British Airways and Spain's Iberia merge

Shareholders in British Airways and Spain's flagship airline Iberia have approved an $8.9 billion US merger, which will create Europe's third largest airline.

However, news of the merger was overshadowed Monday by the threat ofmore labour unrest and potential strikesat British Airways.

BA chairman Martin Broughton told the few shareholders who braved a cold snap and a strike on the London subway network to meet in Westminster that the deal had a "compelling, strategic and financial logic" and would benefit employees, passengers and shareholders.

In Madrid, Iberia Chairman Antonio Vazquez said it was a "historical agreement that will create a global group to lead a future consolidation process in the airline business."

Labour issues continue to plague BA

But the Unite union attempted to throw a wrench in the works byannouncing after the shareholders meetings that it would be balloting thousands of cabin crew about whether to take further industrial action in a fractious and long-running dispute with the carrier's management about changes to pay and working conditions.

The battle led cabin crew to walk out for 23 days in May and June causing the cancellation of hundreds of flights and costing BA millions in lost revenue and compensation.

Unite joint leader Tony Woodley said Monday the union had been left with no choice after negotiations stalled and BA's recent move back into profit after a series of losses.

"BA told us it was a business in crisis," he said. "They demanded structural change. These changes have been made and this business is now in profit with senior management filling their wallets with the spoils."

'This business is now in profit with senior management filling their wallets with the spoils.' Tony Woodley, Unite joint leader

BA said that Woodley "shook hands" on an agreement in October that would have allowed cabin crew to vote on a revised deal.

"Unite has broken this promise and instead has now chosen to create fresh uncertainty for customers and damage the interests of thousands of its own members within British Airways," the airline said in a statement.

Merger should be positive for passengers

Peter Smith, travel analyst at consumer site travelsupermarket.com, said the deal was good news for passengers in the long-term.

"Eventually, passengers should expect to see better connections, improved timings and more choice of departures to and from Spain and to onward destinations," Smith said.

'Passengers should expect to see better connections, improved timings and more choice of departures.' Peter Smith, travel analyst

However, he added that the threat of further industrial action at BA increased the need for integration to be "managed smoothly to minimize the impact to both passengers and employees."

The merged Iberia and BA group will rank behind Germany's Lufthansa AG and Air-France KLM in revenue terms.

The combined group will have a fleet of 406 aircraft, carrying around 57 million passengers a year. Annual revenue is estimated at around 12 billion ($18.68 billionUS).

Between them, the two carriers fly to more than 250 destinations and they expect annual synergies worth about 400 million ($525 million US) starting the fifth year following the merger.

Merged airline to gobble up more carriers

BA chief executive Willie Walsh said the merger BA shareholders will hold 56 per cent of the company, Iberia's the remainder would ensure BA could compete effectively with low-cost carriers.

The new holding company will be called International Airlines Group, a moniker that Walsh has said is deliberately vague to allow it to snap up other carriers when the time is right.

Last year, BA abandoned merger talks with Australia's Qantas Airways, but Walsh said in September that he had a target list of around 12 carriers.

The pair also plan to expand their alliance with American Airlines, a proposal that has angered rival carriers, including Richard Branson's Virgin Airways. Strict U.S. antitrust laws bar a full-scale merger with the U.S. airline, but the trio still plan to set prices together and share seat capacity on trans-Atlantic flights.

International Airlines Group will be registered in Madrid, while its financial and operational headquarters will be in London and run by Walsh. Trading in the holding company's shares is expected to begin on the London Stock Exchange in late January.

Each airline will retain its existing brand for commercial purposes. A key benefit for BA is Iberia's greater access to South American routes, while Iberia in return will gain from BA's more extensive North American operations.

The merger approval comes at the end of a difficult year for BA, which was hit by the Icelandic volcanic ash cloud as well as the cabin crew strikes.