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.

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 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%.