BA-Iberia merger signed: American Airlines next?

British Airways and Iberia have signed a merger deal to create a new £5.1bn company - and an American airline could be next in line for a tie-up with the Anglo-Spanish carrier.

International Airlines Group, as the new business will be called, is to be headquartered in London with the current BA chief, Willie Walsh, as its CEO. BA would appear to be very much the dominant partner, taking a 56 per cent share of the new company compared to Iberia's 44 per cent.

The two airlines are considered a particularly good fit because they have few overlapping routes, with BA strong on routes to North America and Asia, while Iberia flies to many Latin American destinations. The airlines, which currently make a combined annual loss of £650m, expect eventually to make £350m in savings per year.

Iberia CEO Antonio Vazquez hinted at further tie-ups: "This is an important step in the process towards creating one of the world's leading global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation."

American Airlines is part of the Oneworld Alliance to which Iberia and BA also belong. Davy Stockbrokers analyst Stephen Furlong told Reuters: "The tie-up with American is the next thing on BA and Iberia's agenda now and this agreement brings that closer but they are probably looking at European and Asian carriers too."

The merger announced today should be completed by December, but there is one possible stumbling block: BA's £3.6bn pension deficit. BA, not exactly enjoying rosy relations with its staff following two recent strikes, is attempting to fill the hole by negotiating increased employee pension contributions, but Iberia has reserved the right to walk away from the merger if it is not satisfied. ·