British Airways’ and Iberia’s boards have agreed a binding memorandum of understanding for a proposed merger to create a new, leading European airline group that will bring significant benefits for customers.

The new airline group would have 419 aircraft and fly to 205 destinations. In 2008, British Airways and Iberia carried 62 million passengers and, in their last financial years, their joint revenues are approximately € 15 billion.

The airlines believe there is a compelling strategic rationale for the transaction, which is expected to generate annual synergies of approximately €400 million, and benefit both companies’ shareholders, customers and employees. The new group will combine the two companies’ leading positions in the UK and Spain and enhance their strong presence in the international longhaul markets, while retaining the individual brands and current operations of each airline.

The merger is expected to be completed in late 2010.