Pension deal gives BA shares a lift

Shares in British Airways were boosted today after the airline reached agreement with its unions on plans to tackle a £2.1bn (€3.1bn) pensions deficit.

BA announced the breakthrough on Friday night following discussions with all of its four unions, representing pilots, cabin crew, check-in staff and other employees.

The stock rose more 1% today as BA said the proposals effectively tackled “one of the most fundamental issues” faced by the airline. There had been fears that BA could be involved in a bitter industrial dispute over the proposed changes, which will see BA make a one-off cash contribution of £800m (€1.2bn).

Subject to fund members also accepting changes, BA has agreed to make annual contributions of £280m (€416m) a year for the next 10 years. The moves will cut the pension deficit from an existing £2.1bn (€3.1bn) to £900m (€1.3bn), prior to the annual contributions being made.

The proposals will now be recommended by unions to the workforce for approval.

Resolution of the pensions crisis should give BA the green light to embark on a period of investment, particularly in its long-haul fleet. A report at the weekend said it was also expected to lead to a review by rating agencies of BA’s credit status.

And it will fuel speculation that BA could attract takeover interest, following the recent acquisition of Australia’s Qantas by financial groups including Macquarie and Texas Pacific.

In a note to clients last week, Andrew Fitchie of stockbroker Collins Stewart said: “The key driver in the year ahead will be sector merger and acquisition and we strongly believe BA is a primary takeover target.”

BA chief executive Willie Walsh said Friday’s agreement secured the pensions of 33,500 pension scheme members and removed a “major blocker” to future investment.

He added: “This brings the deficit and ongoing contributions to a level which is affordable by BA and effectively tackles one of the most fundamental issues we face.”