Shares in British Airways soared yesterday after the UK's flagship airline unveiled proposals to clear its huge pension deficit.
BA is to pay £500 million into its main pension fund - but only if employees agree to plans to raise the retirement age of pilots and staff. However, one of the main unions said it would resist the proposals.
The airline said it hoped to clear the £1 billion deficit, as measured by actuaries three years ago, through a combination of higher retirement ages, a slower accrual rate and a cap on pension increases.
BA's plan for staff to work longer for a similar annual pension sent shares in the airline to near four-year highs and was received cautiously by unions, which had threatened to strike if they did not like the proposal.
"The pension deficit was the key concern - the proposals are a clear positive," UBS analysts said.
Chief executive Willie Walsh, who has made pensions a top priorty, said the airline would make a £500 million one-off payment from cash reserves, conditional on staff backing the plan.
This was on top of £350 million the company already planned to pay by the end of 2006. The proposed changes were also expected to contribute £450 million to alleviating an expected increase in the deficit when it is reviewed.
The BA scheme provides a pension based on the member's final salary before retirement and is already closed to new members.
The retirement age for most BA staff, including cabin crew, would rise by ten years to 65. The retirement age for its 2,500 pilots would jump from 55 to 60, due to limits on the age of airline captains in some countries.
"These changes are necessary to clear the past deficit and to contain the amount of future funding needed," said
Mr Walsh. "It means working longer to get a similar annual pension, but one that is more secure.
"This should address the pension problem at British Airways once and for all," he added.
The airline must now clear its proposal with the unions -but the Transport Union said it would resist the changes.
Brendan Gold, T&G national secretary for civil aviation, said: "The proposal as presented to the T&G today is both unfair and unacceptable and does not represent a starting point for negotiations.
"BA is a profitable company not one in crisis.
"It must be remembered the pensions are deferred earnings." Pensions is the biggest challenge facing Mr Walsh, who wants to avoid conflict and a repeat of last summer's industrial unrest which grounded flights.
Actuaries put BA's pension deficit at £928 million following the airline's last three-year review in 2003.
Under IFRS accounting rules, the deficit was £1.4 billion after tax in its accounts for the year ended in March 2005.
Pension increases would be capped at 2.5 per cent each year, and pensionable pay rises would be no more than inflation under the changes.