Eircom and unions agree deal aimed at 1,000 voluntary redundancies

EIRCOM AND its trade unions have agreed a radical framework “recovery plan” that would cut employee pay by 10 per cent for 18 months and could result in more than 1,000 voluntary redundancies over a three-year period.

The deal is aimed at achieving labour savings of €92 million by 2013. It is part of a major restructuring planned by Eircom to put the heavily-indebted business on a sounder financial footing.

Under the terms of the agreement, an 18-month pay freeze would be imposed.

The two sides have agreed to a 10 per cent reduction in working hours over the same time frame, with a pro-rata decrease in pay.

This is aimed at maintaining productivity levels while reducing overheads. Eircom staff would work a nine-day fortnight.

Subsistence rates are to be reviewed to reduce costs.

Eircom and its unions have also agreed to engage on restructuring a number of functions and modernising work practices.

The deal allows for the possibility of outsourcing and “new attendance models” to allow for “flexible cover arrangements” to reflect “customer expectations”.

Payslips will be issued electronically while staff paid weekly will move to a fortnightly basis.

The unions have secured some concessions in the recovery plan.

These include the possibility of a performance-related bonus scheme for graded staff. It is also to include the recruitment of 50 apprentices or trainees by July 2011 under terms and conditions to be agreed. An “Eircom university” will be established to “build business critical capabilities and develop employees”.

Voluntary redundancy will also be offered. No figure was mentioned in the document but sources familiar with the talks said it was likely to involve a reduction of more than 1,000 staff over a three-year period.

Eircom has already cut its workforce by 1,791 since March 2009. The company had 7,1,70 workers at the end of December 2010, including 749 contractors. Redundancies are likely to be focused on Eircom’s 3,000-strong engineers, where the average age is 54.

It is understood that Eircom’s shareholders – Singapore-based STT and the employee Esot – have signalled they will invest in the business and are seeking to deal with its debt issues.

Eircom chief executive Paul Donovan said he was “pleased” that an agreement, in principle, had been reached and said its implementation was “vital” to secure Eircom’s future.

Eircom has net debt of €3.8 billion and signalled this week that it could breach its covenants by the end of August.

One of the solutions open to the company is a so-called “equity cure” by its shareholders. An injection of cash is allowed every 12 months as part of the agreement with lenders and these funds would rank as Ebitda on a 1:1 ratio.

It is understood that an equity injection of €40-50 million could resolve its immediate covenant issues. Eircom has said it would begin talks with its lenders on its “financial position”.

It is expected to seek to reduce its borrowings by €800 million or more, according to sources.

In the six months to the end of December, Eircom’s revenues declined by 6 per cent and it shed customers in both its fixed-line and mobile divisions.