LONDON: British Airways and Spanish flag carrier Iberia said Thursday they had signed a merger agreement to create a leading European airline following a preliminary accord in November.

A joint statement said the new group would fly to 200 destinations, carry 58 million passengers a year and would create annual savings of about 400 million euros (533 million dollars) by the fifth year of the merger.

The tie-up, which requires approval from European Union competition authorities along with that of BA and Iberia shareholders, is expected to be completed by late 2010.

"The merged company will provide customers with a larger combined network," said BA chief executive Willie Walsh.

"It will also have greater potential for further growth by optimising the dual hubs of London and Madrid and provide combined investment in new products and services."

Iberia chairman Antonio Vasquez called the deal "an important step toward creating one of the world's leading global airlines."