AER LINGUS could be forced into a "downward spiral" and to sell off assets to keep itself afloat if a series of cost-cutting measures announced yesterday are not implemented, the company's chief financial officer has warned.
Seán Coyle said failure to introduce the transformation plan, which aims to save €97 million annually by 2011, would create significant problems for the organisation.
"If we don't secure the savings, what might happen is that the least profitable routes in the network would be cut and the airline would have to continue to be downsized with aircraft sold," he said.
"We could get into a downward spiral of selling assets off to continue to fund the future of the business. Clearly that's not something we would want to be engaged in."
Trade unions have condemned the cost-saving measures proposed by the airline, which envisage staff cost savings of €74 million and non-staff cost savings of €23 million a year.
They include 676 redundancies, which the company hopes will be voluntary, spread across two phases of the transformation plan.
Aer Lingus is seeking 489 redundancies under the first phase of the plan. These include some 100 pilots, 229 cabin crew, 110 ground handling staff and 50 back office workers.
A total of 187 workers in administration, back office and middle management positions will be made redundant under the second phase by the end of 2011.
A further 100 staff have already been informed that they will leave the organisation before the end of the year when their fixed-term contracts expire.
The company employs 3,900 people.
Mr Coyle said the terms of any redundancy packages had not yet been discussed with unions but that the issue has been addressed by the board, which had signed off on the plans in its entirety.
He said discussions with trade unions were not likely to open until Monday, as staff in Cork and Shannon would be briefed on the cost-saving plans today and staff in Belfast and London would be informed tomorrow.
The airline has also proposed that staff who earn more than €35,000 per annum take pay cuts of between 5 and 10 per cent.
Those earning between €35,000 and €40,000 will have their pay reduced by 5 per cent, those on €40,000 to €50,000 will see their salaries fall by 7 per cent and those earning more than €50,000 will have to surrender 10 per cent.
The company has also decided to rationalise all allowances paid to staff, stating that they were based on legacy agreements made in the 1960s and 1970s that were no longer relevant.
It also said its pension scheme would have to be examined as there was grave concern about a €460 million deficit in a defined-benefit scheme which Aer Lingus, Dublin Airport Authority and SR Technics pay into.
Mr Coyle said the airline intended to move into a new defined-contribution arrangement for current and future staff and that it was not "financially robust enough" to take on any pension liability.
He said there was no liability on employers to make up the deficit and that there could be a conflict depending on how the Pensions Board views the move.
In a statement, Aer Lingus chief executive Christoph Mueller said the outlook in each of the company's core markets was poor and that he did not expect any near-term recovery in business.
"Against this backdrop, Aer Lingus cannot continue with an operating cost base, which is structurally uncompetitive when compared to that of its closest peers. A significant differential in operating cost is not sustainable."
Aer Lingus posted a loss of €93 million for the first six months of this year.
Mr Coyle said the airline had carried out a comprehensive review of its cost base and that there was little more it could harvest from other areas.
Enda Corneille, corporate affairs director at Aer Lingus, said there was much emotion and anger among staff when the cost-savings were announced and contingency plans were in place in the event of industrial action.
"We will take every possible measure to ensure customers are not inconvenienced," he said. "The last thing the business needs is a strike."
