UK - British Airways has revealed the accounting deficit in its New Airways Pension Scheme (NAPS) has increased by another £201m. stretching its total deficit to £558m (€690m).

The company confirmed in its interim results it has conducted interim valuation updates on both the NAPS and the Airways Pension Scheme (APS) - both of which are closed to new members - on an IAS19 basis.

Figures showed the APS had an accounting surplus of just over £1.1bn, of which £307m is recognised on the balance sheet - following the adoption of IFRIC 14 - while the NAPS reported a deficit of £558m, compared with £357m at the end of the first quarter.

However, the interim report also showed the APS reported a deficit of £245m on an actuarial valuation, and based on figures from March 2008, while the NAPS deficit reported an actuarial deficit of £1.54bn at 31 March 2008.

Data from the interim results presentation showed in March 2007 British Airways was ahead of its target recovery plan to eliminate the NAPS deficit, following contributions of £800m and cost reductions of £400m from changes to scheme benefits.

However, Keith Williams, chief financial officer at British Airways, revealed as "market events have changed since then", the pension fund has now "fallen behind" its recovery plan targets - which was expected to have the deficit reduced to around £1bn by 2008.

Williams suggested as The Pensions Regulator (TPR) has stated pension plans must be affordable, British Airways might extend the length of its deficit recovery period - even though TPR has a scheme funding 'trigger' of 10 years.

In the firm's results presentation, Williams said: "It's early days yet and the next valuation of the fund is not due until 31 March, but it is however likely any new funding plan is likely to involve some change to the deficit make-up period - the 10-year repayment period."

Willie Walsh, chief executive of British Airways, presented an update on the ongoing discussions around an all-share merger with Iberia, after market speculation suggested there was some concern about the deficit of the British Airways defined benefit (DB) schemes.

He said Iberia had "taken time" to understand the accounting, funding and actuarial issues in relation to the DB schemes as it does not have a DB scheme of its own, and had taken two months to understand the issues, but it is now believed Iberia has "got to a position where they understand" the fund's finances so discussions can move onto other areas and a further update is expected "early in the New Year".
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