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British Airways and Iberia of Spain approved Thursday a memorandum of understanding on a planned merger that would create a European aviation giant, the airlines said in a statement.
"The merger will create a strong European airline well able to compete in the 21st century," BA chief executive Willie Walsh said.
"Both airlines will retain their brands and heritage while achieving significant synergies as a combined force," he said.
The new airline would have 419 aircraft and fly to 205 destinations, with the merger expected to be completed in late 2010, the joint statement said.
British Airways will hold 55 percent of the new company, while Iberia will hold 45 per cent, the statement said.
Walsh will be chief executive of the new company while Iberia chairman Antonio Vazquez will be chairman.
The announcement comes after the two airlines held board meeting talks on a possible merger that would create a European aviation giant to rival Air France-KLM and Lufthansa.
Both airlines have suffered heavy losses because of plunging demand for air travel in the fierce global economic downturn -- but it was unclear whether a merger would remedy the situation, analysts have said.
The pair announced in July 2008 that they were in talks for an all-share merger. But discussions have bogged down in differences over the balance of control and the size of BA's pension-fund deficit.
