Pension proposal

British Airways PLC
23 March 2006

PENSION PROPOSAL TO CLEAR PAST DEFICIT

British Airways has drawn up a proposal to clear the £1 billion past service
actuarial deficit in its New Airways Pension Scheme (NAPS).

The airline plans to keep a final salary pension scheme with no changes to
pension benefits already earned and no increase in staff contribution rates.

There will however, be changes to members' benefits that relate to future
service.

The airline will make a payment of £500 million into NAPS after the changes are
accepted.

The key changes for future service are:

  • Normal retirement age raised
  • Slower accrual rate
  • Pensionable pay increases no more than inflation
  • Pension increases on retirement capped at 2.5 per cent each year
  • Company and staff to share impact of changes in life expectancy

Willie Walsh, chief executive, said: 'This is a solution that will provide
competitive, affordable pensions for the future. These changes are necessary to
clear the past deficit and to contain the amount of future funding needed. It
means working longer to get a similar annual pension, but one that is more
secure. This should address the pension problem at British Airways once and for
all.

'After the changes are accepted, the airline will make a payment of £500 million
into the fund. This is on top of the £350 million the company will have paid
towards the past deficit by December 2006.'

The next valuation begins this month with the results expected in October. If
changes to the scheme are not introduced the deficit and level of future service
contributions are expected to grow because people are living longer and
long-term interest rates remain low.

Mr Walsh added: 'The changes to members' future benefits will reduce the
anticipated deficit by £450 million.  We will also be able to make contributions
for future service we can afford.

'This package of measures is vital if we are to achieve a competitive cost base,
deliver a 10 per cent operating margin, be fit for growth and invest in our
future.'

The proposals follow an extensive staff communications programme for active NAPS
members.

                                      ends

March 23, 2006
                                                                      026/KG/06


Notes to Editors:

  • The New Airways Pension Scheme (NAPS) NAPS has 33,794 active members,
    20,269 deferred and 15,185 pensioners.

  • The airline closed NAPS to new members in 2003 but members continue to
    accrue benefits.

  • NAPS provides a final salary pension based on length of service multiplied
    by pensionable pay, divided by 56 for ground staff and 52 for flying staff.

  • In 2003, the airline introduced British Airways' Retirement Plan (BARP)
    for new joiners, including chief executive Willie Walsh who joined in May
    2005. BARP is a defined contribution scheme

  • At March 31, 2005 the NAPS FRS17 pre-tax deficit was around £2 billion.
    The post-tax FRS17 equivalent figure is £1.4 billion.

  • The NAPS actuarial deficit at March 2003 was £928 million.

  • From January 2004 to the end of 2006 British Airways will have paid
    £350 million off the past deficit.

  • BA's contribution to NAPS last year was £235 million.

  • Normal retirement age (NRA) will rise to 65 to coincide with age
    legislation, expected to be introduced in the UK in October 2006.

  • The current compulsory retirement age for pilots and cabin crew is 55;
    the normal retirement age is also 55.  For cabin crew NRA will rise to 65.  
    To reduce the impact, for the first five years this will rise to 60.

  • For pilots, some countries including France and the USA apply
    restrictions to flying and overflying as a captain beyond 60.  For this 
    reason the normal retirement age will rise to 60.  If the flying 
    restrictions are removed in the future, the airline will raise NRA to 65 and 
    adjust accrual and contributions in line with other staff.

  • For those with an NRA of 65 the accrual rate will be reduced from1/56 to 1
    /60 and contribution rates remain unchanged at 5.25 per cent.  For those
    with an NRA of 60 the accrual rate will adjust from 1/52 to 1/56.

  • The option to retire before NRA remains, but on a smaller pension.  Staff
    will have the option to save more through defined contributions or through
    other pension plans.


                      This information is provided by RNS
            The company news service from the London Stock Exchange