The merger of British Airways and Iberia has been engineered to ensure compliance with the multitude of bilateral agreements that govern the world’s skies (David Robertson writes). The complicated structure will see the two airline brands remain separate under the umbrella of a holding company, so far named TopCo.

However, in order for both airlines to retain nominal British and Spanish ownership they will be controlled by shell companies. This is because the rights of airlines such as BA and Iberia, the Spanish flag carrier, to fly to certain countries is governed by bilateral agreements between governments.

Airlines that are allowed to fly from the UK to China, for example, do so under a treaty signed by both nations. That treaty allows only British or Chinese carriers to operate on the route.

This competition-limiting structure has so far been immune to significant deregulation. An open-skies agreement between the European Union and America was only signed two years ago after more than 20 years of negotiation. TopCo will own all the economic rights to the two airline operating companies and will receive the profits and dividends from them.

However, TopCo will have only 49 per cent of the voting rights with the remainder held by the respective national companies to adhere to the ownership rules.

This structure is largely a copy of the one put together by Air France and KLM, the Dutch airline, when they merged in 2002. Analysts consider that merger to have been a success, despite the complex structure needed to make it possible.

Antonio Vázquez, the head of Iberia, will become the chairman of TopCo and will also chair the Iberia operating company.

Willie Walsh, the chief executive of BA, will run TopCo and Keith Williams, BA’s finance director, will become chief executive of the BA operating company.