The merger of British Airways and Iberia moved a step closer today after the two airlines signed the agreement approving their tie-up.
BA said it expected the merger to be completed by the end of this year in a move that will create one of the world's largest airline groups, with 408 aircraft carrying more than 58 million passengers a year.
The tie-up will create a new holding company called International Airlines Group, but the airlines will retain their current operations and continue to use their individual brands.
Today's merger agreement follows the memorandum of understanding signed between the two airlines in November.
British Airways chief executive Willie Walsh said the merged company will provide customers with a larger combined network.
'It will also have greater potential for further growth by optimising the dual hubs of London and Madrid and providing continued investment in new products and services,' he added.
The merger is subject to regulatory approval from competition authorities including the European Commission, and to approval by both British Airways and Iberia shareholders.
Iberia will also be entitled to terminate the merger agreement if the pension recovery plan agreed between BA and its pension trustees is found to be 'materially detrimental' to the merger.
BA has a comparatively thin presence in central and South America, flying only to Mexico City, Rio de Janeiro and Sao Paulo in Brazil and Buenos Aires in Argentina. Iberia, on the other hand, operates numerous flights to this region so a merger allows passengers more access to South American cities.
Similarly, Iberian passengers will benefit from direct flights to areas where BA has more flights than the Spanish carrier.
BA and Iberia are also working on a transatlantic joint venture with US carrier American Airlines.
BA believes the three-way agreement will benefit consumers by improving connections and flight schedules.Rival airlines have expressed opposition to the agreement, with Ryanair recently likening the merger to 'two drunks trying to prop each other up'.
Virgin Atlantic said the deal would increase BA's dominance at Heathrow Airport.
The merger is expected to produce annual savings of around €400m by the end of the fifth year after the merger's completion.

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