British Airways Case Study

Case: British Airways

British Airways

One of the world’s top airlines, British Airways was actually the flag carrier of the United Kingdom. It was incorporated in 1974 from the merger of two London-based airlines. It was listed and traded publicly on the London Stock Exchange and a constituent member of the FTSE 100 Index. Although it still trades as British Airways it merged with Spanish airline Iberia in January 2011 the new group is called International Airlines Group (IAG) and will publish its financial statements as IAG in the future.

British Airways has its major hubs at London Heathrow Airport and London Gatwick Airport. It is the largest airline in the UK based on fleet size, international flights and international destinations. It is now operating one of the most extensive international airline route networks with flight to more than 300 destinations worldwide.

The Pensions Issue

In 2003 British Airways announced that in light of a major pension deficit in the company it would close its final salary scheme to all new employees (whereby pensions are linked to salaries in the final years of employment). British Airways also revealed on December 2009 that its pension deficit has risen to £3.7 billion. Although it’s not Britain’s biggest company deficit, relative to the size of the group, the pension hole of British Airways is the deepest. The deficit is already around twice the Company’s value. In short, British Airway simply cannot afford to pay its existing staff the pensions it used to give to its current pensioners.

The dramatic pension deficit rise during the past few years is mainly the result of the credit crisis and the economic downturn in the global market. The serious situation forces British Airways to urgently sort out ways to cut costs to ride out its dire financial situation. One