TAM and Transbrasil, Brazil's second and fourth airlines, have begun a national codesharing operation in what could be the first step to an all-out merger.

The agreement will apply on all domestic routes operated by the pair, including a lucrative Rio-Sao Paulo shuttle where Transbrasil will reduce daily flights from 20 to four while TAM will continue to operate 24 flights a day. It could become international, allowing TAM to take over Transbrasil's route to Lisbon.

In just 10 years, TAM has expanded from a regional airline to Brazil's second biggest carrier with international routes to Paris and Miami. Transbrasil, meanwhile, is struggling and has suspended international routes, including Sao Paulo to London, Amsterdam and Vienna.

The April agreement has reached the attention of the Justice Ministry's watchdog Cade. Cade says it must authorise any agreement involving companies that already hold more than a 20% market share, which applies to TAM.

Source: Airline Business