Airline British Airways (LON:BAY) has reached an agreement with the trustees of its New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS) on a recovery plan that avoids closing the pension schemes and facilitates the airline’s merger with Spanish peer Iberia.
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 June 30, 2010.
The plan maintains BA’s annual contributions at the current level of £330 million, plus agreed annual increases in line with inflation expectations averaging 3%. The agreed deficit contributions continue until 2026 for NAPS and 2023 for APS.
The schemes will also be provided with £250 million of additional security over the company's assets which would become payable in the event of British Airways' insolvency.
The airline concluded consultation with its trade unions in March 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.
BA said that the agreement was a “significant and positive step forward” and that the trustees understood that the airline could not 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,” said BA chief financial officer Keith Williams.
The merger agreement between BA and Iberia will enable the latter 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 BA pension funds will continue to be funded by the airline and not Iberia or the merger holding company International Airlines Group. Iberia has three months to reach a decision on the pension recovery plan.