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.

Azul and Gol, two of Brazil's largest airlines, are moving a step closer to a sweeping merger that would create a dominant carrier in Latin America's No. 1 economy, a securities filing showed on Wednesday.

Azul and Gol shares rose sharply on Thursday, following the announcement of a proposed merger between the two Brazilian airlines.

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.

Abra Group (the majority investor of Gol and Avianca) and Azul signed a non-binding Memorandum of Understanding (MoU) today with the intent to explore a combination of their

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 (NYSE:AZUL) and Abra, the majority investor of Gol and Avianca, signed an agreement to combine their businesses in Brazil. The purpose of the business combination is to promote growth in the Brazilian aviation industry,