Published: Thursday, 12 Nov 2009 | 11:49 AM ET

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A merger between British Airways and Spain's Iberia looked imminent on Thursday as their boards held separate meetings to discuss a deal to create the world's third-largest airline by revenue.

A deal, which seems set to give BA shareholders 55 percent of the new firm, would bring an end to negotiations which stared in July 2008 and aimed to help both airlines cope with the industry's biggest downturn in decades.

"Further to recent market speculation, British Airways confirms that the British Airways and Iberia Boards are holding separate meetings today, 12 November, to consider a potential transaction," BA said in a statement.

"However, no decisions have been taken and, at this time, there can be no guarantee that a transaction will be forthcoming. A further announcement will be made in due course, if appropriate," BA said.

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Iberia, meanwhile, said its board was discussing a merger that would give the Spanish firm about 45 percent of the new company and BA about 55 percent.

Spanish daily El Pais said on its website that Iberia's board had already approved the deal and that Iberia boss Antonio Vazquez would be chairman of the new company, which would have its headquarters in London.

Analysts were expecting BA's chief executive, Willie Walsh, to be the CEO of the new company with Vazquez as chairman.

Shares of BA

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[BAY-LN  Loading...      ()] were 7.5 percent higher at the close, while Iberia's shares were up 11.8 percent.

Merger Best Option for Downturn

Analysts view a merger, which would create an airline with annual revenues of around 13.5 billion pounds ($22.38 billion), as the best way forward for BA as it tries to emerge from the downturn.

BA's Walsh wants to create an airline to rival Air France-KLM -- formed from a Franco-Dutch merger in 2004 -- and Lufthansa, which has combined with Swiss International Airlines and Austrian Airlines in recent years.

A deal would still need regulatory clearance from the European Commission but this would likely go through, following the precedent set by the Air France-KLM merger.

The pair began merger talks in July 2008 in response to slowing passenger demand, but BA's pension fund deficit -- believed to stand at around 3 billion pounds -- and the structure of the combined entity have proved sticking points.

BA, which owns 13.5 percent of Iberia, has also applied to U.S. and European authorities for competition clearance, or anti-trust immunity, which would allow it to share costs and revenues on transatlantic routes with Iberia and American Airlines (AA).

BA has a code-sharing agreement with the Spanish carrier under the One World alliance of airlines, which allows them to sell seats on each other's services.

BA's Walsh said on Friday, after the airline's first-half results, that he was "confident in the strength" of BA's case to win U.S. Department of Transportation approval for a sales tie-up with American Airlines and Iberia.

He also said a decision on BA's proposed merger with Iberia would likely come "in the very near future".

Iberia is scheduled to report nine-month earnings on Friday.

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