AER LINGUS PAYS OFF SHARE OWNERSHIP TRUST DEBT

Dino D'Amore
By Dino D'Amore December 22, 2010 10:10

AER LINGUS PAYS OFF SHARE OWNERSHIP TRUST DEBT

Aer Lingus yesterday made the move to pay its employee share ownership trust (Esot) €25.3 million to clear its debt, which was held by Anglo Irish Bank. These borrowings relate to stock bought at the time of the company’s market debut in 2006 when the Esot subscribed for 15.5 million shares. That transaction took its holding in the airline to 12.5%. Aer Lingus has paid for the deal out of its gross cash reserves, which stood at €952 million at the end of September.

This deal has allowed the Esot to distribute 66.6 million shares to its 4,700 members. This equates to an average of 14,170 shares each, which, based on yesterday’s closing price of €1.13, are valued at just over €16,000. About 55% of the Esot members still work for Aer Lingus. So many employees are happy this Christmas.

This transaction means that Aer Lingus is no longer obliged to pay a profit share to staff. The profit share obligation was established at the time of the IPO in 2006. It required Aer Lingus to pay up to 7.5% of its pre tax profit before exceptional items to the Esot until April 2023 and the full repayment of the Esot’s debt and associated interest.

Aer Lingus said the transaction would yield a “financial benefit” to the airline as the one-off payment is less than the future profit-share payments and other associated costs that it would have been obliged to pay the Esot.

But the airline did not quantify the scale of the financial benefit. Aer Lingus has not made a profit-share payment to staff since 2007 when Esot members shared €9.8 million.

The deal should also help to improve the liquidity of the shares on the stock market. Aer Lingus will now have a free float of close to 45%.

The trust was effectively burdened with the costs of servicing its borrowings without having received any income from the profit share for three years.

Dino D'Amore
By Dino D'Amore December 22, 2010 10:10
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