British Airways and Iberia reached agreement yesterday on a proposed merger of the two airlines that would be completed in late 2010.

The airlines signed a memorandum of understanding that they expect will become a definitive agreement in the first quarter of 2010, assuming certain conditions are met, such as regulatory clearances and shareholder approval. British Airways also must come to an agreement with its pension trustees that is not too costly in the view of Iberia, which will not help fund the plan.

A new holding company would own both carriers, which would maintain separate brands and operating companies. British Airways shareholders would own 55% and Iberia shareholders 45%, with the board split 50-50. Although the company would be registered in Madrid, and hold most of its board and shareholder meetings there, the operating and financial headquarters would be in London.

Both airlines would give assurances that would last for five years, including a commitment to keep their main base in their home country, as well as to develop a group network strategy that reflects the importance of both the London and Madrid hubs and provides a “reasonable division of opportunities.”

Willie Walsh would become the group CEO. The CEOs of the respective operating companies would be Rafael Sanchez-Lozano for Iberia and Keith Williams for British Airways.

Photo: Oneworld