UK - The value of British Airways' (BA) assets will be substantially lower this year because its large pension deficit has been included on its balance sheet for the first time.
Under new accounting rules agreed by the EU in 2002, all public companies are now required to account for pension liabilities and the cost of employee share options on their balance sheets.
But BA has a total shortfall on its various pension schemes of £1.4bn and this will leave shareholders facing the near certainty of no dividend, which was last paid more than four years ago.
Since 2000, the airline industry has struggled with world events including the aftermath of 11 September, SARS, the war in Iraq and last year’s Asian Tsunami.
CFO John Rishton commented: The impacts of new accounting rules on our income statement are minor. However, there will be a significant impact on our balance sheet.
BA’s pension deficit has deteriorated due to falling long-term interest rates, despite company contributions of £250m a year.
The company has two defined benefit (DB) schemes, both of which are closed to new members.
Previously, outgoing chief executive Rod Eddington dubbed the pension deficit as having the same impact as an “elephant in the rowing boat”.
However, despite a pension black hole, BA has had its profits boosted after it adopted new European Union company accounting standards.
Under the new rules, which came into force earlier this year, BA's pre-tax profits over the last 12 months will total £415m - 23% higher than previously reported. BA said the value of its assets would be reduced by between £1.2bn and £1.39bn after it applied the new rules, designed to provide common standards across the EU, to its 2004 to2005 accounts.
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