Despite going public with an agreement to buy BMI from Lufthansa, British Airways' owners have confirmed to Pension Funds Insider they still need to settle the fate of the BMI pension scheme.

A spokesperson for International Airlines Group (IAG), the newly merged entity between British Airways and Iberia, told Pension Funds Insider that they "are discussing several options" over the BMI fund with the German airline.

The UK's Daily Telegraph has speculated that Lufthansa are so keen to get rid of loss-making BMI that they may be willing to hold onto its estimated £180 million pension deficit.

That outcome could also please IAG, who would not want to acquire a further pension deficit with the British Airways' scheme some £3 billion into the red. Some analysts have also speculated that IAG are more interested in BMI's valuable landing slot at London's crowded Heathrow airport than the business as a whole and will therefore be looking to minimise the assets they take from Lufthansa.

Should Lufthansa hold onto BMI's defined benefit pension scheme, which was closed to future accruals in 2010, they are likely to seek compensation for the deficit through a higher sale price.

The two groups appear close to an agreement on the issue, with the IAG spokesperson saying "we do not expect pensions to be an issue" in blocking the deal.

IAG is focusing its concern on competition authorities, who will analyse whether the group can be permitted to own the majority of Heathrow's landing slots.

Trustees of the BMI scheme were reported last month to be unhappy that the scheme's funding could be reduced after the takeover.

The fate of the fund is also a worry for unions representing BMI employees. The BALPA pilots union told Pension Funds Insider that they had already consulted The Pensions Regulator over the fund and "we will be requesting, with our TUC colleagues, a meeting with Lufthansa management and a meeting with the trustees to put these issues to them directly."

A BALPA spokesman did point out though that a sale of BMI was an encouraging step towards safeguarding pensions.

IAG hope that full agreement on the acquisition of BMI and regulatory approval will be agreed in time for the deal to go ahead in the first quarter of 2012.

09.11.2011

dbillingham@wilmington.co.uk