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. Azul’s stock price rose by more than 4%, while Gol’s shares jumped by about 8%.

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.

Gol and Azul propose to maintain separate brands while coordinating their finances, networks and product offerings.

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.

Investing.com-- Brazilian airline Azul SA (NYSE: AZUL) and Abra- the majority investor in its rival Gol, said they had signed a non-binding agreement on Wednesday to explore the combination of their businesses in Brazil.