Marisa Garcia The Finnair Board of Directors has approved a one-off long-term incentive plan for Finnair pilots. The plan forms part of the savings agreement between Finnair and the Finnish Air Line Pilots’ Association (SLL) which will save the airline 17 million euros per year.
The incentives plan period is 2015-2018 and requires that the agreed cost savings materialise over this time period. Additionally, Finnair’s share price must be at least 4 euros at the end of the incentive plan.
If conditions are met, Finnair’s pilots are entitled to a cash payment, relative to the actual share price at time of payment. The total reward to pilots will range between 12 million (at a 4 euro share price) to a maximum of 24 million euros (if the share price reaches at least 8 euros). Over the four year period, the annual earnings potential for an individual pilot is equivalent to 5-10% of annual base salary.
Finnair will hedge the additional costs above the 4 euro share price with a market-based call option; thus limiting the cost of the incentives to approximately 12 million euros, if all conditions are met. The closing price of Finnair share was 2.39 euros on 10 October 2014.
Approximately 700 of the airline’s pilots are presently eligible to participate in the plan. The cash reward will be paid to pilots in spring 2019, if all criteria are met.
“With this incentive plan the savings agreement negotiated with pilots enters into force, which is essential to improve Finnair’s competitiveness,” says Finnair’s CEO 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.”
“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 airline notes that share prices for target and maximum level rewards are identified solely for the purpose of this incentive scheme, and shall not be considered as guidance on Finnair’s share value. Finnair used PCA Corporate Finance as its advisor when formulating the incentives.
Featured Image: Finnair pilot in the cockpit/Finnair
