LONDON - Thousands of British Airways (BAY.L) cabin crew voted to strike, hours after the airline revealed a 3.7 billion pound ($6 billion) hole in its pension fund that will require deft handling by management if a proposed merger with Iberia (IBLA.MC) is to stay on track.
The strike will take place over 12 days from December 22 but we have taken the decision, which will disrupt the travel plans of thousands of people, with a heavy heart, a Unite spokesman said at a press conference following the result of the ballot at Sandown Park Racecourse, west of London.
Of the staff balloted 92.5 percent voted in favor of industrial action.
Shares in BA, which have fallen 9 percent in the last three months, were 1 percent down at 199.40 pence by 1435 GMT, valuing the business at around 2.3 billion pounds.
The Unite union balloted some 13,000 cabin crew members on industrial action as part of a dispute over job losses and changes to working practices.
BA wants three quarters of its crew to accept a pay rise of between 2 and 7 percent this year, which will be frozen next year, and for 3,000 staff to switch to part-time working, along with a reduction in onboard crewing levels on some flights from London Heathrow.
A 12-day strike would be completely unjustified and a huge over-reaction to the modest changes we have announced for cabin crew which are intended to help us recover from record financial losses, BA said in a statement.
The strike will disrupt the travel plans of hundreds of thousands of passengers and could cost BA around 50 million pounds in lost revenues and refunds, analysts say.
BA's chief executive Willie Walsh has said changes at the airline, which analysts believe is losing 1.5 million pounds a day, are essential to help repair its precarious finances.
The company last month reported a first-half pretax loss of 292 million pounds, and is expected to report a loss of 601.2 million pounds for the full year, according to a Thomson Reuters I/B/E/S poll of 19 analysts.
Earlier on Monday BA said its pension deficit more than doubled to 3.7 billion pounds at the end of March, from 1.8 billion a year earlier, at the high end of analyst expectations, but not seen as big enough to derail a merger with Spain's Iberia (IBLA.MC).
We're not surprised by this figure. It falls within the expected range, a source at Iberia told Reuters on Monday.
BA denied that the pension funds announcement was timed to coincide with the Sandown meeting, saying once it had reached an agreement with the pension trustees it had to release details to the market.
BA and Iberia announced in November that they had reached an agreement for a merger, which they hope will be concluded by the end of 2010, after months of negotiations.
BA's pension deficit was the main stumbling blocks in the merger negotiations and Iberia has reserved the right to back out of the deal if the funding hole turns out to be too big.
Nevertheless, the deficit figure of 3.7 billion pounds could be higher by the time the valuation process is completed in June next year, because Britain's Pensions Regulator believes the assumptions used to calculate the shortfall are too optimistic.
Analysts at Deutsche Bank described the figure as toward the high end of market expectations but said a recovery in the stock market since the end of March meant the current funding hole gap probably stood at around 2 billion pounds.
The company may be forced to renegotiate pension benefits with employees if it is to avoid using more shareholders cash. Industrial unrest could therefore worsen over the next few weeks, Deutsche Bank said.
BA said the airline and pension trustees will work together to develop a recovery plan, a process which will involve the company consulting with employees and their trade unions and which must be completed by June 30, 2010.
Independent pensions consultant John Ralfe said that although Iberia management may have been privy to the new pensions deficit numbers, investors in the Spanish airline would still be shocked.
What a month ago looked like a deal that might work with a following wind ... now looks much more difficult, he said.
Ralfe said the statement appeared to imply that the company would be talking to unions and employees about cutting benefits at a time when industrial relations are already strained.
A spokeswoman for BA said the company could not afford to make any additional contributions to the pension scheme than those already being made, but was looking at all other options for a recovery plan.
(Additional reporting by Tracy Rucinski, Paul Hoskins and Joel Dimmock; Editing by Greg Mahlich and Rupert Winchester)