The last Anglo-Spanish alliance in the airlines business was one of the worst deals ever - the decision by Ferrovial to pay £10 billion and assume another £4 billion of debt for the sheer pleasure of owning Heathrow, Gatwick and the rest of the BAA stable. So it is only fair to approach BA's mooted tie-up with Iberia with a degree of caution.

It is, thank the fates, an all-share deal. Iberia has been forced to the table by the soaring oil price, after talks last year involving BA and the private equity group TPG - the lot who walked away from the Bradford & Bingley rights issue, let us not forget - fell apart over price.

BA already owns about 13 per cent of Iberia. The Spanish side recently bought close to a 3 per cent holding in BA and has a joint marketing codeshare agreement on 30 flights. The alternative was seeing either Lufthansa and Air France, both of which had also been interested in the Spanish carrier, linking with their own private equity firms and shutting BA out.

Instead, a BA-Iberia merger offers significant cost savings to both, in terms of bulk-buying, maintenance services and the ditching of unprofitable routes. It is a further step towards a much-needed consolidation of the European airlines industry.

When the industry came into being after the Second World War, reasons of national amour propre meant that almost every statelet had to have its own national carrier, proudly displaying the national flag. This foolish stance was never going to survive the abolition of aid to such enterprises by the European Union, even ahead of soaring oil prices.

The patchwork is being knitted together, most notably in the 2004 merger between Air France and KLM. This precedent suggests that any BA-Iberia deal should be waved through.

A recent study by Blue Oar Securities suggested that about six big players would survive, including BA, Lufthansa and the Franco-Dutch alliance, along with two low-cost carriers, easyJet and Ryanair. There will be a third division of a few niche players. The study lists more than 50 in the fourth division that will probably disappear.

They include Alitalia, where union intransigence prevented several mooted links with national carriers, now being propped up with possibly illegal state aid worth about €100 million a month, and any number of national tiddlers.

For Willie Walsh, the BA chief executive, the hard work starts here. Difficult decisions need to be reached over where the HQ will be - Heathrow, surely, given how much BA has spent on its new premises at Waterside - the board structure and the nationality of the chief executive. The plan is to continue with a dual listing, with London the primary one.

There will be, most tricky of all, the allocation of job losses across the two airlines. But for BA, probably facing zero profits this year, any successful conclusion to negotiations would be a triumph.

The respective share prices last night were suggesting Mr Walsh would be paying a slight premium, which is probably acceptable. For the Spanish, surveying their battered economy, it is probably the only way out.

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