Irish airline Aer Lingus on Tuesday backed a 1.35 billion euro ($1.51 billion) takeover bid from International Airlines Group, parent of British Airways and Iberia, in a deal aimed at slashing costs.
Aer Lingus announced that its board was "willing to recommend" IAG's improved proposal -- its third since December -- subject to certain conditions.
The Dublin-based airline announced the news a day after revealing that IAG had submitted a sweetened proposal worth 2.55 euros per share, comprising 2.50 euros in cash and a dividend of 0.05 euros per share.
Whether the deal goes ahead now hinges on major shareholders Ryanair and the Irish government.
Irish Transport Minister Paschal Donohoe said officials were "evaluating" the proposal and would report back "within a matter of weeks" with a recommendation.
Ryanair said it would consider the offer "on its merits".
Aer Lingus has rejected two previous takeover offers from IAG at 2.30 euros and 2.40 euros a share.
London-listed IAG said it would operate Aer Lingus as a separate business with its own brand, management and operations should the new offer be accepted.
"The board has indicated to IAG that the financial terms are at a level at which it would be willing to recommend, subject to being satisfied with the manner in which IAG proposes to address the interests of relevant parties," Aer Lingus said in a statement.
- Strategic state importance -
If it goes through, the deal would make IAG the second biggest airline in Europe by ridership.
Analysts say the move would allow IAG to consolidate costs but could also give British Airways scope to expand flights from Dublin in the face of a near-saturation of slots at London Heathrow.
IAG also wants Aer Lingus to join the oneworld airline alliance which includes British Airways and Iberia as well as Qantas, Qatar Airways and Japan Airlines.
It would also become part of a joint business that IAG operates over the North Atlantic with oneworld partner American Airlines.
Aer Lingus is of strategic importance to Ireland, an island nation that emerged from a deep recession in 2013, and the state owns about one quarter of the shares.
"This is a decision we will take immense care in relation to," said transport minister Donohoe.
"It will have many consequences, not just for Aer Lingus but for an island that depends so much on connectivity and the ability to move easily to and from our country."
Ryanair is the biggest single shareholder, owning about 30 percent, and has itself made three failed attempts to buy the airline since 2007.
A spokeswoman said: "Our position has not changed. The board of Ryanair will consider any offer on its merits, if and when an offer is made."
IAG chief executive Willie Walsh was boss of Aer Lingus between 2001 and 2005 before he took the reins at British Airways.
BA and Iberia subsequently merged in 2011 in a tie-up aimed at cutting costs amid a painful economic downturn.