(Bloomberg) -- The Brazilian airline Azul SA is working with Citigroup Inc. and Guggenheim Partners as it explores a potential offer for its troubled competitor Gol Linhas Aereas Inteligentes SA, according to people familiar with the matter. Shares in both companies rallied.

The companies are advising Azul as it weighs several options, including an outright acquisition of its rival, one of the people said, asking not to be identified because discussions are still private. Azul still could decide to shelve the idea, the person added. 

Azul didn’t return requests for comment. Guggenheim, Citi and Gol declined to comment.

Any offer would need approval from the country’s regulator — known as Cade.

Shares of Azul climbed as much as 6.6% in Sao Paulo on Tuesday, while Gol jumped as much as 7.1%. 

A tie-up between Azul and Gol would help them cut costs and boost revenue, helping support share prices, Bradesco BBI analyst led by Victor Mizusaki wrote in a note.  

Sao Paulo-based Gol filed for Chapter 11 after grappling with $2.7 billion in near-term liabilities and carrying out a dozen debt exchanges. Under the process, it has managed to increase its debtor-in-possession financing to $1 billion from $950 million. 

Moody’s Investors Service on Tuesday upgraded Gol parent Abra Group’s credit rating to Caa1 from Caa3 and lifted the outlook to stable from negative. The upgrade hinged on Gol securing the $1 billion DIP financing, the ratings company said. 

Azul and Gol are part of a trio of carriers — including Santiago-based Latam Airlines Group SA — that dominate air travel in Latin America’s largest market. While both airlines service some heavily trafficked routes, Gol is more concentrated on flights between Sao Paulo, Rio de Janeiro and Brasilia, while Azul’s network to other cities is wider.  

Azul expects the lack of overlap between the carriers to bolster its chances of winning regulatory approval should it make an offer, the person said. 

When asked about a potential deal, Azul’s Chief Executive Officer John Peter Rodgerson said in an interview that his company is closely monitoring the situation. “You have an obligation to your shareholders to look at what opportunities are out there,” he said, declining to elaborate further. 

Read more: Azul CEO Says Brazil Aid to Airlines Key as Fuel Debacle Rages

Despite jacking up fares last year as demand for air travel rose, both companies’ finances have been hit by rising jet fuel prices and delays in the production of new aircraft. 

Azul has moved to shore up its balance sheet by slashing costs and striking agreements with lessors. The company also pushed back debt payments by exchanging bonds due in 2024 and 2026 for securities with later maturities that paid a higher coupon. The transaction was considered a distressed debt change by ratings agencies. 

--With assistance from Leda Alvim.

(Updates with share move and analyst comments starting in fifth paragraph.)

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