Aer Lingus rejected two takeover from IAG last year, claiming that they undervalued the business.
The offer also received strong opposition from Irish MPs, who voiced their concern over the possibility of services between London Heathrow and Irish airports may be cut. However, the agreement includes a legally binding commitment to maintain current services between Heathrow and Dublin, Cork and Shannon for at least another seven years.
As part of the deal, Aer Linguis will operate its international passenger services under the Aer Lingus brand, whilst its head office will remain in Ireland.
Aer Lingus chairman Colm Barrington said in a statement: “This is a compelling transaction for Aer Lingus, its shareholders, its employees, its customers and for Ireland.
“The company will reap the commercial and strategic benefits of being part of the much larger and globally diverse IAG Group.”
The deal will be subject to approval by the Irish parliament.