Ouch! BA’s pension deficit is set to pass 3 billion pounds

July 16, 2009

It’s a bit rough on BA that the triennial review of its pension funds should have co-incided with the bottom of the equity market at the end of March, since the result will be a deficit in excess of 3 billion pounds.

Even that might be said to be too optimistic, if the last declared discount rate of 6.9 percent is repeated. The higher the rate, the smaller the current value of the liabilities. BT’s, for example, is 6.85 percent, and the Royal Mail’s 6.4 percent,

Put in perspective, this is twice the airline’s current market value, or getting on for six months’ revenue. The deficit is in spite of the injection of 800 million pounds since the last valuation, and is clearly the most intractible of BA’s litany of problems.

Curiously, the matter gets hardly a mention apart from tables of sticky actuarial detail deep in the annual report. For example, when the results were released, the only reference read: “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.”

 Apparently the Pensions Regulator is being sympathetic, and will agree to let BA take a long view when it comes to putting it right. He doesn’t really have a choice, since bankrupting the airline would only make things worse for the people he is trying to protect.

The only consolation is that of the schemes’ 12 billion pounds in assets, about 4 billion pounds is in shares, which have risen dramatically since the March snapshot. So on top of all the other gearing inherent in this disastrous, loss-making industry, BA is also a bet on equity markets. No wonder the shares go up and down almost as fast as the planes. 

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