Having finished the game, there are two endings, but the fate of a villain is mostly the same:
>In the default ending, Merga, too consumed by her lust for revenge for earth dragons, refuses to listen to heroes' pleas to let go of her past and ends up falling down the collapsing floor of Bakunawa to what appears to be her death as the ship crashlands. However, her fate in the end remains ambiguous, as her body is never found, and Lilac, believing that Merga may still be alive, vows to find her and try to convince her to let go of her past and her lust of vengeance.
>In the true ending, while it initially plays out the same way as the default one, with her rejecting the heroes' attempts to reason with her, the floor doesn't collapse. Instead, the Pangu drone, with all parameters met, plays to Merga the message from her lost love, Cordelia, with her praying that Merga will one day finds her own happiness. As Merga is left distraught over being reminded of her lost love, the heroines finally convince her to stand down and let go of her lust for vengeance. However, Syntax ends up hijacking control over Bakunawa. The heroines go to stop Syntax while Merga stays behind to think of everything she has done. Eventually, they confront Syntax inside the Weapon's Core, but Syntax's new body ends up regenerating too quickly than they could damage it. At this moment, Merga arrives to help the heroines and redeem herself from starting the whole mess, damaging Syntax and allowing the heroines to finally destroy the machine. As Bakunawa begins to crash, Lilac tries to convince Merga to join them, but she refuses, choosing to go down with Bakunawa. However, Lilac still insists, but gets hit by a piece of debris from Syntax's destroyed body and falls unconscious, nearly falling to her death, saved by Merga at the last moment. Afterwards, the ending plays in almost the same way as the default ending, with Merga's fate remaining ambiguous as her body is never found and Lilac vows to find her and help her lift the burdens of her past.
tl;dr: Merga's fate is left ambiguous, as while she appears to seemingly die, her body is never found, thus hinting that she may return in future installments. However, considering that she was depicted in a much more tragic and sympathetic light (with her being a survivor of the race that was unjustly enslaved and genocided, and only wishes to avenge her kin) when compared to Brevon, and even outright redeems herself in the true ending, I don't see her surviving as a bad thing. Furthermore, I believe that, if they choose to take from where the true ending left off, that if Merga returns in the next installments, she'll return as an ally, rather than an enemy.