In advance of IAG’s full-year results, due later this week, British Airways made two announcements yesterday about its plans to generate liquidity.
A pension scheme with a little airline attached ….
British Airways is occasionally described as a pension scheme which happens to own a small airline. This is not far from the truth.
The last published valuation of the New Airways Pension Scheme (NAPS), at 31st March 2019, showed that it had assets of £18.1 billion. The market capitalisation of IAG is currently £8.4 billion, of which BA accounts for around half. There is some truth in the remark.
The New Airways Pension Scheme, which has been closed to new members since 2003, has a funding hole of around £2 billion. British Airways has been working hard to fill this gap in recent years.
BA will defer £450 million of deficit contributions
British Airways has agreed with NAPS to take a 12-month break from making ‘deficit contributions’.
This has been backdated to October 2020 and will continue to September 2021. There is a cash saving to BA of £37.5 million per month, for a total saving of £450 million.
Under the current plan, BA will resume regular ‘deficit contributions’ from October 2021. The size of these payments will depend on the triennial valuation of the scheme due on 31st March 2021.
However, it will not start to repay the missing £450 million until March 2023. From that point, any dividends paid upstream from BA to its parent IAG must be matched by a deficit reduction payment. These will continue until the £450 million, plus interest, is repaid.
BA has put up various property assets as security in the event that the airline fails before the payments can be made.
BA is drawing down its £2 billion Government-guaranteed loan
This is funded via the Export Development Guarantee scheme. The money is provided by commercial banks but the loans are underwritten by the Government to, based on precedent, 80% of the total sum.
British Airways confirmed yesterday that it now needs this money, and will be drawing down the loan before the end of the month.
The good news for British Airways is that, in the short term, liquidity does not seem to be a problem. We should find out from the IAG financial results on Friday how long this £2.45 billion will last.
The hope is that it will see the airline through until passengers have confidence to start booking again. Remember that, if the airline fails, the majority of the £2 billion pension deficit will be picked up by taxpayers, as will 80% of this new £2 billion loan.
How to earn Avios from UK credit cards (February 2024)
As a reminder, there are various ways of earning Avios points from UK credit cards. Many cards also have generous sign-up bonuses!
In February 2022, Barclaycard launched two exciting new Barclaycard Avios Mastercard cards with a bonus of up to 25,000 Avios. You can apply here.
You qualify for the bonus on these cards even if you have a British Airways American Express card:
There are two official British Airways American Express cards with attractive sign-up bonuses:
You can also get generous sign-up bonuses by applying for American Express cards which earn Membership Rewards points. These points convert at 1:1 into Avios.
Run your own business?
We recommend Capital On Tap for limited companies. You earn 1 Avios per £1 which is impressive for a Visa card, along with a sign-up bonus worth 10,500 Avios.
You should also consider the British Airways Accelerating Business credit card. This is open to sole traders as well as limited companies and has a 30,000 Avios sign-up bonus.
There are also generous bonuses on the two American Express Business cards, with the points converting at 1:1 into Avios. These cards are open to sole traders as well as limited companies.
Click here to read our detailed summary of all UK credit cards which earn Avios. This includes both personal and small business cards.