British Airways has agreed a recovery plan to tackle its £3.7 billion pension deficits while avoiding the closure of its two final salary schemes.
Agreement has been reached with the trustees of its New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS), the airline announced today.
But the BA-Iberia merger plan enables the Spanish carrier to terminate the agreement if the pension recovery plan is not seen to be satisfactory because it would be “materially detrimental” to the economic premises of the proposed merger.
Iberia has three months to reach a decision on the pension recovery plan.
The recovery plan avoids closing the pension schemes. It maintains BA’s annual contributions at the current level of some £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.
BA completed consultation with trade unions earlier this year and will submit the full recovery plan to the UK Pensions Regulator by June 30.
The carrier is to make additional deficit contributions if its year-end cash balance exceeds £1.8 billion. 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 BA’s insolvency.
The airline concluded consultation with its trade unions in March 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.
Chief financial officer Keith Williams said: “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.”