BA agrees plan to tackle £3.7bn pension deficit

British Airways today announced it has agreed a recovery plan with trustees to tackle its £3.7 billion pension deficit that does not involve closing its two final-salary pension schemes.

The airline has agreed it will maintain its annual contributions of £330 million plus annual increases in line with inflation expectations averaging 3%. 

BA will also make additional deficit contributions if its year-end cash balance exceeds 1.8 billion.

The agreed deficit contributions will continue until 2026 for its New Airways Pension Scheme (NAPS) and until 2023 for its Airways Pension Scheme (APS).

The airline concluded talks with trade unions on pension changes and a reduction in benefits in March. Balpa, the GMB and Unite unions agreed that pension scheme members of the large scheme, NAPS, can either receive lower future benefits and keep their current levels of contribution, or alternatively opt to pay an extra 4.5% to maintain their existing pension benefits.

Keith Williams, BA chief financial officer, 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’, he added.

A spokesperson for BALPA said: 'We welcome the decision that the procedure agreed between the the company and the unions will go ahead'.

The airline will now submit the full recovery plan to the UK Pensions Regulator by June 30 2010, but BA claimed the Pensions Regulator's intial response had been positive. The merger agreement between BA and Iberia also means Iberia has three months to decide if it thinks the pension recovery plan is satisfactory or if it wants to terminate the merger agreement.

Meanwhile, BA is facing further strike action by cabin crew during the peak summer months after the latest talks between the airline and Unite union collapsed last week.

BA cabin crew has already staged 22 days of strikes this year, costing the airline £150 million, in a dispute over pay, working conditions and travel perks.