Gol owns more than half of Smiles and controls its board, but has faced stiff opposition from minority shareholders since it first proposed the merger in 2018. In recent years, Gol's competitors, such as LATAM Airlines group and Avianca Holdings, have all absorbed their loyalty programs into their airlines.

Under the new merger proposal, Smiles shareholders would receive 22.32 reais ($4.36) in cash or 0.825 preferred shares in Gol in exchange for each Smile share. They could also opt for a combination of both.

The deal would value Smiles at about 2.8 billion reais, although the sum going to outside investors would only end up being about half of that figure, given Gol's 53% stake in the company.

Smiles shares rose more than 4% on the news to 22.72 reais, exceeding Gol's proposed price.

In recent years, Smiles has become a key source of liquidity for Gol, an airline that even before the coronavirus pandemic was posting recurring losses.

By absorbing it, Gol would no longer have to split Smiles's dividends with independent investors, an important source of funds as the airline weathers the coronavirus crisis.

($1 = 5.1204 reais)

(Reporting by Ana Mano and Paula Laier in Sao Paulo; editing by Jonathan Oatis; Writing by Marcelo Rochabrun; Editing by Louise Heavens)