BA and Iberia set out merger plans.

Following mounting speculation, the boards of British Airways (BA) and Iberia have confirmed they have agreed to a proposed merger – creating the world’s third largest airline.

Discussions went on until late last night (12 November) and the two agreed to a binding memorandum of understanding (MoU) which has set out the basis of the merger.

The combined group would have 419 aircraft, fly to 205 destinations and according to a joint statement detailing the plans, would provide “significant customer benefits.”

A new holding company – TopCo – will be created by the proposed merger, and its shareholders will be existing BA and Iberia shareholders as it will own both airlines.

TopCo will be headquartered in Madrid Spain and the board will comprise of 14 directors – with 7 representatives from each airline.

Willie Walsh, BA Chief Executive and CEO of the proposed Group, commented on the deal: “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.”

Mick Rix, GMB National Officer for Aviation said the union remains cautious, but optimistic over the announcement: “The merger will go some way to ensure that the UK’s major flag carrier stays up there as one of the major airlines of the world. Aviation is an industry with bright future and it is essential that the UK has a central role in it.”

The announcement today has angered the Unite union, which has said that although the deal may be welcomed by financiers, employees are once again facing job insecurity.

“Unite has requested an urgent meeting with Willie Walsh to discuss the timetable and workforce implications of the merger with Iberia,” said Steve Turner, Unite National Officer for Aviation.

However, critics – including Virgin Atlantic – have raised concerns over the proposed company’s market share.

The two airlines hope to complete the merger by the end of 2010, following shareholder approval.