Summary
Both airlines need this deal. So they will make it happen.
Analysis
After "losing" the Qantas deal, BA does not want to fumble again. Losing Qantas came as something of a shock - BA share price keeps fallign and there was no way Qantas was going to be owned by such a weak player. Yet BA has inherent strengths as a founder memeber of One World.
Given the rapid consolidation across the EU - airlines are quickly comign together in large groups. The largets will be Lufthansa, then the AF/KLM group and of course the LCCS like Ryanair and easyJet. BA and Iberia cannot afford to lose the deal they are working on.
With a combined buying power that a merger brings, both airlines can afford to reduce their input costs even more. They can funnel traffic more effectively and consequently keep more revenue stream from the alliance than they might otherwise be able to. Moreover, having MAD as a backup to LHR is important - not every flight has to go through London. It will be some time before another runway is added and BA can likely hold off competition until then.
So the forces driving the deal forward are way bigger than those opposing it. The critical feature will be the ultimate ownership - given the way stock prices are now, it will no longer be 60% BA but it also will not be 50% BA - somewhere between the two is likely. BA will want it over 55% whereas Iberia wins at any number less than 60% for BA.
