Press Release

Crisis at Gate Gourmet threatens Heathrow Airport as workforce strikes

Un-balloted strike action prompts dismissals and possible disruption of Heathrow flights

London, August 10th 2005: Crisis talks between Gate Gourmet UK and the Transport and General Workers' Union (TGWU) have been further strained today due to un-balloted strike action and breach of contract by employees which led to the dismissal of approximately 350 workers at the company's Heathrow South operation. The strike action puts the jobs of all 2,000 workers at Heathrow Airport under threat and the supply of 320 flights that rely on the airline caterer daily.

In response to the crisis, Managing Director Eric Born said: "After months of trying to find a consensual deal with the TGWU and the staff to resolve the financial crisis and secure the future of the company, this un-balloted action is a devastating blow. These actions not only jeopardise the livelihoods of our entire workforce at Heathrow, but also the services of major airlines and their customers. The new management has formally met with the unions on more than 30 separate occasions and has made every effort to reach agreement on a consensual restructuring deal, including a recently agreed mediation process. The union has been fully briefed on the financial crisis at Gate Gourmet UK and acknowledged the need for change. The workers took industrial action in response to the arrival of 130 seasonal workers – who we employ every summer to meet high demand during peak season – as an excuse to incite strike action. The full extent of the union's role is being investigated. If we don't change, the company will not survive and there will be no future – we now have to take control of this situation swiftly which may lead to restructuring to avoid the total collapse of the company".

In response to the un-balloted action, contingency plans were immediately activated to try to minimise disruption to the airline customers and their flights.

Earlier this year Gate Gourmet UK management had agreed to a deal over a move to modern working practices and redundancies with the TGWU because the TGWU Regional Organiser informed them, as well as the shareholders and the advisors to the lenders, that he could secure a 'yes' vote in a ballot in June. However, the staff heavily voted against the union's own recommended proposal.

A second enhanced deal was tabled by Gate Gourmet but the union refused to allow the company to communicate the deal to their staff. On August 5th the union agreed to management's request to enter mediation. Despite today's events, Gate Gourmet remains committed to mediation talks, scheduled to begin on August 12th.

Speaking of the enhanced deal, Eric Born continued: "This deal for staff was the best in Gate Gourmet's history. It protected the above market wages we already pay, offered a generous voluntary redundancy package, protected the interests of our final salary pension scheme members and guaranteed pay rises. All we asked in return was to change outdated and inefficient working practices to improve our productivity and survive – a full day's work for a full day's pay".

In line with the rest of the airline industry, Gate Gourmet has come under intense pressure to reduce costs since September 11. The company is being paid less by customers, paying more in wages, for below market productivity.

Gate Gourmet has not made a profit since 2000 and revenues have fallen 35 percent. Without restructuring it will lose £25 million this year. The new management is in the process of delivering a successful turnaround strategy; it has implemented non-labour related cost reductions, introduced a programme to decrease regional overheads and is in the process of finalising renegotiated contracts for the commercial terms with customers. These changes, combined with a £14 million reduction in direct labour costs, would enable the company to break even in the next 18 months and safeguard its future. However, Gate Gourmet's customers will not sign new commercial terms until the workforce agrees to the plans on the table.

NOTES TO EDITORS

Outdated and Inefficient Work Practices

Outdated and inefficient work practices are a key factor in Gate Gourmet's current financial problems. These 1970s work practices include:

• Staff are often paid a full day's pay for half a day's work
• During peak production staff refuse to help colleagues on other work lines even when they are doing nothing themselves. Management are then forced to employ extra staff at over-time rates to complete orders
• Outdated overtime rules allow staff to work their normal 8-hour shift but be paid for 12.5, paid for hours they do not do
• Above market pay rates for below market productivity

Such working practices have no standing in today's highly competitive industry. The recent loss of the major Virgin Atlantic contract was due to workforce inflexibility and therefore an inability to deliver a cost-competitive product.

Gate Gourmet Worldwide facts and figures

• 115 flight kitchens, in 30 countries, on 5 continents
• 22,000 employees
• 2004 revenues: CHF2.4billion (US$2.01billion, GBP£1.06billion)
• Gate Gourmet produces 534,000 meals per day or 195 million meals per year