The two carriers agreed a binding memorandum of understanding setting out details of the merger, which will see BA take a 55% stake in the new company, while Iberia will take a 45% share. Any merger will be completed next year.
The combined airline would have 419 aircraft and fly to 205 destinations, while the companies' joint revenues stand at around €15bn. A new holding company, TopCo, will be based in Madrid.
‘The merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force,' said BA chief executive, Willie Walsh.