Hoping to better ride out the recession, two of Europe’s weakest airlines have reached a preliminary agreement to merge.British Airways and Spain’s Iberia together would be the world’s third-largest carrier by revenue, combining BA’s strong position in traffic between Europe and North America with Iberia’s Latin American business. Within a proposed new holding company – TopCo -the two airlines would each preserve their own national identities, much as Air France-KLM did when they merged. BA carried just five million more passengers than Iberia last year, but it has 17,000 more employees. That makes it likely that job cuts following a merger would fall heavily on the British end of the operation. BA has already been slashing staff numbers and faces strike action over plans to cut nearly 2,000 cabin crew. BA boss Willie Walsh said: “It’s clear that when you put two companies together in a group structure like this that you can make savings in back office activities and as part of the core synergies that we have identified.” Iberia staff are also striking, over pay, and it lost 165 million euros in the first half of the year. Industry analyst Simon Calder said: “Both airlines are losing money hand over fist. They both have industrial relations issues. Iberia’s cabin crew have already been on a two day strike this week and both of them have big pension problems, but, staying apart would ultimately be bad news for them. They’re hoping getting together will prove good.” But a big question mark still hangs over the deal. BA has a three billion euro deficit in its staff pension plan; it says it can sort that out and it will not get bigger, but Iberia has said it will pull out of the merger if the black hole expands.