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.

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.

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

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.