December 15, 2014

Monarch agrees restructuring deal with PPF

At the end of October the Pension Protection Fund announced that it had come to an agreement with Monarch Airlines and the Pensions Regulator to accept the Monarch Airlines Limited Retirement Benefit Scheme into a PPF assessment period. The agreement, reached after discussions between the parties and the Trustees of the Scheme will enable the airline to restructure its business and accept £125m in new capital and liquidity facilities from Greybull Capital LLP in return for a 90 per cent shareholding.

According to Monarch, the Scheme’s funding on a balance sheet basis had fallen to the position where its liabilities exceeded its assets by approximately £158m. In order to facilitate the restructuring, and free Greybull from having to take on the Scheme liabilities, agreement was reached to allow the Scheme to enter a PPF assessment period on the basis that a one off contribution of £30m was paid to the PPF by the airline’s previous owners and that the PPF would take a 10 per cent stake in the new company to sit alongside the 90 per cent owned by Greybull.

Agreement to the restructuring will allow the company to continue to operate its business having refocused on renewing its fleet and refocusing on its core business. For the employees, the restructuring has safeguarded, at least for the medium term, 2,500 jobs. However, reductions in pay of up to 30 per cent have been agreed and implemented and around 700 staff have been made redundant, of which approximately two-thirds were on a voluntary basis.

Following successful progression through the assessment period, pension benefits will adjusted to PPF limits and subject to the current 90 per cent cap of £32,761.07. This is likely to impact significantly on a number of Scheme members who, as airline pilots, will have accrued sizeable pensions.

The agreement appears to demonstrate the willingness of the PPF to engage positively with employers looking to restructure for survival in the face of serious financial difficulties. Whilst the entry into the PPF of the Monarch Scheme will constitute one of the largest in terms of liabilities, it seems that the Government’s ‘pension lifeboat’ organisation will look to make the best deal for employer, pension scheme and employee where parties engage seriously and creatively in discussions.

The Chief Executive Officer of the PPF, Alan Rubenstein confirmed that the PPF had been able to agree a deal with Monarch which met the its principles of restructuring and will allow the company to carry on trading. He said “It is very important to us that pension liabilities are treated seriously and properly on any restructuring. We are pleased that those involved with the Monarch case understood this fundamental point.”

The PPF confirmed that the impact to the fund was expected to be in the region of £170m and that it was likely to receive around £695m from the annual levy in the coming year.

Should you have any questions, or need advice in relation to these areas, please contact Julian Richards or another member of the Pitmans Pension Team

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