EUROPE – Nordic multi-national airline SAS is to close its defined benefit (DB) fund and shift to a defined contribution (DC) arrangement in an effort to “considerably reduce the negative impact” of upcoming changes to international accounting standards.
Announcing wide-ranging changes to the company, including the downsizing of its workforce and asset sale, the airline said it must “take steps to reduce the negative impact on equity” caused by changes to pension accounting regulations.
In a statement, SAS said the changes to its pension arrangements would “mitigate” the need for new equity issuances.
It added: “As a result of the revised IAS19, that will be applied by SAS as of November 2013, the SAS group’s shareholders’ equity will be reduced when all unrecognised deviations from estimates and plan amendments will be recognised in full in shareholders’ equity.”
The company cited changes under IAS19 that disallow the so-called corridor approach, whereby all profits and losses must be accounted for immediately, resulting in a “significantly negative effect” for shareholders, were the pension change not to be implemented.
It added that the majority of current employees would now be offered DC arrangements, pending agreement with the relevant unions.
“These changes will mitigate the negative impact on equity by an estimated SEK2.8bn (€326m), reducing defined benefit obligations by SEK19bn (58%),” the company said.
It added that the shift would also serve to reduce volatility in future earnings stemming from the previous DB pension fund.
“These pension changes, together with the other actions announced today, provide SAS with the confidence that it will retain a strong equity position,” it added.