British Airways has struck a £3.7 billion deal with the trustees of the New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS) in an attempt to redress spiraling deficits at the airline.

As part of the deal neither of the final pension schemes will close, with the British flag-carrier agreeing to maintain its annual contribution of £330 million (plus annual increases in line with inflation expectations averaging three per cent) until at least 2023.

The airline completed consultation with its trade unions in March this year and will now submit the full recovery plan to the UK Pensions Regulator by June 30th, 2010.

Commenting on the developments British Airways chief financial officer, Keith Williams, said: “The trustees understand 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.”

Recovery Plan

Following record losses over the past two years BA is reticent to offer further contributions to the final salary pension schemes.

However, the airline has committed to make additional deficit contributions if its year-end cash balance exceeds £1.8 billion.

Iberian Angle

However, the merger with Iberia could still prove a major stumbling block for the deal.

The Spanish flag-carrier has the option to terminate the agreement if the pension recovery plan is viewed as “materially detrimental” to the economic premises of the proposed merger.

All contributions into the British Airways’ pension funds will continue to be funded by British Airways and will not be funded by Iberia or the merged holding company International Airlines Group. 

Iberia has three months to reach a decision on the pension recovery plan.