United Kingdom flag carrier British Airways (BA) has entered into merger talks with Spanish airline Iberia Lineas Aereas de Espana SA. BA is already Europe‘s third-largest airline.

This is a British Airways Boeing 747-400.

This is a British Airways Boeing 747-400.

The proposed all-share merger of BA and Iberia, meanwhile, is approved by the boards of both companies. BA already holds a 13.15% stake in Iberia, while Iberia have a 2.99% holding in BA. British Airways has been increasing its holdings in Iberia since 1999, from an initial 9% to the current 13.15%. Under the proposed deal, the airlines would go to a holding company and the new firm would be listed on both the FTSE 100 and the Madrid stock exchange.

“A merger would be good news for our customers and enhance our existing relationship,” said Chairman of the Iberia board, Fernando Conte. Additionally, BA and Iberia have been in talks with American Airlines about a potential cross-atlantic joint venture.

Both companies also say they feel confident they will get the European Union‘s approval that the deal needs for it to go ahead. BA and Iberia are partners under the Oneworld airline alliance and already have a codeshare agreement.

“The aviation landscape is changing and airline consolidation is long overdue,” said BA CEO Willie Walsh. “The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.”

Last Friday, BA completed its purchase of French airline L’Avion, a two-plane airline that flies business class between Paris and Newark. L’Avion will merge fully with BA subsidiary OpenSkies by 2009. Both offer transatlantic flights from Paris.

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