At last, some good news from British Airways: the strike-torn airline has come to an agreement with the trustees of its two final-salary pension schemes to reduce the schemes’ eye-watering combined deficit of £3.7bn.
It’s a double win for Willie Walsh’s battling management team. First, it removes one of the key barriers to the planned merger between BA and Spain’s national carrier Iberia, a vital plank in Walsh’s strategic vision. Second, it means that BA won’t have to close the two pension schemes – a move which would hardly have been likely to improve employee relations at a time when they are already at an all-time low.
It's also likely to go down pretty well in the City, where they like these things to be kept shipshape and Bristol fashion. With £1bn and £2.7bn deficits respectively, the gaping holes in the Airways Pension Scheme (whose member are mostly retired) and the New Airways Pension Scheme (which still has 30,000 active employees contributing to it) had become something of an albatross around BA’s neck.
Under the new plans, staff will have to choose between paying a slightly higher contribution, or opting for a reduction in the rate at which their pensions build up. Meanwhile, BA will continue to pay in £330m a year, rising in line with inflation, until 2023 for APS and 2026 for NAPS.
This of course does mean that BA employees will ultimately get less pension for their money, but they are hardly alone in that. And overall it’s a good result for all concerned. Even the trade unions – hardly Walsh’s best chums at the moment - are unlikely to cause much trouble, as the firm reached agreement with them on this back in March. Yes, even the Mr and Mrs Angrys at Unite manage to forget their beef with management when it comes to safeguarding the future of their retirement pots.
But it’s not quite blue skies all the way just yet - BA now needs to seek approval from two further bodies: the pensions regulator and from Iberia itself. The planned merger depends on the Spanish airline’s approval – if it doesn’t like the measures, it has the right to pull out. This seems a pretty remote possibility, however, given that the changes will be funded entirely by BA rather than by Iberia or the merged airline.
More pressing is the reaction of the pensions regulator, which could yet ground the whole proposition by failing to give its consent to the deal. In that case, Iberia chief exec Antonio Vázquez has said the airline may be forced to ‘rethink everything’. Hmm.
Let’s hope it doesn’t come to that, as the future prosperity of both firms likely depends on the success of their corporate nuptials. If the wings fall off the deal now, the consequences for employees could be much more drastic and immediate than a change in their pension rights.
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Can BA plug £3.7bn pensions hole?
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