United Continental Holdings Inc., looking for ways to build partnerships in Latin America, said Friday it will invest $100 million for a 5% stake in Azul Linhas Aereas Brasileiras SA, Brazil's third-largest airline.

The deal will give United a seat on the board of the discount carrier, which serves the most destinations in the country—105—and operates more than 900 daily flights. The company carried 21 million passengers last year and has a fleet of 145 aircraft.

The agreement paves the way for an enhanced code-share agreement, subject to government approvals, expanding connecting opportunities between North and South American cities and joint loyalty-program participation.

Azul, which began flying in late 2008, was founded by David Neeleman, a serial airline entrepreneur who has started four low-cost carriers. The third, and his best known, is JetBlue Airways Corp. in the U.S., which started flying in 2000. JetBlue forced out Mr. Neeleman in 2007 and the executive, who has U.S. and Brazilian citizenship, headed south to start Azul on a similar footing: generous legroom, in-flight entertainment, complimentary beverages and snacks, and low fares.

Azul, which has its main base in Campinas, about 50 minutes from downtown Sã o Paulo, got a boost in 2012 when it acquired another Brazilian discounter, Trip. Azul also operates more than 50 daily flights from Sã o Paulo's Guarulhos International Airport, an airport United serves from the U.S.

Brazil's two largest airlines already have relationships in the U.S. Tam, the biggest, which is part of Latam Airlines Group SA, is tied to American Airlines Group Inc. as a member of American's Oneworld global alliance. Before joining Latam Airlines Group, Tam was a member of the Star Alliance, the marketing group anchored by United. So United had a hole in its network when Tam left its club.

No. 2, Gol Linhas Aereas Inteligentes SA, teamed up with Delta Air Lines Inc. in late 2011, when the U.S. carrier paid $100 million for a 3% stake in Gol as part of a broad alliance. Delta also got a seat on Gol's board.

Avianca Holdings SA, a Colombian carrier with satellite branches in Peru, Ecuador, Brazil and Central America, is a member of Star Alliance, But Avianca Brazil is a relatively small operation, the country's No. 4 airline with 7 million passengers carried last year, according to research firm Centre for Aviation. Azul is unaffiliated with a global marketing alliance.

"Brazil is an important market in United's global route network," said Jim Compton, United's vice chairman and chief revenue officer. "This partnership with Azul further strengthens our ties to the region."

United flies to both Sã o Paulo and Rio de Janeiro, operating five daily flights to Brazil from its hubs in Chicago, Houston, Newark, N.J., and Washington's Dulles International Airport. With government approval, United intends to place its code on Azul flights from Guarulhos Airport to destinations throughout Brazil, and on Azul's flights to Florida.

With government approval, Azul plans to place its code on United flights throughout North America and the Caribbean. "This will be great for customers," said Mr. Neeleman, chief executive of Azul. "Brazilians will have access to destinations in United's world-wide route network, while U.S. customers will be able to fly conveniently to famous destinations in Brazil, such as Belo Horizone, Iguazu Falls and the Amazon."

MileagePlus and TudoAzul frequent-flier members will have reciprocal benefits to earn and redeem miles systemwide on both airlines.

Azul, which is majority owned by Mr. Neeleman, has several times made plans for an initial public offering and then pulled back. The Brazilian air market, once red hot, has cooled considerably due to the nation's recent economic problems, with domestic demand ebbing and fares showing weakness.

The carrier late last year spread its wings abroad by starting flights from Campinas to Orlando and Fort Lauderdale, Fla. It plans to add flights to Orlando from Belo Horizonte late this year.

Mr. Neeleman and a Portuguese partner earlier this month won approval to acquire 61% of recently privatized TAP Portugal, that nation's money-losing flag carrier, for 354 million euros. A planned cash injection is also in the cards along with a ramping up of TAP flights to the U.S. and Brazil. TAP, also a member of Star Alliance, is the leader in seats offered between Western Europe and Brazil, followed by TAM, according to Centre for Aviation.

Write to Susan Carey at susan.carey@wsj.com

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