Cross-border mergers are even trickier, and some of the reason is simply political: Airlines are inextricably bound up in the culture and mores of their home countries, they "carry the flag" in international route negotiations, and their contracts, work rules, and corporate governance are controlled by their respective motherlands.

In fact, the proposed BA-Iberia deal is crafted along the same delicate lines that facilitated the merger of Air France and KLM. A parent holding company is created, yet each airline retains its own brand name and corporate residency and remains largely bound by the rules and regulations of flying imposed by the home country. It's hardly an efficient way to run a multinational corporation with hundreds of moving (er, flying) parts.

Even Lufthansa, Europe's largest and most profitable airline group, shows the strains of complying with the overlapping webs of national concerns. In recent years, Lufthansa has gained control or purchased outright Air Dolomiti of Italy (2003); Swiss International (2005); Brussels Airlines of Belgium (2008); BMI of Britain (2009); and Austrian Airlines (2009). Yet each of those carriers continues to fly under its own name and national identity, operate its own hub in its home country, and is largely advertised and marketed independently.

The bottom line on airline mergers is that the bottom line rarely improves.

"I see airlines growing bigger and more complex," one airline chief executive recently told me. "But I don't see airlines getting more profitable. And I know passengers don't love us more."

Of course, the reason he made his comments off the record is because he didn't want them to haunt him if he eventually pursues a merger. "I'll do it if the other guys get too much bigger than me," he warned. "I'll have no choice but to get bigger too."

The Fine Print…

The "memorandum of understanding" between British Airways and Iberia creates a new holding company prosaically called TopCo. BA shareholders will receive 55 percent, 45 percent will go to Iberia stockholders. Each airline will retain operations in their current countries. TopCo will be incorporated in Madrid, but operating and financial headquarters will be in London. BA and Iberia will each have seven members on TopCo's board, and BA's Willie Walsh will be group CEO. The merger is subject to regulatory approval, and Iberia can opt out if it doesn't like BA's resolution of an estimated $5 billion pension-liability shortfall. The memorandum of understanding took 16 months to craft, and the merger is expected to be completed late in 2010. The two carriers currently have $20 billion in revenue and 419 aircraft. They fly to 205 destinations and carried 62 million passengers in 2008. The combined carriers would be Europe's third-largest airline after Lufthansa and Air France-KLM.