Brazilian carrier Azul SA and the principal shareholder for rival Gol Linhas Aereas Inteligentes SA reached an agreement to work toward a merger, potentially creating one of the largest airlines in Latin America.

Abra—which also controls Colombia’s flag carrier Avianca—and Azul concluded the two Brazilian airlines have 90% complimentary and non-overlapping routes. Last year, amid reports that Azul was interested in merging with its rival GOL, the airlines launched a domestic codeshare.

Gol and Azul propose to maintain separate brands while coordinating their finances, networks and product offerings.

Brazilian carriers Azul and GOL have agreed to enter merger talks in a deal that could create Brazil’s largest airline group.

Abra Group and Brazilian carrier Azul have entered a memorandum of understanding to explore a combination that would create Brazil's largest airline via a tie-up with Gol.

Azul Chief Executive John Rodgerson said in an interview that the combined carrier, which would continue operating two separate brands despite the combined ownership, would be 'a national champion'

Azul and Gol shares rose sharply on Thursday, following the announcement of a proposed merger between the two Brazilian airlines. Azul’s stock price rose by more than 4%, while Gol’s shares jumped by about 8%.