What is going on with transitional benefits?

There has been a collective agreement on transitional benefits for decades and it has been revised and amended multiple times (e.g. in 2000 and 2010). Lufthansa terminated this agreement at the end of 2013. Therefore, the agreement is in the so-called after-effect phase for permanent employees. This means that until there is a new collective agreement, which regulates the issues differently, permanent employees can lay permanent claim to unaltered transitional benefits as usual. However, new staff members are then no longer covered by the collective agreement on transitional benefits.
But now, Lufthansa management has denied the after-effect of the collective agreement on grounds, which, from the VC’s point of view, are not legally tenable. An affront, given that contrary to statutory regulations, all employees, who have regarded the transitional benefits as an inherent part of the agreement for decades, no longer to have any entitlement whatsoever from a corporate perspective. Due to the tremendous unease in the company caused by this announcement, management then unilaterally declared its willingness to continue implementing the provisions until 2016 but no longer after that. It is possible, that the current nine-figure provisions could then simply be added to the working capital.
The VC argues that placing new colleagues in a significantly less favourable position than long-time employees would show a lack of solidarity. Therefore, the VC proposed establishing a cap for the transitional benefits, which would be collectively shouldered by all cockpit employees. This would be possible by raising the average minimum retirement age determined by collective agreement to 58 for instance. At the moment, it is actually already over 59.
Furthermore, commercial pilot licences are no longer renewed after reaching the age of 65, given that the legislative authority ultimately draws a line here for reasons of safety. Consequently, the legal out for pilots is at the age of 65 at the latest but the statutory retirement age is also raised to 67 for pilots. The VC believes that this loophole also needs to be filled with a new collective agreement.

What actually are transitional benefits?

Imagine the transitional benefits like you would a “common pot”, into which money is paid for each pilot depending on his or her salary level and period of employment. However, not every pilot ultimately makes use of these benefits. Every year a pilot remains employed, he or she forgoes his or her entitlement in favour of the others.
This collective agreement, which has existed for decades and which at one time, enabled everyone to be able to retire without restrictions at the age of 55, was already mutually modified several times during the past years (last in 2010).
Every year, the number of colleagues, who would like to retire, is examined. The average age of those, who retired during the last 5 years, is determined. This average must amount to at least 58, otherwise the colleagues who would like to retire have to work longer to reach this average. Last year, the average was already over 59, even though, until 2012, it was not possible to continue to work past the age of 60 as per a provision in the collective agreement.
Due to the fact that provisions are set up for many persons but these are only used in full by a few, the costs in this collective system are considerably lower than if each person had to make provisions on his or her own. Those who do not make full use of the transitional benefits quasi forgo these benefits in favour of others who need them. 

Is the agreement still “up to date”?

What is “up to date”? Who defines what “up to date” is?
Isn’t that a phrase people use, to justify impairments?
In a sector, in which great responsibility for many people’s lives must be taken but where this responsibility depends on the impeccable capabilities of an individual, particular standards must apply.  There are also age limits in other professions, e.g. for military pilots, fire fighters or air traffic controllers, who, to some extent, have to end their professional activities long before reaching the statutory retirement age.
People age at different rates. This has nothing to do with the financial challenges of companies or corporations. Therefore, these circumstances, in a profession in which people’s lives depend on physical and mental capabilities, must be accommodated. No one can deny that the human senses, the ability to respond, the ability to work under pressure, etc. decrease as people grow older. Given that the rate of this decline varies individually, a flexible age limit is required.

Can anyone stop working at 55?

No. The collective agreement has been amended multiple times during the past years. While it was possible to retire at the age of 55 without any restrictions in former times, an average age of 58 must now be reached over the last 5 years, in order to be allowed to retire. Otherwise you are “kept” in the company, to achieve the average. However, the current average age last year was already over 59, even though, until 2012, it was not possible to fly past the age of 60.

Is it not possible to use your salary to make your own provisions?

There is an agreement on transitional benefits, which must be assessed as part of the employment contract. Therefore, the provisions made for the transitional benefits are quasi savings from elements of the pilots’ salaries. If these benefits are cut, that equals a cut in salary. There is a contractual entitlement, even if the money is initially not distributed to the individual for tax reasons but is managed by the employer. If the provisions were paid to the employees, it would be immediately subject to taxes. If you planned on being able to retire at the age of 55, very large amounts would be required, to accumulate similar provisions, which however, might then not even be necessary because you could still continue working. Coverage according to the previous collective agreement on transitional benefits makes significantly more sense, in which everyone quasi pays into a “common pot” and those, who are in need of it due to early retirement, receive benefits out of said “pot”. Those who work longer forgo this because they do not make use of the amount accrued for them or only make use of it in part. This collective system, characterised by solidarity, makes it more beneficial for those, who make use of it or have to make use of it.

Isn’t that too expensive for the company?

No, even if Lufthansa management made it publicly known that transitional benefits constitute 8% of the overall personnel expenses for cockpit crew members, a committee at the VC in collaboration with specialists from the company discovered that the costs actually only amount to approx. 2-3%! The reason is that for every older colleague in the upper salary levels, who retires, a co-pilot is hired with a starting salary.
In the past, the cost effect on transitional benefits was also considered for each collective agreement, which was concluded in regard to salary payments.

The retirement age is increasing due to the demographic trend; why don’t pilots want to take that into account?

A correlation with the demographic trend cannot be made. Although the demographic trend is the reason why there are problems in financing governmental systems because more and more recipients of benefits have to be financed by less and less contributors, this has nothing to do with the transitional benefits. The period of transitional benefits remains the same just as the number of those paying in or receiving benefits does.
Furthermore, the demographic trend has no effect on the fact that there will always be employees, whose capabilities decrease as they grow older. Therefore, in the interests of flight safety, the option of early retirement must be given to pilots as well.

On 09/10 the Handelsblatt (leading German business newspaper) reported that the Lufthansa management claims that there is no other airline in Europe at which the transitional regulations begin before the age of 60. Why should Lufthansa have different regulations?

That statement is simply incorrect. For example at KLM, you can only continue working after the age of 56 if you work part-time. It is definitely over at the age of 60, at the latest. At British Airways you can retire at the age of 55, in Spain even at the age of 52 for long-time employees. Statements like that lack foundation and are not useful in an earnest discussion.
Other sectors are also familiar with regulations like these. For example, pilots in the German armed forces have the option of retiring before the normal retirement age. Mine workers can retire as of the age of 50 due to the particularly stressful work conditions.

Lufthansa management claims that the retirement benefits are no longer affordable because the interest rate has decreased so significantly. Doesn’t that require an urgent reduction?

The low interest rates do currently put a strain on the operating results but on the other hand, they also relieve the strain on the company’s loan-related obligations; overall more than they put a strain on transitional benefits. In other words, the bottom line is that Lufthansa benefits from the low interest level. Just recently, Lufthansa was able to place a bond worth over 500 million with the lowest interest rate ever paid by a DAX-listed company.

Lufthansa management claims that Lufthansa has not increased the number of its aircrafts in the past years and that this demonstrates that they are facing a crisis. Is that so?

That’s just half the story. The truth is that the number has not increased but the reason for this was also because smaller aircrafts were taken out of service and replaced with larger ones. The number of seats has also increased due to new seats in existing aircrafts. Consequently, the number of passengers has significantly increased in recent years.

All other groups have contributed to cost cuts; according to the management only cockpit personnel has not. Why?

That is not true. Decisive is when these observations begin. For instance in 2010, cockpit personnel contributed to an improved competitive position with a 20% cost reduction on the so called “decentralised” routes (meaning Routes outside Frankfurt or Munich). There is no initial or final point when looking at this situation. In current negotiations, every group (cockpit, cabin, ground) is always reproached for what was previously negotiated in the other groups. In doing so, a circle of reduction is provoked. Therefore, the concessions of one group are presented to the next group for the justification of further concessions.

Where is the pressure for dividend increase coming from?

It can be assumed that this pressure is coming from the interests of the principal shareholders, which, like Blackrock e.g., are invested in nearly all DAX-listed companies with 3-10%. The returns promised to the customers for these funds are in part in the upper one-digit percentage range and therefore, imply a doubling of the invested capital in less than 10 years. In order to achieve such returns, respective dividends and increases in profit are required by the companies, e.g. Lufthansa. However, these immensely high targets not only affect the employees of virtually all DAX-listed corporations but their customers as well.

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