The best thing that can happen to Iberia is along the lines of what happened to Olympic Airlines being morphed into Olympic Air. Iberia needs to be effectively shut with a new Iberia being opened up overnight to replace it with a significantly more stremlined operation, with a smaller fleet and more simplified route network.
However it is unlikely that this is ever going to happen. Many Spaniards simply feel that Iberia cannot fail as it is looked upon as being part of the fabric that makes the identity of their country. The Unions will never allow Iberia to be restructured to such a large extent either. The harsh reality is Iberia is simply a business and a poorly performing one and no business can continue to trade indefinitely in such circumstances.
I have no doubt that without the merger, Iberia would be well off.
Not so, the government in Madrid has no ability to save Iberia nowadays. If there is no external pressure to restructure, then surely one could argue that an independent Iberia would be one with an even shorter life expectancy.