Lufthansa has stopped sending aircraft to its Shannon-based maintenance subsidiary in response to strike threats.

The German airline - which took a €5.76 million dividend from Shannon Aerospace last year - sent an aircraft to an alternative facility in Portugal citing "industrial relations uncertainty".

Workers at Shannon Aerospace are in the process of balloting for strike action after rejecting a Labour Court ruling that they accept new work practices in return for wage increases.

The majority of the staff are members of Siptu, which claims Shannon Aerospace is in a position to adhere to national pay deals because it continues to be profitable.

However, last month the Labour Court accepted the findings of an independent report that outlined the potentially dangerous financial position faced by the company if work practices did not change.

Accounts for the year to December 2005 show that the company made a profit before tax of €747,000. The company also paid a dividend of €5.76 million out of retained earnings to its parent, leaving retained profits of €425,000 in the business. The accounts also note that Shannon Aerospace has €13.9 million in cash on deposit with Lufthansa.

Company chairman Jim King said in his report in the accounts that while there was ongoing pressure on prices in the aircraft maintenance industry, "we are well-established in the market with a high level of business already contracted for 2006 and good prospects to sell all the remaining slots".

"The transformation of the company will allow us to fully utilise our capacity through a significant reduction in ground times and in parallel improve efficiency of our operation," the report said.

The company, which carries out maintenance for other airlines as well as its parent, increased sales from €57.97 million in 2004 to €59.06 million last year. Gross profit after costs fell from €9.1 million to €8.3 million.

Directors' emoluments fell from €461,000 to €423,000, while the overall wage bill for the 669 staff rose from €28.3 million to €29.8 million. The company has another 111 staff under training or on secondment.

Union spokeswoman Mary O'Donnell said yesterday: "We are still available to speak to the company if they come up with a proposal which would not see salary or conditions taken from our members.

"It is not acceptable that the company has agreed to pay the last 4 per cent due to staff under Sustaining Progress, which they are obliged to do, at a cost of reducing salaries and working conditions equal or greater in amount to what they will pay."

She added: "Aerospace was profitable last year when it made its intentions known and is profitable again this year."

A spokesperson for Shannon Aerospace said: "The issue here is that the company requires cost offsets to enable it to pay the last two phases of the national agreement Sustaining Progress. An independent assessor examined these issues and reported last January that 'in all these circumstances I believe that the company is entitled to and needs off-setting costs'.

"The company accepted a subsequent Labour Court recommendation of July 6th last 'that the parties should enter into discussions as outlined in the conclusion of the assessor's report and take a balanced approach towards agreeing cost offsetting measures in return for payment of the increases due under Sustaining Progress'. Siptu rejected this recommendation," the company said.

Workers cannot take industrial action at the facility while aircraft are on the ground undergoing maintenance. A total of 28 days' notice of their intention to hold a ballot or take action must be given to the company so it can make alternative arrangements.

Among Aerospace's 20 biggest customers are Lufthansa, Air France, Alitalia, Iberia and North American Airlines.