British Airways' pension deficit has more than doubled to over £2bn, the airline disclosed yesterday, intensifying pressure on the company and its staff to reach a new deal to cut retirement costs.
The latest actuarial valuation of the scheme shows the deficit has ballooned from £928m three years ago to £2.062bn now, despite a 100 per cent increase in BA's contributions and a stock market recovery over the same period.
The increase in the deficit is greater than BA and the market had expected and is the result of longer life expectancy and the decline in long-term interest rates.
BA said it would sit down and negotiate with its staff and pension fund trustees with the aim of agreeing a deal to close the deficit by mid-November. But its biggest union, the Transport and General Workers', rejected the proposals BA has so far tabled, saying they were "unfair and unacceptable and do not represent a starting point for negotiations".
Until the pension issue is settled, BA cannot press ahead with a multibillion-pound fleet replacement programme or resume dividend payments to shareholders.
BA unveiled proposals in March designed to cancel the deficit over a 10-year period. These include an increase in the retirement age to 65, a slower rate of accrual for employees, an inflation-linked cap on pensionable pay increases and reduced benefits for those retiring early. In return BA offered to inject £500m into the pension scheme in addition to ongoing annual contributions of £240m a year.
Willie Walsh, BA's chief executive, said unless the proposals it had tabled were accepted, its annual pension contributions would have to rise to £497m a year. That is 12 times the contribution being made by staff and the equivalent of 70 per cent of last year's pre-tax profits. He warned that BA could not countenance such an increase while the pension fund trustees said an analysis conducted for them by the accountants PricewaterhouseCoopers had concluded that the airline could not afford to make contributions much in excess of current levels.
Mr Walsh said: "I believe our proposal is a fair solution which addresses the funding problem and shares the cost of securing the future of our pensions and BA."
He indicated, however, that the £500m one-off contribution to the pension scheme offered by BA could be increased. "It is something we are going to have to negotiate with the trustees."
The trustees said that although they have been advised that paying off the deficit from cash reserves would put "the long term viability of BA in jeopardy", they had also been told by PwC that it could afford a bigger cash injection than £500m.
Brendan Gold, the T&G's national secretary for civil aviation, said the changes proposed by BA would reduce existing pension pots by an average of £13,300, and added: "The company is profitable, has been reducing debt and is not in crisis. It must be remembered that pensions are deferred earnings."
There are a little less than 70,000 members in BA's main scheme, of whom 33,000 are active and 15,000 are pensioners. Under BA's proposals, retirement ages would rise to 65 for cabin crew and 60 for pilots, rising to 65 if age restrictions in countries such as France and the US were eased.
At the same time, it is proposing to reduce the amount an employee earns towards a pension for each year of service and cap the annual increase in pensionable pay in line with inflation.
If the pensions deadlock can be resolved by mid-November, BA is likely to go to Boeing and Airbus with a request for proposals for an aircraft order which could be worth up to £10bn. Its board will also be able to sit down and discuss a return to the dividend list.Reuse content