BA agrees plan to tackle pensions deficit

British Airways (BA) has agreed a recovery plan with its pension scheme trustees to tackle its pension deficits.

The recovery plan avoids closing the airline’s defined benefit New Airways Pension Scheme and Airways Pension Scheme. BA will maintain its annual contributions at the current level of £330 million, plus agreed annual increases in line with inflation expectations averaging 3%.

In addition, BA will make additional deficit contributions if its year-end cash balance exceeds £1.8 billion and the two schemes will be provided with £250m of additional security over the company’s assets, which will become payable in the event of BA becoming insolvent.

BA completed consultation with its trade unions on the proposals earlier this year and will now submit the full recovery plan to the Pensions Regulator by 30 June 2010.

The company had previously agreed a deal with unions for staff to contribute an additional 4.5% of the pay in order to keep their pension benefits at their current level.

Keith Williams, chief financial officer at BA, said: “This agreement is a significant and positive step forward for British Airways and the pension scheme members.

“The trustees 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 Pension Regulator’s initial response to the overall package has been positive and we look forward to receiving [its] confirmation that [it has] no objections once it as time to analyse the plan fully.”

Agreeing a deficit recovery plan also removes a potential obstacle to BA’s planned merger with Spanish airline Iberia. Under the terms of the merger agreement, Iberia could terminate the agreement if the pensions recovery plan is not, in Iberia’s reasonable opinion, satisfactory. The Spanish airline now has three months to reach a decision on the pension recovery plan.

Read more on British Airway’s pension scheme changes