Brasilian carrier TAM Linhas Aereas is set to merge with LAN Chile to create the largest airline in Latin America.
The consolidated company would be called Latam Airlines Group, but both carriers would retain their own brands and liveries.
According to reports in the financial press in South America, the merger would create synergies that would add some $3 billion to the value of the new group.
The companies announced the proposed deal through a $2.7 billion all-stock transaction.
LAN's chief executive, Enrique Cueto, has been slated to lead the new company, while TAM's deputy chairman, Mauricio Rolim would be installed as chairman.
Cueto was quoted in Chilean newspaper La Tercera as saying the merger was crucial for his carrier to compete in a more consolidated global airline industry, break into the Brasilian market and generate savings.
Latin America has been one of the fastest growing regions in terms of air travel in the last two years, according to IATA figures.
The development will also be viewed with immense interest on this side of the Atlantic given that TAM is a member of the Lufthansa-lead Star Alliance while LAN is part of the British Airways-American Airlines dominated Oneworld alliance.
And with BA having recently announced a merger with Iberia, and thereby expanding its network into Latin America, there is sure to be a struggle by the alliances to retain their Latin American members.