Engineering group GKN has thrown £200 million at its pension deficit after a strong performance in the aerospace sector boost its performance.

In its annual figures for 2005, GKN, saw sales rise by five per cent to £3.65 billion, h elping pretax profits increase from £155 million to £203 million. This strength enabled the firm, with 2,500 people in the Midlands, to narrow the £466 million deficit in its pension fund.

Chief executive Kevin Smith said: "We are keen to normalise the funding position on our UK pension scheme.

"We have decided therefore to make an immediate contribution of £200 million into the fund.

"This payment will significantly reduce both the current deficit and future annual contributions to the scheme."

The company said it would retain its final salary pension scheme and would re-examine its pension deficit in 2007.

A spokesman said: "This contribution will bring our pension deficit down to £266 million and we think this contribution takes away a lot of the issues surrounding the funding of the scheme. We have the strength in the balance sheet to do this."

The market reacted positively with shares rising by 23.25p to 339.75p.

The company has now unveiled a £600 million war chest for more acquisitions in the aerospace after the sector fared particularly well.

Sales in aerospace, which accounts for about 35 per cent of group revenues, climbed by ten per cent to £627 million in

2005 while trading profits lifted by 42 per cent to £54 million.

The increase resulted from strong defence sales, engineering contract work on new programmes, growth in the civil aircraft market and the start of production on earlier contracts.

Mr Smith said the civil aerospace market remains strong, with Boeing and EADS unit Airbus receiving orders for more than 2,000 aircraft in 2005.

He added that GKN, which supplies airframe structures, components, assemblies and engineering services to aircraft prime contractors, expects to do reasonably well out of rises in US defence spending.

H owever, Mr Smith sounded a note of caution: "We cannot expect to be delivering another 42 per cent of growth in profits next year."

GKN said its core automotive Driveline business, which makes driveshafts, saw a robust performance in 2005.

The group said its powder metallurgy business made a solid recovery during the year and that growth was expected to continue.

However, it said its other automotive activities, which are predominantly UK-based but with facilities in the US and China, saw sales drop by £6 million to £130 million due to exceptional items including the end of a chassis business in the second half of 2004.

Mr Smith said the operation, which makes components, chassis and engine cylinder liners for the car, SUV and and truck markets, would shed about 300 jobs in the UK this year.