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British Airways and Iberia airlines in merger talks

LONDON - British Airways is holding talks with Spain's Iberia about a merger which would create a joint business, but leave their brands separate.

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The airlines, which are partners in the Oneworld alliance, said they will take several months to agree on the terms of the proposed move, but expect it to be approved by regulators.

Airline mergers are logical in the face of the economic slowdown, according to Willie Walsh, the BA chief executive.

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

Fernando Conte, chief executive of Iberia, said: "A merger would be good news for our customers and enhance our existing relationship. It would also strengthen the Oneworld alliance and further develop Madrid's position as the European gateway to Latin America."

Last year BA attempted to buy Iberia in partnership with private equity firm TPG, but it was repelled by the opposition from Spanish bank Caja Madrid, which is a large shareholder in Iberia.

BA owns 13.15% of Iberia, while Iberia said today it had acquired 2.99% of BA and has exposure to a further 6.99%. The Financial Times claims it has used a financial product called contracts for difference to achieve the latter.

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