British Airways has struck a deal to delay £450m of pension deficit contributions as the company struggles through Covid travel restrictions that have left most of its planes grounded during the pandemic.
The carrier’s owner, International Airlines Group (IAG), has also reached a final agreement over a £2bn loan that will give the company a larger financial cushion until Covid restrictions are eased.
BA, which usually pays £37.5m a month into the New Airways Pension Scheme (NAPS), has struck a deal with trustees that will allow it to delay its contributions until September 2021. The airline was allowed to temporarily suspend its payments throughout negotiations, meaning it has not been contributing to the scheme since September last year.
The formal extension means it will have deferred payments for 12 months in total, helping preserve £450m in cash.
“In addition to these arrangements, IAG continues to explore other debt initiatives to improve further its liquidity,” the company said in a statement. IAG’s shares rose 1% to 167p after the news.
The travel and hospitality sectors have been hit hard by the Covid crisis, forcing firms to cut jobs, sell off assets and put staff on furlough. On Monday, the pubs group Mitchells & Butlers said it was also delaying £12.6m of payments to its staff pension fund to help preserve cash.
BA plans to repay its pension contributions, with interest, and has put forward some of its properties as security until the debt has been paid off in full. As part of the deal, BA has also agreed not to pay any dividends to its parent company IAG before the end of 2023. After that, it has committed to match dividend payments with a pension contribution worth at least half of what it will pay IAG.
The airline is trying to plug a £2.4bn hole in the New Airways Pension Scheme, which closed to new staff in 2003. The deficit was discovered during a valuation in 2018. BA has paid £1.3bn of that total, including £263m in 2020.