BA faces '£1bn pension black hole'

British Airways is poised to reveal a hole in its staff pension fund of up to £1bn as a result of the sharp fall in stock markets, a report says.

The troubled airline's pension fund deficit has grown from £276m at the end of the 2001-02 financial year to £1bn, according to the Independent.

A BA spokeswoman told BBC News Online she could not confirm or deny the report, but that a review was in progress.

The growth in the scheme's deficit is despite BA's decision last year to cut pension benefits paid to new employees.

But some experts say the airline has little to worry about as cost-cutting has helped build up a sufficiently large cash pile to cover a pension shortfall if necessary.

Drastic action

BA's pension scheme has long been seen as one of the best in the airline industry and has 100,000 members with estimated assets of $10bn.

But, following sustained stock market falls and a recession in the airline industry, BA took the drastic step last year of replacing its final salary pension scheme - where members receive a retirement income based on length of service - with a scheme where benefits depend on investment performance.

Despite the Iraq war and the Sars virus, BA is expected to announce on the19 May that it has moved into the black for 2002-03 compared with a £200m loss the previous year.

Brokerage and investment firm Citigroup Smith Barney rates BA as one of the best placed to ride out the current airline recession because of an estimated cash pile of £1.8bn, despite the shortfall in the pension scheme.

What is more, even if the pension scheme was in deficit, under current pension rules, the firm was not duty bound to pay into it at this stage.

Pensions reviews only provide a snapshot of how the fund is performing and a stock market recovery could, in theory, return the scheme to equilibrium.