BA to pay 500 mln stg to tackle pension deficit

LONDON, Mar 23 (Reuters) British Airways Plc, Europe's third-largest airline, will raise the retirement age of pilots and other staff and pay 500 million pounds (4 million) to tackle its huge pension deficit.

The airline said on Thursday it hoped to clear the 1 billion pound deficit, as measured by actuaries three years ago, through a combination of higher retirement ages, a slower accrual rate and a cap on pension increases.

BA's plan for staff to work longer for a similar annual pension sent shares in the airline to near four-year highs and was received cautiously by unions, which had threatened to strike if they did not like the proposal.

''The pension deficit was the key concern in the investment community; the proposals are a clear positive,'' UBS analysts said in a note to clients.

Chief Executive Willie Walsh, who has made pensions a top priorty, said the airline would make a 500 million pound one-off payment from cash reserves, conditional on staff backing the plan.

This was on top of 350 million pounds the company already planned to pay by the end of 2006. The proposed changes were also expected to contribute 450 million pounds to alleviating an expected increase in the deficit when it is reviewed by actuaries soon.

The BA scheme provides a pension based on the member's final salary before retirement and is already closed to new members.

The retirement age for most BA staff, including cabin crew, would rise by 10 years to 65. The retirement age for its 2,500 pilots would rise from 55 to 60 due to limits on the age of airline captains in some countries.

BA shares were trading 3.1 per cent firmer at 371-3/4 pence at 0928 GMT (1558 IST) after rising as high as 379, its highest level since June 2001, in early trade.

The airline must now clear its proposal with unions, which have threatened to take strike action if they do not support the long-awaited proposals.

''It was no secret that BA's pension funds were in deficit but we still don't really know if today's measures will be the right ones for our members and for the scheme,'' said Brendan Gold, national secretary at the biggest union representing BA staff, the T&G.

Hundreds of UK firms have shut final salary pension plans to new members and now companies are cutting benefits to existing staff or brokering deals to spread the risks of rising liabilities.

Pensions is the biggest challenge facing Walsh, who wants to avoid conflict with unions and a repeat of last summer's industrial unrest which grounded flights.

Actuaries put BA's pension deficit at 928 million pounds following the airline's last three-year review in 2003. This is exepcted to rise when a new three-year valuation is completed this year.

Under IFRS accounting rules, the deficit was 1.4 billion pounds after tax in its accounts for the year ended in March 2005.

Pension increases would be capped at 2.5 per cent each year, and pensionable pay increases would be no more than inflation under the changes.

The proposal follows three months of talks with its 34,500 pension scheme members.

Defence contractor BAE Systems agreed a deal with unions in February under which staff will share the financial risk of life expectancy rising more quickly, while injecting 600 million pounds of assets into its pension fund.

REUTERS SD PM1646