By Gabriel Araujo

SAO PAULO (Reuters) – Azul and Gol, two of Brazil’s biggest airlines, are closing in on a sweeping merger that would create a dominant carrier at No. 1 economy in Latin America, a securities filing showed on Wednesday.

The union of the two companies, which follows months of talks and market speculation, will hold almost 60% of the local market, surpassing the local unit of Chile-based LATAM Airlines (NYSE:).

Azul Chief Executive John Rodgerson said in an interview that the combined carrier, which will continue to operate under two separate brands despite joint ownership, will be a “national champion.”

Seeking to dismiss potential competition concerns, Rodgerson pointed to other national carriers with dominant shares in their home markets, including Chile’s LATAM, Germany’s Lufthansa and the UK’s IAG.

“So these other countries understand the importance of having a strong airline that can grow,” he told Reuters. “Especially a strong company that buys domestic aircraft.”

Azul’s fleet includes regional jets from Brazil’s Embraer as well as Airbus single- and twin-aisle aircraft, while Gol flies only Boeing (NYSE: ) 737 aircraft.

He added that the move will allow for greater connectivity and lower capital costs.

Azul and Abra Group, the majority investor in Colombia’s Gol and Avianca, have been in talks since last year to “explore opportunities,” seeking to strengthen their operations to face challenging times for the industry in the region.

They have now signed a nonbinding memorandum of understanding aimed at merging Azul and Gol, the first of many steps on the road to completing a deal, the securities filing showed.

It also marks the start of the process to obtain regulatory approvals for a combination, including from antitrust regulator CADE.

Latin American airlines have faced financial hurdles in the wake of the COVID-19 pandemic, with many forced into restructuring, some into bankruptcy, as they struggle with high debt.

Gol has been under Chapter 11 bankruptcy reorganization in the United States since early 2024, while Azul recently had to strike deals with tenants to scrap the obligations in exchange for an equity stake, and the bondholders to get new financing.

A combination will follow Gol’s exit from bankruptcy proceedings.

Gol earlier in the day released a new five-year strategic plan that lays the groundwork for it to exit Chapter 11, which is expected to take place in May.

The combined company, according to Rodgerson, will include three board members appointed by Azul, three appointed by Abra, and three independent members. Azul will be the chief executive of the company and Abra will be its chairman.

Analysts noted that the transaction would be complicated because it would require regulatory approvals, but acknowledged that market turmoil, including the sharp decline in the Brazilian real in recent months, may have prompted a enthusiasm for the deal.

Azul and Gol, which already operate in codeshare, will bet on their complementary networks to get antitrust approval, as they have approximately 90% complementary and non-overlapping routes.

Gol focuses on major cities such as Sao Paulo, Rio de Janeiro and Brasilia, while Azul has a more dispersed network.

Rodgerson said a diverse fleet of carriers will put them in a stronger position to negotiate with lessors, manufacturers and suppliers.