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.

Brazil airlines Azul and GOL are set for merger talks which could create the dominant player in aviation in the country. They signed a MoU after getting tentative approval from Brazilian President Lula da Silva. The plan is to combine the businesses of Azul and GOL parent Abra. It would give the new business a 60% share of the aviation market.

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%.

Shares of Azul (NYSE:AZUL) climbed 3% in US premarket trading following the announcement of significant progress towards a potential merger with GOL.