GERMANY - Aerospace firm EADS has confirmed that it is considering creating an external pension fund - known as a contractual trust arrangement - to fund pension liabilities currently on its balance sheet.
"I can confirm that we are currently considering employing a contractual trust arrangement. We have not, however, made any decisions regarding such issues as volumes or asset allocations," said Michael Hauger, a spokesman for the European Aeronautic Defence and Space Co. in Munich.
EADS' annual report for 2005 reflects that there were around €4bn in pension liabilities on its balance sheet. The group manufactures Airbus civilian aircraft, Eurocopter helicopters, Eurofighter combat jets as well as the Galileo satellite and the Ariane space rockets.
But well-placed industry sources told IPE that EADS' plans to build a CTA were wel ladvanced. According to them, EADS is currently seeking an investment consultant for the project as well as a provider of so-called master funds for the CTA's future investments.
EADS is just the latest big quoted firm in Germany which, owing to international accounting standards, has decided that it may need a CTA for its pension liabilities.
That's because IAS - under which EADS reports - generally treats pension liabilities covered by assets on the balance sheet as unfunded. Rating agencies also have rewarded listed firms with CTAs with better credit ratings.
In setting up a CTA, these firms have typically hired an investment consultant to conduct an asset-liability study and to advise on the fund's asset allocation. Master funds, which centralise back-office administration of the CTA's investments, have also been preferred by the firms.
News of EADS' possible CTA comes almost two months after German energy giant RWE said it was creating the vehicle to finance €8bn worth of pension liabilities - one of the biggest ever on record.
Including RWE, at least 20 traded on Germany's blue-chip Dax equity index have created CTAs for their pension liabilities in the past few years.
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