British Airways is locked in a legal challenge with pensioners over funding of their retirement benefits.
The airline has started legal action to stop trustees demanding more cash to stop the scheme slipping further into the red.
At the heart of the dispute is the calculation the airline uses to work out how much cash should go into the pension each year.
The row dates back to privatisation in the 1980s.
The airline believes the trustees want too much money and that a call for extra cash breaks a long-standing agreement about how the scheme is funded.
Court challenge
The British Airways Pension Scheme has 29,000 members comprising current and former employees.
Funding is index-linked. Until 2011, the amount the airline paid was based on the retail price index (RPI) measure of the cost of inflation, but this was then changed to the consumer price index (CPI).
Government pensions and many private schemes switched to the CPI to reduce the amount they needed to pay into schemes as the CPI returns a lower inflation rate than the RPI.
This meant in April 2013, the airline was due to increase annual payments by 2.2% in line with the CPI, while the RPI was running at 2.9%.
The trustees and British Airways pensioners claim the original agreement at privatisation pledged to follow RPI and the airline is reneging on its promise.
To compensate, the trustees have topped up the annual increase by 0.2%.
The airline argues the agreement bars the trustees from taking this action and has launched action in the High Court to force their point home.
The British Airways pension scheme is £680 million in the red. The 0.2% rise means the airline would have to pay an extra £12 million into the fund this year.
Pensions at risk
“Increasing the annual payment puts the entire scheme at risk,” said British Airways. “We feel the trustees are not acting in the long term interests of staff and pensioners.”
Because the scheme is already underfunded, demanding more cash makes the situation worse and exceeds the benefits promised under the original agreement , explained the spokesman.
“Pensioners are already paid benefits that are worth far more than current employees contributing to the scheme can expect to receive,” said the spokesman.
British Airways fears the move by the trustees will set a precedent that could push the pension into a worse deficit.
Average pensions for retired British Airways pilots are around £50,000 a year. Switching from RPI to CPI indexing costs pensioners about £1,000 a year in benefits.
