IRELAND - Budget airline Ryanair is to sue Aer Lingus to prevent the national carrier from increasing contributions to its underfunded pension scheme.

RyanAir, alongside the Irish government the rival airline's biggest shareholder at nearly 30%, announced its intention in an open letter to Aer Lingus shareholders this morning, calling for the airline not to increase contributions above the current 6.375%.

Chief executive Michael O'Leary said in the letter that Aer Lingus had "refused to facilitate" repeated requests for an EGM to discuss funding of the Irish Airlines Superannuation Scheme (IASS), a multi-employer fund with an estimated deficit of €400m.

However, Ryanair said it decided to pursue the issue in court after a statement from Aer Lingus earlier this week that it was in the company's "best interest […] to constructively engage" with all parties on the funding issue.

O'Leary said: "Ryanair fears that this statement indicates that the Board of Aer Lingus may be considering resiling from the assurances contained in its 2006 IPO prospectus and each annual report thereafter that Aer Lingus has no obligation to make additional contributions to its defined contribution pension schemes."

He added that RyanAir had repeatedly asked the airline's board to confirm their support to maintain the current contribution rate, but it had "failed to elicit any statement from the Board".

The chief executive added he was concerned shareholder funds would be "frittered away" by Aer Lingus through unnecessary contributions.

"Ryanair intends to initiate legal proceedings to prevent the company agreeing to, or making, any such additional contributions without prior shareholder approval," he said.

IASS has long suffered from high deficits, with one of Ireland's largest unions previously calculating a €628m deficit.
The Irish government had late last year ruled out any state funding to address the "significant deficit", instead urging trustees to draw up proposals to solve the funding shortfall.

Potential changes to the investment strategy were outlined in the company's statement earlier this week, with the use of sovereign annuities proposed to reduce the deficit.