British Airways moves to reduce pension liability
British Airways has this week announced an agreement with Goldman Sachs to effectively insure £1.3 billion of the company's £3.7 billion liability between the two open final salary pension schemes. In what is a slightly complicated transaction, the agreement with Rothesay Life (a subsidiary of Goldman Sachs), the company has managed to match future cash flow requirements in any inflationary and interest rate scenario.
This is the latest in a long line of moves by British Airways to try and reduce both the company's pension fund liability and reduce the cost of operating the business. It is becoming evident that the pace of change is quickening and indeed earlier this week we saw signs of a potential breakthrough regarding the long-running dispute with the Unite union. While the timing of these moves could be coincidental it is no secret that the company is being squeezed and its balance sheet is not as strong as the company would have liked.
Many pension fund experts believe this will be one of many similar transactions as companies operating final salary pension schemes look to cap their liabilities going forward. This will then allow companies to retain cash flow within their operating divisions and take away the added pressure of increased pension fund contributions which are impacting upon many companies in the UK.
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