British Airways will raise the retirement age of pilots and other staff and pay £500 million (€725 million) to tackle its huge pension deficit.
Company chief executive Willie Walsh said the airline hoped to clear its £1 billion deficit through a combination of higher retirement ages, a slower accrual rate and a cap on pension increases.
BA's plan for staff to work longer for a similar annual pension sent shares in the airline to near five-year highs, but the stock later gave back gains after unions said they would fight the plan.
"The proposal as presented to the T&G today is both unfair and unacceptable and does not represent a starting point for negotiations," Transport & General union national secretary Brendan Gold said in a statement.
Mr Walsh, who has made pensions a top priority since starting the top job in October, said BA would make a £500 million one-off payment from cash reserves, conditional on staff backing the plan. This was on top of £350 million the company already planned to pay by the end of 2006.
The proposed changes were also expected to contribute £450 million to alleviating an expected increase in the deficit when it is reviewed by actuaries soon.
"The pension deficit was the key concern in the investment community; the proposals are a clear positive," UBS analysts said in a note to clients.
BA's New Airways Pension Scheme (Naps), which has 33,794 members, provides a pension based on the member's final salary before retirement and is already closed to new members.
The retirement age for most BA staff, including cabin crew, would rise by 10 years to 65. To soften the blow, the retirement age for cabin crew would rise only to 60 in the first five years.
The retirement age for the company's 2,500 pilots would rise to 60 from 55 due to limits on the age of airline captains in some countries.
The airline must now clear its proposal with unions.
"Overall, they are asking our members to work longer for less. We will try to improve these proposals and if they can't be improved we will ballot our members over this," Ed Blissett, national officer for the GMB union, told Reuters.
The British Airline Pilots Association (Balpa) said in a statement it had some concerns about the proposals but would discuss the plans with its members before delivering a final verdict.
The International Air Transport Association (IATA) says it expects the industry to post a larger profit in 2007 than it previously anticipated as demand grows and carriers benefit from leaner, more efficient operations.
The global airlines body raised its 2007 forecast for global industry profit - the first in six years - to $7.2 billion (€6 billion) from $6.2 billion previously, chief executive Giovanni Bisignani said.
IATA also cut its forecast of the global industry's losses in 2006 by half to $2.2 billion. US carriers are expected to lose $5.4 billion in 2006, half the losses they posted in 2005.
