Thaindian News

By Venkata Vemuri
London, June 23 (IANS) British Airways (BA) has inched closer to a merger with Spanish national carrier Iberia after striking a deal with its pension trustees to neutralise its pensions deficit of &pound3.7 billion.

The deficit was said to be the last stumbling block holding up the merger talks. BA’s two final-salary pension schemes have a combined deficit of &pound3.7bn, which it needs to cut. Last month, the airline agreed plans with unions to increase pension contributions to close the deficit.

Under the agreement the BA has reached with the pension trustees, BA would avoid closing the schemes and maintain its annual contributions at the current level of &pound330 million, plus agreed annual increases in line with inflation expectations averaging three per cent.

The airline will make additional deficit contributions if its year-end cash balance exceeds &pound1.8 billion. The two schemes will also be provided with &pound250 million of additional security over the company’s assets which would become payable in the event of British Airways’ insolvency. It will now submit the plan to the UK Pensions regulator.

Keith Williams, the BA chief financial officer, told The Independent: “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.”

However, if Iberia is still pessimistic about the pension recovery plan, it has the right to pull out of its planned merger with BA.

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 &pound531 million 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 in August.

The BA and Iberia signed the deal to merge their operations this April. The merger, which was provisionally agreed last November, will be finalised later this year if Iberia has no objections to the pension deficit agreement. The merger and is set to create one of the world’s largest airline groups, flying to more than 200 destinations

The new company, which will have its headquarters in London, will be called International Airlines Group, but the BA and Iberia brands will continue to operate as normal. In total, the new group will operate 419 aircraft, flying to more than 200 destinations, and carry a total of 62 million passengers a year.

(Venkata Vemuri can be contacted at venkata.v@ians.in)