Compulsory redundancies will be required if Aer Lingus is to be saved, the airline's new chief executive, Mr Willie Walsh, has warned. The announcement puts Mr Walsh, who was appointed on Thursday, on a collision course with Aer Lingus unions, which have said all the 2,026 redundancies being sought must be voluntary.

Mr Walsh said the compulsory redundancies were needed to ensure the airline meets its retrenchment target, but retains the staff needed to run the airline. He outlined staff reduction targets yesterday which most seriously affect clerical and operative staff, along with cabin crew.

Aer Lingus has set the end of November as a deadline for securing union agreement for the plan to cut annual costs by £148 million (€188 million). "We are confident it can be done. The rules have changed," said Mr Walsh, in a reference to the company's traditionally protracted negotiations with its workforce. The new chief executive briefed staff representatives yesterday. "As you would expect . . . people are genuinely shocked. But nobody is saying we don't believe you," he said.

Mr Walsh confirmed the plan did not include any redundancy payments and that fresh funds would be required to pay for a retrenchment programme - and also to make good a shortfall in working capital. The new chief executive would not discuss the sum that would be required from the Government, or the way it would be paid. He said a number of options were being looked at and he was confident the company would get the funds it needed.

The Minister for Public Enterprise, Ms O'Rourke, who has responsibility for Aer Lingus, is expected to ask her cabinet colleagues next Tuesday to allow her to guarantee new loans for the airline, subject to EU approval. Unions have warned that the firm would be unable to repay loans.

The Taoiseach, Mr Ahern was the only one of the 15 EU leaders to raise the crisis facing the aviation industry during the informal summit gathering in Ghent. "I was not too pleased about that," he said. "In the context of a credible plan, I said that people should look at flexible ways of doing things. I said that I did not want to go back to paddling rowing boats [out of Ireland]."

European Commission officials yesterday warned the Department of Public Enterprise that it would have to prove conclusively that Aer Lingus could be made viable, if approval for a State-backed loan is to be given.

Irish officials presented the Commission's Transport Directorate General with the rescue plan. The Commission has emphasised repeatedly that Brussels' sanction for the deal cannot be taken for granted - unless it is satisfied that the package does not breach State aid rules. "You have to act like a private investor," said a Commission source.

Payroll savings would account for £45 million of the cuts being sought by the airline, Mr Walsh said, with the remainder coming from overhead and other cost reductions. The company has already announced that it is taking seven aircraft out of service and cutting routes from Dublin to Washington, Newark and Stockholm.

Flight frequencies have been reduced on other routes and the company's £400 million capital expenditure programme has been put on hold. Futura, the charter airline 85 per cent owned by Aer Lingus, is also up for sale.

The plan will return the airline to profit by 2003, according to Mr Walsh. A loss of £21 million will be incurred next year, but that compares with £120 million if the savings are not achieved.

Mr Walsh announced a number of other measures aimed at driving up revenue, including a fundamental review of its fare structure. Many of the conditions that normally attach to cheaper fares, such as mandatory Saturday night stays, will be abolished. The airline will also cut travel agent commission and try to boost the number of tickets sold over the internet.

Some 800 of the staff remaining after the restructuring will transfer into three new subsidiaries that will handle catering, information technology and ramp services, such as plane cleaning and loading. The process will take up to 18 months and the ultimate aim is to sell off the businesses, a move the unions have said they will oppose. There would be no immediate benefit to be gained from trying to outsource these functions at the moment, said Mr Walsh.

Fine Gael yesterday described the job cuts outlined in the plan as excessively savage. Mr Jim Higgins, the party spokesman on public enterprise, said "it is impossible to see how such a slimmed down workforce can provide the quality of service to which the travelling public are entitled".