British Airways shares rebound on funding hopes
News that British Airways is about to raise around £300 million from a convertible bond issue and potentially take back over £300 million which was originally pledged to the company's pension scheme, has seen its shares rebound by around 4% today. While the £300 million fund raising was a little less than expected by the market, when added to the potential £300 million saving from the pension scheme it adds up to a significant total.
As the trading position of British Airways began to worsen, the company had agreed to increase funding for the pension scheme and issue various bank guarantees. While the new arrangement with the pension fund trustees will see £300 million released immediately, the company will have access to an increased £2 billion in cash rather than the current £1.35 billion on its balance sheet- due to various banking guarantees being cancelled. While the immediate reduction in pension fund liabilities, together with the additional share sale, will take some pressure off the company, there will need to be an increase in pension funding in the medium to longer term.
It will be interesting to see how employees and unions react to the move which ultimately increases the risk to pension fund member retirement pots.
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