State aid could provide relief for German airlines’ occupational pensions

first_imgState-backed financial aid may offer relief for German occupational pension schemes of airlines in financial distress due to the COVID-19 pandemic.“The state aid in the form of a stake in Lufthansa is a positive signal for occupational pensions because it also covers pensions’ solvency,” Michael Ries, managing partner at Ries Corporate Solutions, told IPE.The German government has decided to grant Lufthansa a €9bn aid package through its Economic Stabilisation Fund (WSF) in exchange for a 20% stake in the company, which could raise to 25% to block potential takeover attempts, and two seats on the supervisory board, among other requests.However, the Lufthansa supervisory board has not yet approved the package for fears of conditions connected to the EU Commission that could lead to compromising Lufthansa’s hubs in Frankfurt and Munich. Amid market turmoil caused by the coronavirus crisis, Lufthansa is also under extreme pressure from the cabin crew’s occupational pension fund and, in particular, from the pilots scheme, Ries said, adding that future benefits could be cut, too.“Lufthansa has in general a big problem with old-age provisions. All airlines have difficulties at the moment but it is difficult to settle or curtail pension schemes in Germany as it is possible for example in the US,” he said.Other airlines in the DACH region are also navigating through difficult times.The Swiss parliament has given the green light on CHF1.275bn (€1.2bn) in loans for airliners Swiss and Edelweiss, part of the Lufthansa group.The Austrian Airlines group AUA, another subsidiary of Lufthansa, had applied to receive state aid worth €767m.Laudamotion, a subsidiary of Ryanair, announced its intention to close its base in Vienna following a dispute with the trade union Vida on wages cuts.“The salary of an employee generally represents the basis to assess contributions or the pension amount in both a defined contribution and a defined benefit pension fund model, with the exception of an agreed fixed contribution without reference to a salary,” Michaela Plank, principal and member of the country leadership team at Mercer Austria, told IPE.A cut to salaries results in a lower contribution in the DC model, or in a promised pension in the DB model.For a corporation, a pension fund commitment is irrevocable, but there is the possibility of reducing or suspending contributions according to section 6 of the Austrian Company Pension Act if a company is in economic distress.“In the worst case, if a continued payment of contributions to the pension fund threatens the continuity of the company, the pension fund solution can also be revoked entirely,” she added.For Plank, the insolvency of the company itself does not pose a risk to the monthly pension benefits in a DC model because the financing is outsourced to the pension fund.“The situation is different in a DB model, where additional contributions required to maintain the promised pension amount could no longer be provided,” she said.Looking for IPE’s latest magazine? Read the digital edition here.last_img

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