Eircom at risk of default as firm plans to slash further 1,000 jobs
EIRCOM plans a further 1,000 job losses and is at risk of going into default at the end of the summer. The news came as Eircom announced financial results for the first three months of the year.
Revenue for the three months to the end of March dropped 11pc, to €407m. That was in spite of cutting costs by 13pc over the period. Management said there would be no let up in its aggressive programme of job cuts.
The three-month figures show adjusted earnings -- the key figure in assessing whether the company is trading within its debt covenants -- fell 6pc to €160m.
Eircom warned of an even more accelerated decline in earnings in the coming 12 months.
Ceo Paul Donovan told the Irish Independent that Eircom was now likely to breach its financial covenants within the next three months.
However, he said a €360m cash pile meant there was no danger of missing an interest payment.
The covenants will be breached because income is falling while the conditions attached to its loans are getting tighter.
It means talks with Eircom's most senior lenders are now urgent. Mr Donovan said he expects meaningful talks to be under way before the traditional summer holidays.
Talks with shareholders are already under way. Lenders could allow Eircom to avoid a default by waiving the covenant tests on a temporary basis, or resetting them more permanently. They will expect to see cash going into the business and look for a fee before agreeing to a permanent change.
Eircom's debt now stands at €3.746bn, down slightly from the start of the year. The majority is owed to the most senior lenders. The senior lenders are the only group directly affected by the covenant issue giving them the crucial role in talks. Around €1bn is owed to more junior lenders but to date they have been sidelined in the restructuring process.
Yesterday, Eircom said it would seek a further 1,000 job cuts over the next 15 months as it carried on with aggressive cost-cutting measures.
Staff numbers have already fallen from 14,000 when the company was privatised to 6,000 today. Mr Donovan said the cuts would be on a voluntary basis, including through an early retirement scheme -- the first since 2002.
"Eircom's cost base is too high compared to our European peers and we have more people working that we need," said Mr Donovan.
The latest redundancies are in addition to the €92m in cuts Eircom's management and unions agreed in March. The plan includes staff agreeing to take a 10pc pay cut in exchange for working 10pc fewer hours.
Mr Donovan said the shorter hours would shave €20m from the company's wage bill -- the the equivalent of cutting 500 jobs.