Sale may ease BA's pension-deficit headache

British Airways said today it continued to review its ownership of Air Miles, amid speculation that the long-running loyalty scheme could be sold.

Private-equity group European Capital has emerged as a possible buyer for £25m (€36.6m), although The Sunday Times said that BA would also take £200m (€293.3m) in cash out of the company and provide a supply of flights in return.

The possible disposal comes as BA prepares to make a payment of £500m (€732.9m) to tackle its pension scheme deficit, which a report today said had doubled since its last actuarial valuation three years ago to £1.8bn (€2.6bn).

New BA chief executive Willie Walsh is also said to have received offers for BA Connect, a regional airline that flies from Birmingham and Manchester, and could also cash in on the company’s interest in the Airline Group, which holds a 42% stake in National Air Traffic Services.

BA said no decision had been made about its ownership of Air Miles, which it acquired in the 1990s following the venture’s launch in 1988.

A spokeswoman said: “We continue to review the future of Air Miles. A potential sale is one of several options we are considering.”

Air Miles operates as a separate entity to BA and offers earning and spending opportunities on a selection of airlines and retail outlets. Miles can be earned with purchases from more than 90 outlets.

Sir Keith Mills, who founded Air Miles and is deputy chairman of the organising committee for the 2012 Olympics, had been thought to be among initial bidders.

However, his involvement drew objections from some retailers because his company is behind the Nectar loyalty programme, which launched in 2002.

Other bidders are said to have included private-equity groups 3i, Hg Capital and Palamon Capital Partners.

A valuation of the BA pension deficit is due to be announced by actuaries at Watson Wyatt later this year. In March 2003, the figure stood at £928m (€1.4bn).

Lower interest rates and longer life expectancies have increased the deficit, despite a strong stock market.

As well as its own contribution, BA has proposed raising the retirement age for pilots from 55 to 60, while for cabin crew it will go up to 65. It is currently in discussions with union representatives.