BA strikes deal to repair £3.7bn pensions 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 £330m, adding 3 per cent per year to offset inflation, with a view to filling the £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 £1.8bn at the end of the financial year. And the two pension schemes will be provided with £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 £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 £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 £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.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there