BA agrees pensions plan ahead of merger
Published 22/06/2010 | 10:18
British Airways said today that it had agreed a recovery plan for its underfunded pension schemes in a move which paves the way for its merger with Spanish rival Iberia.
The embattled airline said its agreement with pension trustees would avoid closure of the two final salary company pension schemes - which together have nearly 100,000 members.
It aims to pay £330m a year, rising in line with inflation, until 2023 and 2026 for the two schemes to plug a gaping £3.7bn deficit.
But members will have to either pay more to maintain the same benefits, or see their pension pots reduce.
BA will submit the plans to the Pensions Regulator by the end of June and Iberia now has three months to consider the pensions deal.
The pension recovery programme had been a major sticking point in the Iberia merger and Iberia still has the option to call off the tie-up if it does not agree with the arrangement struck with trustees.
BA struck an agreement in March with trade unions on the pension changes, which will see members accept a reduction in benefits.
However, those in the larger of the two schemes - the 68,800-strong New Airways Pension Scheme (Naps) - can pay 4.5pc more in contributions to maintain existing benefits.
BA chief financial officer Keith Williams said: "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 Naps scheme has a deficit of around £2.7bn, while the Airways Pension Scheme (Aps) - with around 31,000 members - is some £1bn in the red.
They both closed to new members many years ago, with the Naps shut in 2003 and Aps in 1984.
But they have been under threat amid mounting funding pressure from falling stock markets and increasing liabilities as members live longer.