Hidden away in British Airways’ half-year results is this tidbit:
That means British Airways NAPS pension liabilities now stand at a whopping £2.66bn — more than twice the £1.17bn reported at the end of last fiscal year.
What’s more — we are still waiting for the results of the BA pension trustees’ triennial revaluation, based on markets at the end of March 2009.
The airline says the results should be made public before the end of 2009, but technically it has until June 2010. And while British Airways’ own valuation of its pension assets is calculated using a discount rate based on AA-rated corporate bonds, the trustees often use gilt yields. Their discount rate could well be different to that used by BA here — resulting in a much higher or much lower figure for the pension deficit.
This is an airline that, despite CEO Willie Walsh’s efforts so far, still has a lot of cost cuts to make — against a very resistant workforce.
It also doesn’t help that the airline is still appears to be burning through cash. From the statement:
Our financial position is strong. Our liquidity position at the end of September was £2 billion, including £1,507 million of cash and some £460 million of general facilities. In addition we have £2 billion of committed aircraft facilities.
That’s more than the £1.46bn at the end of fiscal year 2008/2009 — but that’s also after the airline raised cash via its £350m convertible bond issue.
It is also after the airline translated and marked-to-market some of its cashflow hedges. From the statement:
The increase in reserves is primarily driven by the retranslation of foreign debt and the marked to market movement on fuel and currency hedges of £454 million. The equity component of the convertible bond raised in August 2009 adds a further £84 million to reserves. Net debt at the end of September was £2,362 million, a decrease of £20 million from the end of March 2009.
Taking away the £454m mark-to-market and retranslation gain would have left the carrier with a liquidity position of £1.54bn. How quickly cash goes in an operating environment of volatile fuel prices and falling ticket prices.
Yields, a measure of average ticket prices, were also down 12.2 per cent — 18 per cent excluding the impact of currency movements.
And yet the shares are up 5 per cent in early morning London trading.
(We’re being a bit facetious there — it probably has to do with an El Economista report that British Airways is holding a board meeting today to discuss whether to sign an initial agreement with Iberia. And Walsh’s comments in the results press conference, that he’s “confident in the strength of his case in partnership with Iberia and American Airlines” — or something to that effect.)
Update: Seems there will be a few BA shorts getting burned this morning.