British Airways (BA) has reached an agreement with the trustees of its pension fund – New Airways Pension Scheme (NAPS) – to defer £450m (€521m) of pension deficit contributions (DRCs) due between October 2020 and September 2021.
Shortly after the UK government announced the first national lockdown in March 2020, The Pensions Regulator (TPR) issued guidance to help trustees of defined benefit pension schemes to deal with issues that had arisen during the COVID-19 pandemic. The guidance included dealing with requests from sponsoring employers to suspend or reduce pension contributions.
According to the airliner, the scheme has had regard to this guidance throughout the negotiation process with BA and stated that the government’s response to the COVID-19 pandemic “was both swift and severe” and “has had a particularly dramatic impact on the travel industry”.
“When BA approached the NAPS trustee regarding a potential deferral of its DRCs in October 2020, given the significant challenges facing the airline industry, the NAPS trustee concluded that there was a genuine need to offer support to BA and, provided suitable protections could be obtained, that it would be in the best interests of the scheme beneficiaries to do so,” the company explained in a statement.
The agreement allows BA to defer its DRCs to the scheme for 12 months, back-dated to 19 October 2020. Under the terms of the agreement the deferred contributions, with interest, will be paid back at the end of the current recovery plan, which was otherwise due to end by 31 March 2023.
The deferral will be backed by security granted by BA over specified property assets, it said, adding that in return for its agreement to this deferral, and in line with TPR’s guidance on such requests, the NAPS trustee has negotiated some additional protections from BA on security, dividends and other payments out of the company, as well as information sharing.
If there is a material improvement in BA’s financial position before 2023, discussions will take place on an early restart of contributions or earlier repayment of the deferred amounts.
The scheme will have security for the full £450m of deferred DRCs with immediate effect until the last payment due under its 2018 recovery plan has been paid a total value of £1.2bn.
No dividends will be paid by BA to International Airlines Group, its parent company, before the end of 2023. From 2024, any dividends paid will be matched by contributions to NAPS of 50% of the value of dividends paid.
Any such payments to NAPS will reduce the outstanding repayment balance and will be capped at that level. The requirement to make such payments to the scheme ceases after deferred contributions have been repaid, BA said.
A new recovery plan will be based on the triennial valuation as at 31 March 2021. If a new recovery plan has not been agreed by 30 September 2021, the default position is that BA will return to making payments of £37.5m per month from October 2021.