London, Nov.13 British Airways and Spain's Iberia Airlines have created Europe's third largest airline through a 4.4 billion pound all-share merger.

According to The Telegraph, the deal was inked after 16 months of on-off negotiations.

According to deal, British Airways shareholders will have a 55 percent stake in the new combined company, while the remaining 45 percent stake will be with shareholders of Iberia Airlines.

After cancelling British Airways's 13 percent stake in Iberia and the Spanish carrier's 10 percent holding in the UK airline, British Airways will end up with 56 percent of the merged group and Iberia, 44percent.

Owing to the complex bilateral rules between countries that govern flying rights, the deal has been structured along similar lines to the Air France-KLM combination where both airlines maintain their national identities, operating companies and brands.

Seven directors from each airline will run the merged company. Iberia's chairman and chief executive Antonio Vázquez will be the company's chairman, while Martin Broughton, BA chairman, will be its deputy chairman.

Together the two airlines will fly 419 aircraft to 205 destinations, carrying 62 million passengers a year and having annual revenues of Euro 15 billion.

While terms for the merger have been agreed, Iberia has retained the right to quit over BA's pension deficit (Around three billion pounds), which dwarfs the company's market value. (ANI)