British Airways and Spanish airline Iberia have signed a deal to merge and create one of the world's biggest airline groups.

The merger, which was provisionally agreed in November last year, is expected to be completed by the end of the year.

In a statement the two companies said the merger would benefit shareholders, employees and customers.

It is expected to save the airlines 400m euros (3m; £350m) a year.

The new company will be called International Airlines Group, but the BA and Iberia brands will continue to operate as normal.

The company will have its headquarters in London, with BA shareholders retaining 55% ownership of the company.

In total the group will operate 408 aircraft and carry more than 58 million passengers a year, the two companies said.

The merger is seen as a chance for the two airlines to cut costs following two very tough years for the airline industry.

Both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.

The airlines are also regarded as a good match, having few overlapping routes.