British Airways and Spain’s Iberia have announced that they have reached a preliminary agreement for a merger following discussions at separate board meetings throughout yesterday.

In a joint statement, the two companies said British Airways will have 55 percent of the new company, while Iberia will hold 45 percent and the companies believe that merger would create about 400 million euros of synergies.

BA already owns 13.5% of Iberia, and the two carriers have a code-sharing agreement under the oneworld alliance, which allowing them to sell seats on each other’s services.

Iberia’s crrent chairman Antonio Vazquez will be chairman of the new company and BA’s Chief Executive Willie Walsh will be CEO.

The deal would be formalized in the early part of next year and finalized by the year end but there are concerns at Iberia about the BA pension deficit so the deal has some way to go.

The merger would also require regulatory approval from the European Commission but following Air France’s successful merger with Dutch airline KLM in 2004 that is unlikely to be a stumbling block..

BA has just announced a pre-tax loss of £292m in the six months to the end of September whileIberia’s most recent results showed that it made a loss of 72.8m euros ($109m; £66m) between April and June.