AS Michael O’Leary’s thoughts turn to the final furlong, one-time rival Willie Walsh is only trotting down to the starting gates at British Airways, where he will find the purse strings are finally loosening, writes Dominic O’Connell.

The company’s corporate wallet has been tightly shut since the September 11 terrorist attacks in 2001 that cut a swathe through airline traffic. The first move, a £100m (€146m) update of business class, is small beer. The second, the purchase of new long-haul aircraft from Boeing or Airbus, would be big beer. Replacement of the airline’s 57-strong fleet of Boeing 747s, for example, would cost about $10 billion (€8.5 billion). On top of that outlay, there is also the hope of a long-awaited return to dividend payments for shareholders.

But there is a ghost at the BA feast — the airline’s pension deficit. It is £1.4 billion and growing. The deficit, already the largest relative to market value in the FTSE 100, is likely to balloon further next year when a three-yearly actuarial review is completed.

David Norgrove, Britain’s new pension regulator, has shown an appetite for getting involved in corporate decisions that affect the health of pension funds with big deficits.

“He could take the view that we shouldn’t be investing in new aircraft and new products. That might fix the pension problem, but it wouldn’t help the company”, said Walsh.

He said that without continued investment in new planes and products, BA’s viability as a company would be threatened — a situation that would leave the pension fund in a much worse situation.

If BA were to collapse, the pension black hole would mushroom in size. Walsh said BA had already paid more than its fair share. The company nearly doubled contributions last year to £225m, only to see the deficit continue to grow.

“We are now paying five times the level of employee contributions, and we cannot increase it beyond that. To increase the payments would not be a viable position for the company.”

One of Walsh’s biggest American competitors, United Airlines, has shaken off much of its pension problems while in Chapter 11 bankruptcy protection. United was able to hand its pension scheme, $10 billion in the red, to the Pension Benefit Guarantee Corporation, a federal agency. In return, the agency is likely to take a one-third stake in the company when it emerges from Chapter 11 next year.

Times Recommends

• Tories’ green bank to revolutionise power policy
• UK car industry receives £2.6bn injection
• Pru chief turns down seat on board of bank