A proposed merger between British Airways (BA) and Iberia has been given the green light, after the European Commission decided that the move would not harm competition.

The UK-based and Spain-based airlines are expected to complete the deal by the end of the year, which will create one of the world's largest airlines under the International Airlines Group holding company. Under the terms of the proposed merger, both carriers will retain their individual brand identities and will see more than 400 aircraft flying to around 200 destinations around the world.

The European Commission's decision to approve the merger follows a similar decision by US authorities last month, although BA and Iberia's shareholders are due to decide whether to proceed later this year. A European Commission spokesperson said: "The commission concluded that the transaction would not significantly impede effective competition in the European Economic Area or any substantial part of it."

The commission has also cleared plans for the merged BA and Iberia to join forces with fellow oneworld alliance member American Airlines (AA) to enter a joint transatlantic business agreement. Take-off and landing slots at London's Heathrow Airport will have to be made available to competitors as part of the commission's ruling, which will enable the agreement to come into force this autumn.

BA chief executive Willie Walsh said: "Between us, we have agreed to make available Heathrow slot pairs for our competitors to use on services to the US. This is a pragmatic decision so that we can get the joint business up and running as soon as possible." However, the joint business remains subject to the approval of the US Department of Transportation, which will decide whether to grant anti-trust immunity.