British Airways announced (22-Jun-2010) it has reached agreement with the trustees of its New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS) on a recovery plan to address its pension deficits of GBP3.7 billion (Reuters, 22-Jun-2010). The airline completed consultation with its trade unions earlier this year and will now submit the full recovery plan to the UK Pensions Regulator by 30-Jun-2010. The recovery plan avoids closing the pension schemes.
- Annual contributions: It maintains BA's annual contributions at the current level of GBP330million, plus agreed annual increases in line with inflation expectations averaging 3%. The agreed deficit contributions continue until 2026 for NAPS and 2023 for APS. BA will make additional deficit contributions if its year-end cash balance exceeds GBP1.8 billion.
- Security: The schemes will also be provided with GBP250 million of additional security over the company’s assets which would become payable in the event of British Airways’ insolvency. The recovery plan includes a number of usual features that protect the interests of scheme members by preventing the airline from unilaterally reducing the value of the covenant. It also takes account of changes in market conditions since the valuation date of 31-Mar-2009. Following discussions with the Pensions Regulator, the opportunity has been taken to use the recovery in asset markets to increase the margin of prudence in the valuation, rather than lower the contribution commitment required. The airline concluded consultation with its trade unions in Mar-2010 on the pension changes and a reduction in benefits. Alternatively, NAPS members can pay 4.5% more in additional contributions to maintain their existing benefits. The changes are being made to enable the schemes to remain open to current members.
- Iberia merger: The merger agreement between British Airways and Iberia enables Iberia to terminate the agreement if the pension recovery plan is not, in Iberia’s reasonable opinion, satisfactory because it would be materially detrimental to the economic premises of the proposed merger. All contributions into the British Airways’ pension funds will continue to be funded by British Airways and will not be funded by Iberia or the merged holding company International Airlines Group. Iberia has three months to reach a decision on the pension recovery plan. Iberia stated the pension agreement is a “positive step forward in the merger process” (Bloomberg, 22-Jun-2010). [more]
British Airways: “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 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,” Keith Williams, CFO. Source: British Airways, 22-Jun-2010.