Finnair does deal with pilots union

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FINNAIR has approved a one-off long term incentive plan for its pilots as part of a savings agreement between the airline and the Finnish Air Line Pilots’ Association (SLL) that will generate 17 million euros ($22 million) in permanent annual savings.

The savings agreement is contingent upon the realisation of the airline’s incentive plan, which will cover the 2015-2018 period. This relies on the agreed cost savings being achieved during this time. In addition, the company share price must at be least four euros at the end of the plan.

If these conditions are met the pilots are entitled to a cash payment, the amount of which will be based on the Finnair share price. 

The total reward to pilots amounts to 12 million euros if the share price is four euros, or a maximum of 24 million euros if the share price reaches at least eight euros. Divided over the four year period, the annual earnings potential for an individual pilot, is equivalent to five to 10 per cent of annual base salary.

Finnair plans to hedge the additional costs above the four euros share price with a market-based call option. If the conditions of the plan are met, the associated total cost over the four year period will be limited to about 12 million euros. The closing price of a Finnair share was 2.39 euros on 10 October 2014.

The number of pilots eligible to participate in the plan is about 700 and the cash reward will be paid in the spring 2019.

“With this incentive plan the savings agreement negotiated with pilots enters into force, which is essential to improve Finnair’s competitiveness,” says Finnair’s chief executive officer, Pekka Vauramo. “If the plan’s performance criteria are met, Finnair shareholders will have enjoyed a significant increase in the company’s valuation and the pilots will receive a one-time compensation for the permanent savings they have agreed on.”

However, he acknowledges that the agreed changes in the collective labour agreements and other savings measures are not easy for company’s flying personnel and other employee groups with whom we have made savings agreements.

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