The proposed new pension deal, hammered out last week between government and Aer Lingus, will be presented to staff representatives this week.

Under the new proposal, 200m of the proceeds from an Aer Lingus flotation would be used to establish a back-up pension fund that could be called upon if the existing pension fund is insufficient to meet pension obligations to staff.

Whether and when this fund would be drawn down would be at the discretion of the pension fund trustees.

The proposal to resolve what has become one of the thorniest issues surrounding the sale of the airline was presented to the departs of transport and finance by Aer Lingus executives last week.

Transport minister Martin Cullen met Aer Lingus chief executive Dermot Mannion and chairman John Sharman on Thursday, and it is understood he asked management to engage with unions over the next fortnight to reach agreement on the pension fund.

The unions have been holding out against privatisation, with Siptu threatening industrial action. Unions have called on government to invest directly in the airline instead, and have also mooted the idea of a state holding company that would allow arm's-length investment in the airline.

A flotation is emerging as the favoured option both of government and of management, however, despite some concern in Fianna Fail about selling the airline in the run-up to a general election.

Last week, Mannion said work on the sale of the airline would need to begin within three weeks if a flotation is to take place, as hoped, by June.

The end of March deadline now set for a decision would still allow for a June IPO, Mannion said. "That is still at the outer edge of the envelope. If we go beyond June, we will probably have to wait until September or October."

Aer Lingus last week reported pre-tax profit of 82.6m on turnover of 883m. Its strategic plan is to double its longhaul fleet to 14 aircraft by 2010 and expand the short-haul fleet by 60%, but management has said expansion plans depend on getting "certainty" on a sale as soon as possible.

Two long-haul planes are due to arrive in 2007, at a cost of 190m. "Uncertainty arises for the period 2008-2010, " Mannion said. "Clearly, orders need to be placed for new aircraft, but we can't do anything until we have certainty."

One short-haul plane is coming on stream this year. Mannion said the airline needs to place more orders as soon as possible, as it is becoming "very difficult to squeeze additional capacity out of the planes"