Heads of British Airways and Iberia Lineas Aereas de Espana confirmed Tuesday that their companies are in talks to complete a merger that would create the world's third-largest airline by revenue.

The combined airlines would serve 200 destinations with a fleet of 450 aircraft and would have combined annual revenue of an estimated $25.7 billion.

The proposed merger has the unanimous support of the boards of both companies and go-aheads from U.K. and Spanish authorities, said BA Chief Executive Willie Walsh and Iberia Chairman and CEO Fernando Conte at a press conference.

"The talks we are announcing today are the consequence of the ongoing - and much needed - liberalization of the aviation industry," said Walsh. "Hand in hand with liberalization is the need for consolidation."

British Airways will have the largest stake in a holding company that would allow the airlines to operate with their respective brands and licenses. Details of a share swap for the transaction still need to be worked out, said Conte.

Net profit at British Airways dived 90 percent to $53.5 million in the quarter ending June 30 as fuel costs rose 49 percent. Revenue increased 2.8 percent to $4.5 billion.