Merrill Lynch says Terminal Five will give BA a number of advantages

The bank has increased its target for BA shares after conducting a positive assessment of the impact of the forthcoming Terminal Five at Heathrow.

With the airline set to move most of its Heathrow flights to Terminal Five when it opens in March 2008, Merrill said it would give BA a major boost.

BA has also said it plans to close its estimated �2.1bn pensions deficit.

The airline will now make annual company contributions of about �280m over the next 10 years, as well as a one-off cash injection of �800m.

BA's shares closed up 4.6% at 574 pence in London.

'Increased efficiencies'

Merrill Lynch said that the use of Terminal Five for most of BA's Heathrow operations would allow the airline to improve levels of connecting traffic, better integrate schedules and offer sizeable cost savings.

At present many BA passengers switching flights at Heathrow have to move between terminal buildings.

"When Terminal Five opens, duplicated activities can be eliminated, for example, transportation costs can be reduced as bus/coaches are no longer needed to transfer passengers between terminals," said the Merrill Lynch report.

"In addition, fewer check-in staff will be required."

The broker upgrade comes a week after a series of planned strikes by BA cabin crew workers were averted after a deal was reached between the airline and unions.

The two sides were able to reach a new agreement on wage levels and the management of sickness absence.