Shares in British Airways rose as much as 3.3 per cent during trading yesterday after the airline reached a deal with its four main trade unions on plans to tackle its £2.1 billion (€3.1 billion) pension deficit.

The deal, struck late on Friday, was recommended by the unions after months of negotiations and should lift the threat of industrial action at the airline.

One London-based trader said the potential deal on pensions raised the prospect of credit ratings upgrades, aircraft purchases and potential dividends, while another trader said it would remove one sticking point for any would-be buyer looking to takeover the airline.

BA has agreed to make a one-off contribution of £800 million (€1.2 billion) into the pension fund subject to acceptance of benefit changes.

The airline said that together with a one-off employee saving of £400 million (€593 million) and changes to future benefits, the New Airways Pension Scheme pension deficit will be reduced by more than half to £900 million (€1.3 billion) and bring its annual contributions to about £280 million (€415 million) over the next decade.

BA agreed a funding plan to clear the deficit with the pension scheme trustees in 2006, subject to members accepting changes to future benefits.

In November the airline said it would make a one-off injection of £800 million and pay up to £50 million (€74 million) a year for three years to tackle the pension shortfall.

Last year British Airways proposed raising the retirement age of its 2,500 pilots to 60 from 55 and raise the retirement age for other staff to 65.

BA said further details of the proposed pension arrangements would be released following communications to employees yesterday. - (Reuters)