SAO PAULO (Reuters) - A planned merger between Brazilian airlines Gol and Azul ( AZUL ) would strengthen the sector and prevent either company from failing, Brazil's ports and airports minister told Reuters, giving the potential move a key government nod.

Azul ( AZUL ) and Abra, the majority investor of Gol and Colombia's Avianca, announced earlier this month they had signed a non-binding memorandum of understanding with the intent of combining their businesses in Brazil.

"It's a government priority to preserve the aviation sector and, above all, safeguard jobs and incomes," Silvio Costa Filho said in an interview. "The possibility of a Gol-Azul merger is positive to strengthen Brazil's aviation."

The merger of the two airlines would create a dominant carrier in Latin America's No.1 economy as the combined company would hold roughly 60% of the domestic market, surpassing the 40% market share of LATAM Airlines.

That has raised concerns about competition and airfare costs. LATAM's Brazil head Jerome Cadier told newspaper O Globo that a deal would require "serious mitigation measures" from antitrust regulator CADE.

Its former head Gesner Oliveira said the country needed more, not less competition. 

"If the merger goes ahead, the biggest loser will be the consumer," he told Reuters. 

However, Costa Filho argued that a tie-up would help both companies survive, preserve jobs, allow for lower cost of credit and increase connectivity.

Latin American airlines have struggled with high debt since the COVID-19 pandemic, with most forced to restructure and several ending up in bankruptcy.

Gol has been under Chapter 11 bankruptcy reorganization in the United States since early 2024, while Azul ( AZUL ) recently had to strike a deal with lessors to scrap obligations in exchange for an equity stake. LATAM exited Chapter 11 in 2022.

"I don't see it impacting prices," the minister said about the planned tie-up.

Still, both airlines would have to convince the regulator of its benefits in a "closely monitored and discussed" process that could be finalised by early 2026, Costa Filho said.

CADE's superintendent Alexandre Souza said in a recent interview with CNN that the regulator would examine competitive conditions thoroughly.

Costa Filho, who last week met with Gol and Azul ( AZUL ) bosses, said that potential price increases have been discussed with the airlines.

"They made it clear that their goal is to profit through volume, not price," he said. "As airlines strengthen, increase capacity, rework their regional networks and improve management capacity, there is even the possibility of lowering fares."

Azul ( AZUL ) CEO John Rodgerson said in a separate interview that the companies clarified to the minister they were eyeing capacity growth. "How do we tackle prices? By increasing supply, capacity," he said.

Brazilian President Luiz Inacio Lula da Silva has also been monitoring the discussions on the potential merger for months, according to a person familiar with the talks.

He supports the deal to ensure the country does not lose an airline company, the person said. Under the memorandum of understanding, a merged firm would continue operating two separate brands despite the combined ownership.

"Lula wants scale, he wants Brazilians to be able to afford plane tickets," the person close to the president told Reuters.

Analysts at JPMorgan say the low network overlap between Azul ( AZUL ) and Gol would play in favor of the merger despite their 60% combined domestic market share.