London  - British Airways chief executive Willie Walsh Friday hailed his company's proposed merger with Spanish carrier Iberia as an important step of consolidation in the battered industry.

"It is fantastic. BA was being left behind as others were consolidating," Walsh said in a BBC interview. The joint company would be able to "compete on a global scale."

The airlines announced that they agreed on a merger after 16 months of negotiations late Thursday. The tie-up is expected to be completed by the end of 2010.

If the deal is cleared by the competition authorities, the new airline would become the third-largest in the world, after Air France/KLM and Germany's Lufthansa.

However, the Spanish carrier has reserved the right to withdraw from the deal if BA should fail to tackle its large pension deficit. BA shares rose by around 3 per cent on the London Stock Exchange early Friday.

The merger is to be completed by the end of 2010, keeping both brands in operation. British Airways (BA) would control 55 per cent of the combined airline with Iberia holding 45 per cent.

The two airlines hope to save a combined 400 million euros (598 million dollars) annually. They would have a total of 419 aircraft serving 205 destinations. The pair had a combined 62 million passengers in 2008. (dpa)