Christine Lagarde, IMF managing director, and Mario Draghi, ECB president, at the Eurogroup meeting, Luxembourg, Oct 08, 2012.

Aer Lingus said in a statement to the stock exchange on Monday evening that it believes that the current funding position of the Irish Airlines (General Employees) Superannuation Scheme (IASS) is unsustainable and must now be addressed by the IASS Trustees.

Aer Lingus said it "understands that the IASS funding shortfall as at 31 May 2012 was approximately €748m on the current statutory Minimum Funding Standard basis. Irish pension legislation mandates priority over IASS assets for pensions in payment. As such, had the IASS been wound up on 31 May 2012, current employees and their beneficiaries not yet in receipt of a pension would have received approximately 4% of their expected IASS pension benefits. Aer Lingus believes that such an outcome would be extremely damaging for the group, its employees and shareholders."

Last week, trade unions said that Aer Lingus would have to provide up to €200m, and the state-owned DAA (Dublin Airport Authority) would have to pay €130m to resolve the deficit.

The airline is proposing to freeze the current IASS scheme and cut risk by investing in bonds whose cash flows "broadly match" the IASS obligations. It said approach would deliver higher pensions than on a wind-up of the IASS, but would be at the sole discretion of the scheme's Trustees.

Aer Lingus stressed that it would make no financial contribution to the IASS beyond its regular contributions - - which would cease when the IASS was closed to future contributions. However, Aer Lingus "is prepared to put in place arrangements to improve the likely future pensions of affected IASS members provided the balance between costs and benefits is in the interests of all parties including shareholders."

Statement

Economic View: Further delays in Ireland’s bank debt deal; Dermot O'Leary of Goodbody comments - - "For all the lobbying efforts over recent weeks by Irish officials and politicians, the issue of Ireland’s bank debt failed to make it on to the discussion table at last night’s Eurogroup meeting. While Irish finance minister Michael Noonan continues to cling to the spirit of the conclusions of the June 29 euro leaders’ statement, it appears that the timetable for tangible implementation continues to get pushed out.

While the statement of the Dutch, Finnish and German finance ministers put paid to any hopes of a deal involving the ESM, it was hoped that a deal involving the promissory notes in IBRC could be thrashed out sooner. That is still the hope but Michael Noonan appeared to push that timetable back in comments last night too: 'The political timetable is to get a new arrangement n the promissory note by March'”. He went on to say 'But it would help me doing the budgetary arithmetic if something could be arranged - - or a statement of intent could be achieved - - before the budget'. We are not sure how a statement of intent would help the budgetary arithmetic but it certainly would help from a political perspective given the political capital spent hailing June 29 as a game changer for Ireland.

It is still also unclear whether legacy debt will be included in any banking union arrangement, with Noonan suggesting last night that the 'legacy' phrase in the Helsinki statement referred to insolvent institutions 'no longer functioning as banks.' Such an interpretation would put AIB, Bank of Ireland and permanent tsb in the eligible category but confusion still reigns on this one.

Whether a deal is struck by December or March next year does not have significant implications for debt sustainability, but from a market perspective the continued drifting of deadlines can be seen as a negative. It is patently clear that Ireland is way down the list of priorities in the euro area, which is understandable given that 'Celtic comeback' happening in Ireland!"

IMF lowers global growth forecast to 3.3% in 2012: Conall Mac Coille of Davy comments  -- "Stock indices fell yesterday (October 8th): the Euro Stoxx 50 Pr declined 1.4% and the S&P 500 was down 0.4% at the close. With EU finance ministers discussing Greece's bailout programme and developments in Spain, demand for risk assets was weak yesterday. Overnight, Asian stocks rose despite the news of sharp downward revisions to the IMF's global growth forecasts. Equity index futures indicate small gains for European stocks at the opening of markets this morning. Speculation that additional stimulus measures from the Chinese government are likely has for now offset any negative impact on sentiment from the IMF’s new forecasts.

The IMF has cut its global GDP growth forecast to 3.3% in 2012 and 3.6% in 2013, pressing both EU and US governments to take the requisite policy steps to resolve the European debt crisis and ensure that the US fiscal cliff in early 2013 does not derail growth. Specifically, the IMF has recommended that Spain should be able to recapitalise banks without adding to its sovereign debt, clearly indicating that the ESM should be used with respect to legacy assets of the financial crisis. The IMF expects US GDP growth to slow marginally, from 2.2% in 2012 to 2.1% in 2013. Euro area GDP is expected to contract by 0.4% in 2012, with only a marginal 0.2% recovery in 2013.

Overnight, the British Retail Consortium measure of like-for-like sales showed 1.5% annual growth in September, well above expectations for a 0.2% decline. The RIC’s House Price Balance also beat expectations at -15% in September, up from -19% in August. Together, these releases suggest that the 0.2% contraction in consumer spending in Q2 2012 may reverse in the third quarter. Both UK industrial production and trade exhibited a sharp bounce-back in July, suggesting that the extra bank holidays in June temporarily pushed down on GDP. So the industrial production and trade releases for August later today should reinforce the view that, following a 0.4% contraction in GDP in Q2, UK GDP should rise sharply in Q3."

US Markets

In New York Monday, the Dow fell 26 points or 0.19% to 13,584.

The S&P 500 fell 0.35% and the Nasdaq dropped 0.36%.