UK - The aggregate accounting position of British Airways' (BA) two UK defined benefit (DB) schemes worsened by almost £1.2bn (€1.37bn) in the last financial year, to approximately £1.46bn.
At the presentation of the preliminary results for the year ending 31 March 2009, Keith Williams, chief financial officer at BA, revealed that despite an improvement in the liabilities of the New Airways Pension Scheme (NAPS) and Airways Pension Scheme (APS) because of increased corporate bond yields, the funding position of both schemes had deteriorated.
In a presentation to analysts, Williams confirmed on an IAS19 basis the NAPS valuation was £810m worse than March 2008, when it recorded a £357m deficit, while the APS position had deteriorated by £376m from a surplus of £77m in March 2008 (before the adoption of IFRIC 14 at which point the surplus was restated to £1.1bn with £312m recognised on the balance sheet).
Williams confirmed BA has contributed "the best part of £1.5bn" to the pensions schemes over the last three years, which is more than the profit BA made over that period, and "at the present the company is paying £320m a year in contributions".
He said the figure had been agreed at the last valuation, in March 2006, and was based on what the company could afford to pay, however acknowledging the current downturn he revealed the company had shared its future plans with trustees who are currently waiting for a report from their advisers, PricewaterhousCooper (PwC), due at the end of the month.
Williams pointed out it is "ultimately a question of negotiations between the trustees and the company as to what the level of ongoing contributions should be. But given the history, it does not seem likely to me that there will be an increase in the level of contributions from the £320m that we're contributing today".
That said, he admitted the company and trustees also need to work out what to do about the scheme deficit - totalling £1.17bn for the NAPS on an IAS19 basis - although as the latest actuarial valuation is for 31 March 2009, BA claimed it was "too early to give you absolute clarity on that while we're still pending what the final valuation is".
Williams admitted: "At the year end we will have a small accounting asset and a significant actuarial deficit," as he highlighted the "aggregate accounting position is some £1.2bn worse, and that should be followed to some degree by the actuaries".
So he warned: "One would expect the actuarial valuation starting point would be at least £1.2bn worse than it was at 31 March 2008", which was, according to an update in November, a deficit of £1.54bn for the NAPS and a deficit of £245m for the APS, resulting in an aggregate deficit of almost £1.9bn. (See earlier IPE article: BA admits DB deficit needs longer recovery)
In the preliminary results statement, BA also admitted: "If the financial markets deteriorate further, our pension deficit may increase, impacting balance sheet liabilities, which may in turn affect our ability to raise additional funds."
And in an update on the proposed merger with Iberia, Willie Walsh, chief executive of BA, admitted that while discussions are continuing "little, if any, progress has been made in the last few months".
He added: "We understand the concern Iberia has in relation to our pension deficit. We recognise that as a genuine concern but I remain very confident that we can address that concern."
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