British Airways (BA) has announced that it has reached agreement on a plan to slash its huge pension deficit of 3.7 billion pounds ($5.4 billion) that would pave the way for its planned amalgamation with Spain's Iberia airline.

BA said its deal with pension trustees would avoid the closure of its two company pension plans that together serve almost 100,000 members.

The airline's financial officer, Keith Williams said, "This plan is a significant and positive step forward for British Airways."

Under the plan, the beleaguered British airline would pay around 330 million pounds on a yearly basis, rising in line with inflation, until 2023 and 2026 respectively for the two schemes.

BA said it would submit the plans to the pensions regulator by the end of this month. Iberia will then have three months to consider it.

The pension recovery programme had been a major sticking point in the merger negotiations with Iberia, which were completed at the end of last year.

Iberia had reserved the right to end the contract unless a satisfactory deal on BA pensions was agreed upon. The merger is due to be completed by the end of 2010.

BA, which has been beset by a series of strikes by cabin staff, reported a record loss of 531 million pounds for the year ending at the end of March 2010. (With Inputs from Agencies)