LONDON, Nov. 14 (AFP) – British Airways and Iberia of Spain reached preliminary agreement late Thursday on a $7-billion merger to create one of Europe's biggest airlines, ending months of negotiations.

The new airline would have 419 aircraft and fly to 205 destinations, after a merger aimed at better competing in the industry hit hard by the global recession, the pair said in a joint statement.

''The merger will create a strong European airline well able to compete in the 21st century,'' BA chief executive Willie Walsh said.

''Both airlines will retain their brands and heritage while achieving significant synergies as a combined force,'' he said.

Both loss-making airlines held separate board meeting talks throughout Thursday on a merger that would create a European aviation giant to rival Air France-KLM and Lufthansa.

The deal would create Europe's second biggest airline by stock market capitalization, and third biggest by income, with around 60 million passengers per year, analysts have said.

British Airways will hold 55 percent of the new company, while Iberia will hold 45 percent, the statement said.

The merger would save 400 million euros (358 million pounds) a year, the statement said, prompting British newspapers on Friday to warn of further job losses at the two airlines.

The Times said cuts were likely at existing head offices in London and Madrid, in maintenance facilities and the merged sales forces.

A BA spokeswoman could not rule out job cuts, but said it was likely that most savings would be made through sharing services like IT.

Walsh will be chief executive, and Iberia chairman Antonio Vazquez will be chairman of the new company to be based in London and listed on the London Stock Exchange, the statement said.

Analysts said passengers were unlikely to notice much difference initially, with the merger to be finalised by the end of 2010.

Vazquez hailed the agreement, saying they were ''laying the foundations of what will be one of the most important airlines in the world, a real global airline.''

Both airlines have suffered heavy losses because of plunging demand for air travel in the fierce global economic downturn -- but it was unclear whether a merger would remedy the situation, analysts said.

''Both BA and Iberia have got their own problems. Both are loss-making and both have industrial issues to deal with,'' said John Strickland, aviation analyst at JLS Consulting.