British Airways to Repair Pension Deficit
British Airways has struck a deal with its pension trustees on a recovery plan designed to address the airline's ballooning pensions deficit and smooth the planned merger with Spanish flag carrier Iberia.
Under the three-part agreement, BA will maintain its annual contribution at the current level of Â£330m, adding 3 per cent per year to offset inflation, with a view to filling the Â£3.7bn black hole. Contributions will continue until 2023 for BA's older Airways Pension Scheme (APS), and until 2026 for the larger New Airways Pension Scheme (NAPS).
The carrier will also commit to extra contributions if its cash reserves stand at more than Â£1.8bn at the end of the financial year. And the two pension schemes will be provided with Â£250m of asset-backed security, payable if the company becomes insolvent.
BA's two defined benefit pension schemes are both significantly in the red. The APS was closed to new entrants in 1984 and has a deficit of about Â£1bn. The NAPS has about 68,000 members, of whom nearly half are retired, and was closed to new entrants in 2003 and has a deficit of about Â£2.7bn. The successor to NAPS is a defined contribution scheme.
The recovery plan was agreed with BA pensioners following a deal with the airline's trade unions in March. Members of the NAPS will be able to pay 4.5 per cent more in their own contributions to maintain their existing benefits, the airline said.
The agreement is subject to approval from the UK's Pensions Regulator. An acceptable deal about the deficit is also a prerequisite for BA's long-running plan to merge with Iberia to go ahead. Talks between the airlines started in August 2008 but the putative deal was not signed until April this year. The transaction to create Europe's third-largest airline could be finalised before the end of this year. But Iberia reserves the right to terminate the agreement if the pensions recovery plan is not deemed "satisfactory".
BA stressed yesterday that all new pension contributions would come from BA alone, with nothing from either Iberia or the merged holding company, International Airlines Group. Iberia has three months to sign off the plan.
BA's chief financial officer, Keith Williams, described the agreement with trustees as a "significant and positive step forward" yesterday. He said: "They understand that the airline is unable to increase its contributions in the current financial climate but we have agreed a recovery plan that avoids closing the pension schemes, gives NAPS members choice over their future pension accruals, and increases the prudence of the assumptions employed in managing the scheme.
"The Pensions Regulator's initial response to the overall package has been positive and we look forward to receiving their confirmation that they have no objections once they have time to analyse the plan fully."
The pensions deficit is just one item on BA's list of troubles. The company has made record losses for two years in a row, most recently reporting a Â£531m loss in the year to the end of March. The pensions deal came a day after the Unite trade union kicked off plans for another strike ballot of cabin crew, which could see a third round of industrial action as early as August.
from London, for Independent minds