 60 have been or are in the process of being modified by operators having in-house capability. The present market for this is less than 80 aircraft with a potential of 400,000 manhours. Our share of this market would be less than 50,000 manhours. A SWOT must be done at this stage. We have no problem quoting for this modification and have successfully carried out such work on two Virgin Atlantic aircraft. We actively chase this work which is invariably part of a “C” or “D” check.


This applies to 348 aircraft. 165 of these are being accomplished by airlines with their own capability. The market size was in the region of 1,830,000 manhours. Most aircraft are now modified and the market is less than 800,000 manhours. Our expected share of this market would be in the region of 150,000 manhours. This contrasts with the Union’s blanket statement that 5 million manhours are available on this work

We have successfully carried out this modification on Aer Lingus, Virgin Atlantic and UPS and actively look for this work which arises as part of the larger “C” and “D” checks.


TEAM has no problems installing hushkits on any aircraft types in production. This ranges from the simpler kits provided by Federal Express to complete re-engine installations provided by Valsan. We have quoted on B737-200 work but have not been successful. The market for this work is very limited and the only B737 kits fitted have been Lufthansa, Air New Zealand and now possibly USAir.

Lufthansa and Air New Zealand have accomplished their own conversions. The market has not developed to the extent that the kit manufacturers would like and this has been highlighted by the recent bankruptcy of Valsan who provided the re-engine kit for the B727.




The Aer Lingus Board meeting of December 1990 approved the establishment of TEAM Aer Lingus as a 100% subsidiary of Aer Lingus with a commencement date of 01 April 1991.

The aviation industry had just come through a boom period (peaking in 1988/89) and industry experts had forecast a substantial under-capacity of quality third party maintenance facilities in the near future. TEAM was established to take advantage of this potential shortfall in capacity and as part of the restructuring and reorganisation of the Maintenance and Engineering Division within Aer Lingus. The establishment of TEAM would allow better focus on quality and costs within Maintenance and Engineering and consequently, result in an improved service to Aer Lingus. Although conditions in Aer Lingus’ financial status had deteriorated by December 1990, it was decided by Board that no advantage would be derived from postponement. This decision was reinforced by the fact that the third party maintenance demand for widebodied aircraft continued to rise.

The trading projections for TEAM indicated a profit after tax rising from £5.5m in 1991/92 to £6.7m in 1993/94. Cumulative profits over this period were projected at £17.9m.

As it subsequently transpired, TEAM was launched at the commencement of one of the worst and longest recessions in aviation history. It is now well documented that the Gulf War accelerated and exacerbated the recession. Indications are that this recession is only now beginning to lift. Many airlines, Aer Lingus among them, face extremely difficult market and financial circumstances. Deregulation within Europe and intensive competition from US carriers have made the competitive situation extremely strenuous.

The civil air transportation industry took a nose dive in economic terms and the secondary maintenance market followed rapidly on its heels. Soaring fuel prices made the older, less fuel efficient, jets unattractive for airline customers. Many of these older aircraft (e.g. DC9, B727), which were very important to the maintenance business because of their potential work content, were ‘parked’. In addition, the ending of the Cold War and the reduction of military contracts brought additional maintenance operators onto the shrinking market.

Although TEAM, to its credit, managed to make a net profit of £2.9m in its first year trading (the year ending 31 March, 1992), the dramatic unforeseen shift in economic conditions dragged the young company down, as with many other companies in the aviation industry.

The main features affecting TEAM’s trading over the intervening period have been:-

-Significant reduced work from Aer Lingus (Actual Revenue in 1993/94 was £41m as against £76m projected in the December 1990 paper).

-Accelerated withdrawal of older aircraft by operators.

-Increase in capacity due to new start-ups, reduced military activity resulting in contractors targeting the civil market, and aggressive marketing by existing operators.

-These have substantially reduced available volumes and labour yields,

The net effects of this dramatic change in the market have been

(1)To reduce TEAM’S revenues in the two years to March 1994 from £258m (per original projections) to £197m (24%)

(2)To change its projected profits for these two years of £14.5m into a loss of £57.0m


(3)To worsen its debt position to £64.2m at 31st March 1994 from a projected level of £31.4m.

A comparison of the projected and actual balance sheet financing for TEAM for its first three years is attached (Appendix A).

The deterioration in TEAM’s trading and financial position was recognised by TEAM management in November/December 1992 and proposals to address the problem were put to all the employees of TEAM in January 1993 in a programme entitled “New Business Plan”. Subsequently, this programme was reviewed and incorporated in the document “Strategy for the Future” relating to Aer Lingus Group, approved by Government in June 1993.

This plan was prepared by TEAM management, with Aer Lingus Group Management, Stoy Hayward (an international firm of Chartered Accountants and Management Consultants) and Aircraft Maintenance Associates (a firm of international standing in the aircraft maintenance industry).

The purpose of this plan - “Restructuring TEAM for a New Market” - was to enable team to become competitive in its industry, thereby securing the survival of the company and of the jobs it provides, and preparing it to become profitable and cash positive in the future.


TEAM’s core businesses are built around selling manhours. In both Aircraft Overhaul hangars and in the Component Overhaul workshops. The work done for customers is measured by the number of manhours required.

Allied to this are, of course, the other aspects of the work of aircraft maintenance, such as materials, component replacement, planning, engineering and other forms of technical support. However, these aspects are dependent upon, and operate in support of the manhours worked and charged for.

TEAM’s business is ideally suited to Ireland. It is extremely labour-intensive, and requires a well-educated and well-trained workforce, capable of developing its skills on an ongoing basis. The aircraft maintenance industry is international and the work associated with it is, obviously, mobile. The consequence of this is that any maintenance company must be capable of competing internationally, and on three distinct parameters : Quality, Turn-around and Cost.

TEAM’s image as a quality organisation, capable of quality work, is well-known and justifiable. Similarly, it has consistently improved its ability to deliver product to agreed dates. Its sole major difficulty lies in its cost base, which is significantly out of line with its competitors.

This cost can simply be explained in terms of the cost of producing one hour’s work in TEAM and this was one of the main thrusts of the Restructuring Plan. In summary terms, the cost of a manhour is a factor of the total costs of the organisation - payroll, overheads, interest charges, etc., less those support activities such as materials, planning, engineering which generate revenues and profits, divided by the number of manhours sold/to be sold.

Appendix B shows the manhour cost for the years 1993/94 and 1994/95. The following schedule shows the composite manhour cost for each of the four years of the Restructuring Plan. “June 1994” column is the current position, including the L.R.C. findings and “June 1993” column shows the same data as per TEAM’s Restructuring Plan:-


AT JUNE 1994

AT JUNE 1993




1993/94 (Actual)












These projections assume;

-estimated improvements in labour effectiveness (chargeable manhours as percentage of total paid time) in line with the settlement terms proposed by the Labour Relations Commission

-realistic estimates in regard to the seasonal spread of work available from the work.

The sea-change in the market in which TEAM competes has resulted in a dramatically lower revenue per manhour. The actual rate at which work is currently undertaken is approximately £33.00, and it is TEAM Management’s belief that this is likely to decrease rather than increase. At this level of revenue per manhour, TEAM cannot compete and cannot survive, and immediate steps must be taken to implement the recommendations of the Labour Relations Commission even to achieve the improvements set out above.

As the cost per manhour is also a function of volume, the Craft Trade Unions have proposed that new markets and new products be developed, thereby increasing the manhours sold and reducing the cost per manhour as a result. This has been dealt with in the Marketing Section of this submission; the reality is that every effort has been made and will continue to be made to increase volumes, but the current and projected view of the market does not lend credence to the idea that there are incremental amounts of work available to TEAM to redress the cost issue.


The Restructuring Plan for TEAM addresses TEAM’s competitive position in two ways:-

(1)By introducing changes which improve TEAM’s competitiveness, with no cost impact.

(2)By taking specific steps to improve TEAM’s cost base. This amounts to savings of IR£14m consisting of:-

(1)Payroll savings arising from 250 voluntary terminations


(2)Payroll savings arising from changes in work practices and work patterns


(3)Non-payroll (overhead) savings, such as establishment costs, and finance costs




(1)Payroll savings are in place in relation to 250 early retirements/voluntary severances. At this point, 195 employees have left, and the balance will be implemented as soon as the Restructuring Plan is in place. The vast bulk of these terminations are in non revenue-earning areas.

(2)Payroll savings arising from work practice/work pattern changes have yielded less than IR£1m on an annualised basis. It is vital that the balance of these savings be achieved as soon as possible.

(3)Non-payroll savings have been put in place in line with the Restructuring Plan.

As a foot-note, it should be borne in mind that TEAM’s trading cost profile in 1993/94 was as follows:-










Finance Costs









Other costs, such as materials and subcontract costs are revenue and profit-generating.

It is clear from the above that TEAM’s major cost exposure is in payroll which is reflected in the savings sought.


TEAM’s current financial position is dangerously weak. It has negative equity of £16.2m and borrowings of IR£62.9m at the end of May 1994. The company is likely to exceed its borrowing limits within the next couple of weeks. The existence of Aer Lingus guarantees has enabled the financial institutions to continue to support the company. To compound the difficulty, TEAM’s customers are withdrawing contracted work from the company because they fear having their (expensive) assets locked in, and its ability to attract new potential customers is being seriously compromised.

The equity injection from Aer Lingus of IR£25m is contingent upon reaching agreement with the Trade Unions in TEAM on the measures detailed in the Labour Relations Commission report. Receipt of this equity will not in itself save TEAM. It will, however, provide some respite in relation to the current cash crisis. Agreement on the basis of the Labour Relations Commission report will provide the basis for the agreement with TEAM’s parent company of a stable medium-term financial structure.

Appendices C, D, E and F contain projected Financial Statements for the years 1994/5, 1995/6 and 1996/7. It should be noted that the projected loss of IR£3.6 million in 1994/95 reflects two months actual results and ten months budgeted results - it does not reflect the negative impact of revenue lost over the last number of weeks.

Appendix A
























Share Capital







Shareholder Loans




Revenue Reserves







Shareholder’s Funds







IDA Loans/Grants







Total Debt














Note: Projected figures are those in Aer Lingus Board document on setting up of TEAM - December 1990.

Appendix B









Basic pay



Holidays, Waiting, Absence, Breaks









Overtime cost (incl. PRSI)






Indirect Supervisors and AMAs






SBU Overheads/Depreciation/Finance



Co Overheads



Total cost per hour



Chargeable Manhours 000’s



Appendix C

TEAM Aer Lingus

Projected Profit & Loss Account

March 1994 to March 1997



Revised 16 June 1994


(All IR£’000)

















Direct Costs





— Payroll





— Materials





— Subcontract





— Total





Contribution Percentage





Indirect Costs





— Payroll





— Materials





— Depreciation





— Total





Gross Profit





Sales & Support





— Payroll





— Overheads





— Depreciation





— Total





Operating Profit





Exceptional Items/Contingency





Profit/(Loss) Before Interest & Tax





Finance Charges





Profit/(Loss) before Tax










Profit/(Loss) after Tax





Appendix D

TEAM Aer Lingus

Projected Funds Flow Statement

March 1994 to March 1997



Revised 16 June 1994


(All IR£’000)










Profit before Interest & Tax












Tax Paid








(Inc)/Dec in Stocks




(Inc)/Dec in Debtors




Inc/(Dec) in Creditors








Operating Cash Flow




Disposal of Surplus Rotables




Share Capital








Capital Expenditure




Repayment of IDA Grants




Other - Severance












Appendix E

TEAM Aer Lingus

Projected Balance Sheets

March 1994 to March 1997



Revised 16 June 1994


(All IR£’000)












Fixed Assets





Current Assets





- Stocks & WIP





- Debtors





Total Current Assets





Current Liabilities





Working Capital





Fixed Assets Less Current Liabilities





Investment Grants





Severance Provisions










Financed By:





Shareholders Funds





Share Capital





Retained Revenue





Total Shareholders Funds










Group funding





External Funding





Total Funding










Appendix F

TEAM Aer Lingus

March 1994 to March 1997

Summary of Debt



Revised 16 June 1994


(All IR£’000)












External: FNBS





External Short-term facilities (IR£4,000)





IDA Loan










Group : Termination Funding Facility





High-coupon Section 84 (B of I)





ALT Loan (IR£7,600)





ALT Loan ($2,000)





ALT Hangar 6 Loan





ALT PAL/BMA Loan ($8,500)

























Repayment of Funding


(All IR£’000)












External : FNBS





IDA Loan










Group : ALT PAL/BMA Loan ($8,500)




































8/10/12 HR DUTIES








Tribunal Adjudication

Supervisor/Manager Work Down


Full Usage


Attendance Recording

Work data collection










Company Performance



Full flexibility is required to roster staff at times to suit our customers. This is needed to meet short turnaround checks and short term contracts. Flexible work patterns are essential to enable us to match the workforce with the workload, hence rosters must be responsive enough to change rapidly to meet business demands. At present this can only be achieved through use of overtime. We compete in a global market, with some of our competitors on our doorstep. Shannon Aerospace in Clare have an agreement with its Union which is totally responsive to customers and allows their staff to attend at work only when work is there.

TEAM’s business cycle is very much season oriented and this varies to different degrees from Unit to Unit throughout TEAM. Accordingly we must deploy Staff within those units in a manner that maximises attendance during their respective peak and valley periods. More efficient management of these peaks and valleys will have a major bearing on our cost structure and effectiveness. It is essential that it is clearly understood that we do not want to have “seasonal workers”. We want to have year round employment for workers with 52 weeks pay per year.

Specifically we require the existing working agreements to reflect the following:

Seasonal Leave

For the peak periods Staff may be rostered forty-eight hours per week.

For the valley periods Staff may be rostered forty hours per week.

Staff may be rostered in the peak periods to work six days per week for a maximum of thirty weeks per year.

Time accumulated or credited for Seasonal Working is on a time for time basis.

This time to be accumulated in days only and to be rostered off in block in the valley periods to suit the respective Business/Support Unit.

Day Working

Day working, Monday to Saturday, with a maximum of a five day week.

On day working we need variable starting times to cover the period from 0800 to 2000. This would be limited to four starting times.

Shift Working

An early duty to start one hour earlier i.e. 0600.

We need to roster 8, 10 12 hour duties where required.

On roster changes we need the ability to change the roster one week before commencement and as often as the operation demands.

Annual Leave

We need Staff to be on leave when there is little or low volumes of work and be present when the work occurs. Consequently, we require that Management determine the time at which leave is taken:

Annual leave will be allocated by Management in the valley periods.

All leave to be accounted for in hours to reflect the varying lengths of days/shifts worked.

Temporary/Contract Workers

The Management of the peak and valleys brought about by the cyclical nature/seasonality of our business is fundamental to controlling costs and improving effectiveness.

There are occasions when our manpower resources cannot match the volume of work, or where we have particular skill shortages. In order to secure such work in a competitive way we need to utilize temporary workers or contract workers where they prove to be more cost effective.

By supporting the core permanent workforce in this manner we can create employment in TEAM, add value to the Company and underpin our jobs.


The working practices which currently exist in TEAM are seriously out of line with our competitors and drive our costs upwards. We simply cannot afford to have demarcation practices. A common sense approach to work is essential to TEAM’s survival and to allow us to at least match the best practices of our competitors. We must have an agreement and a work ethic which allows all staff carry out functions they are required or directed to do. This includes Managers and Supervisors. The intent of these proposals is to remove demarcation between categories, not to take away work from any one group. We must get to a position where the flow of work is not interrupted.

Specifically under this heading we require:

The total elimination of demarcation.

That the adjudication of the Special Tribunal be adopted and implemented with the agreement/co-operation of Staff.

That Supervisors/Managers be allowed to work down and carry out the tasks of those they supervise.

That Approved Staff use their Approvals to the fullest extent as permitted by Legislation and in accordance with regulations laid out in Company documentation.

All Staff must record their attendance in and out of work on the Prod Plus clocks.

All staff will use Prod Plus as required as a Production Tool for data collection and retrieval.

All Staff accept and participate in whatever training is deemed necessary to carry out their role.

The practice of giving additional lieu time for working overtime on rest periods will not be continued. This is an exceptional practice in TEAM. However, where the operation demands it, we will require Staff to work such overtime for the appropriate overtime rates, as is best industry practice.


We are reducing and improving the Management/Supervisory structure in TEAM in all areas and to this end we need to use this resource in the most effective manner possible. As already stated Management/Supervisors must be allowed to work down and carry out the tasks of those they supervise. Further to this it is also an essential requirement that Staff report and accept direction from any Supervisor deemed appropriate by Management.

Supervision will be responsible for all aspects of Management including control, discipline and appraisal of their staff.

Where Management identify a requirement for deputy/acting Supervisors, these will be appointed by Management. Performance on the job, including attendance will be a first consideration. Where qualifications and/or potential are assessed as being equal, seniority will be the deciding factor.

Competitive Pay Arrangements

The pay rates we have in TEAM are out of line with the marketplace. Our proposals in this regard are not designed to bring us back to this level but are simply the minimum necessary to help us survive and make us competitive.

Pay Freeze - No Increments

This again is an essential element of the Survival Plan. There is no provision within the Plan to pay increments due from 01 April this year, or national wage increases under PESP (final phase due July 1993) or under the programme for Competiveness and Work. We advised the Unions of our inability to pay in writing last year. You will be aware that this pay freeze was accepted by SIPTU in the Airline’s Plan.

Basic Pay

A 10% pay cut is necessary to restore our viability. This is a difficult, but none the less an essential measure. We are striving to minimise the impact on our lower paid staff and propose the following for staff earning:

below IR £10,999


between IR £11,000 - 13,999

5% (subject to min of IR £11,000)

more than IR £14,000

10% (subject to min of IR £13,299)

Overtime Rates

It will continue to be TEAM’s policy to reduce overtime working to a minimum, however it will remain a requirement for operational reasons.

We propose to reduce the payments from the existing:

Double time to time and a half

time and a half to time and a quarter

We also propose to discontinue the practice of paying ‘Meal Allowances’ for staff who on completion of their duty agree to stay on for overtime.

Shift Pay/RDA

We require one common reward system for Shift/RDA payments for all staff in TEAM. We propose that the following Rates and conditions apply.

Premium Rates:


£ 5.00


Annual Leave

Average ★





Sunday/Public Holidays






Regular Night


Actual if on a fixed roster.

Full shift to be worked to qualify for premium

No premium to be paid for duties starting on or after 0800 or finishing on or before 2000. Shift premium will not be paid for straight duties on the days before or after a shift duty.

No premium for Saturdays. No premium for days in lieu.

Night Duty must be a duty which goes through 0300 hours.

Regular night duty compensation applies only to staff who are exclusively on night duty.

No compensation for movement from shift to non-shift duties.



-Starting before 0800


-Starting on or after 0800 and finishing on or before 1930


-Starting after 1130 and finishing after 1930 hours.


-Any duty which goes through 0300 hours

Approval Pay

The continuation of payments for Approvals not being used in our business cannot be sustained. All approval payments, Engine, Airframe, and Avionic associated with the following types will be discontinued forthwith.

B707, B720, BAC1-11 and SHORTS

In the event of us securing work on any of these types appropriate Approval Payments arrangements will be put in place.

Bank/Public Holiday compensation

We propose that entitlements under this heading be one of the following which will be granted at the Company discretion.

A paid day off on the holiday


a paid day off within a month


an extra day’s annual leave


an extra day’s pay


Our current productivity schemes we have in TEAM will be discontinued. The schemes have outlived their usefulness, drive up costs and make us uncompetitive.

Any future scheme must be based on Company performance.

Essentially the achievement of all these issues is necessary to ensure the Company’s immediate survival and the retention of the majority of jobs in TEAM.

Settlement terms for the dispute(s) in TEAM Aer Lingus

It was not possible, despite the most recent conciliation talks between the parties on Monday, 6th June in the Labour Relations Commission and the involvement of I.B.E.C./I.C.T.U. to obtain a basis for the commencement of realistic negotiations. The parties’ positions remained entrenched. During this investigation a similar position pertained as the parties gave no indication of an ability to recognise and discuss a common agenda that would lead to an agreed survival plan. The Commission, mindful of the perilous situation of the Company and with a view towards maintaining the employment of the TEAM workforce and industrial peace, makes the following final settlement terms:

1.Special Tribunals/Committees

The adjudications of the Special Tribunal/Committees established earlier under the aegis of the Labour Relations Commission should be accepted and implemented.

2.Local Settlements

All undisputed points of agreement reached between the parties in negotiations since December 1993 and not referred to elsewhere in these proposals should be implemented.

3.Basic Pay

There should be no downward revision of basic pay as sought by the Company, however, as a contribution to the cost base of the Company a pay freeze is necessary.

4.Pay Freeze

The Unions should agree to a pay freeze including increments until July 1996.


In the exceptional circumstances applying a single premium rate of Time plus ½ should apply to all overtime.

6.Seasonality/Flexible Working

The nature of the business is seasonal with highest demand in the September to May period because of high volume usage of air transport during the summer period. A flexible working pattern should be agreed to meet existing business demand as follows:

(a)For peak periods of up to 30 weeks p.a. staff may be rostered to alternative 5 and 6 - day working weeks. (5 and 6 - day rosters to be dictated by the needs of the business).

In regard to hours between 40 and 48 in the peak period a notional premium of Time plus ½ should be implemented.

The practical application of this premium should be as follows:-

8 hours credited towards summer leave to be accumulated in days only and to be rostered off in block in the valley periods to suit the respective business/support unit. Further 4 hours to be paid weekly.

Time above 48 hours to be paid at overtime rate of Time plus ½.

(b)For the valley periods, staff may be rostered 40 hours per week with overtime hours above 40 to be paid at time plus ½.

7.Day Working

Day working, Monday to Saturday, with a maximum of a five day week.

On day working variable starting times to cover the period from 08.00 hrs to 20.00 hrs. This would be limited to four starting times.

8.Shift Working

An early duty to start one hour earlier, i.e. 06.00. hrs. Roster 8, 10 and 12 hour duties where required. On roster changes, the ability to change the roster one week before commencement and as often as the operation demands.

9.Annual Leave

Annual leave to be allocated by Management in the valley period. In view of the accumulated leave arrangements and taking into account the exigencies of the business, employees be entitled to apply for and be granted up to two weeks in the peak period. All leave to be accounted for in hours to reflect the varying lengths of days/shifts worked.

10.Temporary/Contract Work


The arrangements for the employment of temporary workers shall be in accordance with Paragraph 2 of these proposals.

(b)Contract Work:

In view of the established practice of hiring in and hiring out of contract labour priority should be given where possible and within the competitive and investment requirements of the company to suitable and suitably qualified Irish workers. This will assist the company to enter and achieve new markets. Such contract work should only be contracted from established and reputable enterprises specialising in the required area of work.


Supervisors/managers should be allowed to work down and carry out the tasks of those they supervise. The front line management structure as set out by the Company should be put in place immediately.


The implementation of the Special Tribunal findings in regard to the operative grade should facilitate the total elimination of demarcation with the agreement and co-operation of all employees.

13.Joint Efficiency Groups

That all categories participate jointly in Joint Efficiency Groups.


Approval payments should be made only in respect of currently active approvals work. Approved staff should use their approvals to the fullest extent as permitted by legislation and in accordance with regulations laid out in company documentation.

15.Company Communications Systems

All staff to use person to person communication equipment as proposed by the Company.

16.Prod Plus

All staff must record their attendance in and out of work on the Prod Plus clock. All staff will use Prod Plus as required as a Production Tool for data collection and retrieval.


All staff accept and participate in whatever training is deemed necessary to carry out their role.

18.Shift Pay/RDA’s

The following Rates and conditions to apply.

Premium Rates:



Annual Leave




Sunday/Public Holidays




Regular Night


Actual if on a fixed roster

Full shift to be worked to qualify for premium

No premium to be paid for duties starting on or after 08.00 hrs or finishing on or before 20.00 hrs. Shift premium will not be paid for straight duties on the days before or after a shift duty.

No premium for Saturdays. No premium for days in lieu.

Night duty must be a duty which goes through 03.00 hours.

Regular night duty compensation applies only to staff who are exclusively on night duty.

No compensation for movement from shift to non-shift duties.


- Early

- Starting before 08.00 hrs.

- Day

- Starting on or after 08.00 hrs and finishing on or before 19.30 hrs.

- Late

- Starting after 11.30 hrs and finishing after 19.30 hrs.

- Nights

- Any duty which goes through 03.00 hrs.

19.Bank Holiday/Public Holiday

Entitlements under this heading be one of the following, be granted at Company discretion.

A paid day off on the holiday,


a paid day off within a month,


an extra day’s annual leave,


an extra day’s pay.

20.Productivity Schemes

Any future scheme should be related specifically to company performance and negotiated.


The severance/early retirement target of 250 should be reviewed and assessed in the light of

(1)the grade/salary profile of those who have already taken the voluntary package,

(2)the case made by the Craft Unions in regard to their 83 further applications for Severances,

(3)future manning requirements,

(4)the ability of the Company to fund severances in excess of 250.

22.Meal Allowance

Meal allowances to continue only for unplanned overtime.

23.Sick Leave

The system of accumulating sick leave should be discontinued.


The potential of the plans produced by the Craft Union group to make significant contributions to the efficiency of the organisation and the development of its business must be acknowledged. The parties to establish immediately a joint non-negotiating forum whose major initial task it will be to examine in detail the practicalities of adoption of the plans and to set a course for putting in to place those strategies which can make a contribution to the future of the Company.

25.The Commission believes that all of the parties should recommend these terms to their respective principals. The Commission believes that these terms represent the best solution to the immediate crisis.

The Commission further believes that, on acceptance of these terms:-

(a)the Equity originally targeted for TEAM be released to the Company and that the original amount of £12.5m. of that Equity allocated for investment/working capital purposes remain within the Company;

(b)that the protective notices issued by the Company be withdrawn;

(c)that the terms on acceptance be deposited with the Commission or registered with the Labour Court;

(d)that a review of the operation of this agreement be undertaken in three years.

Kieran Mulvey

Chief Executive

14 June 1994

* Assuming implementation of LRC proposals and injection of £25 rgillion equity.