Morgan Stanley analyst Josh Milberg upgraded Gol Linhas (GOL) to Overweight from Equal Weight and raised his price target for the shares to $18 from $14.50. The analyst believes a "major" consolidation narrative across the Latin American Airlines is emerging with Avianca Brasil's suspension and low-cost carriers gaining domestic share in Mexico. When coupled with lower fuel costs and a rebounding Brazilian real, the analyst is bullish on the sector. He upgraded Gol Linhas while Azul (AZUL) remains his top pick. There is a "bullish case" for Gol shares despite its recent rally, Milberg tells investors in a research note.

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Azul's (AZUL) pursuit of a merger with Gol Linhas has gained momentum, with talks underway for a deal with the controlling shareholder of Gol, Rachel Gamarski, Erin Hudson and Giovanna Bellotti Azevedo of Bloomberg report, citing people familiar with the matter. In one scenario under consideration, holding company Abra Group would contribute its Gol shares to Azul in exchange for a stake in the combined airline, a source told Bloomberg. That type of transaction could appeal to Azul because it wouldn't have to commit much cash, if any, the person said.

Azul is down -8.8%, or -55c to $5.71.