Chile's flagship LAN Airlines took the first steps on Friday to bolster its operations in the Argentine market, a coveted hub in its Latin American expansion plan.

LAN has agreed to absorb Argentina's state-owned LAFSA airline and will sign a "cooperation accord" with the troubled Southern Winds carrier, Argentine transport secretary Ricardo Jaime said in a joint press conference with LAN executives.

The accords give LAN a foot in the door of the Argentine market, where it is negotiating the purchase of a stake in another unnamed company, according to LAN Director Enrique Cueto.

"This is a preliminary accord... that basically allows LAN to create LAN Argentina with the purchase of a domestic company and from there begin both cargo and international operations," Jaime said.

LAN, one of Latin America's biggest airlines, had been in talks for several weeks to buy Southern Winds, but Cueto ruled that out on Friday.

"LAN is in negotiations with an airline that is not LAFSA and is not SW and our Argentine partner is in talks for that purchase. As long as that process is not defined, we will not name the Argentine partners or the name of the airline," said Cueto.

Argentina's airline sector is dominated by Spanish-owned Aerolineas Argentinas, which came back from bankruptcy and now corners the market on many domestic routes.

LAN has committed to a 90 day agreement to manage Southern Winds' operations. The agreement comes days after the Argentine government, via LAFSA, withdrew its subsidies to Southern Winds due to a drug trafficking scandal.

After the 90 days, the two companies will decide whether or not to continue their alliance, Jaime said.

LAFSA, which has no planes of its own, was created in 2003 to absorb the workers of two small bankrupt private airlines. It then helped keep Southern Winds afloat, providing its routes and staff in exchange for using Southern Winds' fleet.

Jaime did not give details on the terms of LAN's absorption of LAFSA and made no comments on LAN's negotiations with a private firm.

LAN has affiliate airlines in the Dominican Republic, Ecuador and Peru and flies to Europe, Australia and throughout the Americas.