FARNBOROUGH, England - BAE Systems PLC will contribute an additional £1.4 billion ($2.2 billion) to its £7 billion pension schemes under a preliminary agreement it has reached with one trade union.
Jack Dromey, national organizer for the Transport and General Workers' Union, said he was happy with the compromises reached so far, but further concessions are required to avoid strike action.
Adding to BAE's woes is the other major union involved, Amicus, which represents the majority of workers employed at the company.
Amicus has yet to reach any form of preliminary agreement with BAE. It also has threatened industrial action over how to deal with the £2.3 billion pension funding deficit.
Last month, BAE submitted to all the unions representing its workers what it called a final proposal that included boosting members' contributions by £26 each month, equal to about 40% of the deficit. The company would pay for the remaining 60% of the deficit.
Pension funding cost has become a significant problem for the company. Credit ratings agency Standard & Poor's, New York, downgraded BAE's debt rating last month to BBB from A-, because of concerns over the burgeoning pension gap. Other credit ratings agencies have placed the company on their watch lists.
The company also is making adjustments in some of its seven schemes because of the changing market conditions. David Brief, chief investment officer, said he had shifted equity assets to real estate for some of the company's schemes, but he declined to go into detail because of "market sensitivity on the pensions issue." BAE manages about 75% of its £7 billion total pension assets internally.
External managers include Legal & General Investment Management, Prudential M&G and LaSalle Investment Management, all of London. It is as unclear how these firms have been affected by the changes at the schemes.
Last year, BAE hired actuaries Jardine Lloyd Thompson Benefit Solutions, London, to review the company's options for pensions provision. Two of the options considered were shutting down the seven defined benefit schemes or dramatically altering the membership conditions, such as forcing members to contribute more, in order to reduce liabilities.
Bryan Freake, pensions officer with the MSF division of Amicus, said negotiations with the company are continuing. "We have put details of their latest final position to our members. We'll get feedback over the next few weeks and make a decision as to whether industrial action is warranted," he said.
He declined to provide any further details.