Finnair (Helsinki) as part of the agreement with its pilots announced last month, has received board of directors approval for a one-time, long-term incentive plan for its pilots. The company issued this statement:
The Finnair Board of Directors has approved a one-off long-term incentive plan for Finnair pilots. The plan is a part of the savings agreement between Finnair and the Finnish Air Line Pilots’ Association (SLL) that brings Finnair 17 million euros in permanent annual savings. The savings agreement was contingent on the realization of the incentive plan.
The plan period is 2015-2018 and the prerequisite for rewarding pilots based on this plan is the materialization of the agreed cost savings over this time period. In addition, the company share price must at least be 4 euros at the end of the incentive plan. If these conditions are met, the pilots are entitled to a cash payment. The amount of the payment is based on the Finnair share price. The total reward to pilots amounts to 12 million euros if the share price is 4 euros or a maximum of 24 million euros, if the share price reaches at least 8 euros. Divided over the four year period, the annual earnings potential for an individual pilot is equivalent to 5-10 per cent of annual base salary.
Finnair plans to hedge the additional costs above the 4 euro 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 is thus limited to approximately 12 million euros. The closing price of Finnair share was 2.39 euros on 10 October 2014.
The number of pilots eligible to participate in the plan is approximately 700. The cash reward will be paid to pilots in spring 2019, provided that the aforementioned performance criteria are met.
“With this incentive plan the savings agreement negotiated with pilots enters into force, which is essential to improve Finnair’s competitiveness. 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,” says Finnair’s CEO Pekka Vauramo.
“I am also very pleased that we reached a negotiation result with our cabin crew. With both pilots and cabin crew we negotiated significant savings agreements that support the company’s growth. In return for savings, Finnair gives its cabin crew protection from redundancies for the next two years, protection from outsourcing and a pension incentive as well,” says Vauramo. “The agreed changes in the collective labour agreements and other savings measures are not easy for our flying personnel or other employee groups with whom we have made savings agreements. I am grateful that our employees have responsibly contributed to the negotiated solutions. This is quite exceptional in our industry and demonstrates the kind of commitment to Finnair’s future that I am very proud of.”
The share prices for target and maximum level rewards are identified solely for the purpose of this incentive scheme, and they shall not be considered as guidance on Finnair’s share value.
Finnair used PCA Corporate Finance as an advisor in the planning of this incentive plan.
Copyright Photo: SPA/AirlinersGallery.com. Airbus A321-231 OH-LZL (msn 6083) with Sharklets departs from London’s Heathrow Airport.
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