By Rhys Jones and Robert Hetz
LONDON/MADRID (Reuters) - The boards of British Airways and Spain's IBERIA (IBLA.MC)were holding separate meetings on Thursday to consider a potential merger to create the world's third largest airline by revenue, the two airlines said.
"Further to recent market speculation, British Airways confirms that the British Airways and Iberia Boards are holding separate meetings today, 12 November, to consider a potential transaction," BA said in a statement.
"However, no decisions have been taken and, at this time, there can be no guarantee that a transaction will be forthcoming. A further announcement will be made in due course, if appropriate."
Iberia on Thursday said it had taken no decision on the potential merger and that there was no guarantee a transaction would take place.
Shares in BA were 7.35 percent higher at 214.8 pence by 1215 GMT, while Iberia's shares were up 10.1 percent at 2.19 euros.
Website Finanzas.com on Thursday reported that Iberia had decided to accept a merger deal with BA that will give the Spanish firm 45 percent of the new company and BA 55 percent.
A source with knowledge of the deal told Reuters on Thursday that the merger would "definitely" go ahead but that an agreement this week would probably be "too soon."
Analysts believe under the terms of the potential deal, Willie Walsh, BA's Chief Executive, would become CEO of the enlarged group and Iberia's chairman, Antonio Vazquez Romero, would become chairman.
"It's likely that Willie Walsh will be the CEO of the new company with Vazquez as chairman and you would envisage a dual listing in London and Madrid," said Davy stockbrokers analyst Stephen Furlong.
"Walsh last week said that corporate governance issues were now out of the way, so if that's the case it looks like a merger will happen but I'd be surprised if it was announced alongside Iberia's nine-month results on Friday."
Another Madrid-based source said the deal could be blocked until Rodrigo Rato -- former economy minister in Spain and former IMF chairman -- becomes the chairman at Caja Madrid, Iberia's main shareholder with 22.9 percent.
Airlines are being forced to merge and slash costs as well as seat prices to cope with the industry's biggest downturn in decades, with global airlines lobby IATA predicting $11 billion in airline losses worldwide this year.
BA has been in merger talks with Iberia for around a year and has also applied to U.S. and European authorities for competition clearance, or anti-trust immunity, which would allow it to share costs and revenues on transatlantic routes with Iberia and American Airlines (AA).
BA's Walsh on Friday said a decision on BA's proposed merger with Iberia would likely come "in the very near future."
Walsh also added he was "confident in the strength" of BA's case to win U.S. Department of Transportation approval for a sales tie-up with American Airlines and Iberia.
Iberia is scheduled to report nine-month earnings on Friday.
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(Additional reporting by Tim Hepher and Elisabeth O'Leary)