*

Merger would create dominant carrier in Brazil's domestic

market

*

Azul ( AZUL ) and Gol sign nonbinding memorandum for merger

*

Regulatory approvals needed, including from antitrust

regulator

CADE

By Gabriel Araujo

SAO PAULO, Jan 15 (Reuters) - Azul ( 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.

The union of the two companies, which follows months of

talks and market speculation, would hold roughly 60% of the

domestic market, far surpassing the local unit of Chile-based

LATAM Airlines.

Azul ( AZUL ) Chief Executive John Rodgerson said in an interview

that the combined carrier, which would continue operating two

separate brands despite the combined ownership, would be "a

national champion."

Seeking to rebuff potential competition concerns, Rodgerson

pointed to other national carriers with dominant shares in their

home markets, including LATAM in Chile, Lufthansa

in Germany and IAG in the UK.

"So these other countries understand the importance of

having a strong airline that can grow," he told Reuters.

"Especially a strong company which buys local aircraft."

Azul's ( AZUL ) fleet includes regional jets from Brazil's Embraer ( ERJ )

as well as Airbus single- and twin-aisle

planes, while Gol flies only Boeing 737 aircraft.

He added that the move would allow for larger connectivity

and lower cost of capital.

Azul ( AZUL ) and Abra Group, the majority investor in Gol and

Colombia's Avianca, had 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 combining Azul ( AZUL ) and Gol, the first of

several steps on the path to completing a deal, the securities

filing showed.

It also marks the beginning of the process to obtain

regulatory approvals for a combination, including from antitrust

regulator CADE.

Latin American airlines have been facing financial hurdles

in the wake of the COVID-19 pandemic, with most forced to

restructure, several in bankruptcy, as they struggle with high

debt.

Gol has been under Chapter 11 bankruptcy reorganization in

the United States since early 2024, while Azul ( AZUL ) recently had to

strike deals with lessors to scrap obligations in exchange for

an equity stake, and with bondholders to obtain fresh financing.

A combination would follow Gol's exit from bankruptcy

proceedings.

Gol earlier in the day released a new five-year strategic

plan laying the groundwork for it to exit Chapter 11, which it

expects to happen by May.

The combined company, Rodgerson said, would include three

board members appointed by Azul ( AZUL ), three appointed by Abra, and

three independent members. Azul ( AZUL ) would name the company's chief

executive and Abra its chairman.

Analysts have noted the transaction could be complex as it

requires regulatory approvals, but acknowledge that market

turbulence, including the sharp depreciation of Brazil's real in

recent months, might have given the deal a boost.

Azul ( AZUL ) and Gol, which already operate in codeshare, would bet

on their complementary networks to obtain antitrust approval,

noting that they have approximately 90% complementary and

non-overlapping routes.

Gol focuses on big cities such as Sao Paulo, Rio de Janeiro

and Brasilia, while Azul ( AZUL ) has a more dispersed network.

Rodgerson said the carriers' different fleets would put them

in a stronger position to negotiate with lessors, manufacturers

and suppliers.