British Airways owner International Consolidated Airlines Group SA (LSE:IAG) has said the airline could start paying a dividend in 2024 as it set out the pathway to restart shareholder distributions after signing a new agreement with the trustee of its pension scheme.
While the funding position of BA's New Airways Pension Scheme (NAPS), based on its valuation on 31 March 2021, shows a provisions deficit of £1.65bn, down from a deficit of £2.4bn three years earlier, the funding level has since considerably improved, the company said, and was in surplus as of 6 December 2022.
"This improvement in funding has arisen in large part due to the increase in UK government bond yields, which has increased the discount rate applied to pension liabilities, combined with positive relative returns from the scheme's asset portfolio," the company said
As a result, BA does not expect to be required to make contributions to NAPS for the foreseeable future, it added.
The new agreement with the NAPS trustee includes that BA will not pay a dividend in 2022 and 2023, but if it pays a dividend in 2024 there will be a 50% matching contribution to NAPS, while from October all dividend restrictions will cease.
Any dividend will be limited to 50% of pre-exceptional profit after tax in 2025 and dividends above this level this would require additional payments to NAPS if the scheme is not at least 100% funded.
In order to pay a dividend, BA must maintain a minimum cash level of £1.6bn after any dividend and matching contribution have been paid.
Monthly deficit contributions to the scheme will be suspended if the funding ratio on a technical provisions basis reaches 100% at its monthly tests, and if the funding ratio fall should below 100% BA must begin making monthly contributions until funding returns to at least 100%, beginning at a rate of £50mln per year to June 2023 and increasing by £50mln each year up to June 2026, capped at £225mln per year from July 2026 until June 2032.