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October 27, 2016 01:00 AM

British Airways agrees to contribute £300 million a year through 2027 to pension fund

Sophie Baker
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    Bloomberg

    The sponsoring employer of the British Airways New Airways Pension Scheme, Middlesex, England, has agreed in principle to pay contributions of £300 million ($365.5 million) per year until 2027.

    British Airways, a subsidiary of International Airlines Group, has signed the agreement with trustees following the £13.3 billion pension fund's triennial valuation. At March 31, 2015, the pension fund had a £2.8 billion deficit, up 3.7% compared with the 2012 valuation. The slight increase in deficit over the three years “is due to a reduction in the interest rates used to discount the scheme's liabilities, partly offset by contributions and investment returns,” said a statement on IAG's website.

    Fund assets increased 38.5% over the three years ended March 31, 2015. Liabilities increased 30.9% to total £16.1 billion over the same period. The funded level increased to 82.7% as of March 31, 2015, up from 78.3% at March 31, 2012.

    The agreement means BA has the flexibility to make dividend payments to IAG, and also caps the level of additional contributions made by the airline at £150 million per year added the statement.

    British Airways can also make additional contributions not to exceed £150 million per year, based on excess cash levels or dividends paid to IAG higher than 35% of its profits.

    “This recovery plan is based on an assumed steady switch of 3% of the assets each year from return-seeking assets such as equities to liability-matching assets such as bonds,” added the statement.

    The U.K.'s Pensions Regulator has been informed of the terms of the agreement.

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