The core shareholder of Spanish air carrier Iberia, savings bank Caja Madrid, expects its planned tie-up with British Airways to go ahead, the bank's chairman Miguel Blesa said on Thursday.

BA's widening pension deficit has become a stumbling block in its merger talks with Iberia as the Spanish airline's shareholders use it to gain a bigger stake in the new group.

"Both parties are interested so I think (the merger) will go ahead," Blesa told journalists on the sidelines of a seminar in Madrid.

"The deal is still continuing... it's not without difficulties, but it hasn't been paralysed," he said.

Iberia and BA announced their merger plans at the end of July.