BA and Iberia merger set for take-off after deal on funding of £3.7bn pension deficit

The merger between British Airways and Iberia has cleared its last hurdle, with the Spanish flagcarrier's agreement to BA's plans for funding its £3.7bn pension deficit.

Iberia retained the right to walk away from the £5bn deal pending consideration of BA proposals to deal with the black hole in its pension scheme, published in June. But Iberia's board has now cleared the British company's plans to set aside at least £330m every year until 2026, and the tie-up creating the world's second most valuable airline will proceed as planned.

"This decision represents another step forward in the merger process," Iberia said in a statement following its board meeting on Wednesday.

The merger has already been approved by Europe's competition watchdog. All that remains is formal shareholder sign-off of the plan – expected at a meeting in November – and the deal is set to be completed by the end of the year.

The new group – called International Airlines Group (IAG) – will be 56 per cent-owned by BA shareholders, with the remaining 44 per cent held by Iberia's investors.

Willie Walsh, the BA chief executive, will become the boss of IAG. Antonio Vazquez, who is currently the Iberia chief executive, is set to become the chairman.

Mr Walsh has already signalled his intention to make a string of further acquisitions to turn IAG into the world's biggest airline. Earlier this month, Mr Walsh revealed he has a list of 12 potential takeover targets, from an initial list of 40. Although he refused to name names, experts tip Chile's LAN Airlines, Australia's Qantas, and India's Kingfisher as possible candidates.

BA is already pursuing closer links with American Airlines, a counterpart in the OneWorld alliance. Restrictive foreign ownership rules in the US rule out a formal merger, but plans for a tie-up on vital transatlantic routes were signed off earlier this year by European and US monopoly authorities.

The consolidation plans come as BA is fighting to return to profitability after record losses caused by the recession. The group has faced 22 days of strikes this year, at an estimated cost of £150m, in protest against changes to terms and conditions and reductions in the number of staff on flights.

Talks between the two sides reached an impasse after efforts to reach an agreement on the original dispute foundered over claims by the Unite trade union that BA is victimising striking staff by withdrawing travel perks. Earlier this month, Unite's joint general secretary, Tony Woodley, said the union remained committed to finding a settlement, but accused BA of trying to "destroy trade unionism".

BA's shares were flat yesterday, down 0.3p at 239.7p.