LONDON -- British Airways and Spain's Iberia talked up the benefits of a proposed $7 billion merger on Friday, dismissing criticisms that the deal could increase fares, reduce competition and drag down service standards at Britain's flagship carrier.

The agreement ends more than a year of talks between BA and Iberia aimed at finding a way for the two loss-making carriers to share resources amid slumping demand for air travel.

But while they argued that combining BA's North American routes with Iberia's Latin America services would be good for shareholders and travelers alike, there were questions about BA's growing dominance given it's also waiting for the green light on a tie-up with American Airlines.

Unions also warned that they were not prepared to back the merger, which the airlines aim to close by late 2010, without commitments to avoid layoffs.

Under the preliminary deal signed off by the BA and Iberia boards late Thursday, the two carriers will continue as separate brands and operating divisions under a holding company registered in Madrid but with its main offices and primary stock exchange listing in London.

BA will take the majority 55 percent stake in the holding company, TopCo -- Walsh suggested the unimaginative name would likely be changed over the coming year -- with Iberia holding the remaining 45 percent.

Trans-Atlantic rival Virgin Atlantic Airways has bitterly opposed that alliance, with boss Richard Branson arguing that it would lead to price-fixing and force travel agents to send business to the pair.

But the deal, which is subject to shareholder and regulatory approval, could yet be scuppered by BA's massive pension deficit. Iberia has the right to pull out if BA doesn't reduce the anticipated 3 billion pound black hole.

Virgin Atlantic Airways, which has already expressed opposition to the American Airlines deal said the merger would increase BA's dominance at Heathrow with 44 percent of take-off and landing slots.

``It is impossible for any other airline to replicate their scale,'' Virgin Atlantic said. ``Regulators in Europe and the US need to be alert to BA's growing dominance through proposals such as its monster monopoly with American Airlines - proposals which will not be in the consumer interest.''

European budget airline Ryanair Holdings was more dismissive.

``I would characterize it as two drunks ... holding each other up on the way home,'' Ryanair CEO Michael O'Leary told CNBC. ``All you get when you put two high-fare, loss-making airlines together is even higher fares and even bigger losses.''

There has only been one other merger of this kind -- the tie-up between Air France and KLM. BA also held talks with Australian airline Qantas Airways Ltd. last year about a potential merger, but the discussions ended in December after the pair failed to agree.