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BA ‘prime target’ for takeover after pensions deal – 11 Jan 2007

British Airways tailfinSpeculation about a takeover of British Airways will intensify following the airline’s deal with unions to cut its pension fund deficit.

The terms will be presented to staff on Friday, with unions pointing out it could yet be rejected. But the airline appears confident of acceptance.

Some City analysts believe BA is now a prime target for multinational finance groups following the buyout of Qantas by a consortium last month.

The pensions deal removes one of the biggest underlying problems at BA, which has had a difficult start to the year following the well-publicised baggage handling problems at Heathrow.

It will allow the airline to proceed with a £5 billion fleet renewal programme, with decisions due on major purchases of long-haul aircraft.

The deficit in BA’s final-salary pension scheme leapt from below £1 billion in 2003 to £2.1 billion last year, prompting tough negotiations as the airline sought to add 10 years to the retirement age of pilots and cabin crew and cap pension payments.

The airline has moved considerably from its original proposals, agreeing to increase a one-off payment into the fund this April from £500 million to £800 million and raise its annual contributions over the next decade from £235 million to £280 million.

It will pay in a further £150 million over three years depending on its finances, but has won agreement to cap increases in pensionable pay at the rate of inflation. Both sides have given ground on BA’s demand for increases in the retirement age. Pension contributions will vary depending on whether crew choose to retire at 55, 60 or 65.

Chief executive Willie Walsh hailed the deal as “tackling one of the most fundamental issues we face”.

However, BA faces the prospect of cabin crew voting to strike over pay and sickness procedures in a ballot due to finish this week.

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