Iberia board backs British Airways' pension plan

[September 23, 2010]  LONDON (AP) -- The board of Spanish airline Iberia SA has backed British Airways PLC's plan for closing a huge pension deficit, clearing the way for a merger of the two airlines, the British carrier said Thursday.

Iberia had the right to walk away from the merger if it was unhappy with BA's plan to deal with a pension fund deficit of 3.7 billion pounds ($5.8 billion).

In a brief announcement to the London Stock Exchange, British Airways said Iberia's board had confirmed that it would not exercise its right to call off the merger.

The combination still requires approval by shareholders of both airlines.

British Airways' merger with Iberia will create Europe's third-largest airline with a market value of around $7.5 billion.

The two loss-making airlines are among many struggling to survive after a fall in demand from both business and leisure travelers in the wake of the global credit squeeze.

BA and Iberia also plan to expand their one-world alliance with American Airlines, which currently coordinates how they sell and operate flights between the 27-nation European Union and the United States. They will now also jointly manage schedules, capacity and pricing on flights from Canada, Mexico, Puerto Rico, Norway and Switzerland as well.

BA's agreement with its unions calls for the airline to make annual contributions of 330 million pounds ($517 million) to two pension funds, plus annual increases of about 3 percent a year.

BA pledged to make additional contributions if its year-end cash balance is over 1.8 billion pounds, and it has made additional provisions of 250 million pounds for securing pensions if it becomes insolvent.

[Associated Press]

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