Iberia backs BA pension plan to move merger a step closer

Updated: 05:41 EST, 23 September 2010

The merger between British Airways and Iberia has moved a step closer after the Spanish airline approved BA's plan to deal with a £3.7bn pension deficit.

Iberia had the right to pull out of the deal between the two airlines if it thought the outcome of discussions between BA and its pension trustees could damage the value of the merger.

But in a statement, BA said Iberia's board of directors had chosen 'not to exercise its right to terminate the merger agreement'.

Flying the flag: Iberia will 'not exercise its right to terminate merger agreement'

BA agreed a recovery plan in June for its underfunded pension schemes, which it said would avoid closure of the two final salary company pension schemes, which together have nearly 100,000 members.

It aims to pay £330m a year, rising in line with inflation, until 2023 and 2026 for the two schemes to plug the £3.7bn deficit.

But members will have to either pay more to maintain the same benefits or see their pension pots reduce.

BA and Iberia announced the merger in April - a move which will create Europe's second-biggest airline by market value after Lufthansa.

The firms formed the combined company International Airlines Group (IAG), of which BA shareholders will hold 56 per cent and Iberia investors will take a 44 per cent stake.

The European Commission gave the green light to the deal on July 14 and the two groups are to due to hold shareholder meetings in November.

Earlier this month, Willie Walsh, BA chief executive, revealed the airline had drawn up a shortlist of up to 12 airlines for proposed acquisitions or mergers, once the Iberia-BA tie-up is sealed and finished.