CONTENTS
01. INTRODUCTION
Message from the Chairman of the Board
Letter from Chief Executive Officer
02. OUR COMPANY
Business Strategy
Our History
Our Fleet
Destinations
Our People
Company Information
03. CORPORATE GOVERNANCE
Board of Directors
Senior Management
Corporate Governance Practices
Ownership Structure and Principal Shareholders
Financial Policy
04. OPERATIONS
International Passenger Operations
TAM
LAN
LAN Perú
LAN Ecuador
LAN Argentina
LAN Colombia
Customer Loyalty Programs
Cargo Operations
05. 2012 RESULTS
Industry Overview
Financial Results
Awards and Recognitions
Stock Market Information
Additional Information
Material News
Risk Factors
06. SUSTAINABILITY
LAN
TAM
07. FINANCIAL STATEMENTS
Financial Statements
Subsidiaries and Affiliated Companies
3
4
6
8
9
11
14
20
25
27
28
29
34
41
46
49
52
53
56
58
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62
64
66
68
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INTRODUCTION
LATAM AIRLINES GROUP S.A.
María Estibaliz
LAN Argentina
Paola Russo
TAM Perú
4
INTRODUCTION /
MESSAGE FROM THE CHAIRMAN
OF THE BOARD
Dear Shareholders,
In 2012, by implementing the association between
LAN and TAM, the region’s principal airlines, we not
only fulfilled a long-sought-after dream on our road
to consolidation but also took an historic step in
Latin America’s airline industry. The merger process
represented over two years of hard work and
dedication, the result of which finally materialized
on June 22 when we announced the birth of LATAM
Airlines Group.
This achievement is a source of both pride and, of
course, motivation since it will allow us to build an
airline that is a leader in the region in terms of size
and coverage, with a combined fleet comprising over
300 aircraft and an unrivalled network serving 135
destinations across 22 countries and transporting
cargo to 144 destinations in 27 countries. In this
way, we have grown significantly
in capacity
and connectivity, offering more flights and more
destinations in the region as well as to and from the
rest of the world.
At the regional level, LATAM Airlines Group has today
a diversified presence, with domestic operations
in Chile, Argentina, Perú, Ecuador and Colombia
as well as Brazil, by far the region’s largest market,
in addition to a key position in the main hubs for
connections between South America and the rest
of the world such as Santiago, São Paulo and Lima.
This allows us to promote the region internationally
through a service of excellence with which we
hope to contribute to South America’s commercial
integration and to expand our culture beyond the
region.
The integration of LAN and TAM will enable us to
be more competitive and efficient, providing more
travel options for our clients at attractive prices with
the same service quality that has been the hallmark
of all our operations. We estimate that this alliance
will generate synergies worth between US$600
million and US$700 million a year as from the fourth
year of the integration. This does not, moreover,
include the development potential of Brazil’s
domestic market which moves around 77 million
passengers each year and, at present, represents
around 30% of the group’s consolidated revenues.
Just as we foresee great opportunities for growth,
we are also aware that merger processes are not
easy and, on the contrary, entail many challenges
and lessons to be learned. In particular, we face
an important organizational challenge since the
association of LAN and TAM involves a team formed
by over 53,000 people of different nationalities,
making LATAM Airlines Group a company that is not
only multinational but also multicultural, with all
the advantages this implies in terms of knowledge
of different markets and their people. I would like to
take this opportunity to express our sincerest thanks
IntroductionMEMORIA ANUAL2012 5
to all our employees for the dedication, effort and
commitment they have shown over these two years.
This was, without doubt, crucial for the successful
implementation of our merger process.
We know we still have a long road ahead of us and
I would, therefore, invite you to keep alive this
spirit of collaboration and to be protagonists of the
consolidation of this unique and historic project of
making LATAM Airlines Group one of the world’s ten
largest and most important airlines.
In order to reach this stage, we have worked with
passion and given the best of ourselves. 2012, in
particular, was an important transition year in which
we invested much time and resources and this is
reflected in our results. We are certain that all this
effort will create greater prosperity for all the LATAM
Airlines Group family. Our passengers and cargo
clients will benefit through an increased number
of flights and better connections within the region
and with the rest of the world. The growth of our
operations will also mean new career opportunities
and jobs for our employees. And, finally, the gains in
terms of synergies and increased flow of passengers,
among other benefits of the merger, will be reflected
in greater profitability for our shareholders.
Before finishing these remarks, I would like to
draw particular attention to the long history of
collaboration between LAN and TAM as independent
airlines. Both companies shared not only a similar
business vision but also the same values and culture
of service and these are decisive for the success of
this integration process. Together, we will now build
on all our strengths and attributes as regards size,
coverage and know-how in order to consolidate our
position as a global operator that is well prepared
to compete in the big leagues of the international
airline industry.
Mauricio Amaro
Chairman of the Board
IntroductionMEMORIA ANUAL2012 6
INTRODUCTION /
LETTER FROM CHIEF
EXECUTIVE OFFICER
Dear Shareholders,
In a year marked by challenges for airlines worldwide,
the creation of the LATAM Airlines Group in 2012
represented a milestone in the history of aviation
in the Americas. The merger – one of the continent’s
largest business initiatives – was crowned a success
and resulted in the largest airline group in Latin
America and one of the world’s first in terms of
market capitalization.
and Europe, this load factor shows that we are on
the right path to recovering profitability in Brazil’s
domestic market, which accounts for approximately
30% of the LATAM Airlines Group’s revenue.
Important steps were taken that allowed us to
capture the important synergies and opportunities
initially projected for the integration process. We
made available to our passengers the joint sale of
LAN and TAM flights, which increased our offering
of destinations, and also worked continuously to
adjust itineraries to improve connections from our
continent to Europe and the United States.
Second, with the signing of code-sharing agreements
between TAM and American Airlines, among the
two largest airlines in their respective countries,
following approval by the regulatory agencies,
we will begin offering in the Brazilian market 48
new destinations in the United States based out of
Miami, which is Brazilian’s main port of entry into
the country.
We also advanced important changes in our two
largest domestic markets, Colombia and Brazil,
which will bring significant gains going forward. In
Colombia, we continued to replace our current fleet
with new Airbus aircraft that are more efficient and
have more seats, which reduces our costs and allows
us to improve our on-time performance.
In Brazil, there are two points I would like to
underscore. First, we were able to successfully
reduce excess capacity in the domestic market,
which significantly increased our average load
factor in the year to 73.6%. Though still below the
levels of more mature markets like the United States
Brazil’s largest airport, Guarulhos International
Airport in São Paulo, has been under private
management since mid-2012 through a concession
contract. The move represents an
important
initiative for stimulating the region’s aviation
market, adjusting infrastructure to air carriers’
growing needs and improving service for their
millions of passengers.
One of our most important objectives is to transform
Guarulhos International Airport into a major hub for
LATAM Airlines Group, effectively connecting South
America to the rest of the world. By concentrating
our operations in a single terminal we will be
IntroductionMEMORIA ANUAL2012 7
able to offer our passengers, both domestic and
international, shorter distances between gates,
better connection times and more comfort and
conveniences in our lounges.
We are also renewing our fleet over the short and
medium term. The LATAM Airlines Group fleet is
already one of the youngest in the world, but our
objective is to offer greater comfort and well-being
to our passengers, while also increasing flight
efficiency by using latest generation aircraft, which
consume less fuel. Along these lines, the company
has significant orders of Boeing 787 and Airbus A350
state-of-the-art aircraft to operate with greater
efficiency and providing a superior travel experience
for passengers. Additionally, we are constantly
evaluating opportunities to improve our product in
the current fleet, especially for long-haul routes.
invested in systems and technology that will
allow us to better manage the interactions with
our passengers. These changes were not free of
challenges in their implementation, but we remain
convinced that in the long term they will be reflected
in an organization that is increasingly responsive to
customer needs.
Lastly, I would like to highlight the importance we
are dedicating to our employees. Our group brings
together 53,000 people from various countries and
with distinct backgrounds and cultures, which is
why we are investing in creating a shared team
spirit across our corporation. LATAM Airlines Group
was created from two companies that have always
shared similar values and a culture of excellence
inestimable
is of
in customer service, which
importance in any integration process.
More than ever, we maintain our commitment to
excellence in the service we provide to passengers
and cargo customers. In addition to continuous
improvements in the connectivity of our network
and the constant renewal of our fleet, we have
Over the next few years we will overcome major
challenges that are inherent to any enterprise of this
grandeur. And the LATAM Airlines Group merger will,
without a doubt, mark the history of global aviation.
Enrique Cueto P.
CEO
IntroductionMEMORIA ANUAL2012 OUR COMPANY
LATAM AIRLINES GROUP S.A.
Taciana Castro
TAM Brazil
Gabriela Estrella
LAN Ecuador
9
OUR COMPANY /
BUSINESS STRATEGY
For LATAM Airlines Group, success consists in making
the airlines it brings together - LAN and TAM - a
business that is sustainable over time, that has over
the years carried millions of passengers and that,
today, after their integration, is positioned as one
of the world’s most important airline groups. For
this reason, it has based its strategy on the pillars of
connectivity, diversity and efficiency.
Through its regional presence, the Company offers
unrivalled connectivity and no other airline group in
the region offers more flights to more destinations
than LATAM Airlines Group. In addition, it competes
on a daily basis on the global stage, with an
extensive network of destinations and hubs located
at strategic points in the region (Santiago, Lima and
São Paulo) that enable it to improve the connection
of South America with the rest of the world and of
the rest of the world with South America, offering
clients more travel options and constantly striving
to provide a service of excellence to both passengers
and cargo clients.
Both companies have a diversified business model.
This includes both geographic diversity - as a regional
company with a presence in the region’s main
markets - and business diversity in that, although a
group of passenger airlines, it derives an important
part of its revenues from cargo operations.
LATAM Airlines Group has built a solid network of
subsidiaries in Chile, Brazil, Perú, Argentina, Ecuador
and Colombia and is the leader in most of these
markets, contributing to the countries’ economic
and social development and, thanks to its low-cost
model, making air travel ever more accessible to
their inhabitants.
Business and geographic diversification
The diversification of the Company’s business
model has also been key in its consolidation as one
of the most efficient, competitive and profitable
in the international airline industry, achieving the
integration of its cargo and passenger businesses,
optimizing utilization of its aircraft, adjusting its
routes and flights to demand and providing solidity
and stability in relation to the external factors by
which it could be affected. At present, its cargo
business accounts for 14.6% of revenues and its
passenger business for the other 83.4%.
Another pillar of LATAM Airlines Group’s strategy is
for its operations to be profitable and, at the same
time, environmentally friendly and their efficiency
has been key for its success. With a modern fleet
of more than 320 aircraft in service and purchase
orders for around a further 187, LATAM Airlines
Group stands out for its use of latest-generation
planes such as the Boeing 787 Dreamliner and the
Boeing 777-200F cargo plane as well as its purchase
orders for the new Airbus A350-200.
The great investment that the Company has made in
its fleet is reflected in savings on operating costs. In
some cases, the efficiency of its aircraft has allowed
it to cut fuel consumption by around 15%, resulting
in a reduction in CO2 emissions and offering
passengers a better service.
Our CompanyANNUAL REPORT2012 0
1
The integration of LAN and TAM has united two
financially solid companies, bringing the best of each
to the new company, giving it an important position
in the global market and generating synergies and
cost efficiencies to allow it to continue growing and
providing greater benefits to the region.
Our CompanyANNUAL REPORT2012 1
1
OUR COMPANY /
OUR HISTORY
1929
Línea Aerea Nacional de Chile (LAN) founded by
Comandante Arturo Merino Benítez.
1946
First LAN international flight: Santiago-Buenos
Aires.
1956
Start of LAN services to Lima.
1958
Start of LAN services to Miami.
1961
TAM-Taxi Aéreo Marília created by five charter flight
pilots.
1970
LAN begins flights to Europe.
1975
Foundation of TAM-Transportes Aéreos Regionais by
Capitan Rolim Adolfo Amaro.
1976
Launch of TAM services in Brazilian cities, especially
Mato Grosso and São Paulo.
1983
Constitution of Linea Aerea Nacional - Chile
Limitada, through CORFO
1985
LAN becomes a joint stock company.
1986
Acquisition by TAM of VOTEC-Brasil Central Linhas
Aéreas, another regional airline operating in the
north and center of the country.
Our CompanyANNUAL REPORT2012 2
1
1989
Start of privatization of LAN: the Chilean
government sells a 51% stake to local investors and
Scandinavian Airlines System (SAS).
2001
LAN Alliance with Iberia and inauguration of Miami
cargo terminal.
1990
Brasil Central renamed TAM-Transportes Aéreos
Meridonais.
1993
Launch by TAM of TAM Fidelidade, Brazil’s first
frequent flyer program.
1994
Privatization of LAN completed with the acquisition
of a 98.7% stake by its current controllers and
other shareholders.
1996
Acquisition by TAM of Lapsa airline from the
Paraguayan government and creation of TAM
Mercosur; start of São Paulo-Asunción flights.
1997
LAN lists on the New York Stock Exchange, becoming
the first Latin American airline to trade ADRs on this
important market.
1998
Arrival of first A330; first TAM international flight
from São Paulo to Miami.
1999
LAN’s expansion begins: start of operations of LAN
Perú.
1999
Start of TAM services to Europe through a code
sharing agreement with Air France to Paris Charles
de
Gaulle.
2000
LAN joins the oneworld® alliance.
2001
Creation of TAM Technology Center and Service
Academy in São Paulo.
2002
LAN Alliance with Qantas and Lufthansa Cargo.
2003
LAN continues its expansion plan: start of
operations of LAN Ecuador.
2004
Launch of new corporate image as LAN Airlines S.A.
2004
Start of TAM flights to Santiago.
2005
Further step in LAN’s regional expansion plan: start
of operations of LAN Argentina.
2005
TAM S.A. lists on the BOVESPA stock market; start of
flights to New York and Buenos Aires.
2006
Launch of new LAN Premium Business Class.
2006
TAM S.A. lists on the NYSE / Start of flights to
London and, through agreement with Air France, to
Zurich and Geneva.
2007
Implementation of low-cost model in domestic
markets; capital increase of US$320 million;
purchase orders for 32 Boeing 787 Dreamliners.
2007
Start of TAM flights to Milan and Córdoba;
authorization from Brazil’s National Civil Aviation
Agency (ANAC) to start flights to Madrid and
Frankfurt.
Our CompanyANNUAL REPORT2012 3
1
2008
Completion of renewal of LAN’s short-haul fleet with
aircraft from the Airbus A320 family.
2008
TAM receives its first Boeing 777-300ER.
2009
Start of cargo operations in Colombia and domestic
passenger operations in Ecuador.
2009
Launch of Multiplus Fidelidade; acquisition of
Pantanal Linhas Aéreas.
2010
Acquisition of Colombia’s Aires airline.
2010
TAM officially joins Star Alliance.
2011
LAN and TAM sign binding agreements related to the
business combination of the two airlines.
2012
LATAM Airlines Group is born as a result of the
business combination between LAN and TAM.
Our CompanyANNUAL REPORT2012 4
1
OUR COMPANY /
OUR FLEET
LATAM Airlines Group operates a fleet of 327 aircraft
whose average age of 6.7 years positions it as one
of the most modern in the industry. As of December
2012, LAN’s and TAM’s planes continued to operate
under their respective brands but with a focus on
the connectivity of their networks to the benefit of
passenger and cargo clients.
For short-haul operations, the Company uses almost
exclusively aircraft from the Airbus A320 family. The
great flexibility afforded by their range and power
allows the Company to serve its domestic and
regional routes within South America efficiently.
In 2012, 22 new aircraft from this family were
incorporated and 15 were taken out of service, giving
LATAM Airlines Group a fleet of 212 planes from this
family. It is important to note that the homogeneity
of LAN’s and TAM’s short-haul fleets is an important
element in the process of integrating the businesses
of the two airlines.
Only in the case of LAN Colombia do six Boeing 737-
700s and ten Dash planes remain in service, all of
which are operating leases were received by LAN
as a result of its acquisition of Colombia’s Aires
(in November 2010). Over the medium term, they
will gradually be taken out of service and mostly
replaced by Airbus A320 planes.
LATAM Airlines Group’s strategic plan for the renewal
of its short-haul fleet envisages the incorporation
of larger models such as A320s and A321s whose
greater passenger capacity will allow it to serve the
densest routes efficiently and the growth of both
domestic and regional markets. In this same context,
the withdrawal from service of Airbus A318s, the
smallest model in the Company’s A320 family fleet,
will be completed in 2013, as well as the withdrawal
of the Dash 8-Q400s, which are currently being
checked prior to their return.
In the case of long-haul planes, one of the milestones
of 2012 was the incorporation of the first three
Boeing 787-8 Dreamliners out of a total order for 32
planes of this model which will arrive over the next
eight years. As a result, LATAM Airlines Group became
the first airline in the Americas and only the fourth in
the world to take delivery of these latest-generation
planes. Considered the new “ecological aircraft”, the
Boeing 787 is between 12% and 15% more efficient
in fuel consumption, representing an important
competitive advantage in terms of costs as well as
making a positive contribution to the environment
by reducing the CO2 emissions of flights.
In 2012, the Company also incorporated nine new
Boeing 767-300s, all equipped for the new long-haul
configuration - complying with the same standards
established for the modern Boeing 787 Dreamliners
- and, as of December 2012, had 41 planes of this
model in operation. During 2012, the Company also
started to reconfigure the cabins of some of its
Boeing 767s, in order to optimize the distribution
of passengers, improve the commercial mix on
Our CompanyANNUAL REPORT2012 5
1
the short-haul routes for which these aircraft are
used and provide passengers with a better travel
experience. The Company’s fleet also includes 27
Airbus A330 and A340 planes, the latter of which it
prefers for its ultra-long-haul routes.
The future fleet plan of LATAM Airlines Group
envisages orders for 187 planes, including the new
Airbus A350s, the first of which are expected to
be delivered in 2016. The plan represents a total
investment of approximately US$13,000 million
through to 2018.
In the case of Boeing 777s, of which the Company
currently has eight and expects to receive a further
four in 2013 and 2014, it has launched a process of
cabin reevaluation so as to offer a homogenous
product, configured to service standards that are
similar in both LAN and TAM.
As of December 2012, the Company’s cargo fleet
comprised twelve Boeing 767Fs and four Boeing
777Fs. The latter are the most modern cargo planes
of their type in the industry.
MAITENANCE
In this field, one of the milestones of 2012 was
the certification of TAM MRO - the Maintenance,
Repair and Overhaul business unit of TAM S.A. - by
Brazil’s National Civil Aviation Agency (ANAC) for
the provision of aircraft maintenance services
such as the installation and remodeling of engines,
propellers and undercarriages and corrective
measures. TAM MRO is authorized to attend Airbus
planes (A318 / A319 / A320 / A321 / A330), Boeing
767s, Fokker 100s and ATRs (ATR-42 and ATR-72) with
Brazilian registration.
The unit is currently working to expand its services to
external clients. Its goal is to increase revenues from
services to third parties by 20% each year through
to 2016. At present, they account for 18% of its total
revenues and the aim is to reach over 40% by 2016.
Our CompanyANNUAL REPORT2012 6
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A320 FAMILY
A318-100
A319-100
A320-200
A321-200
Length: 31.8 mts
Width: 34.1 mts
Seats: 126
Cruising Speed: 850 km/h
Maximun weight at take-off: 63,000 kg
Length: 33.8 mts
Width: 34.1 mts
Seats: 144
Cruising Speed: 850 km/h
Maximun weight at take-off: 70,000 kg
Length: 37.6 mts
Width: 34.1 mts
Seats: 168 - 174
Cruising Speed: 850 km/h
Maximun weight at take-off: 77,000 kg
Length: 44.51 mts
Width: 34.1 mts
Seats: 220
Cruising Speed: 850 km/h
Maximun weight at take-off: 89,000 kg
Our CompanyANNUAL REPORT2012 7
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A330-200
A340 FAMILY
A340-300
A340-500
Length: 58.8 mts
Width: 60.3 mts
Seats: 223
Cruising Speed: 870 km/h
Maximun weight at take-off: 230,000 kg
Length: 63.7 mts
Width: 60.3 mts
Seats: 260
Cruising Speed: 896 km/h
Maximun weight at take-off: 275,000 kg
Length: 67.9 mts
Width: 63.45 mts
Seats: 267
Cruising Speed: 907 km/h
Maximun weight at take-off: 372,000 kg
Our CompanyANNUAL REPORT2012 8
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BOEING 737-700
BOEING 767-300
BOEING 777-300
BOEING 787-8
Length: 39.5 mts
Width: 35.7 mts
Seats: 148
Cruising Speed: 828 km/h
Maximun weight at take-off: 70,000 kg
Length: 54.2 mts
Width: 47.6 mts
Seats: 221 - 238 - 205
Cruising Speed: 869 km/h
Maximun weight at take-off: 184,611 kg
Length: 73.9 mts
Width: 64.8 mts
Seats: 362
Cruising Speed: 896 km/h
Maximun weight at take-off: 347,800 kg
Length: 56.69 mts
Width: 60.0 mts
Seats: 247
Cruising Speed: 913 km/h
Maximun weight at take-off: 227,930 kg
Our CompanyANNUAL REPORT2012 9
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BOEING 767-300F
BOEING 777-200F
DASH 8-200
DASH 8-Q400
Length: 54.2 mts
Width: 47.6 mts
Cargo Volume: 438.1 m3
Cruising Speed: 869 km/h
Maximun weight at take-off: 186,880 kg
Length: 63.7 mts
Width: 64.8 mts
Cargo Volume: 652.7 m3
Cruising Speed: 896 km/h
Maximun weight at take-off: 347,450 kg
Length: 22.25 mts
Width: 25.89 mts
Seats: 37
Cruising Speed: 500 km/h
Maximun weight at take-off: 16,470 kg
Length: 32.81 mts
Width: 28.4 mts
Seats: 78
Cruising Speed: 667 km/h
Maximun weight at take-off: 29,260 kg
Our CompanyANNUAL REPORT2012 0
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OUR COMPANY /
DESTINATIONS
LATAM NETWORK
Our CompanyANNUAL REPORT2012 1
2
PASSENGER AND CARGO
Passenger and Cargo (Chile)
Passenger and Cargo (Perú)
Our CompanyANNUAL REPORT2012 2
2
Passenger and Cargo (Brazil)
Passenger and Cargo (Ecuador)
Our CompanyANNUAL REPORT2012 3
2
Passenger and Cargo (Argentina)
Passenger and Cargo (Colombia)
Our CompanyANNUAL REPORT2012 4
2
Passenger and Cargo (International)
Only Cargo and Codeshare
Our CompanyANNUAL REPORT2012 5
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OUR COMPANY /
OUR PEOPLE
The formation of LATAM Airlines Group is the
fulfillment of a great dream and has been possible
thanks to the effort and commitment of all our
people.
2012 has been the most significant year for all the
Group’s employees who are the protagonists of the
important challenges implicit in the integration
of LAN and TAM, their growth and cross-cultural
interchange.
therefore,
fundamental
For both airlines, the development of their people
is,
that
their growth plan for the future also means new
opportunities for employees and, at the same time,
boosts economic development and employment in
the countries served by the Group.
for ensuring
As of December 2012, LATAM Airlines Group had
53,599 employees of 57 different nationalities across
the 20 countries where it has its own personnel.
In 2012, in line with its focus on the development of
its people, 35,478 LATAM Airlines Group employees
with a permanent contract, equivalent to 64% of
the workforce, received a total of 1,567,604 hours of
training.
and IT were working in an integrated way. This
process implied that, across the Group, 7,810
employees changed jobs within the group while
many of them had the opportunity to move to
another country.
A high-performance, committed and customer-
focused human team is one of the transversal
objectives of LATAM Airlines Group. This is reflected
in the joint work it has undertaken to homologate
some policies and the modifications both companies
have made in their organizational structures. As of
end-2012, the areas of Human Resources, Cargo,
International Business, Finance, Planning, Auditing
Work has also taken place to redesign both
companies’ executive posts in order to ensure
their equivalence. This is key for the formation and
cohesion of LAN’s and TAM’s work teams.
To this end, the competencies required for all
members of the organization were
identified,
creating the new Model of Competencies for LATAM
Our CompanyANNUAL REPORT2012 6
2
Airlines Group. Through the development of a series
of methods and techniques to strengthen those
skills that are key for achieving a performance of
excellence, this helps to identify the training needs
to be addressed by the Company.
The challenge of creating this holding of airlines is
rich in lessons and opportunities for all our people
who are vital for the construction of this story which
is only just beginning. At present, we are working to
design a single model of Culture for LATAM Airlines
Group which will, without doubt, be an important
step in creating the identity of the new Company.
LATAM employees by country
Staffing levels
Our CompanyANNUAL REPORT2012 7
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OUR COMPANY /
COMPANY INFORMATION
LATAM AIRLINES GROUP
Chilean Tax N° (RUT): 89.862.200-2
Tel: From outside US (651) 453-2128
Tel: Global Invest Direct (800) 428-4237
E-mail: jpmorgan.adr@wellsfargo.com
CUSTODIAN BANK ADRs
Banco Santander Chile
Bandera 140, Santiago
Custody Department
Tel: (56) (2) 2320 3320
Fax: (56) (2) 2320 3560
CUSTODIAN/DEPOSITARY BANK BDRs
Itaú Corretora de Valores S.A.
Rua Ururaí, 111 – Prédio II – Piso Térreo
Tatuapé – São Paulo/SP
CEP: 03084-010
Attention: Unidade Dedicada Produto
ADR/BDR
Tel.: (55) (11) 2797 3411
Fax.: (55) (11) 2797 3413
E-mail: dr.itau@itau-unibanco.com.br
EXTERNAL AUDITORS
PricewaterhouseCoopers
Avenida Andrés Bello 2711, 5th Floor
Santiago, Chile
Tel: (56) (2) 2940 0000
WEBSITES
Complete information about LATAM
Airlines:
www.latamairlinesgroup.net
www.lan.com
www.tam.com.br
CORPORATE HEADQUARTERS
Avenida Presidente Riesco 5711, 19th Floor
Las Condes, Santiago, Chile
Tel: (56) (2) 2565 2525
Fax: (56) (2) 2565 8764
MAINTENANCE CENTER
Arturo Merino Benítez Airport
Santiago, Chile
Tel: (56) (2) 2677 4500
Fax: (56) (2) 2677 4505
TICKER SYMBOL
LAN - Santiago Stock Exchange
LFL - New York Stock Exchange
LATM11 - Sao Paulo S.E.
FINANCIAL INFORMATION
Investor Relations
LATAM Airlines Group S.A.
Avenida Presidente Riesco 5711, 20th Floor
Las Condes, Santiago, Chile
Tel: (56) (2) 2565 8785
E-mail: investor.relations@lan.com
SHAREHOLDER ENQUIRIES
Depósito Central de Valores
Huérfanos 770, 22nd Floor
Santiago, Chile
E-mail: atencionaccionistas@dcv.cl
Tel: (56) (2) 2393 9003
Fax: (56) (2) 2393 9315
DEPOSITARY BANK ADRs
JPMorgan Chase Bank, N.A.
P.O. Box 64504
St. Paul, MN 55164-0504
Tel: General (800) 990-1135
Our CompanyANNUAL REPORT2012
CORPORATE GOVERNANCE
LATAM AIRLINES GROUP S.A.
Pedro Esposti
TAM Brazil
Nora Sánchez
LAN Colombia
9
2
CORPORATE GOVERNANCE /
BOARD OF DIRECTORS
MAURICIO ROLIM AMARO
MARÍA CLAUDIA AMARO
Mr. Mauricio Rolim Amaro, a business administrator,
has been a director of LATAM Airlines Group since 28
June 2012 and chairman of its board of directors since
3 August 2012. He has held different positions in TAM
Group and was also a professional pilot with TAM
Linhas Aéreas S.A. and TAM Aviação Executiva S.A. He
has been a member of the Council of Administration
of TAM S.A. since 2004, serving as its vice-chairman as
from April 2007. He is also executive director of TAM
Empreendimentos e Participações S.A. and chairs
the Councils of Administration of Multiplus S.A. and
TAM Aviação Executiva e Taxi Aéreo S.A.
Mr. Amaro is a member of the Strategy, Leadership,
Finance, Brand, Product and Frequent Flyer Program
Committees of LATAM Airlines Group.
Mrs. María Claudia Amaro, who holds a degree in
business administration and marketing, has been
a director of LATAM Airlines Group since 28 June
2012. She has served as director of marketing at TAM
Linhas Aéreas and, since September 2003 has been a
member of the Council of Administration of TAM S.A.,
chairing its Board of Directors since April 2007. She
is also executive director of TAM Empreendimentos
e Participações S.A. and forms part of the Councils
of Administration of Multiplus S.A. and TAM Aviação
Executiva e Taxi Aéreo S.A.
Mrs. Amaro is a member of the Strategy, Leadership,
Brand, Product and Frequent Flyer Program
Committees of LATAM Airlines Group.
Corporate GovernanceANNUAL REPORT2012 0
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RAMÓN EBLEN KADIS
CARLOS HELLER SOLARI
Mr. Ramón Eblen Kadis an economist and business
administrator, has been a director of LATAM Airlines
Group since June 1994. He has served as chairman of
Comercial Los Lagos Ltda., Inversiones Santa Blanca
S.A. and TJC Chile S.A.
Mr. Eblen is a member of the Directors’ Committee
and of the Leadership, Brand, Product and Frequent
Flyer Program Committees of LATAM Airlines Group.
Mr. Carlos Heller Solari, an agricultural engineer,
joined the board of LATAM Airlines Group in May
2010. He has great experience in the retail, transport
and agricultural sectors. He currently serves as vice-
chairman of Bethia (an investment company and
owner of Axxion) and as chairman of Axxion S.A.,
Megavisión, Club Hípico de Santiago, Sotraser S.A.
and Agrícola Ancali. In addition, he is a member of
the boards of SACI Falabella S.A., Falabella Retail
S.A., Sodimac S.A. and Titanium S.A. and is the main
shareholder and vice-chairman of Azul Azul.
Corporate GovernanceANNUAL REPORT2012 1
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JUAN JOSÉ CUETO PLAZA
JOSÉ MARÍA EYZAGUIRRE BAEZA
Mr. Juan José Cueto Plaza, an economist and business
administrator, has been a director of LATAM Airlines
Group since 1994. He currently serves as executive
vice-president of Inversiones Costa Verde S.A., a
position he has held since 1990, and is a member
of the boards of Forestal Copihue S.A. and Minera
Michilla S.A. He also previously served as director of
other companies including Consorcio Maderero S.A.
Mr. Cueto is a member of the Finance, Brand, Product
and Frequent Flyer Program Committees of LATAM
Airlines Group.
Mr. José María Eyzaguirre Baeza, a lawyer, joined
the board of LATAM Airlines Group in September
2012. He has been a partner in the Claro y Cía. law
firm since 1993 and a director of Walmart Chile S.A.
and Sociedad Química y Minera de Chile S.A. since
2010 and 2001, respectively. Since 2010, he has also
been a director of Komax S.A., the company which
represents in Chile brands that include Polo Ralph
Lauren, Brooks Brothers, GAP, Banana Republic and
The North Face. He previously served on the boards
of other companies that include Embotelladora
Andina S.A. and AES Gener S.A.
Corporate GovernanceANNUAL REPORT2012 2
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GERARDO JOFRÉ MIRANDA
GEORGES DE BOURGUIGNON ARNDT
Mr. Gerardo Jofré Miranda, an economist and
business administrator, joined the board of LATAM
Airlines Group in May 2010. He is chairman of the
board of the National Copper Corporation of Chile
(Codelco) and a director Air Life Chile S.A. as well as
president of the Fundación Saber Más and a member
of the investment council of Santander real estate
funds. From 2005 to 2009, Mr. Jofré was a director of
Endesa Chile S.A., Viña San Pedro Tarapacá S.A., D&S
S.A., Construmart S.A., Inmobiliaria Titanium S.A. and
Inmobiliaria Parque del Sendero S.A. Between 2004
and 2005, he was insurance director for the Americas
at Spain’s Grupo Santander. From 1989 to 2004, he
worked for Grupo Santander in Chile as group vice-
president and as CEO of different companies in the
group.
Mr. Jofré chairs the Directors’ Committee and the
Finance Committee and is a member of the Strategy
and Leadership Committees of LATAM Airlines Group.
Mr. Georges de Bourguignon holds an economic
degree from the Catholic University of Chile and an
MBA from Harvard University. He was elected to the
board of LATAM Airlines Group in September 2012.
Mr. de Bourguignon is a co-founding partner and
executive director of the Asset Chile S.A. investment
bank. He is currently also a director of Sal Lobos,
the Chilean subsidiary of Germany’s K+S group and
vice-chairman of the board of Chile’s La Polar retail
company. Before founding Asset Chile, he served as
vice-president of Citibank S.A. in Chile and director of
Intergénesis Administradora de Fondos de Inversión
as well as an economics lecturer at the Catholic
University of Chile.
Mr. de Bourguignon is a member of the Directors’
Committee of LATAM Airlines Group.
Corporate GovernanceANNUAL REPORT2012 3
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FRANCISCO LUZÓN LÓPEZ
Mr. Francisco Luzón López, an economist, was elected
to the board of LATAM Airlines Group in September
2012. He is currently an advisor to the Inter-American
Development Bank (IDB), a visiting leader at the
China Europe International Business School (CEIBS)
in Shanghai and chairman of the Council of the ICADE
Business School (Madrid). From 1999 to 2012, Mr.
Luzón served as executive vice-president for Latin
America at Banco Santander and, during this period,
was also international vice-president of Universia
S.A. He was previously chairman and councilor of
Grupo Bancario Argentaria and was appointed as
councilor and director general of both Banco Vizcaya
and Grupo Bancario BBV. During his career, Mr. Luzón
has also served on the administrative councils of
companies that include the global textile company
Inditex-Zara.
Mr. Luzón is a member of the Strategy and Finance
Committees of LATAM Airlines Group.
Corporate GovernanceANNUAL REPORT2012 4
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CORPORATE GOVERNANCE /
SENIOR MANAGEMENT
ENRIQUE CUETO
IGNACIO CUETO
Mr. Enrique Cueto Plaza is the chief executive officer
of LATAM Airlines Group, a post he has held since 1994.
From 1983 to 1993, he served as general manager
of Fast Air, a Chilean cargo airline. With 30 years’
experience in the airline industry, Mr. Cueto has wide
knowledge of both the commercial and operational
management of passenger and cargo airlines. He
is an active member of the governing boards of
the oneworld® alliance and the International Air
Transport Association (IATA). He is also a member
of the boards of the Chilean Manufacturers’
Association (SOFOFA) and the Endeavor foundation,
an organization that promotes entrepreneurship in
Chile.
Mr. Ignacio Cueto Plaza is the chief executive officer
of LAN, a post he has held since 2005. Mr. Cueto began
his career in the airline industry in 1985 at Fast Air.
Between 1985 and 1993, he held posts that included
service manager, sales director and vice-president
for sales and marketing. Between 1993 and 1995, he
served as general manager of Fast Air and, from 1995
to 1998, as president of LAN Cargo Group. Mr. Cueto
was also a director of Ladeco between 1994 and 1997
and of LAN Airlines between 1995 and 1997. In 1999,
he became chief executive officer for passengers
at LAN Airlines, a post he held until taking up his
current position.
Corporate GovernanceANNUAL REPORT2012 5
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MARCO BOLOGNA
ARMANDO VALDIVIESO
Mr. Marco Antonio Bologna is chief executive officer
of TAM, a post he has held since April 2010. Mr.
Bologna joined TAM in March 2001 as vice-president
for finance and administration and director of
investor relations. From 2004 to 2007, he served as
president of TAM Linhas Aéreas and, in March 2009,
was appointed as president of TAM Aviação Executiva
e Taxi Aéreo S.A. Since February 2012, he has also
been president of TAM Linhas Aéreas. Mr. Bologna
has extensive experience in the airline industry in
addition to having worked in the financial sector for
more than 20 years.
Mr. Armando Valdivieso Montes was appointed as
LATAM Airlines Group’s senior vice-president for
passenger business in Spanish-speaking countries in
2012 following the integration of LAN and TAM. Since
2006, he had served as LAN’s chief executive officer
for passengers. From 1997 to 2005, he served as chief
executive officer for cargo at LAN Airlines and, from
1995 to 1997, as general manager of Fast Air. Between
1991 and 1994, he served as Fast Air’s vice-president
in the United States, based in Miami. Mr. Valdivieso
is a civil engineer and holds an Executive MBA from
Harvard University.
Corporate GovernanceANNUAL REPORT2012 6
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CRISTIÁN URETA
DAMIAN SCOKIN
Mr. Cristián Ureta is LATAM Airlines Group’s chief
executive officer for cargo, a post he has held
since 2005. He holds an engineering degree from
the Catholic University of Chile and is a graduate
of Stanford University’s Executive Specialization
Program. Between 2002 and 2005, Mr. Ureta served as
LAN Cargo’s vice-president for production and, from
1998 to 2002, as its vice-president for planning and
development. He was previously director general
and commercial director of MAS Air and manager for
services at Fast Air.
Mr. Damian Scokin is chief executive officer for
international passenger business. He was previously
chief executive officer of LAN Argentina where he
was responsible for this new subsidiary’s start of
operations. Before joining LAN, Mr. Scokin developed
a successful career as a consultant at McKinsey &
Company where, for 11 years, he worked on different
projects in the United States, the United Kingdom,
Chile, Brazil, Perú and Argentina. In 2000, he became
a partner in the firm and, in 2003, location manager
for its office in Buenos Aires. Mr. Scokin holds an
undergraduate degree in economics and industrial
engineering and an MBA from Harvard University.
Corporate GovernanceANNUAL REPORT2012 7
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ALEJANDRO DE LA FUENTE
ROBERTO ALVO
Mr. Alejandro de la Fuente Goic is the chief financial
officer of LATAM Airlines Group. He joined LAN
Airlines in April 1995 after serving as administration
and finance manager at Chiquita Frupac Ltda., a
subsidiary of Chiquita Brands Inc. Mr. de la Fuente
is an agricultural engineer who holds a master’s
degree in economics and agrarian economy from
the Catholic University of Chile and an MBA from the
Adolfo Ibáñez University.
Mr. Roberto Alvo Milosawlewitsch is LATAM Airlines
Group’s vice-president for planning, management
and research, a post to which he was appointed in
August 2008. He joined LAN Airlines in November
2001 and, before taking up his present post, served
as director of administration and finance at LAN
Argentina, manager of development and financial
planning and deputy chief financial officer at LAN
Airlines. Before joining the company, Mr. Alvo held
various posts at Sociedad Química y Minera de Chile
S.A., a leading Chilean non-metallic mining company.
He is a civil engineer and holds an MBA from the IMD
in Lausanne, Switzerland.
Corporate GovernanceANNUAL REPORT2012 8
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EMILIO DEL REAL
Mr. Emilio del Real Sota has been LATAM Airlines
Group’s vice-president for human resources since
August 2005. He holds a psychology degree from
the Gabriela Mistral University. Between 2003 and
2005, he served as manager for human resources at
D&S, a Chilean retail company. Between 1997 and
2003, he held various posts at Unilever, including
human resource manager at Lever Chile, manager of
executive development for customer service in Latin
America and manager of training and recruitment.
Corporate GovernanceANNUAL REPORT2012 9
3
2012
In 2012, the Company paid its main executives
(including the levels of vice-president, CEO and
director) total remunerations of US$15.8 million, plus
a further US$6.8 million in incentives. The company
did not pay compensations to main executives.
Corporate GovernanceANNUAL REPORT2012 0
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COMPENSATION PLAN
On 31 March 2012, the period for subscribing
and paying the stock options available under a
Compensation Plan for employees of the Company
and its subsidiaries expired. In accordance with
the decision of the Extraordinary Shareholders’
Meeting of 5 April 2007, a total of 2,209,091 shares
were allocated to this Compensation Plan of which
91 were not subscribed and paid.
The Extraordinary Shareholders’ Meeting of 21
December 2011 agreed a new Compensation Plan
which has the following general characteristics:
1. A total of 4,800,000 shares were allocated to the
Plan.
2.
The options assigned to each employee
will accrue in stages on the following three
occasions: (1) 30% on 21 December 2014, (2) 30%
on 21 December 2015, and 3) 40% on 21 June
2016, subject to the employee remaining with
the Company.
3. Once the options have accrued in the stages
indicated above, employees may exercise them
totally or partially in which case they must
subscribe and pay the respective options at
the moment of subscribing them. If exercised
partially, this may not be for less than 10% of the
total options allocated to the employee.
4.
5.
The period in which employees may exercise
the options, once accrued, will expire on 21
December 2016.
The price to be paid for each share allocated
to the Compensation Plan, if the respective
options are exercised, will be U$23.19. As from
the date at which the price was set, this price
expressed in US dollars will be adjusted for
the variation in the Consumer Price Index (CPI),
published monthly by the US Department of
Labor, between the date of setting the price and
the date of subscribing and paying the options.
The options will be paid in Chilean pesos at the
exchange rate for the Observed Dollar published
in the Official Gazette at the same date on which
they are subscribed and paid.
Corporate GovernanceANNUAL REPORT2012 1
4
CORPORATE GOVERNANCE /
CORPORATE GOVERNANCE
PRACTICES
LATAM Airlines Group S.A. (“LATAM”) is a listed joint
stock company registered with the Superintendencia
de Valores y Seguros (SVS), Chile’s stock market
regulator, under Inscription N° 306. Its shares trade
on the Santiago Stock Exchange, Chile’s Electronic
Stock Exchange and the Valparaíso Stock Exchange
as well as on the New York Stock Exchange (NYSE)
as American Depositary Receipts (ADRs) and on
Brazil’s Stock, Commodity and Futures Exchange
(BM&FBOVESPA S.A.)
in the form of Brazilian
Depositary Receipts (BDRs).
LATAM Airlines Group’s corporate governance
practices are regulated by Chile’s Securities Market
Law (Nº 18.045) and its Corporations Law (Nº 18.046),
including the latter’s associated norms, as well
as other norms issued by the SVS. In addition, it
is subject to the legislation and regulation of the
United States and that country’s Securities and
Exchange Commission (SEC) as they apply to ADRs
and the laws and regulation of the Federal Republic
of Brazil and the Comissão de Valores Mobiliários
(CVM), the country’s stock market regulator, as they
apply to BDRs.
The corporate governance practices of LATAM
Airlines Group are subject to constant review in order
to ensure that its internal self-regulation processes
are totally aligned with the regulation in force and
its own values. LATAM Airlines Group’s decisions and
commercial activities are underpinned by the ethical
principles established in LAN’s Code of Conduct and
TAM’s Code of Ethics.
STRUCTURE
As of 31 December 2012, LATAM Airlines Group had a
total of 1,660 registered shareholders. The Company
is controlled by the Cueto group, represented by
Costa Verde Aeronáutica S.A., Inversiones Nueva
Costa Verde Aeronáutica Ltda. and Costa Verde
Aeronáutica SpA. As of end-2012, these companies
together held a 25.91% stake while the remainder
corresponded to different institutional investors,
companies and individuals. As of 31 December 2012,
6.16% of the Company was held in the form of ADRs
and 1.36% as BDRs.
The main bodies responsible for LATAM Airlines
Group’s corporate governance are its Board of
Directors and the Directors’ Committee (which
also fulfills the functions of the Audit Committee
required under the Sarbanes-Oxley Act of the
United States), together with the Strategy, Finance,
Leadership and Product, Brand and Frequent Flyer
Program Subcommittees created after the merger
between LAN and TAM. The principal functions of
these bodies are set out below.
Corporate GovernanceANNUAL REPORT2012 2
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BOARD OF DIRECTORS OF LATAM AIRLINES GROUP
These include:
LATAM Airlines Group’s Board of Directors has nine
members and is the body responsible for analyzing
and defining the Company’s strategic vision,
thereby playing a fundamental role in its corporate
governance. All the Board seats come up for election
every two years and, under LATAM Airlines Group’s
statutes, directors are elected according to the total
number of votes they receive. Each shareholder has
one vote per share and can use all his or her votes
to support one candidate or divide them among any
number of candidates. This arrangement ensures that
a shareholder with more than a 10% stake can elect
at least one director. The present Board of Directors
was elected by the Extraordinary Shareholders’
Meeting which took place on 4 September 2012.
LATAM Airlines Group’s Board holds ordinary monthly
meetings and extraordinary meetings whenever the
Company’s affairs so require. Directors’ fees must
be approved by vote at the Ordinary Shareholders’
Meeting.
The Directors’ Committee usually meets monthly
and its functions and powers are established by the
applicable legislation and regulation.
DIRECTOR’S COMMITTEE OF LATAM AIRLINES GROUP
Under Chilean law, listed joint stock companies
must appoint at least one independent director
and a Directors’ Committee when they have a
market capitalization of at least 1,500,000 unidades
de fomento (an inflation-indexed currency unit)
and at least 12.5% of the voting shares are held by
shareholders who individually control or possess
less than 10% of these shares. Three of the nine
Board members form a Directors’ Committee, which
fulfills both the functions required under Chile’s
Corporations Law and those of the Audit Committee
required under the Sarbanes-Oxley Act of the United
States and the corresponding SEC norms.
•
•
•
•
•
to examine the reports of LATAM Airlines
Group’s external auditors, general balance
sheets and other financial statements that
LATAM Airlines Group’s administrators provide
to shareholders and for expressing an opinion
about these reports prior to their presentation
for approval by shareholders;
to put to the Board proposals as to the external
auditors and risk rating agencies to be used;
to examine internal control reports and any
related complaints;
to examine and report on all matters regarding
related-party transactions;
to examine the pay scale of the Company’s
senior management.
The requirements for directors’
independence
are set out in Chile’s Corporations Law and its
subsequent modifications under Law Nº 19,705 on
the relationship between directors and a company’s
controlling shareholders. A director is considered
independent when he or she does not, in general,
have ties, interests or economic, professional, credit
or commercial dependence of a significant nature or
size with or on the company, the other companies
in the group of which it forms part, its controller or
senior management or a family relationship with
the latter nor any of the other types of ties specified
in Law Nº 18,046.
Under US regulation, it is necessary to have
an Audit Committee, comprising at least three
Board members, that fulfills the independence
requirements established under Rule 10A of the
Exchange Act. Given the similarity of the functions of
the Directors’ Committee and the Audit Committee,
LATAM Airlines Group’s Directors’ Committee acts as
an Audit Committee under Rule 10A of the Exchange
Act.
The Directors’ and Audit Committee has the functions
established in Article 50 bis of Chile’s Corporations
Law (Nº 18,046) and the other applicable regulation.
As of 31 December 2012, all the members of the
Directors’ Committee, who also act as part of the
Audit Committee, were independent directors as
Corporate GovernanceANNUAL REPORT2012 3
4
defined under Rule 10A of the Exchange Act. At that
date, its members were Messrs. Ramón Eblen Kadis,
Georges de Bourguignon Arndt and Juan Gerardo
Jofré Miranda (chairman of the Committee). For the
purposes of Chile’s Corporations Law (Nº 18,046),
Ramón Eblen Kadis is not considered an independent
director.
In accordance with Article 50 bis of Law Nº 18,046,
the matters examined by the Directors’ Committee
during 2012 are set out below.
1. Ordinary Session N°120 31/1/12:
- Review of Financial Statements at 31
December 2011
- Related-party transaction
- Progress of 2011 audit plan
- Review of Financial Statements at 31 March
2012
7. Ordinary Session N°124 29/5/12:
- Presentation by Revenue Accounting
- Presentation on credit risk
- Approval of fees of PWC
8. Ordinary Session N°125 26/6/12:
- LAN 2012 audit plan, progress and
methodological aspects
- Progress on integration of audit function
with TAM
- Approval of fees of PWC
9. Ordinary Session N°126 3/8/12:
- TAM Corporate Audit
2. Extraordinary Session N°13 14/2/12:
10. Extraordinary Session N°15 10/08/12:
- Review of Financial Statements at 31
December 2011
- Letters about fees from external auditors
- Review of Financial Statements at 30 June
2012
- Approval of fees of PWC
3. Ordinary Session N°121 6/3/12:
11. Ordinary Session N°127 25/09/12
- Progress of 2011 audit plan
- Compensation plans for employees of the
Company and its subsidiaries
4. Ordinary Session N°122 27/3/12:
- Analysis of an aspect of the “safety” issue
- Annual report on the Committee’s activities
- Proposal for external auditors and private
risk rating agencies for 2012
- Installation and election of Committee
chairman
- Information about related-party
transactions by subsidiaries:
i. Sale of property at Avda. Presidente
Riesco 5537, Las Condes, Santiago, Chile;
ii. Advance ticket purchase operation
between TAM Linhas Aéreas S.A. and
Multiplus S.A.
5. Ordinary Session N°123 24/4/12:
- Close of 2011 audit plan and 2012 plan
- Approval of fees of PWC
- Employee compensation plan
12. Ordinary Session N°128 30/10/12:
6. Extraordinary Session N°14 11/5/12:
- Formalities of meeting’s convening
- Installation and election of Committee
chairman
- SOX 2012 project
- Information about related-party
transaction by subsidiary
Corporate GovernanceANNUAL REPORT2012
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- Progress of 2012 audit plan
- Other business
13. Extraordinary Session N°16 12/11/12:
- Review of Financial Statements at 30
September 2012
- Approval of fees of PWC
- Other business
14. Ordinary Session N°129 21/12/12:
- Coordination of matters covered in previous
minutes
- Progress of 2012 audit plan
- Letter from external auditors
or contingency plan for the CEO of LATAM and
evaluation of the performance of the CEO of LATAM.
The Finance Subcommittee will focus on financial
policies and strategy, capital structure, control of
compliance policies, tax optimization strategy and
the quality and reliability of financial information.
Finally, the Brand, Product and Frequent Flyer
Program Subcommittee will
focus on brand
strategies and brand construction initiatives for
corporate brands and those of the principal business
units, the principal characteristics of products and
services for each of the principal business units, the
strategy of the Frequent Flyer Program and its key
characteristics and regular auditing of the brand’s
performance.
SUBCOMMITTEES OF THE BOARD OF DIRECTORS OF
LATAM AIRLINES GROUP
In accordance with the shareholders’ agreement
of 25 January 2012 between LATAM Airlines Group
S.A. (previously LAN Airlines S.A.) and TEP Chile
S.A., the Ordinary Board Session of 3 August 2012
established the following four subcommittees to
review, discuss and make recommendations to the
Board about the issues entailed in their respective
areas of responsibility: (i) Strategy Subcommittee,
(ii)
Finance
Subcommittee, and (iv) Brand, Product and Frequent
Flyer Program Subcommittee. In accordance with the
said shareholders’ agreement, each subcommittee
will comprise two or more directors of LATAM Airlines
Group and at least one of their members must be a
director elected by TEP Chile S.A.
Subcommittee,
Leadership
(iii)
The Strategy Subcommittee will focus on corporate
strategy, current strategic affairs and three-year
plans, the budgets of the main business units and
functional areas and high-level strategy reviews.
The Leadership Subcommittee will focus on areas
that include group culture, high-level organizational
structure, appointment of the executive vice-
president of LATAM Airlines Group (henceforth, “CEO
of LATAM”) and those who report to this person, the
philosophy of corporate remunerations, structures
and levels of remunerations and objectives for
the CEO of LATAM and other key staff, succession
RELATED-PARTY TRANSACTIONS
Under Chile’s Corporations Law, a listed company’s
operations with a related party must take place
in market conditions and comply with certain
authorization and disclosure requirements that
are different from those applying to a non-listed
company. This applies to listed companies and their
subsidiaries.
its
subsidiaries,
LATAM Airlines Group has carried out different
transactions with
including
entities owned or controlled by some of its majority
shareholders. In the normal course of the Company’s
business, different types of services have been
provided to or received from related companies,
including the rental and exchange of aircraft, cargo
transport and booking services.
LATAM Airlines Group’s policy is not to carry
out transactions with or for the benefit of any
shareholder or Board member or with any entity
controlled by these persons or in which they have
a significant economic interest, except when the
transaction is related to the Company and the price
and other terms are at least as favorable for the
Company as those which could be obtained from a
third party under market conditions.
These transactions are summarized in the audited
consolidated financial statements for the year
ending on 31 December 2012.
Corporate GovernanceANNUAL REPORT2012 5
4
Finally, for the purposes of letter b) of the last point of
Article 147 of Law No. 18,046 on Corporations, LATAM
Airlines Group has a general habitual operations
policy which was approved by its Board of Directors
in its Session of 29 December 2009 and reported as
material news to the Superintendencia de Valores y
Seguros on that same date. The operations indicated
in this general habitual operations policy may be
carried out without the requirements envisaged in
the said Article 147.
PRINCIPLES OF GOOD CORPORATE GOVERNANCE
LATAM Airlines Group’s good corporate governance is
the result of the interaction of different individuals
and stakeholders. Although all our employees share
responsibility for compliance with the high standards
of ethics and adherence to regulation established
by LATAM Airlines Group’s Board of Directors, it is
the Board, the Directors’ Committee and senior
management who are primarily responsible for
LATAM Airlines Group’s good corporate governance.
In line with the above, LATAM Airlines Group is
committed to transparency and compliance with the
ethical and regulatory standards established for this
purpose by its Board of Directors.
PILLARS OF LATAM AIRLINES GROUP’S CORPORATE
GOVERNANCE
the
responsibilities of
Notwithstanding
the
Company’s Board of Directors and its Directors’
Committee, LATAM Airlines Group’s management
has also taken a number of measures to ensure due
corporate governance. These include principally:
1.
LAN’s Code of Conduct and TAM’s Code of Ethics
which seek to ensure that all employees adhere
to the highest standards of ethics, transparency
and compliance with regulation required by
LATAM Airlines Group.
•
Ethics Lines of LAN
ethicspoint.com) and TAM
eticatam.com.br) which
(www.lan.
(www.
provide
employees with a direct and private
channel through which to report
any concerns in the knowledge that
these will be properly processed
or investigated without any risk of
reprisal.
2. Code of Ethics for Senior Financial Executives.
This fosters honest and ethical conduct in the
disclosure of financial information, compliance
with regulation and avoidance of conflicts of
interest.
3. Manual for Management of Market-Sensitive
Information. This is required by the SVS and,
since Law Nº 20,382 on Corporate Governance
came into force, also by Chilean securities
market
legislation. LATAM Airlines Group,
however, seeks to go further than these norms
and regulates the criteria for disclosure of
operations, periods of voluntary abstinence
from the purchase and sale of the Company’s
shares, mechanisms for continuous disclosure
of market-sensitive
and
mechanisms for the protection of confidential
information by the Company’s employees and
executives.
information
4. Compliance Program under which LATAM’s
Compliance Area, which forms part of the Legal
Vice-Presidency of LATAM Airlines Group, in
coordination with and under the supervision
of the Board of Directors and its Directors’
Committee, supervises compliance with the
laws and regulation applicable to LATAM
Airlines Group’s business and activities in the
different countries in which it operates.
Corporate GovernanceANNUAL REPORT2012 6
4
CORPORATE GOVERNANCE /
OWNERSHIP STRUCTURE AND PRINCIPAL
SHAREHOLDERS
Corporate GovernanceANNUAL REPORT2012 7
4
PRINCIPAL CONTROLLING GROUPS
2012
2011
Corporate GovernanceANNUAL REPORT2012 8
4
DIVIDENDS
The Company’s policy is to pay the minimum
dividends required by law or, in other words,
30% of profits calculated in accordance with the
regulation in force. This does not, however, preclude
the distribution of dividends above this obligatory
minimum level depending on the particular events
and circumstances that may arise during the year.
The dividends corresponding to 2010 and 2011
represent 50% of the distributable profits of the
respective year.
Distributable profits
in 2010, 2011 and 2012
for the payment of dividends corresponded to
the annual earnings attributable to holders of
a stake in the controller’s net equity while. In
2012 this amount corresponded to the net profit
reported in accordance with the
International
Financial Reporting Standards (IFRS).
The table below shows the dividend per share paid
during the past three years.
Corporate GovernanceANNUAL REPORT2012 9
4
CORPORATE GOVERNANCE /
FINANCIAL POLICY
The Directorate of Corporate Finances is responsible
for managing the Company’s Financial Policy. This
Policy enables the Company to respond effectively
to external conditions for the operation of its
business and, in this way, maintain a stable flow of
funds to ensure the continuity of its operations.
The Finance Committee, formed by the executive
vice-president and company directors, meets
periodically to review and approve matters not
regulated by the Financial Policy.
•
counterparty
Reduce
through
diversification of and caps on investments and
operations with counterparties.
risk
LATAM Airlines Group’s Financial Policy seeks to:
•
Ensure a minimum level of liquidity for the
operation. Preserve and maintain cash levels
adequate for the needs of the operation and
its growth. Maintain an adequate level of lines
of credit with local and overseas banks for
response to contingencies.
• Maintain an optimum borrowing level and
profile that are reasonably proportionate to the
growth of operations and take into account the
objective of minimizing financing costs.
•
•
Achieve a return on cash surpluses through
financial
investments which guarantee a
level of risk and liquidity consistent with the
investment policy.
Reduce the impact on the Company’s net margin
of market risks such as variations in exchange
rates, the price of fuel and interest rates.
• Maintain visibility of the Company’s projected
long-term financial situation so as to anticipate
situations such as failure to comply with
covenants, low liquidity and a deterioration of
the financial ratios established in undertakings
with ratings agencies, etc.
The Company’s Financial Policy establishes
guidelines and restrictions for managing operations
related to Liquidity and Investment, Financing
Activities and Management of Financial Risk.
LIQUIDITY AND INVESTMENT POLICY
liquidity
level of
In 2012, LATAM Airlines Group maintained an
appropriate
for providing
protection against potential external shocks. In
addition, it maintained lines of credit for a total
of US$208 million with local and international
financial institutions which, as of end-year, it had
not used. During the year, it continued to finance
Corporate GovernanceANNUAL REPORT2012 0
5
out of its own resources an important part of pre-
delivery payments for the Boeing and Airbus planes
it will receive in the future. As of 31 December 2012,
LATAM Airlines Group held a total of US$1,120 million
in cash and easily convertible securities and US$641
million in advances on aircraft financed out of its
own resources.
The aim of the Company’s Investment Policy is to
centralize investment decisions so as to optimize
return adjusted for exchange-rate risk, subject
to maintaining an adequate level of security and
liquidity.
It also seeks to reduce risk through diversification of
counterparties and instruments.
FINANCING POLICY
The Company’s Financing Policy is designed to
centralize financing activities and ensure a balance
between the useful life of its assets and debt
maturity.
The vast majority of LATAM Airlines Group’s
investments correspond
to fleet acquisition
programs, which are generally financed using a
combination of its own resources and structured
long-term financial debt. Normally, the Company
finances between 80% and 85% through bank loans
or bonds guaranteed by export promotion agencies
and the remainder through commercial loans or out
of its own resources. Maturities under the different
financing structures vary from 12 to 16 years but, in
the vast majority of cases, are 12 years. In the case
of short-term financing, the Company holds around
7% of its total debt in the form of loans to exporters/
importers in order to finance working capital needs.
or partially against these risks, the Company uses
different derivatives to fix or cap increases in the
underlying assets.
In order to operate with counterparties, the
Company must have a line approved and an ISDA
or LFC contract signed with the one chosen.
Counterparties must have a risk rating equivalent to
at least A- issued by an international rating agency.
(i) Fuel-price risk:
Variations in fuel prices depend to an important
extent on world oil supply and demand, decisions
taken by the Organization of the Petroleum
Exporting Countries (OPEC), world refining capacity
and the level of stocks as well as the occurrence or
not of climatic phenomena and geopolitical factors.
The Company buys aircraft fuel known as Jet Fuel
54. There is an international reference index for
this underlying asset - the US Gulf Coast Jet 54 - but
the futures market for this index has a low level
of liquidity and LATAM Airlines Group, therefore,
hedges in West Texas Intermediate (WTI) crude,
Brent (BRENT) crude and distilled Heating Oil (HO).
They show a strong correlation with Jet Fuel and,
compared to the US Gulf Coast Jet 54 index, have the
advantage of greater liquidity.
The Company’s Fuel Hedging Policy restricts the
minimum and maximum range of fuel to be hedged
depending on its capacity to pass on these changes
in costs and the market outlook as reflected in the
price of fuel. In addition, it limits the maximum
hedging period.
As instruments for fuel hedging, it permits the use of
swaps, collars, three-way collars (long volatility), call
options and swaptions.
MARKET RISK POLICY
The nature of LATAM Airlines Group’s operations
means that it is exposed to market risks such as: (i)
fuel-price risk, (ii) interest-rate risk, and (iii) local
exchange-rate risk. In order to hedge completely
Variations in interest rates bear a strong relation
to the international economic situation, with an
improvement in the long-term outlook leading to
(ii) Interest-rate risk of cash flow:
Corporate GovernanceANNUAL REPORT2012 1
5
an increase in long-term rates and a deterioration in
the outlook prompting a drop due to market effects.
In periods of economic contraction, governments
also tend to reduce their benchmark interest rates
in order to boost domestic demand by making
credit more accessible and to increase output (and,
similarly, raise them at times of economic expansion).
Uncertainty as to how the market and governments
will behave and, therefore, how interest rates may
change implies a risk related to the Company’s debt
which is subject to a floating interest rate and to its
investments. The interest-rate risk associated with
borrowing is equivalent to the risk of future cash
flows on financial instruments due to fluctuations
in market interest rates. The Company’s exposure
to variations in market interest rates is related
principally to its long-term floating-rate liabilities.
international passenger businesses are set in US
dollars while, in its domestic businesses, a mix
exists. In Perú, sales are in local currency but prices
are indexed to the US dollar while, in Brazil, Chile,
Argentina and Colombia, prices are in local currency
without any form of indexation and, in Ecuador,
both tariffs and sales are in US dollars. As a result,
the Company is exposed to fluctuations in different
currencies including, principally, the Brazilian real,
the Chilean peso, the Argentine peso, the Uruguayan
peso, the Paraguayan guaraní, the Mexican peso, the
euro, sterling, the Peruvian nuevo sol, the Colombian
peso and the Australian and New Zealand dollars.
Out of these currencies, its greatest exposure is to
the Chilean peso and the Brazilian real.
LATAM Airlines Group has partially hedged against
exchange-rate risk by acquiring currency forwards.
In order to reduce the risk related to an increase in
interest rates, LATAM Airlines Groups has acquired
interest-rate swaps and call options.
The Company’s policy allows it to acquire derivatives
to protect it against the possible appreciation or
depreciation of currencies against the functional
currency used by the parent company.
The instruments that may be used under its Interest-
Rate Hedging Policy are swaps, reverse swaps, call
options and forward-start swaps.
(iii) Local exchange-rate risk:
The US dollar is the functional currency used by the
parent company to set the prices of its services and
for its classified financial and earnings statements.
It sells most of its services in US dollars, in prices
equivalent to the US dollar or in Brazilian reais.
Approximately 54% of the Company’s revenues is
denominated in US dollars and approximately 27%
in Brazilian reais. A large part of its costs are also
denominated in US dollars or in the equivalent
in US dollars. This is the case, particularly, of fuel
costs, airport charges, aircraft rentals, insurance
and
accessories.
Remunerations, on the other hand, are denominated
in local currency. As a result, around 41% of the
Company’s total costs is denominated in US dollars
and approximately 33% in Brazilian reais.
components
aircraft
and
The tariffs of LATAM Airlines Group’s cargo and
Corporate GovernanceANNUAL REPORT2012 OPERATIONS
LATAM AIRLINES GROUP S.A.
Karina Sarmiento
TAM Perú
Helios Cedeño
LAN Ecuador
3
5
OPERATIONS /
INTERNATIONAL PASSENGER
OPERATIONS
LATAM Airlines Group’s
international passenger
operations include both long-haul flights connecting
South America with the rest of the world and
services within the region. The integration of LAN’s
and TAM’s businesses represents the birth of the
region’s largest airline group in terms of its network
of connections. The undertaking of this new group of
airlines is to make air travel an ever simpler and more
accessible experience, facilitating the connection of
people within the region and with the rest of the
world. In 2012, passenger traffic in the region grew
by 10%, ahead of the world average, as compared
to increases of 1% in the United States and 5% in
Europe.
Following the two companies’ integration, during
international
the second half of 2012, their
operations were unified and, as from the second
half of the year, placed under the management of
LATAM Airlines Group, although they continue to
operate in parallel under their existing brands. The
integration of this area of the business called for
homogenization of the two companies’ tariffs and
the implementation of a system of crossed sales
of their flights as well as the introduction of code
sharing on several international routes in order to
capture connectivity synergies and offer clients
more alternatives through a single network.
OperationsANNUAL REPORT2012 4
5
In the case of long-haul passenger operations,
the United States and Europe are the two most
important markets and, therefore, strategic for
LATAM Airlines Group. In the former, it serves five
destinations - Miami, Orlando, New York, Los Angeles
and San Francisco - and is the second largest operator
in terms of capacity for the transport of passengers
between South America and the United States,
accounting for 24% of total capacity, after American
Airlines with 33% and followed by United Airlines
and Delta Airlines with 14% and 13%, respectively.
In the case of Europe, complementarity between the
routes operated by LAN and TAM means that LATAM
Airlines Group can now serve five cities, with a larger
number of flights through the different connections
permitted by its network. The destinations served
are Madrid, Frankfurt, Paris, London and Milan and,
in terms of capacity, the airline is positioned as the
third largest operator between South America and
Europe, accounting for 13% of total capacity after
IAG with 22% and Air France-KLM with 21%.
In view of Europe’s weak economic situation in 2012,
LATAM Airlines Group gave priority to the growth of
its services to North America. In this context, LAN
Colombia inaugurated the Bogotá-Miami route with
a daily flight throughout the week operated by an
Airbus A320. In addition, TAM replaced the Airbus
A330 on its two flights daily on the São Paulo-Miami
route with a Boeing 777-300, thereby significantly
increasing their capacity. Similarly, for its routes from
Belo Horizonte, Brasilia, Manaus and Río de Janeiro
to Miami, TAM began to use Airbus A330s, instead of
Boeing 767s, also increasing capacity, and, as from
August, gradually added one, two and up to three
flights per week from Santiago and Lima to North
America and the Caribbean, offering passengers a
total of more than 20 new flights. In this context,
LAN Perú increased its flights on the Lima-New York,
Lima-Miami and Lima-Los Angeles routes to 11, 17
and 13 per week, respectively, and, on the Lima-San
Francisco route, from three to four per week. These
increases seek to boost Miami as the port of entry to
the United States through the hub of our associate,
American Airlines, and to strengthen services to the
rest of our destinations in North America through our
hub in Lima. In the case of Mexico and the Caribbean,
flights from Lima to Mexico City increased from
four to seven per week while more flights were also
added from Lima to Cancún and La Habana.
LATAM Airlines Group is the leading operator of
regional services within South America, representing
46% of total capacity. In this market, its main
competitors are Avianca-Taca and GOL, with shares
of 24% and 10%, respectively. The new regional
routes opened by LATAM Airlines Group in 2012
include Bogotá-São Pablo, served by LAN Colombia
with one flight per day using an Airbus A320, while
TAM also began to fly the Río de Janeiro-Montevideo
and Río de Janeiro-Santiago routes, with one flight
daily in both cases, and increased its flights on the
São Paulo-Santiago and São Paulo-Montevideo
routes to three per day. LAN also added more
flights on the Santiago-Montevideo route, offering
passengers a third daily non-stop flight between
the two cities. Capacity on the Lima- São Paulo route
also increased as a result of the connection of these
two cities with an Airbus A330 instead of an Airbus
A320, thereby boosting these two centers as a hub.
In all, considering comparable joint LAN and TAM
international
statistics, LATAM Airlines Group’s
passenger operations transported 13.4 million
passengers in 2012 of whom 5.4 million flew
international
long-haul routes and 8.0 million
regional routes. Considering both LAN’s and TAM’s
international operations, consolidated passenger
traffic grew by 7.2% in 2012 while capacity increased
by 7.0%, giving a load factor of 82.0%.
In a bid to improve its passenger service system (PSS),
which includes the booking system, inventories and
control of departures, LAN switched these processes
to SABRE. Some difficulties were experienced during
the change,
in September 2012.
However, for both the airline and its passengers, it
will mean important improvements in the provision
of these services and is expected to generate
important cost savings in the coming years.
implemented
to
the numerous
In addition
international
destinations that LATAM Airlines Group serves
directly,
its clients have access to some 159
destinations around the world under strategic
alliances and commercial agreements that LAN and
TAM have signed with other airline operators.
As of December 2012, LAN continued to be a member
of the oneworld alliance and TAM of Star Alliance.
in compliance with a requirement
However,
OperationsANNUAL REPORT2012 5
5
imposed by Chile’s Tribunal for the Defense of Free
Competition, the choice of oneworld as LATAM
Airlines Group’s global passenger alliance was
announced on 7 March 2013. This implies that LAN
Colombia and TAM, with its subsidiary in Paraguay,
will join the alliance in 2014.
In 2012, TAM entered into a code sharing agreement
with American Airlines, allowing it to increase
and diversify options for flights to North America.
Similarly, LAN Ecuador and LAN Colombia signed
bilateral agreements with American Airlines in order
to offer more alternatives for traveling to and within
the United States and Canada and, at the same time,
bring more tourists from these countries to Ecuador
and Colombia, thereby boosting connectivity in the
region.
OperationsANNUAL REPORT2012 6
5
OPERATIONS /
TAM
With a population of around 200 million, Brazil
accounts for almost half of South America’s
inhabitants, making it the region’s largest passenger
market. Although 77.4 million people took domestic
flights in 2012, the penetration of air travel is quite
low, offering great potential for growth.
Internationally, LATAM Airlines Group has built a
superior network from Brazil to Europe, America
and the rest of South America. This is why the
coordination between the group’s airlines has been
improved, and thus empower this country as a
gateway to Europe, covering five destinations to this
continent.
In Brazil, TAM serves 45 domestic destinations,
using a modern fleet of 109 aircraft from the Airbus
A320 family. In 2012, it carried 33.5 million domestic
passengers and, as of the end of the year, had a
43.7% market share of traffic. Its main competitors
are GOL, Azul and Avianca Brasil, with market shares
of 34.4%, 15.0% and 6.5%, respectively.
Despite the opportunities the Brazilian market
offers for the development of air travel, it has been
characterized in recent years by the strong growth
of capacity. At the end of 2011, this began to be
adjusted by the main operators.
OperationsANNUAL REPORT2012 7
5
In this context, TAM reduced its capacity in the
domestic market by around 1.1% in 2012 while
the industry’s total capacity, measured in ASKs,
contracted by 7.4%. TAM’s restructuring process seeks
to increase unit revenues on domestic operations
through better passenger segmentation. This was
reflected in a sharp increase in the Company’s load
factor which rose from 68.8% in 2011 to 73.6% in 2012
and an average 77.8% in the second half of the year.
Along these same lines, TAM also developed a new
tariff structure in 2012. Based on a larger number
of tariffs, this implied a complete redesign of the
regulation of each one in order to achieve better
segmentation by type of passenger.
Other commercial initiatives implemented in 2012
included a change in the duration of a booking in
order to be able to define the offer of a flight with
more anticipation. In addition, different policies
such as the baggage allowance were brought into
line with those of LAN.
All these measures put TAM on a better footing
to address the complex context that existed for
its domestic operation in 2012, affected by the
deceleration of the Brazilian economy. In addition,
the depreciation of the real had a negative impact on
results due to the high percentage of the Company’s
costs that are denominated in US dollars.
In the future, TAM will continue to reinforce the
structural changes already beginning to be seen
in Brazil’s domestic market in order to make them
sustainable and permanent over time and establish
solid foundations from which to take advantage of
the growth potential offered by this market.
OperationsANNUAL REPORT2012 8
5
OPERATIONS /
LAN
In 2012, Chile experienced the region’s second highest
rate of economic growth and this dynamism was
reflected in strong and solid demand for domestic air
travel. Demand has been further stimulated by the
low-cost model that LAN introduced in Chile a few
years ago and by mining development in the north
of the country. The Company took advantage of this
favorable context to continue improving its service
and maintain its position as the leading operator,
reaching a 77.2% market share at the end of the year.
In 2012, LAN carried 6.3 million passengers, up by 18%
on 2011. Domestic passenger traffic within Chile,
measured in RPKs, rose by 13.3% while capacity,
measured in ASKs, increased by 15.9%, giving
an average load factor on domestic passenger
operations of 80.1%, down by 1.8 percentage points
on the previous year.
This is the continuation of the solid expansion
experimented by this country in the last five
years, empowered principally by the enhanced
development of the mining industry in the north
part of Chile, accumulating an average annual
increase of 15% in passenger traffic, and an increase
of 23% in 2012 in the number of flights to ther north
part of Chile
OperationsANNUAL REPORT2012 9
5
LAN serves 16 domestic destinations in Chile,
integrating the north and south of the country as well
as Easter Island. In October 2012, it incorporated the
Island of Chiloé into its network, offering four flights
per week from Santiago to Castro with a stopover
in Puerto Montt, and is the first airline to fly to this
destination. Through this new service, the Company
is seeking to enhance connectivity for the Island’s
inhabitants while, at the same time, promoting it
as one of southern Chile’s most attractive areas for
tourism.
For its domestic operations in Chile, the Company
has a modern fleet of 22 aircraft from the Airbus A320
family, with between 126 and 174 seats, designed
with the highest levels of technology. The fleet plan
for 2013 envisages the withdrawal from service of
the 126-seat A318s and their replacement by planes
with more capacity, to optimize the operations and
improve the capacity
The main competitors of LAN in Chile are Sky Airline
and Principal Airlines which have a market share of
19.6% and 3.2%, respectively. In 2012, a new player,
the Sinami airline, entered the domestic market.
Formed by the Union of Industrial Assembly Workers
(SINAMI) together with Servicios Aéreos Río Baker, it
has focused its operations in the mining regions of
northern Chile.
From Chile, LAN operates a broad international
network, with flights to the rest of South America,
Europe, United States and Oceania, being the
gateway to this continent from South America.
OperationsANNUAL REPORT2012 0
6
OPERATIONS /
LAN PERÚ
Thanks to the dynamism of the Peruvian economy,
this country’s domestic airline industry has been
growing at an annual rate of over 18% in past
four years, registering the region’s highest rate
of expansion in terms of the number of domestic
passengers transported. This trend persisted in
2012 when Perú experienced the region’s fastest
economic growth and this was, in turn, reflected
in an 8% annual increase in the industry’s capacity
measured in ASK, driven both by LAN Perú and other
airlines.
Although the increase in LAN Perú’s capacity was
slightly below that of its competitors, the Company
was more successful in stimulating demand and
saw an 18% increase in passenger traffic, measured
in RPKs. As a result, it closed the year with a market
share of 62.2% on domestic routes and carried 4.5
million passengers, up by 14.2% on the previous
year. This gave it an average load factor of 81.0%, up
by three percentage points and above the average
for the industry internationally.
LAN Perú currently serves 14 domestic destinations,
operating up to 110 flights per day with a modern
fleet of 14 Airbus A319s. In 2012, the Company
inaugurated the Tarapoto-Iquitos route, with two
flights per week, thereby offering the most complete
OperationsANNUAL REPORT2012 1
6
coverage, connectivity and national integration. On
domestic routes, its main competitors are Peruvian
Airlines, Starperú and Avianca-Taca which have
market shares of 10.5%, 10.9% and 12.6%, respectively.
In the same time, Lima has been positioned as an
important hub for the regional and international
operations of
LATAM Airlines Group, with
connections to the rest of South America, United
States and Europe.
In terms of its infrastructure, LAN Perú achieved two
important milestones in 2012. In April, it inaugurated
its new Premium Maintenance base in Lima, with
the capacity to provide maintenance services for six
Airbus planes of the A320 family or two Boeing 767s in
an area of 10,500 m2 plus 3,000 m2 for support offices.
In October, it went on to inaugurate the Technical
Training Center (CIT) in the Jorge Chávez airport, with
simulators of Boeing aircraft and Airbus A320s and
latest-generation installations and equipment for
the training of Peruvian pilots and crew. This Center,
the most modern of its type in Latin America, will
enable LAN Perú to optimize the time and resources
used in this area.
OperationsANNUAL REPORT2012 2
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OPERATIONS /
LAN ECUADOR
LAN Ecuador serves six domestic destinations
through the Quito-Guayaquil, Quito-Cuenca and
Guayaquil-Cuenca routes as well as the Quito/
Guayaquil route to the San Cristóbal and Baltra
Islands
it
incorporated its sixth domestic destination, with the
launch of two flights daily on the Quito-Manta route.
in the Galápagos.
In March 2013,
Regarding the international market, LAN Ecuador
has operations to rest of South America, United
States and Europe, and has been recognized as the
main operator with the 32% of the market share. Also
more connectivity is offered through the connection
with the group’s entire network and our airline
partners. For its domestic operations, the Company
uses a modern fleet of five Airbus A320s. These
aircraft have the largest and most comfortable
passenger cabin of their category. The Company’s
growth in 2012 included an increase in the number
of flights on the Quito-Guayaquil and Quito-Cuenca
routes.
In 2012, Ecuador’s airline industry was affected
by the ending of fuel subsidies. These subsidies,
which covered 40% of the cost of fuel purchases,
had helped to boost the development of Ecuador’s
airline market since operators were able to keep
some of their fares unchanged and, even, lower
them, thanks to the introduction of innovative
OperationsANNUAL REPORT2012 3
6
models for stimulating demand such as that
implemented by LAN Ecuador after the start of its
domestic operations in 2009.
In order to mitigate the impact of this government
measure and finance the resulting increase in
costs, all the country’s airlines modified their fare
structures. LAN Ecuador had to introduce a fuel
surcharge, separate from fares, which varies with
the international price of oil. Thanks to its constant
efforts to provide the best product to passengers
in terms of safety, reliability and service, LAN
Ecuador has progressively consolidated a position
as an important player in the domestic market.
As of December 2012, it had achieved a market
share of 31.8% and, considering only the routes it
operates, of 44.8%. In 2012, the Company carried
1.2 million passengers, up by 20.0% on the previous
year. It is also important to note that the Company
increased its market share of all the routes it serves
by 5 percentage points and, on the most heavily
used Quito-Guayaquil route, by 7 percentage points.
LAN Ecuador’s passenger traffic on domestic routes
rose by 16.9% in 2012 while its capacity increased by
13.3%, giving an average load factor of 78.1%, up by
2.5 percentage points on 2011.
On domestic routes, LAN Ecuador’s main competitors
are TAME and Avianca-Taca through its Aerogal
subsidiary, with market shares of 44.7% and 22.7%,
respectively.
its commitment
In a demonstration of
to
the country, LAN Ecuador made a number of
important investments in 2012. They included the
implementation of its facilities at the new Quito
International Airport, in which it invested US$4.7
million, and the inauguration of its new offices and
passenger contact centers.
OperationsANNUAL REPORT2012 4
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OPERATIONS /
LAN ARGENTINA
Since its launch seven years ago, LAN Argentina
has positioned itself as one of the country’s most
important operators of domestic flights. It currently
serves 14 destinations in Argentina, connecting the
capital with the country’s other main cities.
In 2012, it completely reestablished its direct service
on the Buenos Aires-San Carlos de Bariloche route
after an interruption of nine months following the
eruption of Chile’s Puyehue Volcano in June 2011,
which particularly affected this destination. In July, it
also increased the number of flights on this route to
up to five flights on weekdays and up to nine per day
at weekends in order to provide an efficient service
for the high winter-holiday demand experienced by
this tourist center.
The company was rewarded with the preference of
passengers on all the routes it serves and, at end-
2012, had a 32.0% share of the domestic market.
During the year, it carried 2.3 million passengers,
up by 21% on the previous year. Consolidated
passenger traffic grew by 18.2% while capacity
increased by 21.1%, giving an average load factor of
74.0%. On domestic routes, LAN Argentina competes
with Aerolíneas Argentinas and Andes Lineas Aereas,
with market shares of 66.5% and 1.5%, respectively.
OperationsANNUAL REPORT2012 5
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For its domestic flights, the Company has a fleet
of ten Airbus A320s, considered the most modern,
efficient and ecologic in the industry for operations
of this type.
In a bid to stimulate growth of the domestic
airline market through more competitive tariffs,
the Company mounted a number of campaigns in
association with local banks, offering attractive
discounts on the purchase of tickets. In addition,
the Company launched the LANTOURS program
throughout
including different
destinations within the country, and also opened
two new commercial offices in Buenos Aires and one
in the city of Tucumán.
country,
the
In 2012, as part of its permanent quest to enhance its
value proposition, LAN Argentina launched the first
stage of the “bus project” to transport passengers
between an airport and nearby cities to which there
are not flights.
Regarding the international market, LAN Argentina
operates flights to other South American cities and
the United States, achieving a solid coverage through
the LATAM Airlines Group’s network and codeshare
agreements with our airline partners.
OperationsANNUAL REPORT2012 6
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OPERATIONS /
LAN COLOMBIA
In its first year of operations as LAN Colombia, the
Company achieved a share of the domestic market
that reached 19.6% in December 2012 and, over the
course of the year, carried 3.2 million passengers.
Its consolidated passenger traffic grew by 12.5%
while its capacity increased by 13.4%, giving an
average load factor of 73.3%. The Company serves 20
destinations in Colombia and, in terms of coverage,
is the country’s second largest airline. Its main
competitors are Avianca-Taca and Copa Colombia,
with market shares of 61.4% and 8.5%, respectively.
from Fort Lauderdale to Miami, aiming to generate
better connections with our partner airlines,
specially with American Airlines. Also during 2013
LAN Colombia will incorporate new Boeing 767-300
aircraft to its international operations, in order to
improve its service. These new wide-body aircraft,
configured with the new onboard design of LAN,
will initially start flying on routes to Miami and Sao
Paulo, increasing the capacity between those cities
and improving the passenger’s experience.
Regarding international operations, in 2012 LAN
Colombia changed its route to the United States
LAN Colombia is the result of the acquisition of the
local Aires airline (at the end of 2010). Its deteriorated
financial situation and low service standards called
OperationsANNUAL REPORT2012 7
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for a far-reaching restructuring plan to bring it into
line with LAN’s safety, punctuality and efficiency
standards. This process was achieved in record time
and culminated at the end of 2011 with the change
of brand.
Among other measures designed to restore its
profitability, the Company began the renewal of its
fleet in 2012 in order to gradually take Aires’s Boeing
737-700s and Bombardier Dashs out of service and
replace them, mainly, with Airbus A320s, a process
which will take some years and generate associated
costs. As of December 2012, LAN Colombia was
operating its domestic flights with a fleet of 21
aircraft, comprising five Airbus A320s, six Boeing 737-
700s and ten Dash 8-200s, having already withdrawn
from service four Dash 8-Q400s which should be
returned. In 2013, all the Boeing 737-700s are also
expected to be taken out of service.
In 2012, the Company defined a commercial strategy
focusing on stimulating demand, replicating the
low-cost model successfully implemented by LAN
in other domestic markets in the region, with
reductions of around 35% in base fares accompanied
segmentation of passengers. It also
by better
implemented a new marketing strategy designed
to increase recognition of the LAN brand, increased
its penetration of the corporate segment by signing
contracts with the main companies using air
transport within Colombia and launched the LAN
Corporate loyalty program.
Other commercial initiatives implemented in 2012
included a redefinition of the commissions paid to
travel agencies in order to increase the Company’s
penetration of the indirect sales channel and the
co-branding of LANPASS with the Banco de Bogotá y
Occidente in conjunction with the Visa brand.
Finally, in maintenance, LAN Colombia implemented
the MXI system in order to homologate the operation
in a single corporate system.
OperationsANNUAL REPORT2012 8
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OPERATIONS /
CUSTOMER LOYALTY
PROGRAMS
As of December 2012, LAN and TAM continued to have
independent customer loyalty programs although,
as from June 2012, members of the two programs
were able to accumulate and redeem kilometers and
points, respectively, throughout the two airlines’
network.
LANPASS is the frequent flyer program created by
LAN in 1984 to reward the preference and loyalty
of its customers with numerous benefits and
privileges through the accumulation of kilometers
that can be exchanged for tickets or a wide range
of other products and services. As of December
2012, the program had 7.4 million members across
Chile, Argentina, Perú, Ecuador, the United States
and Colombia. This last country led the program’s
expansion in 2012, ending the year with over 620,000
members.
Members of the program earn LANPASS kilometers
every time they fly with LAN, TAM or any of the airlines
in the oneworld alliance or others affiliated to the
program such as Alaska Airlines and Aeroméxico as
well as when shopping with or using the services of a
vast network of companies around the world which
have an agreement with it.
With people who fly constantly in mind, TAM created
OperationsANNUAL REPORT2012 9
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the TAM Fidelidade program in 1993 to enhance
services for
its passengers and reward them.
Members of the program have a single account in
which they accumulate points in a wide variety of
loyalty programs. These can then be redeemed in all
TAM’s destinations and those of associated airlines
as well as to participate in the Multiplus Fidelidade
network.
In January 2012, TAM went on to create Multiplus,
a coalition of loyalty programs, to administer the
accumulation and redemption of TAM Fidelidade
points. Multiplus is a joint stock company that
trades on the São Paulo stock market and in which
LATAM Airlines Group is the principal shareholder
with a 72.9% stake.
As of December 2012, this program had over 10.5
million members and a network of 230 partner
companies including hotels, financial institutions,
retailers, supermarkets, car rentals and magazines.
OperationsANNUAL REPORT2012 0
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OPERATIONS /
CARGO OPERATIONS
Following the association of LAN and TAM in June
2012, the cargo operations of the two companies and
their subsidiaries began to develop commercial and
operational agreements, bringing together highly
complementary capacities and networks of routes.
This positioned the cargo companies that form part
of LATAM Airlines Group as the largest air cargo
operator group in Latin America and, in particular,
Brazil. This generated important benefits for clients
in terms of access to the broadest network of routes
in the region and the world with 144 destinations
in 27 countries, modern infrastructure, increased
capacity and a wide range of products and services
at both the domestic and international levels.
In the framework of the association, important
efficiency gains were achieved in the international
business during 2012. Commercial and operational
structures were unified either by bringing back in-
house offices and functions that TAM had outsourced
or by negotiating new agreements with suppliers.
In addition, through agreements for the purchase
of space, the bellies of TAM’s aircraft began to be
administered by LAN Cargo and its subsidiaries. This
permitted the incorporation of LAN Cargo’s systems,
processes and best practices into the group’s new
cargo operations. Connectivity in the main cargo
hubs was also improved in order to optimize the
filling of this new capacity and be able to administer
the business as a single large network.
OperationsANNUAL REPORT2012 1
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In the domestic Brazilian market, important synergies
were generated through the incorporation of TAM’s
extensive network of passenger planes, permitting
coverage of a large number of destinations, while the
freighters of ABSA - LAN Cargo’s subsidiary in Brazil
for 15 years - provide great capacity on the routes
where demand is heaviest as well as access to the
charter business and special businesses such as the
routes tendered by the country’s postal service. In
all these fields, the group’s operations were further
boosted by the strong position of the TAM Cargo
brand under which all its capacity is marketed.
In 2012, the cargo business was, however, affected
by a contraction of markets in response to adverse
macroeconomic conditions and, in particular, the
crisis in the Eurozone. Weaker demand was explained
mainly by a drop in imports into Latin America and,
especially, Brazil, the region’s largest market, where
the economy showed an important deceleration.
Competition in Latin America’s cargo markets also
increased not only on the part of local operators
but also because European and Asian cargo airlines
transferred part of their capacity to the region and,
in particular, Brazil, exerting downward pressure on
tariffs.
One of the strengths of LATAM Airlines Group’s cargo
business is its presence in the region’s different
markets. In 2012, this allowed it to partly offset
the weakness of imports into Brazil with the solid
performance of the exports of other countries in the
region to the United States and Europe, principally
perishable products such as flowers, fruit and fish,
which remained strong throughout the year.
In addition, the incorporation of two new Boeing
777-200F freighters in 2012 not only strengthened
operations in Latin America and Europe but also
helped to increase the efficiency of the business.
These modern aircraft represent an improvement
on the Boeing 767-300Fs in that they have twice their
capacity but only consume 50% more fuel.
Overall, the cargo traffic of LATAM Airlines Group and
its subsidiaries fell by 2.4% in 2012 while capacity
showed a 0.1% drop, giving a load factor of 58.7%,
down by 1.1 percentage points, in all cases relative
to comparable figures for the operations of TAM, LAN
and their respective subsidiaries in 2011.
OperationsANNUAL REPORT2012 2012 RESULTS
LATAM AIRLINES GROUP S.A.
Juliana Bentz
TAM Brazil
Tatiana Simon
LAN Perú
3
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2012 RESULTS /
INDUSTRY OVERVIEW
Conditions for the world’s airline industry were
complex in 2012. This reflected a combination of
factors that included the high price of fuel, which
averaged around US$109.5/barrel (WTI), and the
depreciation of a number of currencies against the
dollar, which raised the costs of many airlines, as
well as the euro zone debt crisis and the deceleration
of the world’s largest economies and, in particular,
China.
History shows that, under similar conditions in the
past, the airline industry reported very weak results
and, even, losses.
In 2012, however, airlines achieved levels of earnings
and cash flow that were similar to 2006 when the
price of fuel was just US$45/barrel and the world
economy was experiencing 4% growth. The industry
has, in other words, reinvented itself and now has
greater resources with which to address the current
difficult conditions.
In this process, consolidation and capacity discipline
have proven to be key factors for success. In 2012,
there was also a clear trend towards cooperation,
rather than confrontation, with an even greater
emphasis on
the development of alliances,
commercial agreements and, even, cross-border
mergers.
It was large operators, with the advantages of scale
economies and greater efficiency, that were best
placed to handle the difficult context while many
small airlines were unable to survive and some other
larger companies only did so with government help.
Capacity discipline, previously a practice confined
almost exclusively to North American airlines,
spread to other regions. Particularly noteworthy
was the capacity discipline seen in the second half
of the year in Brazil where the principal operators
embarked on a sharp reduction in the excess
capacity seen in this country’s domestic market.
Despite the weak macroeconomic context, the
industry’s global performance was positively
impacted in 2012 by strong passenger traffic -
which rose by 5.3% on the previous year - and by a
3% increase in yields. These advances were led by
the Middle East, followed by Latin America, while,
in Europe and the Asia-Pacific region, there was a
marked rise in the traffic of low-cost airlines which
increased their market share.
By contrast, the cargo market saw a 2% contraction
of traffic and a similar drop in yields. This was
the result of a decrease in international trade
and a preference for sea transport. This affected
principally operators in the Asia-Pacific region for
whom the cargo business represents an important
part of their total revenues. The only operators to
achieve growth in the cargo market were those in
the Middle East.
2012 ResultsANNUAL REPORT2012 4
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In view of the industry’s performance over the
first nine months of the year, the International Air
Transport Association (IATA) increased its estimate of
airlines’ global earnings in 2012 from US$3.0 billion
in June to US$6.7 billion in December (as compared
to US$8.8 billion in 2011). This change, nonetheless,
envisages a drop in net margin from 1.4% in 2011 to
1.0% in 2012 and 1.3% in 2013 whereas the margin
required to recover the industry’s cost of capital is
7%-8%.
It is important to note that, in recent years, the
industry’s growth has been driven by the emerging
markets of Asia-Pacific, Latin America and the Middle
East. This trend is expected to persist in the coming
years due to the low penetration of air transport
in these regions and their prospects for economic
growth.
2012 ResultsANNUAL REPORT2012 5
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2012 RESULTS /
FINANCIAL RESULTS
In 2012, the results of LATAM Airlines Group were
affected principally by the integration of LAN’s and
TAM’s businesses which occurred in June 2012. The
Company reported net earnings of US$11.0 million
for 2012, down by 96.6% from US$320.2 million in
2011. This included a loss of US$45.2 million due to
the consolidation of TAM as from 22 June 2012.
In addition, tax payments rose by US$70.4 million
due to a rise in Chile’s corporate income tax rate
from 17% to 20% as part of a tax reform officially
published on 27 September 2012. As a result, the net
margin dropped to 0.1% in 2012, down from 5.6%.
Operating revenues reached US$9,942.3 million, up
by 73.9% on the previous year, of which US$3,695.8
million corresponded to the integration with TAM.
Operating costs increased by 85.9% to US$9,625.5
million of which US$3,709.0 million corresponded to
the integration with TAM.
LATAM Airlines Group’s accounting operating
earnings reached US$316.9 million, down by 41.3%
on 2011, while its operating margin, at 3.2%, was
equivalent to a drop of 6.2 percentage points on
the previous year. If the impact of the integration of
LAN’s and TAM’s businesses is excluded, operating
earnings reached US$331.2 million, down by 38.6%
on 2011, while the operating margin dropped from
9.4% to 5.2%.
The pro-forma financial statements presented
below, which consolidate LAN’s and TAM’s results for
the complete years of 2011 and 2012, provide a more
meaningful comparison.
2012 ResultsANNUAL REPORT2012 6
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In 2012, pro-forma revenues dropped by 0.3% as
compared to 2011 and reached US$13,271.1 million.
This reflected a 1.0% increase in passenger revenues,
a 6.2% drop in cargo revenues and also a 6.2% drop in
other revenues.
In the case of passenger operations, unit revenues
per ASK were down by 3.5% due to a 6.3% drop in
yields. This reflected the important impact of the
16.7% devaluation of the Brazilian real against the
US dollar in 2012, which affected approximately a
third of the Company’s revenues and was partly
offset by increases in revenues per ASK in LATAM
Airlines Group’s other domestic markets. In 2012, the
load factor rose from 75.9% to 78.2% since, at 4.6%,
the increase in capacity measured in ASKs was less
than the increase of 7.8% in traffic measured in RPKs.
In the case of cargo operations, a 5.7% drop in unit
revenues per ATK was driven by a decrease of 3.9%
in the yield and of 1.1 percentage points in the
load factor which reached 58.7%. Traffic, measured
in tonnes, dropped by 1.0% in 2012, reflecting the
weakness of global cargo markets and weak demand
in the market for imports into Latin America.
The Company’s pro-forma operating costs reached
US$13,182.2 million in 2012, up by 7.2% on the pro-
forma results for 2011. They were affected by a
US$535.5 million increase in expenditure on fuels,
an item that accounted for 36.3% of total operating
costs. This 12.6% increase was the result of a 2.7%
rise in gallons consumed and a 9.7% increase in the
price of fuel once hedging is taken into account. In
addition, TAM received a credit against payments
of fuel taxes (PIS/COFINS) for US$323 million in 2011
which was registered as a reduction in that year’s
expenditure on fuel.
As a result, the pro-forma operating earnings of
LATAM Airlines Group in 2012 reached US$88.9
million in comparison to US$1,010.9 million under
the pro-forma results for 2011.
It should be noted that these earnings include
approximately US$72 million in synergies related
to the integration of LAN’s and TAM’s businesses as
well as one time costs of US$47 million during 2012
that were related to the merger process.
Finally, LATAM Airlines Group showed a net pro-
forma loss of US$491.8 million in 2012 as compared
to a net pro-forma profit of US$29.8 million in 2011.
This implies a negative net pro-forma margin of 3.7%
in 2012 as compared to a positive net pro-forma
margin of 0.2% in the previous year.
2012 ResultsANNUAL REPORT2012 7
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Revenue Breakdown by Country 2011
Revenue Breakdown by Country 2012
2012 ResultsANNUAL REPORT2012 8
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2012 ResultsANNUAL REPORT2012 9
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2012 RESULTS /
AWARDS AND RECOGNITIONS
Principal recognitions received by LATAM Airlines
Group in 2012
•
LA SEGUNDA-ADIMARK: RANKING OF CHILE’S
MOST RESPECTED COMPANIES
LAN 2012
1st place
“Most Respected Company”
• MERCO
1st place
“Company with Best Reputation in Chile”
•
BUSINESS TRAVELLER’S CELLARS IN THE SKY
AIRLINE WINE AWARDS
•
2012 DUOC UC HUMAN CAPITAL PRIZE
1st place
Best Sparkling Wine (Champagne Louis
Roederer)
Recognition of nine Chilean companies that
most supported professional-technical training
courses
• WORLD AIRLINE AWARDS (SKYTRAX)
•
CAPITAL MAGAZINE AND FUNDACIÓN CHILE
2nd place
“Best South American Airline”.
5th place
Ranking of Companies in Chile Most
Committed to Climate Change Management
•
BEST OF THE WEB AWARDS: LAST MILE LEADER
•
BUSINESS TRAVELLER
1st place
“Best online airline site”
1st place
“Best Business Class in Latin America”
2012 ResultsANNUAL REPORT2012
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TAM 2012
• WORLD AIRLINE AWARDS (SKYTRAX)
1st place
“Best Airline in South America” and “Best
Airline Staff Service in South America”.
•
CARTA CAPITAL MAGAZINE: MOST ADMIRED
COMPANIES IN BRAZIL
•
•
PRIZE FOR EXCELLENCE IN CUSTOMER SERVICE
(CONSUMIDOR MODERNO MAGAZINE)
1st place
“Best Logistics Company (TAM Cargo)”
TRUSTED BRANDS PRIZE (SELECCIONES
MAGAZINE)
1st and 5th places, respectively
“Airline” and “Brazilian Companies Most
Admired in Latin America”.
1st place
“Airline”
•
THE BEST OF DINHEIRO (ISTOÉ DINHEIRO)
1st place
“Human Resource Management”.
•
BRAZIL’S MOST VALUABLE BRANDS (ISTOÉ
DINHEIRO / BRAND ANALYTICS)
1st place
In industry and 19th in overall ranking
•
AIRLINETRENDS.COM
5th most innovative airline in the world.
•
FREDDIE AWARDS, INSIDE FLYER MAGAZINE
1st place (TAM Fidelidade)
“Best redemption of customer loyalty
programs in the Americas”
•
CELLARS IN THE SKY REVISTA BUSINESS
TRAVELLER
1st place
“Best First Class Red Clos Canon 2008”
1st place
“Most Improved First Class Cellar”.
2012 ResultsANNUAL REPORT2012
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2012 RESULTS /
STOCK MARKET INFORMATION
STOCK MARKET ACTIVITY
In 2012, LATAM Airlines Group’s share price showed
a loss of 7.7% while LAN’s ADR gained 1.4%. As of
31 December 2012, the Company had a market
capitalization of US$11,218 million. In 2012, LATAM
Airlines Group’s shares performed below Chile’s IPSA
share price index, which showed an annual gain of
3.0%.
2012 ResultsANNUAL REPORT2012 2
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2012 ResultsANNUAL REPORT2012 3
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(USD)
(USD)
2012 ResultsANNUAL REPORT2012 4
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(BRL)
(BRL)
2012 ResultsANNUAL REPORT2012 5
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2012 RESULTS /
ADDITIONAL INFORMATION
SUPPLIERS
In 2012, as in previous years, the main suppliers
of LATAM Airlines Group were the Airbus and
Boeing aircraft manufacturers. Its other suppliers
consist mainly of companies that produce aircraft
accessories, spares and components such as Pratt
& Whitney, IAE International Aero Engines AG, Rolls-
Royce plc, General Electric Commercial Aviation
Services Ltd. (engines), SICMA (seats), Air France
and Lufthansa Technik (MRO components), Thales
(in-flight entertainment), Goodrich (reversers) and
Messier Bugatti and Goodrich (brakes). In addition,
the Company has a number of fuel suppliers
including Repsol YPF, Copec, Shell, Terpel, Chevron
and Exxon.
INSURANCE
Taking into account all those areas of its operations
that involve potential risks, LATAM Airlines Group
carries insurance that can be divided into three main
categories: aviation, hull and liability insurance. This
type of insurance covers all the risks inherent to
commercial aviation such as aircraft, engines, spare
parts and third-party liability for passengers, cargo,
baggage, merchandise and airports. This coverage
is taken out jointly by LATAM Airlines Group and its
subsidiaries and reinsured on the London market.
Since 2006, the Company has also had an agreement
with British Airways, Aer Lingus and other companies
for the joint negotiation of the terms of hull and
liability insurance, which helps in obtaining lower
premiums and better coverage.
GENERAL INSURANCE
Insurance of this type provides coverage against
all those risks that could affect the Company’s
assets, particularly its physical goods and financial
assets. These are protected through multi-risk
policies (including fire, theft, computer equipment,
transport of securities, window breakage and other
all-risk coverage) as well as traditional coverage of
motor vehicles, air and sea transport, corporate civil
liability, etc. In addition, the Company holds life and
accident insurance on behalf of all its personnel
including executives, staff in general and flight
crews.
TRADEMARKS AND PATENTS
The Company and its subsidiaries use a number
of trademarks. These are duly registered with the
corresponding bodies in the different countries
in which they operate or are the origin and/or
destination of their operations in order to be able to
differentiate and market their products and services
in these countries.
2012 ResultsANNUAL REPORT2012 6
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2012 RESULTS /
MATERIAL NEWS
20/12/2012 - 19:15
PLACEMENT OF SECURITIES ON INTERNATIONAL
AND/OR NATIONAL MARKETS / LATAM AIRLINES
GROUP S.A.
in Article 9 and
As provided
in the second
subparagraph of Article 10 of the Securities
Market Law, and in General Rule #30, under due
authorization, I hereby make the following material
DISCLOSURE regarding LATAM Airlines Group S.A.,
Securities Registration #306:
the parameters of the share offer submitted on
December 14, 2012.
At a meeting held today, the Board unanimously
resolved:
04/09/2012 - 17:42
CHANGES IN MANAGEMENT / LATAM AIRLINES
GROUP S.A.
1.
2.
3.
To begin the preemptive option period to
subscribe 7,436,816 cash shares in the Company
on account of the capital increase approved by
the Special Shareholders Meeting on December
21, 2011, as modified by the Special Shareholders
Meeting on September 4, 2012. The period will
begin on December 21, 2012 by publication of
the Notice ordered in Article 26 (formerly Article
29) of the Companies Regulations, which will be
made in the newspaper La Tercera.
As provided in Articles 9 and 10 of Securities Market
Law 18045 and in General Rule #30 of the Commission
of 1989, please be advised that at an Extraordinary
Shareholders Meeting (Meeting) of LATAM Airlines
Group S.A. (LATAM) held September 4, 2012, LATAM’s
shareholders elected the members of LATAM’s Board
of Directors, who will hold office for two years.
The following individuals were elected Directors at
the Meeting:
To set the placement price for the shares
being preemptively offered to the Company’s
shareholders at CH$ [•] per share during the
preemptive option period.
•
•
José María Eyzaguirre Baeza;
Juan José Cueto Plaza;
To place a total of 2,951,390 shares in the
Company on December 21, 2012 at a price
of CH$ 11,000 per share using the Order
Book Auction system of the Santiago Stock
Exchange, Securities Exchange, according to
• Mauricio Rolim Amaro;
• Maria Claudia Amaro;
•
Ramón Eblen Kadis;
2012 ResultsANNUAL REPORT2012 7
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•
•
•
•
Carlos Heller Solari;
1. Revoke Board of Directors.
Francisco Luzón López;
2. Election of members of the Board of Directors.
Juan Gerardo Jofré Miranda; y
Georges de Bourguignon Arndt.
The Directors named in numbers 7, 8 and 9 above
were elected as independent directors, according to
article 50-bis of Companies Law 18046.
03/08/2012 - 18:34
CHANGES IN MANAGEMENT / LAN AIRLINES S.A.
As provided in Article 9, in the second subparagraph
of Article 10 of the Securities Market Law and in
General Rule #30, under due authorization, I hereby
DISCLOSE the following material events of LATAM
Airlines Group S.A. (formerly called LAN Airlines S.A.),
Securities Registration #306:
Today, Mr. Jorge Awad Mehech submitted his
resignation from his position of Chairman of the
Company’s Board of Directors. He will continue on
as director. The Board then unanimously appointed
Mr. Mauricio Rolim Amaro as Chairman of the Board
of LATAM Airlines Group S.A.
03/08/2012 - 18:28
EXTRAORDINARY SHAREHOLDER’S MEETING,
NOTICES, AGREEMENTS AND PROPOSALS / LATAM
AIRLINES GROUP S.A.
As provided in Article 9, in the second subparagraph
of Article 10 of the Securities Market Law and in
General Rule #30, under due authorization, I hereby
DISCLOSE the following material events of LATAM
Airlines Group S.A. (formerly called LAN Airlines S.A.),
Securities Registration #306:
At a the meeting held today, the Board of Directors
of LATAM Airlines Group S.A. resolved to convene an
Extraordinary Shareholders Meeting at 10:30 a.m. on
September 4, 2012 to discuss the following matters:
3. Approve that the remaining 7,436,816 shares (all
ordinary and without nominal value) of LATAM
Airlines Group S.A., from the total of 142,555,882
shares
(all ordinary and without nominal
value) issued as per the authorization from the
Extraordinary General Meeting of Shareholders
held on December 21, 2011 and that not were
exchanged for shares of Sister Holdco S.A. and
Holdco II S.A., to be offered preferably to the
shareholders of LATAM Airlines Group S.A. (the
“Remaining Shares”) pursuant to section 25
of the Law No. 18,046 regarding the Chilean
Corporation Act; and that any unsubscribed
shares to be offered and placed in the securities
markets.
4.
5.
Fix, set and determine the subscription and
placement price of the Remaining Shares,
namely, for the 7,436,816 shares (all ordinary and
without nominal value) of LATAM Airlines Group
S.A., or to delegate in the Board of Directors
of the Company to determine the price and
conditions for the subscription and placement
of the Remaining Shares.
Fix, set and determine the subscription and
placement price of the 4,800,000 shares (all
ordinary and without nominal value) to be
used to create and implement a stock option
plan pursuant to Section 24 of the of the Law
No. 18,046 regarding the Chilean Corporation
Act, as approved by the Extraordinary General
Meeting of Shareholders held on December
21, 2011 (the “Stock Option Compensation
Plan”); or to delegate in the Board of Directors
of the Company the determination, setting
and fixing of the subscription and placement
price and applicable terms and conditions for
the creation and implementation of the Stock
Option Compensation Plan.
6. Adopt any other resolutions to carry out the
items above listed.
2012 ResultsANNUAL REPORT2012 8
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28/06/2012 - 9:19
OTHERS / LAN AIRLINES S.A.
As provided in Article 9, in the second subparagraph
of Article 10 of the Securities Market Law and in
General Rule #30, under due authorization, I hereby
DISCLOSE the following material events of LATAM
Airlines Group S.A. (formerly called LAN Airlines S.A.),
Securities Registration #306:
1. A Special Shareholders Meeting held December
21, 2011 (the “Meeting”) approved, among other
matters, the merger of LAN Airlines S.A. (“LAN”)
and Sister Holdco S.A. (“Sister”) and Holdco II
S.A. (“Holdco II”) (the “Merger”). These two latter
companies had been incorporated especially
for, and prior to, the merger of LAN and TAM
S.A. (“TAM”), a Brazilian company. Sister and
Holdco II held the shares in TAM either directly
or indirectly. LAN (now called “LATAM”) would
be the company surviving the Merger.
2. Among the matters discussed at the Meeting, the
issuance of 142,555,882 shares was authorized
to implement the respective exchange in the
Merger (all common shares, with no par value).
Said Meeting also approved the issuance of
4,800,000 additional shares (all common, with no
par value) to create and implement, combined
with any remainder of shares not used in the
Merger exchange, an employee compensation
plan for employees of LATAM and its subsidiaries
pursuant to Article 24 of the Companies Law.
The Board was granted the power to determine
the conditions for placement of such shares.
3.
Since the level of acceptance of the exchange
offer did not cover all shares in TAM existing on
the market, there was a remainder of 7,421,021
authorized shares in LATAM after the Merger
(all common, with no par value) that were not
exchanged for shares in Sister and Holdco II
(“Share Remainder”).
4. On today’s date, the Board resolved to submit
a motion to the company’s shareholders that
the Share Remainder not be used to create and
implement a compensation plan for employees
of LATAM and its subsidiaries pursuant to Article
24 of the Companies Law, but rather be allocated
to a preemptive offer to the LATAM shareholders
according to Article 25 of the Companies Law,
and that any unsubscribed balance be offered
and placed on the general market. For these
purposes, the Board shall also convene the
corresponding Special Shareholders Meeting,
which will be duly disclosed.
5. Please note that by letter dated June 26, 2012,
BM&FBOVESPA S.A. Bolsa de Valores Mercadorias
y Futuros notified Itau Corretora de Valores S.A.
(“Itau Corretora”)--the securities intermediary
retained by LATAM to implement the exchange
offer and depositary of its BDR program--that
17,550 shares were unilaterally reversed, of the
29,723,889 shares in TAM that were accepted
for exchange in the Federal Republic of Brazil
(“Brazil”) by the end of the exchange offer that
were in the custody of that stock exchange and
were contributed by Itau Corretora to Holdco II
by subscription of the same number of shares in
this company, because of duplicate orders that
the stock exchange did not opportunely identify.
Therefore, the result of the exchange offer
in Brazil was effectively 29,706,339 shares in
TAM, which meant that LATAM delivered 15,795
shares in LATAM in excess to Itau Corretora
(17,550 x 0.90). Said shares are in possession
of Itau Corretora in the form of BDRs. LATAM
is taking action with Itau Corretora to correct
this situation as soon as possible (which will
result in the revocation of foreign exchange
contracts in Brazil for those 15,795 shares and
their respective BDRs).
6.
The situation described
in the preceding
paragraph did not affect the timely delivery of
the corresponding ADRs and BDRs of LATAM to
TAM shareholders that accepted the exchange
offer on June 27, 2012. And after the adjustment
the preceding paragraph
indicated
concludes, the Share Remainder placeable will
total 7,436,816 shares in LATAM (all common
shares, with no par value).
in
2012 ResultsANNUAL REPORT2012
9
8
28/06/2012 - 9:14
CHANGES IN MANAGEMENT / LAN AIRLINES S.A.
As provided in Article 9, in the second subparagraph
of Article 10 of the Securities Market Law and in
General Rule #30, under due authorization, I hereby
DISCLOSE the following material event of LATAM
Airlines Group S.A. (formerly called LAN Airlines S.A.),
Securities Registration #306:
1. On today’s date, the company’s Board of
Directors learned of the resignation of Mr. Jose
Cox Donoso and Mr. Dario Calderon Gonzalez
from their directorships.
In view of those
vacancies, the Board resolved to appoint Mr.
Mauricio Rolim Amaro and Ms. Maria Cláudia
Amaro in their stead as directors of the company.
In light of the foregoing, the entire board of directors
will be renewed at the next regular shareholders
meeting of the company.
“Mergers”), with LAN continuing as the surviving
entity. Prior to the Mergers, Sister Holdco
would hold the TAM shares contributed by the
controlling shareholders of TAM, and Holdco II
would hold the TAM shares and ADSs acquired
pursuant to the exchange offer.
2. By means of Essential Fact dated May 10,
2012, it was reported that Holdco II and LAN
had initiated in the Federal Republic of Brazil
(“Brazil”) and in the United States of America
(“USA”) an exchange offer (the “Exchange Offer”)
for all outstanding TAM shares (including those
represented by TAM ADSs) other than those
held by the controlling shareholders of TAM, for
Holdco II shares, and ultimately, for LAN shares
(the latter being the legal successor of Holdco II
due to the effectiveness of the Mergers), in the
form of Brazilian Depositary Receipts - BDRs - in
Brazil, and American Depositary Receipts - ADRs
– in the USA.
22/06/2012 - 9:04
DIVISION, MERGER OR CREATION OF COMPANIES /
LAN AIRLINES S.A.
3.
As established in Article 9 and in Article 10, paragraph
2, of the Securities Market Law (Ley de Mercado de
Valores), and in General Regulation No. 30, (Norma
de Carácter General N° 30), being duly empowered,
I hereby report the following ESSENTIAL FACT
regarding LAN Airlines S.A.
(“LAN”), Securities
Registry No. 306:
1. By means of Essential Fact dated December
21, 2011, it was reported that shareholders
meetings were held and approved the merger
of LAN with Sister Holdco S.A. (“Sister Holdco”)
and Holdco II S.A. (“Holdco II”), two companies
specially incorporated for purposes of the
proposed combination between LAN and TAM
S.A. (“TAM”). If Holdco II successfully completed
an exchange offer for the TAM shares (including
those represented by American Depositary
Shares – ADSs – of TAM), both Sister Holdco
and Holdco II would be absorbed by LAN (the
The Exchange Offer was subject to minimum
conditions of acceptance for its success and
to certain other conditions. In particular, there
were established (i) the squeeze-out condition,
as a result of which TAM would be able to
mandatorily redeem all of the TAM shares not
tendered in the Exchange Offer or contributed
by the controlling shareholders of TAM; and (ii)
the delisting condition, as a result of which TAM
would no longer be a registered public company
in Brazil.
•
According to Brazilian law, for the
delisting condition to be met, more
than 2/3 of the total TAM shares
Exchange
participating
Offer shall have agreed with the
deregistration of TAM as a public
company in Brazil.
the
in
4. On June 12, 2012, LAN waived the squeeze-out
condition, which was informed by means of
an Essential Fact on that same date. As a result
of this waiver, according to Brazilian law, the
term of the Exchange Offer was extended
for 10 calendar days, and a new date for the
auction in BM&FBOVESPA S.A. - Bolsa de Valores,
Mercadorias e Futuros was scheduled for June
2012 ResultsANNUAL REPORT2012 0
9
22, 2012 at 9:00 a.m., Santiago and New York time
(10:00 a.m., Sao Paulo time).
5. Prior to the expiration of the Exchange Offer,
99.9% of the TAM shares that participated in the
Exchange Offer agreed with the deregistration
of TAM as a public company in Brazil, thereby
satisfying
For
information purposes, the TAM shares tendered
in the Exchange Offer together with those
contributed by the controlling shareholders
of TAM represent 95.9% of TAM shares in
circulation.
the delisting condition.
6. Based on the foregoing and the satisfaction
of the other conditions to the completion of
the Exchange Offer, the auction took place
in BM&FBOVESPA S.A.
- Bolsa de Valores,
Mercadorias e Futuros today, at 9:00 a.m.,
Santiago and New York time (10:00 a.m., Sao
Paulo time).
7. Also, and following the steps provided in the
transaction, on this same date LAN, Sister
Holdco and Holdco II have executed the deed
evidencing the Mergers, pursuant to which the
outstanding Sister Holdco and Holdco II shares
are exchanged for LAN shares, at the rate of 0.9
shares of LAN for each one of such shares:
2012 ResultsANNUAL REPORT2012 1
9
8.
9.
The share exchange process is automatically
executed in the LAN’s shareholders registry on
June 22, 2012, and settlement of the Exchange
Offer will occur with the delivery abroad to
the shareholders of TAM that accepted the
Exchange Offer of the corresponding ADRs and
BDRs of LAN on June 27, 2012.
Finally, on this date (i) LAN changes its name to
“LATAM Airlines Group S.A.”, notwithstanding
that it may also continue to do business
under the trade names “LATAM Airlines”,
“LATAM Airlines Group”, “LATAM Group”, “LAN
Airlines”, “LAN Group” and/or “LAN”; and (ii)
the shareholders agreements with respect to
LAN, Holdco I S.A., and TAM and its subsidiaries
referred to in the Material Fact dated January 19,
2011, become effective.
12/06/2012 - 8:28
OTHERS / LAN AIRLINES S.A.
As established in Article 9 and in Article 10, part 2,
of the Securities Market Law (Ley de Mercado de
Valores), and in General Regulation No. 30, (Norma
de Carácter General N° 30), duly empowered, I hereby
report the following ESSENTIAL FACT regarding LAN
Airlines S.A. (“LAN”), Securities Registry No. 306:
1. By means of Essential Fact dated December
21, 2011, it was reported that the shareholders
meetings that approved the merger of LAN with
Sister Holdco S.A. (“Sister Holdco”) and Holdco
II S.A. (“Holdco II”), two companies specially
incorporated for purposes of the proposed
combination between LAN and TAM S.A.
(“TAM”), had occurred. If Holdco II successfully
completes an exchange offer for the shares of
TAM (including those represented by American
Depositary Shares – ADSs – of TAM), both Sister
Holdco and Holdco II will be merged into LAN (the
“Merger”), with LAN continuing as the surviving
entity of the Merger. Prior to the Merger, Sister
Holdco will hold the shares of TAM contributed
by the controlling shareholders of TAM, and
Holdco II will hold the shares and ADSs of TAM
acquired pursuant to the exchange offer.
2. By means of Essential Fact dated May 10, 2012,
it was reported that Holdco II S.A. (“Holdco
II”) and LAN had commenced in the República
Federativa de Brazil (“Brazil”) and in the United
States of America (“USA”) an exchange offer (the
“Exchange Offer”) for all the outstanding TAM
shares (including those represented by TAM
ADSs) other than those held by the controlling
shareholders of TAM, in exchange for Holdco
II shares, and ultimately, for LAN shares (the
latter as legal successor of Holdco II due to
the effectiveness of the Merger), in the form of
Brazilian Depositary Receipts - BDRs - in Brazil,
and American Depositary Receipts - ADRs – in
the USA.
3.
The Exchange Offer was subject to minimum
conditions of acceptance for its success and
certain other conditions.
4. Prior to the expiration of the Exchange Offer,
the acceptances received, together with the
shares held by the controlling shareholders
of TAM, account for 147,836,864 TAM shares
(including those represented by TAM ADSs),
which correspond to 94.4% of the TAM shares
in circulation, amount which is less than the
acceptances required to satisfy the squeeze-
out condition. Unless this condition is satisfied,
TAM cannot mandatorily redeem all of the
TAM shares not offered for acceptance in the
Exchange Offer or contributed by the controlling
shareholders of TAM.
5.
In order to proceed with the proposed
association between LAN and TAM, on this date
the board of directors of LAN has authorized
the company to waive, and LAN has waived, the
squeeze-out condition. As a result of this waiver,
in accordance with Brazilian laws, the period
of the Exchange Offer will be extended for 10
calendar days.
6.
Therefore, subject to the satisfaction of the
other completion conditions set forth in the
Exchange Offer documents, the auction that was
originally scheduled for today in BM&FBOVESPA
2012 ResultsANNUAL REPORT2012 2
9
S.A. - Bolsa de Valores, Mercadorias e Futuros
has been postponed until 9:00 am, Santiago and
New York time (10:00 am, Sao Paulo time), of June
22, 2012.
3.
10/05/2012 - 5:31
OTHERS / LAN AIRLINES S.A.
As established in Article 9 and in Article 10, part 2,
of the Securities Market Law (Ley de Mercado de
Valores), and in General Regulation 30, (la Norma de
Carácter General N° 30), duly empowered, I hereby
report the following ESSENTIAL FACT regarding LAN
Airlines S.A. (“LAN”), Securities Registry Nº 306:
1. We refer to the Essential Facts dated May 7
and 9, 2012, in which we informed that Holdco
II S.A. (“Holdco II”) and LAN obtained the
required registrations and authorizations in the
Federative Republic of Brazil (“Brazil”) and in
the United States of America (“USA”) to carry out
the offer to exchange shares of TAM S.A. (“TAM”)
initially for Holdco II shares and ultimately for
LAN shares (as Holdco II will merge into LAN,
with LAN being the legal successor of Holdco
II), in the form of Brazilian Depositary Receipts
– BDRs – in Brazil and American Depositary
Receipts – ADRs – in the USA.
2.
In addition to the
information previously
mentioned, in view of the registrations and
authorizations obtained in Brazil and in the USA,
and having obtained further authorizations in
other jurisdictions, including the resolution of
the Chilean Antitrust Court (Tribunal de Defensa
de la Libre Competencia) dated September 21,
2011, which was upheld by the Supreme Court of
Chile (Excelentísima Corte Suprema) on April 5,
2012, and the registration for the issuance of
LAN shares in your Superintendency under N°
955 dated April 17, 2012, on this date Holdco II
and LAN have commenced the exchange offer
for TAM shares simultaneously in Brazil and in
the USA. The exchange offer shall remain open
until 5:00 pm, New York time (6:00 pm, Sao Paulo
time) on June 11, 2012 and the auction will be
held on BM&FBOVESPA S.A. – Bolsa de Valores,
Mercadorias e Futuros, at 9:00 am, New York
time (10:00 am, Sao Paulo time) on June 12, 2012.
The documents related to the exchange
offer can be found in the corporate Internet
websites www.lan.com, www.tam.com.br,
and www.latamairlines.com, and in the Internet
websites of the Brazilian and US securities
authorities,
www.cvm.gov.
br and www.sec.gov.
respectively,
09/05/2012 - 17:11
OTHERS / LAN AIRLINES S.A.
As established in Article 9 and in Article 10, part 2,
of the Securities Market Law (Ley de Mercado de
Valores), and in General Regulation 30, (la Norma de
Carácter General N° 30), duly empowered, I hereby
report the following ESSENTIAL FACT regarding LAN
Airlines S.A. (“LAN”), Securities Registry Nº 306:
1. On
S.A.,
January 18, 2011, LAN, Costa Verde
Aeronáutica
Inversiones Mineras
del Cantábrico S.A., TAM S.A. (“TAM”), TAM
Empreendimentos e Participações S.A., and
Messrs Maria Cláudia Oliveira Amaro, Maurício
Rolim Amaro, Noemy Almeida Oliveira Amaro,
and João Francisco Amaro signed contracts
written
language, referred
to as
Implementation Agreement, and
(b) Exchange Offer Agreement (the “Executed
Contracts”, including subsequent amendments
thereto) containing the definitive terms and
conditions for the proposed merger between
LAN and TAM.
in the English
(a)
2. On December 21, 2011, shareholders’ meetings
were held authorizing the merger of LAN with the
companies Sister Holdco S.A. (“Sister Holdco”)
and Holdco II S.A. (“Holdco II”), two companies
incorporated specifically for the purposes of
the proposed combination of LAN and TAM. If
Holdco II successfully completes the first-step
exchange offer for TAM shares (including those
represented by TAM ADSs) contemplated by the
Executed Contracts (the “Exchange Offer”), each
of Sister Holdco and Holdco II will merge with
and into LAN (the “Mergers”) and LAN will be
the surviving company of each Merger. Prior to
the Mergers, Sister Holdco will hold TAM shares
contributed by the controlling shareholders of
TAM and Holdco II will hold TAM shares and TAM
ADSs acquired in the Exchange Offer.
2012 ResultsANNUAL REPORT2012 3
9
3.
In accordance with the steps set forth in the
Executed Contracts:
•
•
•
•
•
•
Holdco II and LAN filed with the
(“USA”)
United States of America
securities authority, the Securities and
Exchange Commission (the “SEC”), the
registration statement under the US
Securities Act of 1933 referred to as the
Registration Statement on Form F-4
(Registration No. 333-177984) (“Form
F-4”) regarding the Exchange Offer and
Merger in order to register the offer
and sale of the Holdco II shares to be
issued in the Exchange Offer and the
LAN shares to be issued in the Mergers
(in the form of American Depositary
Receipts – ADRs) to US shareholders
of TAM.
The Form F-4 contains an offer to
exchange/prospectus which
sets
forth the terms and conditions of the
Exchange Offer and Mergers which
will be mailed to US shareholders of
TAM
The Form F-4 can be found in the
websites www.lan.com, www.tam.
com.br,
www.latamairlines.com,
and www.sec.gov.
On May 7, 2012, Holdco II and LAN filed
a request with the SEC to accelerate
the effectiveness of the Form F-4 to
10:00 a.m., New York time, on May 9,
2012.
At 10:00 a.m., New York time, on May 9,
2012, the SEC declared the Form F-4
effective, which will permit Holdco II
and LAN to commence the Exchange
Offer in the USA.
As previously informed by Essential
Fact dated May 7, 2012, on that date the
securities authorities and the stock
exchange of the Federative Republic
(“Brazil”) provided their
of Brazil
authorization for the corresponding
registration of the Exchange Offer in
Brazil. The Exchange Offer, according
to the applicable regulations in Brazil,
must be launched in Brazil within 10
days following the registration date
and will be launched simultaneously
in the USA.
07/05/2012 - 17:57
OTHERS / LAN AIRLINES S.A.
As established in Article 9 and in Article 10, part 2,
of the Securities Market Law (Ley de Mercado de
Valores), and in General Regulation 30, (la Norma de
Carácter General N° 30), duly empowered, I hereby
report the following ESSENTIAL FACT regarding LAN
Airlines S.A. (“LAN”), Securities Registry Nº 306:
1. On
S.A.,
January 18, 2011, LAN, Costa Verde
Inversiones Mineras
Aeronáutica
del Cantábrico S.A., TAM S.A. (“TAM”), TAM
Empreendimentos e Participações S.A., and
Messrs. Maria Cláudia Oliveira Amaro, Maurício
Rolim Amaro, Noemy Almeida Oliveira Amaro,
and João Francisco Amaro signed contracts
written
language, referred
to as
Implementation Agreement, and
(b) Exchange Offer Agreement (the “Executed
Contracts”, including subsequent amendments
thereto) containing the definitive terms and
conditions for the proposed combination of
LAN and TAM.
in the English
(a)
2. On December 21, 2011, shareholders’ meetings
were held authorizing the merger of LAN
with the companies Sister Holdco S.A. (“Sister
Holdco”) and Holdco II S.A. (“Holdco II”), two
companies incorporated specifically for the
purposes of the proposed combination of LAN
and TAM. If Holdco II successfully completes
the first-step exchange offer for TAM shares
(including those represented by TAM ADSs)
contemplated by the Executed Contracts, each
of Sister Holdco and Holdco II will merge with
and into LAN (the “Mergers”) and LAN will be
the surviving company of each Merger. Prior to
the Mergers, Sister Holdco will hold TAM shares
contributed by the controlling shareholders of
TAM and Holdco II will hold TAM shares and TAM
ADSs acquired in the exchange offer.
2012 ResultsANNUAL REPORT2012 4
9
3.
•
•
•
•
In accordance with the steps set forth in the
Executed Contracts:
a
to
request
LAN and Itaú Corretora de Valores S.A. (“Itaú
Corretora”), in its capacity as a depositary
organization, made
the
exchange authorities and stock exchange
in the Federative Republic of Brazil, to wit,
theComissão de Valores Mobiliários (the “CVM”)
and BM&FBOVESPA S.A.—Bolsa de Valores,
Mercadorias e Futuros (the “BM&FBOVESPA”), for
the registration of a Programa de Certificados
de Depósito de Ações Ordinárias de Emissão by
LAN, also known as a Brazilian Depositary
Receipts (“BDRs”) program.
Furthermore, on February 27, 2012, LAN and
Itaú Corretora signed a contract written in the
Portuguese language referred to as Contrato
de Prestação de Serviços de Emissão e
Escrituração de BDRs, which, subject to receipt
of the registration mentioned in the preceding
paragraph, regulates the issuance of the BDRs
and designates Banco Itaú Chile as the share
custodian.
On May 7, 2012, the CVM granted authorization
for the corresponding registration of the LAN
BDR program, which was assigned the ticker
symbol “LATM11”. Trading of the BDRs would
commence on the business day following the
completion of the Exchange Offer in Brazil (as
defined in the following paragraphs).
Furthermore, Holdco II, LAN, and Banco Itaú BBA
S.A., the latter acting through Itaú Corretora,
made a request to CVM and BM&FBOVESPA for
the registration of the offer for the exchange of
TAM shares in Brazil initially for Holdco II shares
and ultimately for LAN shares (as LAN will be the
legal successor of Holdco II after the Mergers)
in the form of BDRs, and cancellation of the
registration of TAM as a company listed on the
BM&FBOVESPA (the “Exchange Offer in Brazil”).
de Oferta Pública de Permuta de Ações para
Cancelamento de Registro de Companhia Aberta
e Consequente Saída do Nível 2 de Governança
Corporativa da BM&FBOVESPA regarding TAM
(the “Edital”).
•
•
The Edital can be found in the websites www.
lan.com, www.tam.com.br, www.latamairlines.
com and www.cvm.gov.br.
On May 7, 2012, the CVM and BM&FBOVESPA
granted authorization for the corresponding
registration of the Exchange Offer in Brazil
which, according to applicable regulations in
Brazil, must commence within the following 10
days.
26/04/2012 - 18:16
DISTRIBUTION OF PROFITS (PAYMENT OF
DIVIDENDS) / LAN AIRLINES S.A.
As provided in Articles 9 and 10 of Securities Market
Law 18045 and in General Rule #30 of the Commission
of 1989, please be advised that at a Regular
Shareholders Meeting of Lan Airlines S.A. (LAN) held
April 26, 2012, LAN’s shareholders approved payment
of the final dividend proposed by the Board at
its meeting held April 24, 2012, consisting of the
distribution of 50% of the 2011 fiscal year profits,
equal to US$160,098,330.74.
The two interim dividends #44 and #45 will be
imputed toward this dividend, which, combined,
amount to US$141,635,532.96 and were disclosed
and paid previously by LAN.
Consequently,
US$18,461,735.07 will be effectively distributed,
equal to US$0.05414 per share, payable starting May
17, 2012. All shareholders who are shareholders
on the fifth business day prior to that date will be
entitled to this dividend.
In compliance with Circular #660 of 1986, enclosed
please find Appendix 1 that describes this dividend
in detail.
•
The terms and conditions of the Exchange
Offer in Brazil will be reflected in the Edital
2012 ResultsANNUAL REPORT2012 5
9
26/04/2012 - 18:15
DISTRIBUTION OF PROFITS (PAYMENT OF
DIVIDENDS) /LAN AIRLINES S.A.
As provided in Articles 9 and 10 of Securities Market
Law 18045 and in General Rule #30 of the Commission
of 1989, please be advised that at a Regular
Shareholders Meeting (Meeting) of Lan Airlines S.A.
(LAN) held April 26, 2012, LAN’s shareholders elected
the members of LAN’s Board of Directors, who will
hold office for two years.
1.
2.
approval of the annual report, balance sheet
and financial statements of the Company for the
fiscal year ending December 31, 2011;
approval of the payment of a final dividend
on account of the 2011 fiscal year profits. The
interim dividends of US$0.116677 and US$0.24988
per share, paid in September 2011 and January
2012, must be imputed toward that sum;
3.
the election of the Company’s Board of Directors;
The following individuals were elected Directors at
the Meeting:
4.
•
•
•
•
•
•
•
•
•
Juan José Cueto Plaza;
José Cox Donoso;
Darío Calderón González;
Carlos Heller Solari;
Ramón Eblen Kadis;
Jorge Alberto Awad Mehech;
Bernardo Fontaine Talavera;
Juan Gerardo Jofré Miranda; y
Jorge Salvatierra Pacheco
The Directors named in numbers 6, 7, 8 and 9 above
were elected as independent directors, according to
article 50-bis of Companies Law 18,046.
27/03/2012 - 18:25
ORDINARY SHAREHOLDERS MEETING, NOTICES,
AGREEMENTS AND PROPOSALS / LAN AIRLINES S.A.
As provided in Articles 9 and 10 of Securities Market
Law and in General Rule #30, under due authorization,
please be advised that at a Regular Meeting held
March 27, 2012, the Board of Directors of Lan Airlines
S.A. (hereinafter the “Company”) resolved to convene
a Regular Shareholders Meeting at 10:30 a.m. on April
26, 2012 to discuss the following matters:
the compensation to be paid to the Company’s
Board of Directors for the fiscal year ending
December 31, 2012;
the compensation to be paid to the Company’s
Audit Committee and its budget for the fiscal
year ending December 31, 2012;
the appointment of the external auditing firm
and risk rating agencies for the Company; and
the reports on the matters indicated in Title XVI
of Companies Law 18,046;
information on the cost of processing, printing
and sending the
in
Circular 1816 of the Securities and Insurance
Commission;
information
indicated
5.
6.
7.
8. designation of the newspaper in which the
Company will make publications; and
9. other matters of corporate interest within the
purview of a Regular Shareholders Meeting of
the Company.
31/01/2012 - 18:04
OTHERS / LAN AIRLINES S.A.
Pursuant to article 9 and the second subparagraph
of article 10 of Securities Market Law 18045 and
General Rule No. 30 of the Securities and Insurance
Commission, under due authority and accordingly to
the board of Directors meeting held on January 31st,
2012, please be advised of the following MATERIAL
EVENT of Lan Airlines S.A. (“LAN”), Securities Register
N° 306:
2012 ResultsANNUAL REPORT2012 6
9
On this date, notwithstanding the forwarding of the
corresponding FECU within the pertinent deadline,
the Audit Committee and Board of Directors of
LAN Airlines S.A. have approved publication, as a
material event, of the financial information enclosed
herewith. This information corresponds to summary
financial information on the income statement and
consolidated balance sheet of the company and also
includes a qualitative explanation of the operating
performance for year 2011 as well as for the fourth
quarter ending December 31st, 2011.
Please note that LAN Airlines S.A. will provide this
financial information to its shareholders, investors
and the market in general for the purpose of (i)
providing them truthful, sufficient and timely
information in advance of the delivery of the
respective FECU within the applicable deadlines; (ii)
complying with the deadline for delivery of financial
information to the market, investors and analysts,
as has been the practice of LAN Airlines S.A. in recent
years; and (iii) keeping our shareholders, investors
and the market in general adequately informed
through the delivery of financial information on LAN
Airlines S.A. according to IFRS.
Finally, this financial information does not supersede
or modify the corresponding FECU according to IFRS,
which will be delivered for the purposes of year 2011
within the deadlines stipulated in the rules of the
Securities and Insurance Commission.
12/01/2012 - 19:29
OTHERS / LAN AIRLINES S.A.
As provided in Article 9, in the second subparagraph
of Article 10 of Securities Market Law and in General
Rule #30, under due authorization granted at the
Board Meeting held January 12, 2012, I hereby
DISCLOSE the following material event of LAN Airlines
S.A. (“LAN”), Securities Registration #306:
1. As reported to investors and to the market at large
upon the merger of LAN and TAM S.A. (“TAM”),
once the merger is perfected, it should create
annually synergies for approximately US$400
million. Overall, those synergies will come in
equal proportions from an alignment of the
passenger networks, a growth in the coverage of
cargo operations (internationally and in Brazil)
and cost reductions. Approximately one-third
of the synergies should be achieved during the
first year after the process is closed and all by
the end of the third year.
2. Because of the decision by the Antitrust Court
on September 21, 2001, which approved the
merger of both companies subject to fulfillment
of certain conditions, investors and the market
were later informed that the impact on minor
synergies given those mitigative measures
would be no more than US$10 million annually.
The previously announced figure of US$400
million annually would be reduced by that
amount.
3. According to evaluations made in the last 10
weeks together with McKinsey & Company and
Bain & Company, consultants, the combined
synergies after consummation of the merger of
LAN and TAM have been estimated to increase
the operating income of the new company,
LATAM Airlines Group S.A. (“LATAM”), over time
by US$600 million to US$700 million, before
depreciation and taxes, by the fourth year after
the merger is complete. This new estimation
is a reflection of the revision and adjustment
of combined cost savings and of income–
generating opportunities resulting from the
merger between LAN and TAM. It includes the
benefits of transferring the best practices
identified in certain areas.
From US$170
million to US$200 million of the total of this
new estimation of synergies are expected to be
attained during the first year after the merger is
complete.
4.
It is predicted that 40% of the potential synergies
in this new estimation of the synergies from the
merger of LAN and TAM would also come from
an increase in passenger income, 20% from an
increase in cargo income, and the remaining
40% from cost-savings synergies.
5. A press release and investor release sent by
LAN according to the Manual on Handling
Information of Interest of LAN is attached,
which was sent simultaneous to this disclosure.
It describes how the aforesaid potential
synergies will be created and segmented. This
2012 ResultsANNUAL REPORT2012
7
9
information is provided subject to the legends
and cautions contained in that release, which
are an essential part of the same.
2012 ResultsANNUAL REPORT2012 8
9
2012 RESULTS /
RISK FACTORS
RISKS RELATED TO OUR OPERATIONS AND THE
AIRLINE INDUSTRY
Our performance depends significantly on the
economic situation in the countries where we operate.
Adverse economic conditions in these countries
could have an adverse impact on our business. Its
success depends on key regulatory issues that can
negatively affect our business and operating results.
We depend on strategic alliances and commercial
relations in many countries in which we operate and
our business could be negatively impacted if any
of these strategic alliances or commercial relations
were terminated. Our businesses and operating
results could be negatively affected if we ceased to
obtain and maintain routes, suitable airport access
and slots and other operating permits.
Our businesses and the market value of our ADRs
and common shares would suffer if we were unable
to implement our growth strategy successfully.
Our businesses could be negatively affected by a
downturn in the commercial aviation industry as a
result of exogenous events that affect travel habits
or raise costs, such as epidemics, wars or terrorist
attacks.
A relatively limited range of products accounts for a
considerable part of our cargo revenues which could
be affected by events impacting their production or
sale.
high daily rate of aircraft utilization in order to
increase our revenues and this makes us particularly
vulnerable to delays.
We fly Airbus and Boeing aircraft and depend on
these companies. As a result, our business is at risk
if we do not receive opportune delivery of aircraft, if
aircraft are not available from these companies or if
the public has a negative perception of our aircraft.
We are frequently affected by certain factors
beyond our control such as weather conditions that
affect our operations. Losses and liabilities caused
by accidents affecting one or more aircraft could
have a significant impact on our businesses.
The intense competition in the airline industry can
adversely affect our level of operations. Some of our
competitors could receive external support with a
negative impact on our competitive position.
If, in future, we are unable to incorporate leased
aircraft into our fleet at acceptable prices and
conditions, our business could suffer.
Our operations are subject to fluctuations in the
supply and cost of jet fuel, which could negatively
affect our businesses. We rely on maintaining a
We are incorporating a number of technologies
and new equipment and their phase-in could have
2012 ResultsANNUAL REPORT2012 9
9
a negative impact on our service and operating
standards.
RISKS RELATED TO OUR COMMON SHARES AND
ADRs
Our business could be adversely affected if we were
unable to cover our important future financing
requirements. Our business could be negatively
affected by our high borrowing level and aircraft
leasing liabilities as compared to our equity.
Higher insurance costs and/or significant reductions
in its coverage could negatively affect our financial
situation and the results of our operations. Problems
in air control systems or other technical failures
could disrupt our operations and have a significant
adverse effect on our business.
Our controlling shareholders may have interests that
differ from those of our other shareholders. A limited
number of our ADRs and common shares have been
placed on the market and could experience further
illiquidity and price volatility. Holders of our ADRs
could be adversely affected by currency devaluations
and exchange-rate fluctuations. Future changes in
Chile’s foreign investment controls and withholding
taxes could negatively affect non-residents in Chile
who invest in our shares. Holders of our ADRs could,
in certain circumstances, be unable to exercise their
preferential rights.
Our financial success depends on the availability
and performance of key personnel, who are not
subject to non-competition restrictions. There can
be negative consequences for our business if we are
unable to reach satisfactory collective bargaining
agreements with our unionized employees. Pressure
from employees could cause operational difficulties
and negatively affect our business. Increases in
labor costs, which represent a significant part of our
operating costs, could directly affect our earnings.
We may experience difficulties in finding, training
and retaining employees. A failure on our part to
comply with the applicable environment regulation
could adversely affect our business and reputation.
RISKS INHERENT TO CHILE AND OTHER EMERGING
MARKETS
Events in Latin American countries and other
emerging markets could adversely affect the Chilean
economy, negatively
impact our business and
operating results and cause a drop in the market
price of our common shares and ADRs.
Fluctuations in the value of the Chilean peso and
the currencies of other countries where we operate
could adversely affect our revenues and profitability.
We are not obliged to disclose as much information
to our investors as US issuers and you may, therefore,
receive less information than from a comparable US
company.
2012 ResultsANNUAL REPORT2012
SUSTAINABILITY
LATAM AIRLINES GROUP S.A.
Tereza Alcantara
TAM Brasil
Alfredo Perilla
LAN Ecuador
1
0
1
SUSTAINABILITY /
LAN
At LAN, we are aware of our role as an agent with an
impact on society, the environment and economic
development. For this reason, the Company has,
since 2011, had in place a sustainability strategy
comprising eight spheres which, as a company,
we consider it a priority to address and which
represent the concrete way in which we contribute
to sustainable development.
OPERATIONAL EXCELLENCE
•
•
•
Host: We changed LAN’s booking, inventory
and passenger check-in system without any
interruption of our operations or significant
impact on clients.
Risk Management: We have created a special
integrated risk management area with a
financial approach.
Boeing 787 Dreamliners: The arrival of our first
three B-787s is the fruit of our efforts to increase
the efficiency and environmental friendliness of
our fleet.
ETHICS AND GOVERNANCE
•
•
Ethics point: We have implemented a platform
that allows our collaborators to make enquiries
and report complaints anonymously.
Global Compact: As LATAM Airlines Group,
we have signed the UN Global Compact in a
demonstration of our commitment to adhering
in our strategies and operations to its ten
principles (relating to human rights and labor,
SustainabilityANNUAL REPORT2012 2
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environmental and anti-corruption practices).
OUR PEOPLE
•
•
•
193 corporate volunteers: In 2012, 193 volunteers
reforested green areas in the cities of Buenos
Aires, Guayaquil and Santiago.
Employees: LAN has a total of 23,721 employees
of whom 42.8% are women and 57.2% are men.
1,022,140 hours of training: Our Corporate
Academy provided 1,022,140 hours of training to
a total of 21,006 employees in 2012, representing
an investment of US$31.13 million.
ENVIRONMENT
•
•
•
Biofuel: We carried out South America’s first
commercial flight using biofuel and support the
Roadmap Chile Bio Renovables initiative.
By managing fuel use on our flights, we have
gradually reduced CO2 emissions per unit
transported. In 2012, we emitted 72.09 kg of
CO2/100 RTK.
The carbon footprint of our subsidiary in Perú
was certified by the Spanish Normalization and
Certification Association (AENOR).
• We are members of the IATA Environmental
Assessment (IEnvA) Program, an environmental
management system designed specially for the
airline industry.
•
CO2 calculator: We posted a CO2 calculator on
www.lancargo.com with which it is possible to
calculate the impact of the movement of cargo.
SAFETY
•
•
1,489 employees are volunteers with the
Assistance to Passengers and their Families
(APF) Program.
IOSA: LAN and
Operational Safety Audit (IOSA) certification.
its subsidiaries have
IATA
SustainabilityANNUAL REPORT2012 3
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•
Zero accidents: Since 1991, no flight has suffered
an accident that has resulted in serious injury
to passengers or crew or serious damage to an
aircraft.
SUPPLIERS
•
•
•
81.2% of expenditure on global corporate
procurement went to suppliers in Argentina,
Chile, Colombia, Ecuador and Perú, the countries
we have domestic operations.
Four groups of suppliers: We classify our
suppliers into four groups: aircraft suppliers,
suppliers of inputs and fuel, in-flight suppliers
and suppliers of general goods and services.
Sustainable suppliers: In 2012, we worked to
draw up a supplier policy that incorporates
sustainability issues.
COMMUNITY
•
•
Cuido mi Destino program in 12 places: The
Cuido mi destino (I look after my destination)
program experienced strong growth in 2012,
restoring tourist attractions in 12 places in
South America, encouraging 693 young people
and 107 volunteers to promote sustainable
tourism.
4,331 children visit LAN: In 2012, 4,331 children
had the opportunity to visit the Company’s
installations and hundreds of them were able to
fly for the first time, thanks to the Conociendo
LAN (Getting to know LAN) programs.
• Works of art and animals: In 2012, LAN Cargo
transported nine elephants from Namibia
to Mexico City, 83 works of art from the
Guggenheim collection from Venice and New
York to Santiago for the Grandes Momentos
(Great Moments) exhibition and the instruments
of Chile’s National Youth Symphony Orchestra
to Frankfurt for its tour of Europe.
•
Donation of LANPASS kilometers: The donation
of 1,000,000 LANPASS kilometers to three NGOs
marked the launch in Chile of the option of
SustainabilityANNUAL REPORT2012 4
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1
donating LANPASS kilometers, without a
transfer charge, to NGOs throughout Latin
America that have an alliance with LAN (América
Solidaria, COANIQUEM, TECHO).
CARGO CLIENTS AND PASSENGERS: WE PROMOTE
SOUTH AMERICA IN THE REST OF THE WORLD
•
•
•
•
LAN and TAM unified their cargo operations
and together transported 1.2 million tonnes of
freight as well as 64.9 million passengers.
LANPASS had 7.4 million members and 572,637
tickets were obtained with LANPASS kilometers.
Sustainable tourism: In-flight promotion of
sustainable tourism through videos, images on
snacks and the In magazine.
Customer rights: Campaigns were implemented
in Colombia and Argentina to inform our
passengers about their rights and obligations.
SustainabilityANNUAL REPORT2012 5
0
1
SUSTAINABILITY /
TAM
CLIENTS
We demonstrate our commitment to sustainability
in order to make this apparent to clients at all points
of contact from booking to boarding.
•
In-Flight Waste Separation:
In 2012, we
achieved great progress in our sustainability
projects, particularly in the area of in-flight
waste separation where we equipped our
planes with specially adapted trolleys that
have two compartments, one for organic
waste and the other for recyclable waste.
This initiative is part of the adjustment required
to comply with new disposal procedures
introduced by Infraero at São Paulo’s Congonhas
Airport which we saw as an opportunity to
apply waste separation to our entire domestic
network. We also trained our cabin crews and
other employees involved in waste collection
and prepared an educational campaign for
passengers. Tests showed that approximately
85% of in-flight waste is recyclable.
• Media: We use our in-flight media and presence
in social networks to inform clients about our
sustainability practices as well as to promote
the concept of sustainability, addressing issues
such as sustainable tourism, conservation of
the environment, diversity, social inclusion and
volunteer activities. In this way, we help to give
greater visibility to the campaigns and activities
of the NGOs with which we have alliances whilst
also strengthening our ties with them.
SustainabilityANNUAL REPORT2012
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0
1
•
Awards: We received the ISTOÉ Dinheiro Award
as the transport services company with the best
social responsibility performance.
EMPLOYEES
We seek to increase our employees’ awareness of
issues related to sustainability through educational
and motivational activities and encourage our teams
to adopt sustainable practices in their activities both
within and outside the Company.
•
•
Education: In view of our crews’ close relations
with clients, we decided to create a training
program on sustainability especially for them.
The result was the FOCCO program, launched
in 2011, which, in two years, has already trained
4,060 cabin staff.
internal policy of valuing
Diversity: Our
diversity and non-discrimination and seeking
integration
account
equity
of people with disabilities, ethnic-racial
issues, gender, age and sexual orientation.
takes
and
We promote diversity through:
(Young
Aprendiz
Apprentice)
Jovem
program: The key objective of the Young
Apprentice program is to prepare young
people for their professional life, providing
conditions
training and, by
of
social
employability,
inclusion. Over 600 young people aged
between 14 and 24, who are starting their
professional careers with our Company,
are currently participating in the program.
creating
guaranteeing
Inclusão
(Wings of
Asas da
Inclusion)
program: Through this program, we train
people with disabilities so they can fill work
posts in the Company. By 2012, a total of 319
people had received this training.
VOLUNTEER ACTIVITIES
• We have in place two volunteer programs
SustainabilityANNUAL REPORT2012
7
0
1
developed in conjunction with international
institutions:
• Make a Wish: We make the dreams of terminally
ill children come true. Our
or seriously
employees participate in this program through
groups that meet to fulfill the dreams of these
children and young people.
•
Junior Achievement: We promote classes on
entrepreneurship given by volunteer employees
to young people from deprived communities.
In addition to these two programs, we also undertake
specific activities such as campaigns to collect
clothing and toys.
ENVIRONMENT
In order to avoid or minimize damage to the
environment, we must understand and study the
environmental impact of our present and future
activities. At TAM, we have a plan in place to reduce
emissions of greenhouse gases and the generation
of waste and to protect biodiversity.
•
•
Climate Change: We have a working group
charged with reducing our emissions of
greenhouse gases through education about the
issue, research for the development of biofuels
and our operational practices.
Biofuel: On 22 November 2010, we carried
out an experimental flight in a commercial
aircraft using biofuel made from jatropha,
an oilseed plant also used
to produce
biodiesel. This was the first flight of its type
in Latin America and represented a milestone
industry.
in the history of Brazil’s airline
In this experimental project, the aircraft, an
Airbus A320 with a capacity for 174 passengers,
took off from Río de Janeiro’s Tom Jobim
International Airport and flew over the Atlantic
Ocean in Brazilian airspace for 45 minutes,
with 18 people on board including technicians
and executives from TAM and other companies
SustainabilityANNUAL REPORT2012
8
0
1
involved in the project. Brazil is already working
on different lines of research and the first aircraft
biofuels are expected to be ready for production
in five years’ time. Through this innovative
project, we have taken the first step towards the
creation of a Brazilian aircraft biofuel platform.
The long-term goal is to replace up to 20% of oil-
based kerosene with the new biokerosene. This
will represent an enormous gain from the point
of view of the environment since it will allow
the Company to reduce the carbon emissions of
its flights by between 65% and 80%.
WASTE SEPARATION, RECYCLING AND DISPOSAL
• Waste Separation: We installed groups of bins
for each type of waste (paper, plastic, metal,
non-recyclable, etc.) at strategic places.
•
Recycling of Uniform: TAM
is working to
recycle waste with the potential for reuse. In
conjunction with a specialized company, we are
recycling old uniforms.
• Waste Management: This is required by law
and we monitor and organize disposal of
the different types of waste generated by all
TAM’s different activities (offices, maintenance
hangars, cargo terminals and airports). By 2012,
100% of bases were managing the waste that
poses the highest risk of environmental impact.
•
Environmental permits: The process through
which an activity obtains an environmental
permit or is exempted from requiring a permit
is established by law. Rather than merely
complying with
requirements, TAM
has adopted a proactive stance, investing in
processes for obtaining environmental permits.
In 2012, six bases completed the process and
were exempted from requiring a permit while
another 25 bases are engaged in the same
process and awaiting the results.
legal
•
Emissions Report: EThe fifth GHG Report was
prepared in conjunction with different areas of
the Company but has yet to be published.
SustainabilityANNUAL REPORT2012
9
0
1
•
Investors: We seek to explain to investors that
our sustainability practices have a bearing
on their economic interests, demonstrating
that our economic results are related to the
Company’s environmental and social activities.
We do this through the annual publication of a
Sustainability Report.
COMMUNITY
We undertake activities related to sustainable
tourism and the environment and strive to establish
close relations with the community.
•
•
•
invest
resources
Social Investment fund: Our private social
investment has a strategic focus on the
development of sustainable
tourism and
protection of the environment. Each year,
in non-profit social
we
organizations such as associations, foundations
and NGOs that promote these issues, with
an emphasis on projects that foster tourism
in hospitality, the
through
promotion of local culture, the mitigation of
environmental impacts and conservation of the
environment. The number of NGOs registering
in the selection process has increased year by
year. In 2013, over 200 projects were presented,
up by 82% on the previous year, by a total of 110
organizations.
improvements
Donations: In addition to our social investment
fund, we also donate surplus
items from
our operations and those collected through
campaigns.
In 2012, over 240,000 people
benefited from these donations.
Suppliers: We have had a project in place
sustainable
for
the
2007.
practices
implementation of
suppliers
since
by
In 2012, we went on to launch a second
stage of this project, drawing up a map of
the more than 4,000 suppliers of TAM Linhas
includes evaluation of their
Aéreas. This
contracts,
inclusion of sustainability
clauses, workshops for critical suppliers and
the
SustainabilityANNUAL REPORT2012
0
1
1
sustainability audits and training as well as
the design of LATAM’s sustainability policy.
We expect to complete this project during the first
half of 2013.
SustainabilityANNUAL REPORT2012 CONSOLIDATED FINANCIAL STATEMENTS
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
DECEMBER 31, 2012
CONTENTS
> Consolidated Statement of Financial Position
> Consolidated Statement of Income by Function
> Consolidated Statement of Comprehensive Income
> Consolidated Statement of Changes in Equity
> Consolidated Statement of Cash Flows - Direct Method
> Notes to the Consolidated Financial Statements
-
CLP
-
ARS
-
US$
-
THUS$
-
COP
BRL/R$ -
-
THR$
CHILEAN PESO
ARGENTINE PESO
UNITED STATES DOLLAR
THOUSANDS OF UNITED STATES DOLLARS
COLOMBIAN PESO
BRAZILIAN REAL
THOUSANDS OF BRAZILIAN REAL
NOTES
NOTE 1. General information
NOTE 2. Summary of significant accounting policies
2.1. Preparation
2.2. Consolidation
2.3. Foreign currency transactions
2.4. Property, plant and equipment
2.5. Intangible assets other than goodwill
2.6. Goodwill
2.7. Borrowing costs
2.8. Losses for impairment of non-financial assets
2.9. Financial assets
2.10. Derivative financial instruments and hedging activities
2.11. Inventories
2.12. Trade and other accounts receivable
2.13. Cash and cash equivalents
2.14. Capital
2.15. Trade and other accounts payables
2.16. Interest-bearing loans
2.17. Deferred taxes
2.18. Employee benefits
2.19. Provisions
2.20. Revenue recognition
2.21. Leases
2.22. Non-current assets (or disposal groups) classified as held for sale
2.23. Maintenance
2.24. Environmental costs
NOTE 3. Financial risk management
3.1. Financial risk factors
3.2. Capital risk management
3.3. Estimates of fair value
NOTE 4. Accounting estimates and judgments
NOTE 5. Segmental information
NOTE 6 . Cash and cash equivalents
NOTE 7. Financial instruments
13
19
19
24
25
25
26
26
26
26
27
28
29
29
29
29
29
29
29
30
30
30
31
31
31
31
32
32
43
44
48
49
51
53
7.1. Financial instruments by category
7.2. Financial instruments by currency
NOTE 8. Trade, other accounts receivable and non-current accounts receivable
NOTE 9. Accounts receivable from/payable to related entities
NOTE 10. Inventories
NOTE 11. Tax assets
NOTE 12. Other financial assets
NOTE 13. Other non-financial assets
NOTE 14. Non current assets (or disposal groups) classified as held for sale
NOTE 15. Investments in subsidiaries
NOTE 16. Equity accounted investments
NOTE 17. Intangible assets other than goodwill
NOTE 18. Goodwill and bussines combination
18.1. Goodwill
18.2. Business Combination
NOTE 19. Property, plant and equipment
NOTE 20. Taxes and deferred tax
NOTE 21. Other financial liabilities
NOTE 22. Trade and other accounts payables
NOTE 23. Other provisions
NOTE 24. Tax liabilities
NOTEE 25. Other non-financial liabilities
NOTE 26. Employee benefits
NOTE 27. Accounts payable non-current
NOTE 28. Equity
NOTE 29. Revenue
NOTE 30. Costs and expenses by nature
NOTE 31. Gains (losses) on the sale of non-current assets not
classified as held for sale
NOTE 32. Other income, by function
NOTE 33. Foreign currency and exchange rate differences
NOTE 34. Earnings per share
NOTE 35. Contingencies
NOTE 36. Commitments
NOTE 37. Transactions with related parties
NOTE 38. Share-based payments
NOTE 39. The environment
NOTE 40. Events subsequent to the date of the financial statements
SUBSIDIARIES AND AFFILIATED COMPANIES
53
55
56
60
62
63
64
66
67
68
71
75
77
77
78
84
94
99
111
113
116
117
118
119
120
126
127
129
130
131
134
139
149
155
158
161
162
167
6
1
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
Assets
CURRENT ASSETS
Cash and cash equivalents
Other financial assets
Other non-financial assets
Trade and other accounts receivable
Accounts receivable from related entities
Inventories
Tax assets
TOTAL CURRENT ASSETS OTHER THAN NON-CURRENT ASSETS
(OR DISPOSAL GROUPS) CLASSIFIED AS HELD FOR SALE
OR AS HELD FOR DISTRIBUTION TO OWNERS
NON-CURRENT ASSETS (OR DISPOSAL GROUPS) CLASSIFIED AS HELD
FOR SALE OR AS HELD FOR DISTRIBUTION TO OWNERS
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Other financial assets
Other non-financial assets
Accounts receivable
Equity accounted investments
Intangible assets other than goodwill
Goodwill
Property, plant and equipment
Current tax assets, long term portion
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
Note
6 - 7
7 - 12
13
7 - 8
7 - 9
10
11
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
650,263
636,543
169,824
1,426,330
15,187
181,283
220,529
374,407
227,803
32,711
531,355
838
72,787
98,789
3,299,959
1,338,690
14
47,655
4,661
3,347,614
1,343,351
7 - 12
13
7 - 8
16
17
18
19
11
20
74,095
243,905
50,612
3,757
1,848,593
3,008,657
21,833
15,205
7,491
991
64,923
163,777
11,797,889
5,927,982
73,516
144,629
42,958
60,148
17,245,653
6,305,308
20,593,267
7,648,659
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
7
1
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
LATAM AIRLINES GROUP S.A AN D SUBSIDIARIES
Liabilities and Equity
LIABILITIES
Other financial liabilities
Trade and other accounts payables
Accounts payable to related entities
Other provisions
Tax liabilities
Other non-financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Other financial liabilities
Accounts payable
Other provisions
Deferred tax liabilities
Employee benefits
Other non-financial liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Retained earnings
Treasury Shares
Other reserves
Parent’s ownership interest
Non-controlling interest
TOTAL EQUITY
Note
7 - 21
7 - 22
7 - 9
23
24
25
7 - 21
7 - 27
23
20
26
25
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
2,047,330
1,652,955
274
21,719
115,481
582.257
645.086
367
7.363
29.369
1,942,530
1.057.637
5,780,289
2.322.079
7,698,857
3,109,136
731.235
536,334
558,049
18,366
101,321
354,930
22,385
369,625
13,132
-
9,644,162
3,869,208
15,424,451
6,191,287
Note
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
28
28
28
28
1,501,018
473,907
1,106,168
1,116,798
(203)
-
2,535,100
(145,381)
5,142,083
1,445,324
26,733
12,048
5,168,816
1,457,372
TOTAL LIABILITIES AND EQUITY
20,593,267
7,648,659
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
8
1
1
s
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CONSOLIDATED STATEMENT OF INCOME BY FUNCTION
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
Revenue
Cost of sales
GROSS MARGIN
Other income
Distribution costs
Administrative expenses
Other expenses
Other gains/(losses)
GAINS (LOSSES) FROM OPERATING ACTIVITIES
Financial income
Financial costs
Equity accounted earnings
Foreign exchange gains/(losses)
Result of indexation units
INCOME BEFORE TAXES
INCOME TAX EXPENSE
Net income for the period
Income attributable to owners of the parent
Income attributable to non-controlling interest
For the Periods ended
December 31,
Note
2012
2011
ThUS$
ThUS$
29
9,722,189
5,585,440
(7,642,643)
(4,078,598)
32
30
16
33
20
2,079,546
1,506,842
220,156
(803,619)
(869,504)
(311,753)
(38,750)
132,804
(479,829)
(405,716)
(214,411)
(33,039)
276.076
506.651
77,489
14,453
(294,598)
(139,077)
972
66,685
(22)
126,602
(102,212)
24,390
10,956
13,434
458
(256)
131
382,360
(61,789)
320,571
320,197
374
NET INCOME FOR THE PERIOD
24,390
320,571
EARNINGS PER SHARE
Basic earnings per share (US$)
Diluted earnings per share (US$)
34
34
0.02657
0.02657
0.94335
0.94260
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
9
1
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
NET INCOME
Components of other comprehensive income, before taxes
Currency translation differences
Gains (losses) on currency translation, before tax
Other comprehensive income, before taxes, currency translation differences
Cash flow hedges
Gains (losses) on cash flow hedges before tax
Other comprehensive income, before taxes, cash flow hedges
Other components of other comprehensive income, before taxes
INCOME TAX RELATING TO OTHER COMPREHENSIVE INCOME
Income tax related to currency translation differences
in other comprehensive income
Income tax related to cash flow hedges in other comprehensive income
Amount of income taxes related to components of other comprehensive income
Other comprehensive income
TOTAL COMPREHENSIVE INCOME
Comprehensive income attributable to:
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interest
For the Periods ended
December 31,
Note
2012
2011
ThUS$
ThUS$
24,390
320,571
33
21
20
20
18,692
18,692
(2,510)
(2,510)
16,182
(2,734)
(2,623)
(5,357)
10,825
35,215
27,673
7,542
(10,864)
(10,864)
(40,368)
(40,368)
(51,232)
1,846
6,862
8,708
(42,524)
278,047
277,631
416
TOTAL COMPREHENSIVE INCOME
35,215
278,047
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
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CONSOLIDATED
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CHANGES IN
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LATAM AIRLINES
GROUP S.A AND
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CONSOLIDATED
STATEMENT OF
CASH FLOWS
DIRECT –
METHOD
LATAM AIRLINES
GROUP S.A AND
SUBSIDIARIES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash collection from operating activities
Proceeds from sales of goods and services
Other cash receipts from operating activities
PAYMENTS FOR OPERATING ACTIVITIES
Payments to suppliers for goods and services
Payments to and on behalf of employees
Other payments for operating activities
Interest received
Income taxes refunded (paid)
Other cash inflows (outflows)
NET CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows used in investing activities
Cash flows arising from the loss of control of subsidiaries or other entities
Cash flows used for acquisition of subsidiaries
Other cash receipts from sales of equity or debt instruments of other entities
Other payments to acquire equity or debt instruments of other entities
Amounts raised from sale of property, plant and equipment
Purchases of property, plant and equipment
Amounts raised from sale of intangible assets
Purchases of intangible assets
Payment from other long-term assets
Dividends received
Other cash inflows (outflows)
For the Periods ended
December 31,
Note
2012
2011
ThUS$
ThUS$
10,258,473
5,966,464
57,763
52,012
(7,153,865)
(4,286,394)
(1,938,769)
(19,325)
(52,986)
(3,018)
(50,433)
1,203,812
-
(3,223)
386,379
-
73,429
(883,297)
(84.000)
9.762
626
(7.499)
767,674
47,337
(3,541)
9,201
(72)
93,787
(2,389,364)
(1,367,025)
-
(59,166)
38,035
351
27,143
6,189
(27,615)
-
89
545
NET CASH FLOW USED IN INVESTING ACTIVITIES
(1,926,416)
(1,241,105)
Cash flows from (used in) financing activities
Amounts raised from issuance of shares
Payments to acquire or redeem the shares of the entity
Amounts raised from long-term loans
Amounts raised from short-term loans
Loans repayments
Payments of finance lease liabilities
Dividends paid
Interest paid
Other cash inflows (outflows)
The accompanying
Notes 1 to 40 form
an integral part of
these consolidated
financial
statements.
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents
before effect of exchanges rate change
Effects of variation in the exchange rate on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
83,512
(203)
2,185,663
152,000
(539,332)
(292,931)
(124,827)
(227,607)
(231,079)
1,005,196
23,153
-
969,252
334,500
(883,402)
(59,990)
(192,133)
(121,338)
146,849
216,891
282,592
(256,540)
(6,736)
275,856
374,407
(105)
(256,645)
631,052
650,263
374,407
6
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
AS OF DECEMBER 31, 2012
NOTE 1. GENERAL INFORMATION
(the “Company”)
LATAM Airlines Group S.A.
is
a public company registered with the Chilean
Superintendency of Securities and Insurance (SVS),
under No.306, whose shares are quoted in Chile on
the Stock Brokers - Stock Exchange (Valparaíso), the
Chilean Electronic Stock Exchange and the Santiago
Stock Exchange; it is also quoted in the United States
of America on the New York Stock Exchange (“NYSE”)
in New York in the form of American Depositary
Receipts (“ADRs”) and in Brazil BM & FBOVESPA S.A.
– Stock Exchange, Mercadorias e Futuros, in the form
of Brazilian Depositary Receipts (“BDRs”).
Its principal business is passenger and cargo air
transportation, both in the domestic markets of
Chile, Peru, Argentina, Colombia, Ecuador and
Brazil and in a developed series of regional and
international routes in America, Europe and Oceania.
These businesses are performed directly or through
its subsidiaries in different countries. In addition, the
Company has subsidiaries operating in the freight
business in Mexico, Brazil and Colombia.
On August 13, 2010, the Company reported to the
Superintendency of Securities and Insurance, as
an Essential Matter, that at this date the Company
Inversiones
Costa Verde Aeronáutica S.A. and
Mineras del Cantábrico S.A.
latter two,
(the
“Cueto Subsidiaries”), TAM S.A. (“TAM”), and TAM
Empreendimentos e Participações (“TEP”) signed
a non-binding Memorandum of Understanding
(“MOU”) in which the companies agreed to proceed
with their intention of carrying out their operations
jointly under one parent company, to be named
LATAM Airlines Group S.A. (“LATAM”). The proposed
affiliation would be within the world’s 10 largest
airline groups, providing transport services for
passengers and cargo to more than 115 destinations
in 23 countries, operating with a fleet of over 300
aircraft, with over 50,000 employees. Both airlines
would continue operating independently with their
current operating licenses and brands. On October
20, 2010, the Company and TAM announced that the
operating subsidiaries of TAM had presented the
structure of the transaction to the Brazilian Civil
Aviation Agency (“ANAC”), which was approved by
this agency on March 1, 2011.
On January 18, 2011 the parties of the MOU and Mrs.
Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro,
Noemy Almeida Olivera Amaro and Joao Francisco
Amaro (“Amaro Family”), as the only shareholders
of TEP, signed binding contracts written in English
(b)
called
Exchange Offer Agreement (“Contracts Signed”)
containing the final terms and conditions of the
proposed partnership between the Company and
TAM.
Implementation Agreement and
(a)
On September 21, 2011, the Court of Defense of Free
Competition (“TDLC”) approved the merger between
the Company and TAM, establishing 14 mitigation
4
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measures. On October 3, 2011, the Company and
TAM filed an appeal to the Supreme Court objecting
to certain mitigation measures. On April 5, 2012,
the Supreme Court confirmed the TDLC resolution
rejecting the appeal filed by both companies.
On December 21, 2011, the Board of the Company
cited a special meeting of shareholders, carried out
on November 11, 2011, in which their shareholders
approved, among others, the following matters:
(a) The merger of the Company with Sister Holdco
S.A. and Holdco II S.A. companies (the “Absorbed
Companies”), two companies specially constituted
for the purpose of the association between the
Company and TAM;
(b) The change of Company name and the rest of
the transactions contemplated in the subscribed
contracts.
(c) The increase in capital by US$ 1,465,372,970.09
by issuing 147,355,882 common shares without par
value of which:
(i) US$ 1,417,639,617.60 through the issuance of
142,555,882 shares, which would be intended to be
exchanged for shares of the Absorbed Companies
as a result of the proposed merger, at a rate of 0.9
new shares of the Company for each share that is
fully subscribed and paid for each of the Absorbed
Companies, and that belongs to shareholders other
than the Company’s. The shares that the Company
holds in the acquired companies at the time of the
merger, shall have no effect; and
(ii) US$ 47,733,352.49 through the issuance of 4,800,000
shares, which would go towards compensation plans
for employees of the Company and its Subsidiaries,
as provided in Article 24 of the Corporations Law.
The effectiveness of these agreements was subject
to compliance with the conditions established in the
extraordinary shareholders’ meeting.
On May 10, 2012, the Company and Holdco II initiated
the exchange offer of TAM shares. Having complied
with the conditions for declaring the exchange offer
successful and having received 95.9% of the total
shares of TAM in circulation, on June 22, 2012,
the Company and the Absorbed Companies
granted the execution deed of Merger, through
which the shares of the Absorbed Companies
were exchanged for shares of the Company, as
effected according to that described above. On
that same date the change of the Company’s
name to “LATAM Airlines Group S.A.” became
effective. The execution deed was rectified by
instrument dated July 10, 2012.
On September 4, 2012 the Board of the Company
cited a special meeting of shareholders, carried
out on August 3, 2012 in which their shareholders
approved, among others, the following matters:
(a) Total revocation of the Board and election of
the new Board of the Company.
(b) Approval that the remaining 7,436,816 LATAM
shares, out of the total 142,555,882 shares issued
under the authorization of the Extraordinary
Shareholders’ Meeting held on December 21,
2011, and that were not to be exchanged for
shares of the Sister Holdco SA and Holdco II
SA, would be defined to be offered preferably
to LATAM shareholders under Article 25 of the
Corporations Law and that the unsubscribed
balance would be offered and placed on the
market in general.
(c) Authorization of the Board of the Company to
agree and proceed with the broadest powers, the
terms of the issue and placement of the referred
remaining shares and delegation to the Board
of the Company the authority to determine, fix
and agree freely and with broadest powers the
placement price of the shares in accordance
with the second paragraph of Article 28 of the
Corporate Regulations.
(d) Delegation to the Board of the Company the
authority to determine, fix and agree freely and
with the broadest powers the placement price of
4,800,000 shares defined under the Extraordinary
Shareholders meeting dated December 21, 2011
to the compensation in terms of Article 24 of the
Corporations Law, in accordance with the second
paragraph of Article 28 of the Corporations
Regulations, and determine the terms and
conditions applicable to the latter.
5
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of 1,660 registered shareholders. At that date
approximately 6.16% of the Company’s share capital
was in the form of ADRs and approximately 1.36% in
the form of BDRs.
The Company had an average of 22,214 employees
in the first semester of 2012 and 53,167 employees
in the second semester of 2012, caused by Business
Combination with TAM S.A. and Subsidiaries. Ended
this year with a total of 53,599 employees, spread
over 8,980 administrative employees, 6,932
in
Maintenance, 18,138 in Operations, 10,164 in Cabin
Crew, 4,527 in Controls Crew, and 4,858 in Sales.
The subsidiaries included in these consolidated
financial statements are as follows:
The placement of the shares referred to in paragraph
(b) above was approved by the Superintendency of
Securities and Insurance, on December 11, 2012. On
December 20, 2012, the Board of Directors agreed
to start, from December 21, 2012, at the period of
preferred option of those shares and proceeded to
fix the price of placement of them, all of which was
reported to the Superintendency of Securities and
Insurance by Essential Matter on the same date.
The Information on the result of this placement is
available in Note 40 on Subsequent Events.
The Company is located in Santiago, Chile, at Avenida
Américo Vespucio Sur No. 901, commune of Renca.
Corporate Governance practices of the Company
are set in accordance with Securities Market Law
the Corporations Law and its regulations, and the
regulations of the SVS and the laws and regulations
of the United States of America and the U.S. Securities
and Exchange Commission (“SEC”) of that country,
with respect to the issuance of ADRs, and the Federal
Republic of Brazil and the Comissão de Valores
Mobiliários (“CVM”) of that country, as it pertains to
the issuance of BDRs.
The Board of the Company is composed of nine
members who are elected every two years by the
ordinary shareholders’ meeting. The Board meets
in regular monthly sessions and in extraordinary
sessions as the corporate needs demand. Of the nine
board members, three form part of its Directors’
Committee which fulfills both the role foreseen in
the Corporations Law and the functions of the Audit
Committee required by the Sarbanes Oxley Law
of the United States of America and the respective
regulations of the SEC.
The majority shareholder of the Company is the Cueto
Group, which through Costa Verde Aeronáutica S.A.,
and its Subsidiaries, Inversiones Nueva Costa Verde
Aeronáutica Limitada, Costa Verde Aeronáutica., Spa
owns 25.92% of the shares issued by the Company,
and therefore is the controlling shareholder of the
Company in accordance with the provisions of the
letter b) of Article 97 and Article 99 of the Securities
Market Law, given that there is a decisive influence
on its administration.
As of December 31, 2012, the Company had a total
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Additionally, has proceeded to consolidate special
purpose entities, denominated: JOL, destined to
the aircraft financing and Chercán Leasing Limited,
destined to the aircraft advance financing, as the
Company has major risks and benefits associated to
them according to standards issued by the Standing
Interpretations Committee of the International
Accounting Information: Consolidation
- Special
Purpose Entities (“SIC 12”) and private investment
funds in which the parent company and subsidiaries
are contributors.
All the entities controlled have been included in
the consolidation.
Changes in the scope of consolidation between January
1, 2011 and December 31, 2012, are detailed below:
(1) Incorporation or acquisition of companies
- AEROASIS S.A., direct subsidiary of Lan Pax Group
S.A, was acquired in February 2011 (See Note 18.2).
- TAM S.A. and Subsidiaries became part of LATAM
Airlines Group S.A. as of June 22, 2012 date on which
merger was materialized with the companies Sister
Holdco S.A. and Holdco II S.A. (see Note 18.2).
(2) Disposal of companies
- Blue Express INTL Ltda. and Subsidiaries, dated
April 6, 2011 Lan Cargo S.A. and Inversiones Lan S.A.,
subsidiaries of LATAM Airline Group S.A., as sellers,
and Servicios de Transporte Limitada and Inversiones
Betmin SpA, subsidiaries of the Bethia S.A. company,
as buyers, entered into a purchase agreement in
respect to 100% of the share capital of Blue Express
INTL Ltda. and its subsidiary Blue Express S.A. The
sales value of Blue Express INTL Ltda and subsidiary
was ThUS$ 53,386, the book value of the investment
at March 2011 was ThUS$ 9,061, the sale generated
a profit of approximately ThUS$ 44,325, which is
reflected in Other gain (loss) in the Consolidated
income statement.
9
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNT-
ING POLICIES
The following describes the principal accounting
policies adopted in the preparation of these consoli-
dated financial statements.
2.1. PREPARATION
The consolidated financial statements of LATAM Air-
lines Group S.A. are for the period ended December
31, 2012 and have been prepared in accordance with
International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards
Board (IASB) and IFRIC interpretations.
The consolidated financial statements have been
prepared under the historic-cost criterion, although
modified by the valuation at fair value of certain fi-
nancial instruments.
The preparation of the consolidated financial state-
ments in accordance with IFRS requires the use of
certain critical accounting estimates. It also requires
management to use its judgment in applying the
Company’s accounting policies. Note 4 shows the
areas that imply a greater degree of judgment or
complexity or the areas where the assumptions and
estimates are significant to the consolidated finan-
cial statements.
In order to facilitate comparison, there have
been some minor reclassifications to the consoli-
dated financial statements corresponding to the
previous year.
0
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(a) Accounting pronouncements with implementation effective from
January 1, 2012:
Standards and amendments
Amendment to IFRS 7: Financial Instruments:
Disclosures Issued in October 2010, increases the disclosure requirements
for transactions involving transfers of financial assets. Comparative
information for the first year of implementation is not required.
Amendment to IAS 12:
Income tax This amendment, issued in December 2010, provides an excep-
tion to the general principles of IAS 12 for investment properties that are
measured using the fair value contained in IAS 40 “Investment Property”.
The exception also applies to investment property acquired in a Business
Combination if after the Business Combination the acquirer applies the
fair value contained in IAS 40. The amendment incorporates the presump-
tion that investment property valued at fair value, are made by sale, so
it requires apply to the temporary differences arising from these, the tax
rate for sales operations. Early adoption is permitted.
The adoption of the standards, amendments and interpretations described
above have not had a significant impact on the Company’s consolidated
financial statements.
(b) Accounting pronouncements with applications effective as of
January 1, 2013 and following:
Standards and amendments
Amendment to IAS 1: Presentation of financial statements
Issued in June 2011. The main change in this amendment requires that
items of Other Comprehensive Income are classified and grouped
evaluating if they potentially will be reclassified to results in future
periods. Early adoption is permitted.
IAS 27: Separate financial statements.
Issued in May 2011, replaces IAS 27 (2008). The scope of this standard
is restricted beginning with this change only for separate financial
statements, as the aspects related to the definition of control and
consolidation were removed and included in IFRS 10. Early adoption
is permitted in conjunction with IFRS 10, IFRS 11 and IFRS 12 and the
amendment to IAS 28.
Mandatory application:
Annual periods beginning on
or after
07/01/2011
01/01/2012
Mandatory application:
Annual periods beginning on
or after
07/01/2012
01/01/2013
1
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2
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N
N
A
Standards and amendments
Mandatory application:
Annual periods beginning on
or after
Amendment IFRS 7: Financial Instruments: Disclosures
01/01/2013
Issued in December 2011. Requires improvement of current disclosures over
compensation of financial assets and liabilities, with the aim of increasing
convergence between IFRS and USGAAP. These revelations are focused on
quantitative information over the financial instruments recognized that
offset in the Statement of Financial Position. Early adoption is permitted.
IFRS 10: Consolidated financial statements
01/01/2013
Issued in May 2011, replaces SIC 12 “Consolidation of special purpose enti-
ties” and orientation on control and consolidation in IAS 27 “Consolidated
Financial Statements”. Sets clarifications and new parameters for the defi-
nition of control, and the principles for the preparation of consolidated fi-
nancial statements. Early adoption is permitted in conjunction with IFRS
11, IFRS 12 and amendments to IAS 27 and 28.
IFRS 11: Joint arrangements
Issued in May 2011, replaces IAS 31 “Interests in Joint Ventures” and SIC 13
“Jointly controlled entities”. Provides a more realistic reflection of joint ar-
rangements by focusing on rights and obligations arising from the agree-
ments rather than their legal form. Within its modifications include the
elimination of the concept of jointly controlled assets and the possibility
of proportional consolidation of entities under joint control. Early adop-
tion is permitted in conjunction with IFRS 10, IFRS 12 and amendments to
IAS 27 and 28.
IFRS 12: Disclosures of interests in other entities
Issued in May 2011, brings together in one standard all required disclosures
in the financial statements related to investments in other entities, wheth-
er they are classified as subsidiaries, associates or joint ventures. Applica-
ble for entities that hold investments in subsidiaries, joint ventures, and
associates. Early adoption is permitted in conjunction with IFRS 10, IFRS 11
and amendments to IAS 27 and 28.
01/01/2013
01/01/2013
2
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N
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Standards and amendments
Mandatory application:
Annual periods beginning on
or after
IFRS 13: Fair value measurement
Issued in May 2011, brings together in one standard the way to measure
the fair value of assets and liabilities and disclosures required on it, and
incorporates new concepts and explanations for measurement.
IAS 19 Revised: Employee benefits
Issued in June 2011, replaces IAS 19 (1998). This revised standard changes
the recognition and measurement of costs for defined benefit plans and
termination benefits. Additionally, it includes modifications to disclo-
sures for all employee benefits.
Amendment to IAS 32: Financial instruments: Presentation
Issued in December 2011. Clarifies the requirements for off-setting finan-
cial assets and liabilities in the Statement of Financial Position. Specifi-
cally, that the right to compensation should be available at the reporting
date and not depend on a future event. It also indicates that it must be le-
gally binding upon both counterparties in the normal course of business,
as well as in the case of default, insolvency or bankruptcy. Early adoption
is permitted.
IFRS 9: Financial instruments
Issued in December 2009, amending the classification and measurement
of financial assets.
Later this standard was amended in November 2010 to include treatment
and classification of financial liabilities. Early adoption is permitted.
01/01/2013
01/01/2013
01/01/2014
01/01/2015
3
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N
A
Improvements issued in May 2012
IAS 1: Presentation of financial statements – Clarifies requirements for
comparative information when an entity has a 3rd Statement of Financial
Position column.
01/01/2013
IAS 16: Property plant and equipment - Clarifies that the parts and service
equipment will be classified as Property, plant and equipment rather than
inventory, as it meets the definition of Property, plant and equipment.
IAS 32: Financial instrument: Presentation - Clarifies the treatment income
tax distributions and related transaction costs.
IAS 34 Interim Financial Reporting - Clarifies the disclosure requirements
of segment assets and liabilities in interim periods, confirming the same
requirements applicable to annual financial statements.
Amendments to IFRS 10: Consolidated Financial Statements, IFRS 11:
Joint Arrangements and IFRS 12: Disclosure of interests in other entities.
Issued in June 2012. Clarifies the transitional provisions for IFRS 10,
indicating that it is necessary to apply the first day of the annual period in
adopting the rule. Therefore, it may be necessary to make modifications to
the comparative information presented in this period, if the evaluation of
the control over investments differs from that recognized in accordance
with IAS 27/SIC 12.
IAS 27: Separate Financial Statements and IFRS 10: Consolidated Financial
Statements and IFRS 12: Disclosure of interests in other entities - issued in
October 2012. The modifications include the definition of an investment
entity and introduce an exception to consolidate certain subsidiaries
pertaining to investment entities. This amendment requires an entity to
measure the investment of these subsidiaries at fair value through profit
or loss according to IFRS 9 “Financial Instruments” in the consolidated
and separate financial statements. The amendment also introduces new
disclosure requirements on investment firms in IFRS 12 and IAS 27.
The Company’s management believes that the adoption of the standards,
amendments and interpretations described above would not have had a
significant impact on the Company’s consolidated financial statements in
the year of their first application. The Company has not early adopted any
of the above standards.
01/01/2014
4
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N
A
2.2. CONSOLIDATION
(b) Transactions with non-controlling interests
(a) Subsidiaries
Subsidiaries are all the entities (including special-
purpose entities) over which the Company has the
power to control the financial and operating policies,
which are generally accompanied by a holding of
more than half of the voting rights. In evaluating
whether the Company controls another entity,
the existence and effect of potential voting rights
that are currently exercisable or convertible at the
date of the consolidated financial statements are
considered. The subsidiaries are consolidated from
the date on which control is passed to the Company
and they are excluded from the consolidation on the
date they cease to be so controlled. The results and
flows are incorporated from the date of acquisition.
The Company uses the acquisition method for the
purchase of subsidiaries. The cost of acquisition
is the fair value of the assets delivered, the equity
instruments issued and the liabilities incurred or
assumed on the exchange date. The identifiable
assets acquired and the liabilities and contingent
liabilities assumed in a Business Combination are
initially valued at their fair value on the date of
acquisition, regardless of the extent of the non-
controlling interests. The excess of the acquisition
cost over the fair value of the Company’s holding
in the net identifiable assets acquired is shown as
Goodwill. If the cost is less than the fair value of the
net assets of the acquired subsidiary, the difference
is recorded directly in the consolidated statement of
income (Note 2.6). The transaction costs in a Business
Combination are recognized in the consolidated
income statement when they are incurred.
Inter-company transactions, balances and unrealized
gains on transactions between the Company’s
entities are eliminated. Unrealized losses are also
eliminated unless the transaction provides evidence
of an impairment loss of the asset transferred. When
necessary in order to ensure uniformity with the
policies adopted by the Company, the accounting
policies of the subsidiaries are modified.
The Company applies the policy of considering
transactions with non-controlling interests, when
not related to loss of control, as equity transactions
without an effect on income.
(c) Sales of subsidiaries
When a subsidiary
is sold and a percentage
of participation is not retained, the Company
derecognizes assets and liabilities of the subsidiary,
the non-controlling and other components of
equity related to the subsidiary. Any gain or loss
resulting from the loss of control is recognized in
the consolidated income statement in Other gains
(losses).
If LATAM Airlines Group S.A. and Subsidiaries
retain an ownership of participation in the sold
subsidiary, and does not represent control, this is
recognized at fair value on the date that control is
lost, the amounts previously recognized in Other
comprehensive income are accounted as if the
Company had disposed directly from the assets and
related liabilities, which can cause these amounts
are reclassified to profit or loss. The percentage
retained valued at fair value are subsequently
accounted using the equity method.
(d) Investees or associates
Investees or associates are all entities over which
LATAM Airlines Group S.A. and Subsidiaries have
significant influence but have no control. This
usually arises from holding between 20% and 50%
of the voting rights. Investments in associates are
booked using the equity method and are initially
recognized at their cost.
The participation of LATAM Airlines Group S.A.
and Subsidiaries in the losses or gains after the
acquisition of its investees or associates is shown
in results, and its participation in post acquisition
movements in reserves of investees or associates
are shown in reserves.
5
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U
N
N
A
is adjusted against
Post-acquisition movement
the book value of the investment. When the
participation of LATAM Airlines Group S.A. and
Subsidiaries in the losses of an investee or associate
is equal to or more than its holding in it, including
any other non guaranteed account receivable, LATAM
Airlines Group S.A. and Subsidiaries will not show the
additional losses unless it has incurred obligations
or made payments on behalf of the investee or
associate.
Gains or losses for dilution in investees or associates
are shown in the consolidated statement of income.
2.3. FOREIGN CURRENCY TRANSACTIONS
(a) Presentation and functional currencies
The items included in the financial statements of
each of the entities of LATAM Airlines Group S.A.
and Subsidiaries are valued using the currency of
the main economic environment in which the entity
operates (the functional currency). The functional
currency of LATAM Airlines Group S.A. is the United
States dollar which is also the presentation currency
of the consolidated financial statements of LATAM
Airlines Group S.A. and Subsidiaries.
(b) Transactions and balances
Foreign currency transactions are translated to
the functional currency using the exchange rates
on the transaction dates. Foreign currency gains
and losses resulting from the liquidation of these
transactions and from the translation at the closing
exchange rates of the monetary assets and liabilities
denominated in foreign currency are shown in the
consolidated statement of income.
(c) Group entities
The results and financial position of all the Group
entities (none of which has the currency of a hyper-
inflationary economy) that have a functional
currency other than the presentation currency are
translated to the presentation currency as follows:
translated at the closing exchange rate on the
consolidated statement of financial position date;
(ii) The revenues and expenses of each income
statement account are translated at the exchange
rates prevailing on the transaction dates,
(iii) All the resultant exchange differences are shown
as a separate component in Other comprehensive
income.
The exchange rates used correspond to those fixed
in the country where the subsidiary is located,
whose functional currency is different to the U.S.
dollar.
In the consolidation, exchange differences arising
from the translation of a net investment in foreign
entities (or local with a functional currency different
to that of the parent), and of loans and other foreign
currency instruments designated as hedges for these
investments, are recorded within net equity. When
the investment is sold, these exchange differences
are shown in the consolidated statement of income
as part of the loss or gain on the sale.
Adjustments to the Goodwill and fair value arising
from the acquisition of a foreign entity are treated
as assets and liabilities of the foreign entity and are
translated at the closing exchange rate.
2.4. PROPERTY, PLAN AND EQUIPMENT
The land of LATAM Airlines Group S.A. and Subsidiaries
less any accumulated
is recognized at cost
impairment loss. The rest of the Property, plant and
equipment are measured, initially and subsequently,
at historic cost less the corresponding depreciation
and any impairment loss.
The amounts of advance payments to aircraft
manufacturers are capitalized by the Company
under Construction in progress until receipt of the
aircraft.
(i) Assets and
liabilities of each consolidated
statement of financial position presented are
Subsequent costs (replacement of components,
improvements, extensions, etc.) are included in
6
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0
2
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E
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L
A
U
N
N
A
the value of the initial asset or shown as a separate
asset only when it is probable that the future
economic benefits associated with the elements
of Property, plant and equipment are going to flow
to the Company and the cost of the element can be
determined reliably. The value of the component
replaced is written off in the books at the time of
replacement. The rest of the repairs and maintenance
are charged to the results of the year in which they
are incurred.
Depreciation of Property, plant and equipment is
calculated using the straight-line method over their
estimated technical useful lives; except in the case of
certain technical components which are depreciated
on the basis of cycles and hours flown.
their estimated useful lives.
to
related
Expenses
the development or
maintenance of computer software which do not
qualify for capitalization, are shown as an expense
when incurred. Certain costs directly related to the
production of unique and identifiable computer
software controlled by the Company, are shown
as intangible Assets others than Goodwill when
they have met all the criteria for capitalization. The
direct costs include the expenses of the personnel
who develop the computer software and other costs
directly associated.
Development costs of computer software shown
as assets are amortized over their estimated useful
lives.
The residual value and useful life of assets are
reviewed, and adjusted if necessary, once per year.
2.6. GOODWILL
When the carrying amount of an asset is higher
than its estimated recoverable amount, its value
is reduced immediately to its recoverable amount
(Note 2.8).
Losses and gains on the sale of Property, plant and
equipment are calculated by comparing the proceeds
obtained with the book value and are included in the
consolidated statement of income.
2.5. INTANGIBLE ASSETS OTHER THAN GOODWILL
Brands and airport Slots
Brands and airport Slots are intangible assets of
indefinite useful life and are subject to impairment
tests annually.
The airport slots correspond to an administrative
authorization to carry out an operation of arrival
and departure of aircraft at a specific airport, within
a specified period.
Computer software
Licenses for computer software acquired are
capitalized on the basis of the costs incurred in
acquiring them and preparing them for using the
specific software. These costs are amortized over
Goodwill represents the excess of acquisition cost
over the fair value of the Company’s participation
in the net identifiable assets of the subsidiary or
associate on the acquisition date. Goodwill related
to acquisition of subsidiaries is not amortized but
tested for impairment annually. Gains and losses on
the sale of an entity include the book amount of the
goodwill related to the entity sold.
2.7.BORROWING COSTS
Interest costs incurred for the construction of
any qualified asset are capitalized over the time
necessary for completing and preparing the asset
for its intended use. Other interest costs are charged
to income and expenses.
2.8. LOSSES FOR IMPAIRMENT OF NON-FINANCIAL
ASSETS
Intangible assets that have an indefinite useful
life, and developing IT projects, are not subject to
amortization and are subject to annual testing for
impairment losses. Assets subject to amortization
are subjected to impairment tests whenever any
event or change in circumstances indicates that the
book value of the assets may not be recoverable.
An impairment loss is recorded when the book
value is greater than the recoverable amount. The
7
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0
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A
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N
N
A
recoverable amount of an asset is the higher of its
fair value less costs to sell and its value in use. In
evaluating the impairment, the assets are grouped at
the lowest level for which cash flows are separately
identifiable (CGUs). Non-financial assets other than
goodwill that have suffered an impairment loss are
reviewed if there are indicators of reverse losses.
2.9. FINANCIAL ASSETS
The Company classifies its financial instruments
in the following categories: financial assets at
fair value through profit and loss, loans and
receivables and financial assets held to maturity. The
classification depends on the purpose for which the
financial instruments were acquired. Management
its financial
determines the classification of
instruments at the time of initial recognition, which
occurs on the date of transaction.
(a) Financial assets at fair value through profit and
loss
Financial assets at fair value through profit and loss
are financial instruments held for trading and those
which have been designated at fair value through
profit or loss in their initial classification. A financial
asset is classified in this category if acquired mainly
for the purpose of being sold in the near future or
when these assets are managed and measured using
fair value. Derivatives are also classified as acquired
for trading unless they are designated as hedges.
Assets in this category are classified as Cash and cash
equivalents, held for trading, and other financial
assets, designated on initial recognition.
(b) Loans and receivables
Loans and receivables are non-derivative financial
instruments with fixed or determinable payments
not traded on an active market. These items are
classified in current assets except for those with
maturity over 12 months from the date of the
consolidated statement of financial position, which
are classified as non-current assets. Loans and
receivables are included in trade and other accounts
receivable in the consolidated statement of financial
position (Note 2.12).
(c) Financial assets held to maturity
Financial assets held to maturity are non-derivative
financial instruments with fixed or determinable
payments and fixed maturities that the Company’s
management has the positive intention and capacity
to hold until their maturity. Should the Company
sell a not-insignificant amount of the financial
assets held to their maturity, the whole category
is reclassified as available for sale. These financial
instruments held to maturity are included in non-
current assets, except for those maturity equal
to or less than 12 months from the consolidated
statement of financial position, which are classified
as other current financial assets.
Regular purchases and sales of financial assets are
recognized on the trade date – the date on which
the Group commits to purchase or sell the asset.
Investments are initially recognized at fair value
plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial
assets carried at fair value through profit or loss are
initially recognized at fair value, and transaction
costs are expensed in the income statement.
Financial assets are derecognized when the rights
to receive cash flows from the investments have
expired or have been transferred and the Group has
transferred substantially all risks and rewards of
ownership.
The financial assets at fair value through profit or
loss are subsequently carried at fair value. Loans and
receivables are subsequently carried at amortized
cost using the effective interest rate method. Held
to maturity investments are carried at amortized
cost using the effective interest rate.
At the date of each consolidated statement of
financial position, the Company assesses if there is
objective evidence that a financial asset or group of
financial assets may have suffered an impairment
loss. For the case of financial assets held to maturity,
if there is any evidence of impairment, the amount
of the provision is the difference between the
book value of the assets and the present value of
the estimated future cash flows, discounted at the
original effective interest rate.
2.10. DERIVATIVE FINANCIAL INSTRUMENTS AND
HEDGING ACTIVITIES
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N
A
Derivatives are booked initially at fair value on
the date the derivative contracts are signed and
later they continue to be valued at their fair value.
The method for booking the resultant loss or
gain depends on whether the derivative has been
designated as a hedging instrument and if so, the
nature of the item hedged. The Company designates
certain derivatives as:
(a) Hedge of the fair value of recognized assets (fair
value hedge);
(b) Hedge of an identified risk associated with a
recognized liability or an expected highly- probable
transaction (cash-flow hedge), or
(c) Derivatives that do not qualify for hedge
accounting.
The Company documents, at the inception of each
transaction, the relationship between the hedging
instrument and the hedged item, as well as its
objectives for managing risk and the strategy for
carrying out various hedging transactions. The
Company also documents its assessment, both at
the beginning and on an ongoing basis, as to whether
the derivatives used in the hedging transactions are
highly effective in offsetting the changes in the fair
value or cash flows of the items being hedged.
The total fair value of the hedging derivatives is
booked as an other non-current financial asset or
liability if the remaining maturity of the item hedged
is over 12 months, and as an other current financial
asset or liability if the remaining term of the item
hedged is less than 12 months. Derivatives not
booked as hedges are classified as Other financial
assets or liabilities.
(a) Fair value hedges
Changes in the fair value of designated derivatives
that qualify as fair value hedges are shown in the
consolidated statement of income, together with
any change in the fair value of the asset or liability
hedged that is attributable to the risk being hedged.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash
flow hedges is shown in the statement of other
comprehensive income. The loss or gain relating to
the ineffective portion is recognized immediately in
the consolidated statement of income under Other
gains (losses). Amounts accumulated in equity are
reclassified to profit or loss in the periods when the
hedged item affects profit or loss.
In case of variable interest-rate hedges, the amounts
recognized in the statement of Other comprehensive
income are reclassified to results within financial
costs at the same time the associated debts
accrue interest.
For fuel price hedges, the amounts shown in the
statement of Other comprehensive income are
reclassified to results under the line item Cost of
sales to the extent that the fuel subject to the hedge
is used.
For foreign currency hedges, the amounts recognized
in the statement of Other comprehensive income are
reclassified to income as deferred revenue resulting
from the use of points, are recognized as income.
When hedging instruments mature or are sold or
when they do not meet the requirements to be
accounted for as hedges, any gain or loss accumulated
in the statement of other comprehensive income
until that moment remains in the statement of
other comprehensive income and is reclassified to
the consolidated statement of income when the
hedged transaction is finally recognized. When it is
expected that the hedged transaction is no longer
going to occur, the gain or loss accumulated in the
statement of other comprehensive income is taken
immediately to the consolidated statement of
income as “Other gains (losses)”.
(c) Derivatives not booked as a hedge
Certain derivatives are not booked as a hedge. The changes
in fair value of any derivative instrument that is not booked
as a hedge are shown immediately in the consolidated
statement of income in “Other gains (losses)”.
(b) Cash flow hedges
2.11. INVENTORIES
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A
U
N
N
A
Inventories, detailed in Note 10, are shown at the
lower of cost and their net realizable value. The cost
is determined on the basis of the weighted average
cost method (WAC). The net realizable value is the
estimated selling price in the normal course of
business, less estimated costs necessary to make the
sale.
2.12. TRADE AND OTHER ACCOUNTS RECEIVABLE
Trade accounts receivable are shown initially at
their fair value and later at their amortized cost
in accordance with the effective interest rate
method, less the allowance for impairment losses.
An allowance for impairment loss of trade accounts
receivable is made when there is objective evidence
that the Company will not be able to recover all the
amounts due according to the original terms of the
accounts receivable.
The existence of significant financial difficulties on
the part of the debtor, the probability that the debtor
is entering bankruptcy or financial reorganization
and the default or delay in making payments are
indicators that the receivable has
considered
been impaired. The amount of the provision is the
difference between the book value of the assets
and the present value of the estimated future cash
flows, discounted at the original effective interest
rate. The book value of the asset is reduced by the
amount of the allowance and the loss is shown in
the consolidated statement of income in Cost of
sales. When an account receivable is written off, it
is charged to the allowance account for accounts
receivable.
2.13. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and bank
balances, time deposits in financial institutions, and
other short-term and highly liquid investments.
2.14. CAPITAL
The common shares are classified as net equity.
Incremental costs directly attributable to the
issuance of new shares or options are shown in net
equity as a deduction from the proceeds received.
2.15. TRADE AND OTHER ACCOUNTS PAYABLES
Trade payables and other accounts payable are
initially recognized at fair value and subsequently
at amortized cost and are valued according to the
method of the effective interest rate.
2.16. INTEREST-BEARING LOANS
Financial liabilities are shown initially at their fair
value, net of the costs incurred in the transaction.
Later, these financial liabilities are valued at their
amortized cost; any difference between the proceeds
obtained
(net of the necessary arrangement
costs) and the repayment value, is shown in the
consolidated statement of income during the term
of the debt, according to the effective interest rate
method.
Financial liabilities are classified in current and
non-current liabilities according to the contractual
payment dates of the nominal principal.
2.17. DEFERRED TAXES
Deferred taxes are calculated on the temporary
differences arising between the tax bases of assets
and liabilities and their book values. However, if
the temporary differences arise from the initial
recognition of a liability or an asset in a transaction
different from a Business Combination that at
the time of the transaction does not affect the
accounting result or the tax gain or loss, they are
not booked. The deferred tax is determined using
the tax rates (and laws) that have been enacted or
substantially enacted at the consolidated financial
statements close, and are expected to apply when
the related deferred tax asset is realized or the
deferred tax liability discharged.
Deferred tax assets are recognised when it is
probable that there will be sufficient future
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2
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A
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N
N
A
tax earnings with which to compensate the
temporary differences.
is made on the basis of the amount estimated for
distribution.
The Company does not record deferred tax on
temporary differences arising on investments in
subsidiaries, provided that the opportunity to
reverse the temporary differences is controlled by
the Company and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax on temporary differences arising on
investments in associates is immaterial.
2.18. EMPLOYEE BENEFITS
(a) Personnel vacations
The Company recognizes the expense for personnel
vacations on an accrual basis.
(b) Share-based compensation
The compensation plans
implemented by the
granting of options for the subscription and payment
of shares are shown in the consolidated financial
statements in accordance with IFRS 2: Share based
payments, showing the effect of the fair value of the
options granted as a charge to remuneration on a
straight-line basis between the date of granting such
options and the date on which these become vested.
(c) Post-employment and other long-term benefits
Provisions are made for these obligations by
applying the method of the actuarial value of the
accrued cost, and taking into account estimates
of future permanence, mortality rates and future
wage increases determined on the basis of actuarial
calculations. The discount rates are determined by
reference to market interest-rate curves. Actuarial
gains or losses are shown in results for the period
when they occur.
(d) Incentives
The Company has an annual incentives plan for
its personnel for compliance with objectives and
individual contribution to the results. The incentives
eventually granted consist of a given number or
portion of monthly remuneration and the provision
2.19. PROVISIONS
Provisions are recognised when:
(i) The Company has a present legal or implicit
obligation as a result of past events.
(ii) It is probable that payment is going to be
necessary to settle an obligation, and
(iii) The amount has been reliably estimated.
Provisions are shown at the present value of the
disbursements expected to be necessary for settling
the obligation using the Company’s best estimates.
The pre-tax discount rate used for determining the
present value reflects current market evaluations on
the date of the consolidated financial statements,
time value of money, as well as the specific risks
related to the liability in question.
2.20. REVENUE RECONGNITION
Revenues include the fair value of the proceeds
received or to be received on sales of goods and
rendering services in the ordinary course of the
Company’s business. Revenues are shown net of
refunds, rebates and discounts.
(a) Rendering of services
(i) Passenger and cargo transport
The Company shows revenue from the transportation
of passengers and cargo once the service has been
provided.
(ii) Frequent flyer program
The Company currently has a frequent flyer program,
whose objective is customer loyalty through the
delivery of kilometers or points fly whenever the
program holders make certain flights, use the
services of entities registered with the program or
make purchases with an associated credit card. The
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A
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N
N
A
kilometers or points earned can be exchanged for
flight tickets or other services of associated entities.
Property, plant and equipment.
The consolidated financial statements
include
income),
(deferred
for this concept
liabilities
according to the estimate of the valuation
established for the kilometers or points accumulated
pending use at that date, in accordance with IFRIC
13: Customer loyalty programs.
(iii) Other revenues
(b) When the Company is the lessee – operating lease
Leases, in which the lessor retains an important part
of the risks and benefits deriving from ownership,
are classified as operating leases. Payments with
respect to operating leases (net of any incentive
received from the lessor) are charged in the
consolidated statement of income on a straight-line
basis over the term of the lease.
The Company records revenues for other services
when these have been provided.
2.22. NON-CURRENT ASSETS OR DISPOSAL GROUPS
CLASSIFIED AS HELD FOR SALE
Non-current assets (or disposal groups) classified as
assets held for sale are shown at the lesser of their
book value and the fair value less costs to sell.
2.23. MAITENANCE
The costs incurred for scheduled major maintenance
of the aircraft’s fuselage and engines are capitalized
and depreciated until the next maintenance.
The depreciation rate is determined on technical
grounds, according to its use expressed in terms of
cycles and flight hours.
The unscheduled maintenance of aircraft and
engines, as well as minor maintenance, are charged
to results as incurred.
2.24. ENVIRONMENTAL COSTS
Disbursements related to environmental protection
are charged to results when incurred.
(b) Interest income
Interest income is booked using the effective
interest rate method.
(c) Dividend income
Dividend income is booked when the right to receive
the payment is established.
2.21. LEASES
(a) When the Company is the lessee – financial lease
The Company leases certain Property, plant and
equipment in which it has substantially all the risk
and benefits deriving from the ownership; they are
therefore classified as financial leases. Financial
leases are initially recorded at the lower of the fair
value of the asset leased and the present value of the
minimum lease payments.
Every lease payment is separated between the
liability component and the financial expenses
so as to obtain a constant interest rate over the
outstanding amount of the debt. The corresponding
leasing obligations, net of financial charges, are
included in Other financial liabilities. The element
of interest in the financial cost is charged to the
consolidated statement of income over the lease
period so that it produces a constant periodic rate of
interest on the remaining balance of the liability for
each year. The asset acquired under a financial lease
is depreciated over its useful life and is included in
2
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2
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L
A
U
N
N
A
During the financial year 2012, the Company
recognized
losses of US$ 1.8 million on fuel
hedging. During the same period 2011, the Company
recognized gains of US$ 39.9 million for the same
reason.
At December 31, 2012, the market value of its fuel
positions amounted to US$ 9.9 million (negative). At
December 31, 2011, this market value was US$ 30.6
million (positive).
The following tables show the notional value of the
purchase positions together with the derivatives
contracted for the different periods:
NOTE 3. FINANCIAL RISK MANAGEMENT
3.1. FINANCIAL RISK FACTORS
The Company’s activities are exposed to different
financial risks: (a) market risk, (b) credit risk, and (c)
liquidity risk. The Company’s global risk management
program is focused on uncertainty in the financial
markets and tries to minimize the potential adverse
effects on the net margin. The Company uses
derivatives to hedge part of these risks.
(a) Market risk
Due to the nature of its operations, the Company is
exposed to market risks such as:
(i) fuel-price risk, (ii) interest-rate risk, and (iii) local
exchange-rate risk. In order to fully or partially
hedge all of these risks, the Company operates with
derivative instruments to fix or limit rises in the
underlying assets..
i. Fuel-price risk:
Fluctuations in fuel prices largely depend on the
global supply and demand for oil, decisions taken
by Organization of Petroleum Exporting Countries
(“OPEC”), global refining capacity, stock
levels
maintained, and weather and geopolitical factors.
The Company purchases an aircraft fuel called Jet
Fuel grade 54. There is a benchmark price in the
international market for this underlying asset, which
is US Gulf Coast Jet 54. However, the futures market
for this asset has a low liquidity index and as a result
the Company hedges its exposure using West Texas
Intermediate (“WTI”) crude, Brent (“BRENT”) crude
and distillate Heating Oil (“HO”), which have a high
correlation with Jet Fuel and are highly liquid assets
and therefore have advantages in comparison to the
use of the U.S. Gulf Coast Jet 54 index.
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P
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A
U
N
N
A
Positions as of December
31, 2012 (*)
Maturities
Q113
Q213
Q313
Q413
Q114
Q214
Total
Volume (thousands of barrels WTI)
4,824
Contracted future price
(US$ per barrel)(**)
104
600
117
525
119
525
119
525
100
75
93
7,074
107
TOTAL (ThUS$)
501,696
70,200
62,475
62,475
52,500
6,975
756,918
Aproximate percentage
of the hedge (of expected
consumption value)
61%
7%
6%
6%
6%
1%
19%
(*) The volume shown in the table considers all the hedging instruments (swaps and options) in Brent and WTI.
(**) Weighted average between collars and options when activated. Correspond to equivalent in WTI.
Positions as of December 31, 2011 (*)
Maturities
Volume (thousands of barrels WTI)
Contracted future price (US$ per barrel)(**)
TOTAL (ThUS$)
Q112
Q212
Q312
Total
1,800
95
1,134
92
693
92
3,627
93
171,000
104,328
63,756
337,311
Approximate percentage of hedge (of expected consumption value)
50%
33%
19%
34%
(*) The volume shown in the table considers all the hedging instruments (swaps and options) in WTI.
(**) Weighted average between collars and options, when activated.
Sensitivity analysis
Company’s net equity).
A drop in fuel price positively affects the Company
through a reduction in costs. However, this drop
also negatively affects contracted positions
as these are acquired to protect the Company
against the risk of a rise in price. The policy
therefore is to maintain a hedge-free percentage
in order to be competitive in the event of a drop
in price.
Due to the fact that current positions do not
represent changes in cash flows, but a variation
in the exposure to the market value, the current
hedge positions have no impact on income (they
are booked as cash flow hedge contracts, so a
variation in the fuel price has an impact on the
The following table shows the sensitivity
analysis of the financial instruments according
to reasonable changes in the fuel price and their
effect on equity. The term of the projection was
defined until the end of the last current fuel
hedge contract, being the last business day of
the second quarter of 2014.
The calculations were made considering a
parallel movement of US$ 5 per barrel in the
curve of the WTI and BRENT crude futures
benchmark price at December, 2012 and the end
of December, 2011.
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a
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2
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A
U
N
N
A
(in the same way interest rates are raised in
periods of economic expansion).
The present uncertainty about how the market
and governments will react, and thus how
interest rates will change, creates a risk related
to the Company’s debt at floating interest rates
and its investments.
Cash flow interest rate risk equates to the risk
of future cash flows of the financial instruments
due to the fluctuation in interest rates on the
market. The Company’s exposure to risks of
changes in market interest rates is mainly
related to long-term obligations with variable
interest rates.
In order to reduce the risk of an eventual rise in
interest rates, the Company has signed interest-
rate swap and call option contracts. Currently
a 62% of the debt is fixed to fluctuations in
interest rate. Therefore the Company is exposed
in one portion to the variations of London Inter
Bank Offer Rate (“LIBOR”) of 30 days, 90 days, 180
days and 360 days, Brazilian Interbank Deposit
Certificate (“ILC”), and the Interest Rate Term of
Brazil (“TJLP”).
The following table shows the sensitivity of
changes in financial obligations that are not
hedged against interest-rate variations. These
changes are considered reasonably possible
based on current market conditions.
Increase
(decrease)
in libor 3 months
Positions as
of December
31, 2012
effect on Pre-Tax
earnings
(millions of US$)
Positions as
of December
31, 2011
effect on Pre-Tax
earnings
(millions of US$)
+100 basis points
-100 basis points
+33.69
+33.69
-3.06
+3.06
Benchmark price
(US$ per barril)
Positions as of
December 31, 2012
effect on equity
(millions of US$)
Positions as
of December
31, 2011
effect on
equity
(millions
of US$)
+5
-5
+12.6
-11.3
+16.5
-13.8
The Company seeks to reduce the risk of fuel price
rises to ensure it is not left at a disadvantage
compared to its competitors in the event of a
sharp price fall. The Company therefore uses
hedge
instruments like swaps, call options
and collars to partially hedge the fuel volumes
consumed.
Beginning with the third quarter of 2012 the
company meets the required criteria of IAS 39,
presented to apply hedge accounting in respect
of fuel hedging TAM society. Until June 30, 2012,
the Company did not apply hedge accounting
to fuel hedging instruments of TAM. During the
periods presented the Company has not recorded
inefectiveness within the income statement.
Given the fuel hedge structure during 2012,
which considers a hedge-free portion, a vertical
fall by 5 dollars in the WTI and BRENT benchmark
price (the monthly daily average), would have
meant a impact of approximately US$ 91.0
million in the cost of total fuel consumption for
the same period. For the 2012, a vertical rise by
5 dollars in the WTI and BRENT benchmark price
(the monthly daily average) would have meant
an impact of approximately US$ 90.4 million of
increased fuel costs.
ii. Cash flow interest-rate risk:
in
interest rates depends
The fluctuation
heavily on the state of the global economy. An
improvement in long-term economic prospects
moves long-term rates upward while a drop causes
a decline through market effects. However, if we
consider government intervention in periods of
economic recession, it is usual to reduce interest
rates to stimulate aggregate demand by making
credit more accessible and increasing production
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2
T
R
O
P
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R
L
A
U
N
N
A
Changes in market conditions produce a change
in the valuation of current financial instruments
hedging interest rates, causing an effect on the
Company’s equity (because they are booked as
cash-flow hedges). These changes are considered
reasonably possible based on current market
conditions. The calculations were made increasing
(decreasing) vertically 100 basis points of the three-
month Libor futures curve.
of the domestic business in Ecuador, both tariffs
and sales are in US dollar. The Company is therefore
exposed to fluctuations in the different currencies,
mainly: Brazilian real, Chilean peso, Argentine peso,
Uruguayan peso, Paraguayan guaraní, Mexican peso,
Euro, Esterling libra, Peruvian sol, Colombian peso,
Australian dollar and New Zealand dollar. Of these
currencies, the largest exposure is presented by
chilean peso and brazilian real.
The Company manages its exposure to foreign
currency risk through hedging selected balances
using forward exchange contracts.
The Company may enter into derivative contracts to
protect the possible appreciation or depreciation
of currencies against the functional currency of the
Company.
In order to restructure derivative contracts in Brazil,
in the first quarter of 2009, in the second quarter
of 2010 and in the second quarter of 2011, a dollar
deposit was required as a guaranteed collateral. As
foreign currency deposits are not allowed in Brazil,
a collar contract was made with a notional foreign
currency equivalent to the amount of deposit to
meet the requirement.
The notional value and market value of foreign
currency derivative are presented below:
Foreign currency
derivative
Position at December
31, 2012
Notional Value (MUS$)
Market Value (MUS$)
+30.00
+0.00
Increase
(decrease)
future curve in
libor 3 months
Positions as
of December
31, 2012 effect
on equity
(millions of US$)
+100 basis points
-100 basis points
+33.6
-35.5
Positions as
of December
31, 2011 effect
on equity
(millions
of US$))
+40.7
-43.2
There are limitations in the method usede for the
sensitivity analysis and relate to those provided
by the market because the levels indicated by the
futures curves are not necessarily met and will
change in each period.
In accordance with the requarements of IAS 39,
during the periods presented, the Company has
not recorded amounts for effectiveness in the
consolidated income statement.
iii. Foreign exchange rate risk:
The functional currency used by the Company is the
US dollar in terms of setting prices for its services, the
composition of its statement of financial position
and effects on its operating income. The Company
sells most of its services in US dollars, prices
equivalent to the US dollar and Brazilian real. A large
part of its expenses are denominated in US dollars or
equivalents to the US dollar, particularly fuel costs,
aeronautic charges, aircraft leases, insurance and
aircraft components and accessories. Remuneration
expenses are denominated in local currencies.
The Company maintains its cargo and passenger
business tariffs in US dollars. There is a mix in the
domestic markets as sales in Peru are in local currency
but the prices are indexed to the US dollar. In Brazil,
Chile, Argentina and Colombia the tariffs are in local
currency without any kind of indexation. In the case
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a
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2
T
R
O
P
E
R
L
A
U
N
N
A
According the structure of the Company to
convert financial liabilities, financial assets and
account receivables of US dollars to Brazilian
real, the results of the Company vary. The
following table shows the variation of financial
performance to appreciate or depreciate 10%
exchange rate R$/US$:
Apprececiation
(depreciation) R$/US$
Effect at December
31, 2012 MUS$
-10%
+10%
+404.19
-404.21
The prices of frequent flyer points in the
subsidiary Multiplus S.A. are denominated in US
dollars. As functional currency is the Brazilian
real, the sale of these points are assigned to
variations in the exchange rate R$/US$. To
decrease exposure, Multiplus S.A. contract
rate collars.
The following table presents the notional amount
and market value of derivatives exchange rate
for each maturity date. The expiration date of
the derivatives coincide with the probable date
of collection points. The highly probable sale
of the points are expected to be recognized in
income after being exchanged, on average, six
months later.
Foreign currency
derivative
multiplus
Position at December
31, 2012 maturity
2013
2014
Total
Notional
Value(MUS$)
+283.00
+18.00
+301.00
Market Value(MUS$)
-14.68
-0.55
-15.23
Sensitivity exchange rate Multiplus S.A.
If the Brazilian real appreciates or depreciates by
10% against the US dollar and all other variables
are held constant, the financial results would
have varied approximately MUS$ 21.8/ MUS$
28.2, mainly as the effect of gains or losses from
exchange rate in the time value of derivatives,
which are recognized immediately as equity.
Due to the functional currency of TAM S.A.
and Subsidiaries
is the Brazilian real, the
Company presents effects by the exchange rate
fluctuations in Other comprehensive income
by converting the Statement of financial
position and Income statement of TAM S.A. and
Subsidiaries from their functional currency to
the U.S. dollar, being these last currency the
presentation currency of the consolidated
financial statement of LATAM Airlines Group S.A.
and Subsidiaries. The goodwill generated in the
Business Combination is recognized as an asset of
TAM S.A. and Subsidiaries in Brazilian real whose
conversion to U.S. dollar also produces effects
in Other comprehensive income. The following
table shows the change in Other comprehensive
income recognized in Total equity to appreciate
or depreciate 10% exchange rate R$/US$:
Apprececiation
(depreciation)
R$/US$
Effect at December
31, 2012
MMUS$
-10%
+10%
+401.12
-328.19
7
4
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N
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Effects of exchange rate derivatives in the Financial
Statements
The profit or loss caused by changes in the fair value
of hedging instruments are segregated between
intrinsic value and time value. The intrinsic value is
the percentage of cash flow cash covered, initially
shown in equity and later transferred to income,
while the hedge transaction is recorded in income.
The time value corresponds to the ineffective portion
of cash flow hedge and is recognized in the financial
results of the Company (Note 21).
(b) Credit risk
Credit risk occurs when the counterparty to a
financial agreement or instrument fails to discharge
an obligation due or financial instrument, leading to
a loss in market value of a financial instrument (only
financial assets, not liabilities).
The Company is exposed to credit risk due to its
operative and financial activities, including deposits
with banks and financial institutions, investments
instruments, exchange-rate
in other kinds of
transactions and the contracting of derivative
instruments or options.
To reduce the credit risk associated with operational
activities, the Company has established credit limits
to abridge the exposure of their debtors which
are monitored permanently (mainly in case of
operational activities in Brazil with travel agents).
As a way to mitigate credit risk related to
financial activities, the Company requires that the
counterparty to the financial activities remain at
least investment grade by major Risk Assessment
Agencies. Additionally the company has established
maximum
investments which are
monitored regularly.
limits
for
i. Financial activities
Cash surpluses that remain after the financing of
assets necessary for the operation are invested
according to credit limits approved by the Company’s
Board, mainly in time deposits with different financial
institutions, private investment funds, short-term
mutual funds, and easily-liquidated corporate and
sovereign bonds with short remaining maturities.
These investments are booked as Cash and cash
equivalents and Other current financial assets.
(both
In order to reduce counterparty risk and to ensure
that the risk assumed is known and managed by
the Company, investments are diversified among
local and
institutions
different banking
international). The Company evaluates the credit
standing of each counterparty and the levels of
investment, based on (i) their credit rating, (ii) the
equity size of the counterparty, and (iii) investment
limits according to the Company’s level of liquidity.
According to these three parameters, the Company
chooses the most restrictive parameter of the
previous three and based on this, establishes limits
for operations with each counterparty.
The Company has no guarantees to mitigate
this exposure.
ii. Operational activities
The Company has four large sales “clusters”:
travel agencies, cargo agents, airlines and credit-
card administrators. The first three are governed
International Air Transport Association,
by
(“IATA”) organization comprising
international
most of the airlines that represent over 90% of
scheduled commercial traffic and one of its main
objectives is to regulate the financial transactions
between airlines and travel agents and cargo. When
an agency or airline does not pay their debt, they
are excluded from operating with IATA’s member
airlines. In the case of credit-card administrators,
they are fully guaranteed by 100% by the
issuing institutions.
The exposure consists of the term granted, which
fluctuates between 1 and 45 days.
One of the tools the Company uses for reducing
credit risk is to participate in global entities
related to the industry, such as IATA, Business
Sales Processing (“BSP”), Cargo Account Settlement
Systems
(“ICH”)
(“CASS”), IATA Clearing House
and banks (credit cards). These institutions fulfill
the role of collectors and distributors between
airlines and travel and cargo agencies. In the case
The Company has future obligations related to
financial leases, operating leases, maturities of
other bank borrowings, derivative contracts and
aircraft purchase contracts.
8
4
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of the Clearing House, it acts as an offsetting entity
between airlines for the services provided between
them. A reduction in term and implementation
of guarantees has been achieved through these
entities. Currently the sales invoicing of TAM Linhas
Aéreas S.A. related with travel agents and cargo
agents for domestic transportation in Brazil is done
directly by TAM Linhas Aéreas S.A.
Credit quality of financial assets
The external credit evaluation system used by the
Company is provided by IATA. Internal systems
are also used for particular evaluations or specific
markets based on trade reports available on the
local market. The internal classification system is
complementary to the external one, i.e. for agencies
or airlines not members of IATA, the internal
demands are greater.
To reduce the credit risk associated with operational
activities, the Company has established credit
limits to abridge the exposure of their debtors
which are monitored permanently (mainly in case
of operational activities of TAM Linhas Aéreas S.A.
with travel agents).The bad-debt rate in the principal
countries where the Company has a presence
is insignificant.
(c) Liquidity risk
Liquidity risk represents the risk that the Company
has no funds to meet its obligations.
Because of the cyclical nature of the business,
the operation, and its investment and financing
needs related to the acquisition of new aircraft and
renewal of its fleet, plus the financing needs related
to market-risk hedges, the Company requires liquid
funds to meet its payment obligations.
The Company therefore manages its cash and cash
equivalents and its financial assets, matching the
term of investments with those of its obligations.
The Company’s policy is that the average term of its
investments may not exceed the average term of its
obligations. This cash and cash equivalents position
is invested in highly-liquid short-term instruments
through first-class financial entities.
9
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3
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The Company has fuel, interest rate and exchange
rate hedging strategies
involving derivatives
contracts with different financial institutions. The
Company has margin facilities with each financial
institution in order to regulate the mutual exposure
produced by changes in the market valuation of
the derivatives.
the rating agency Fitch has issued on June 22, 2012
a new long-term rating for the Company of BB +
with stable perspective (which is not an investment
grade rating). Prior to the merger, the Company
had a rating of BBB with a negative perspective
(issued pursuant to the merger announcement in
August 2010).
The leverage ratios as of December 31, 2012, and
December 31, 2011, were as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Total financial loans
9,759,507
3,788,272
Last twelve months Operating
lease payment x 8
3,390,664
1,393,576
Less:
Cash and marketable securities
(1,120,335)
(472,499)
TOTAL NET ADJUSTED DEBT
12,029,836
4,709,349
Net Equity
5,142,083
1,445,324
Cash flow hedging reserve
140,730
140,556
ADJUSTED EQUITY
5,282,813
1,585,880
TOTAL ADJUSTED DEBT AND
EQUITY
17,312,649
6,295,229
Adjusted leverage
69.5%
74.8%
See information related to financial covenants in Note 36 (a).
At the end of 2011, the Company provided US$ 117.2
million in derivative margin guarantees, for cash and
stand-by letters of credit. At the end of December 31,
2012, the Company had provided US$ 189.9 million
in guarantees for Cash and cash equivalent and
stand-by letters of credit. The increase was due at
maturity and fuel purchase contracts and rates, and
changes in fuel prices and interest rates.
3.2. CAPITAL RISK MANAGEMENT
The Company’s objectives, with respect to the
management of capital, are (i) to safeguard it in
order to continue as an on-going business, (ii) to seek
a return for its shareholders, and (iii) to maintain an
optimum capital structure and reduce its costs.
In order to maintain or adjust the capital structure,
the Company may adjust the amount of the
dividends payable to shareholders, return capital
to shareholders, issue new shares or sell assets to
reduce debt.
The Company monitors the adjusted leverage ratio,
in line with industry practice. This index is calculated
as net adjusted debt divided by the sum of adjusted
equity and net adjusted debt. Net adjusted debt is
total financial debt plus 8 times the operating lease
payments of the last 12 months, less total cash
(measured as the sum of cash and cash equivalents
plus marketable securities). Adjusted capital is the
amount of net equity without the impact of the
market value of derivatives.
The Company’s strategy, which has not changed since
2007, has consisted of maintaining a leverage ratio
of between 70% and 80% and an international credit
rating of higher than BBB-(the minimum required
for being considered investment grade). As a result
of consolidation with TAM S.A. and Subsidiaries,
4
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
3.3 ESTIMATES OF FAIR VALUE
At December 31, 2012, the Company maintained
financial instruments that should be recorded at fair
value. These include:
•
•
•
•
•
Investments in short-term Mutual Funds (cash
equivalent),
Bank certificate of deposit - CBD
Interest rate derivative contracts,
Fuel derivative contracts,
Currency derivative contracts,
Private investment funds and
•
Financial letters
the
The Company has classified
fair value
measurement using a hierarchy that reflects the
level of information used in the assessment. This
hierarchy consists of 3 levels (I) fair value based on
quoted prices in active markets for identical assets or
liabilities, (II) fair value calculated through valuation
methods based on inputs other than quoted prices
included within level 1 that are observable for the
asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) and (III) fair
value based on inputs for the asset or liability that
are not based on observable market data.
The fair value of financial instruments traded in
active markets, such as investments acquired for
trading, is based on quoted market prices at the close
of the period using the current price of the buyer.
The fair value of financial assets not traded in active
markets (derivative contracts) is determined using
valuation techniques that maximize use of available
market information. Valuation techniques generally
used by the Company are quoted market prices of
similar instruments and / or estimating the present
value of future cash flows using forward price curves
of the market at period end.
5
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The following table shows the classification of
financial instruments at fair value at December 31,
2012 depending on the level of information used in
the assessment:
As of December 31,2012
ASSETS
CASH AND CASH EQUIVALENTS
Short-term mutual funds
OTHER FINANCIAL ASSETS, CURRENT
Fair value of interest rate derivatives
Fair value of fuel derivatives
Private investment funds
Certificate of deposit CDB
Financial letter
Domestic and foreign bonds
Other investments
OTHER FINANCIAL ASSETS, NON CURRENT
Fair value of fuel derivatives
Fair value of foreign currency derivatives
LIABILITIES
OTHER FINANCIAL LIABILITIES, CURRENT
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
Interest rate derivatives not recognized as a hedge
OTHER FINANCIAL LIABILITIES, NON CURRENT
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
Interest rate derivatives not recognized as a hedge
Fair value measurements using values considered as
Level I
Level II
Level III
Fair value
Ar December
31, 2012
ThUS$
ThUS$
ThUS$
ThUS$
311,675
311,675
474,176
6
4,098
317,598
77,316
73,611
748
799
1,118
1,023
95
70,075
41,736
10,502
13,360
4,477
116,555
104,547
4,530
1,963
5,515
311,675
311,675
319,145
-
-
317,598
-
-
748
799
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
155,031
6
4,098
-
77,316
73,611
-
-
1,118
1,023
95
70,075
41,736
10,502
13,360
4,477
116,555
104,547
4,530
1,963
5,515
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
As of December 31, 2011
Fair value measurements using values considered as
Fair value
ThUS$
Level I
ThUS$
Level II
ThUS$
Level III
ThUS$
ASSETS
CASH AND CASH EQUIVALENTS
Short-term mutual funds
OTHER FINANCIAL ASSETS, CURRENT
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
Private investment funds
LIABILITIES
OTHER FINANCIAL LIABILITIES, CURRENT
Fair value of interest rate derivatives
Fair value of foreign currency derivatives
Interest rate derivatives not recognized as a hedge
OTHER FINANCIAL LIABILITIES, NON CURRENT
Fair value of interest rate derivatives
Interest rate derivatives not recognized as a hedge
156,334
156,334
92,052
73
30,615
631
60,733
44,923
39,132
884
4,907
130,163
120,304
9,859
156,334
156,334
60,733
-
-
-
60,733
-
-
-
-
-
-
-
-
-
31,319
73
30,615
631
-
44,923
39,132
884
4,907
130,163
120,304
9,859
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Additionally, at December 31, 2012, the Company has
financial instruments which are not recorded at fair
value. In order to meet the disclosure requirements
of fair values, the Company has valued these
instruments as shown in the table below:
As of December
31, 2012
As of December
31, 2011
Book value
Fair value
Book value
Fair value
ThUS$
ThUS$
ThUS$
ThUS$
338,588
6,835
147,373
119,713
64,667
162,367
338,588
6,835
147,373
119,713
64,667
162,367
-
-
162,367
162,367
218,073
218,073
4,605
17,013
46,028
150,427
135,751
37,359
98,392
4,605
17,013
46,028
150,427
138,642
40,250
98,392
Cash and cash equivalents
Cash on hand
Bank balance
Overnight
Time deposits
Other financial assets
Domestic and foreign bonds
Other financial assets
Trade and other accounts receivable current
1,426,330
1,426,330
531,355
531,355
Accounts receivable from related entities
Other financial assets, non current
Accounts receivable
15,187
72,977
50,612
15,187
72,977
50,612
Other financial liabilities, current
1,977,255
2,090,726
Trade and other accounts payables
1,652,955
1,652,955
Accounts payable to related entities
274
274
838
21,833
7,491
537,334
645,086
367
838
21,833
7,491
593,585
645,086
367
Other financial liabilities, non current
7,582,302
7,806,643
2,978,973
3,072,076
Accounts payable, non-current
731,235
731,235
354,930
354,930
The book values of accounts receivable and payable
are assumed to approximate their fair values, due to
their short-term nature. In the case of cash on hand,
bank balances, deposits and accounts payable, non-
current, fair value approximates their carrying
values.
The fair value of Other financial liabilities is
estimated by discounting the future contractual
cash flows at the current market interest rate for
similar financial instruments. In the case of Other
financial assets, the valuation was performed
according to market prices at period end.
8
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
LATAM to substantially all of the economic benefits
that will be generated by the LATAM Group and
also, consequently, exposing it to substantially
all the risks incidental to the operations of TAM.
This exchange aligns the economic interests of
LATAM and all of its shareholders, including the
TAM controlling shareholders, ensuring that the
shareholders and directors of TAM will have no
incentive to exercise their rights in a manner that is
beneficial to TAM but detrimental to LATAM. Further,
all significant actions required for the operation
of the airlines require the affirmative vote of both
LATAM and the TAM controlling shareholders.
In addition, LATAM is in process of integrating
operations with TAM, and both entities will be
operated as a single company. Within this, most
critical airline activities will be managed in Brazil
under the TAM CEO and globally by the LATAM CEO,
who will be in charge of the overall operation of the
LATAM Group and who will report to the LATAM board.
Further, the LATAM CEO will evaluate performance of
the LATAM Group executives and, together with the
LATAM board, determine compensation. Although
there are restrictions on voting interests that
currently may be held by foreign investors under
Brazilian law, LATAM believes that the economic
substance of these arrangements satisfies the
requirements established by
the applicable
accounting standards and that consolidation by
LATAM of TAM’s operations is appropriate.
NOTE 4. ACCOUNTING ESTIMATES AND
JUDGMENTS
The Company has used estimates to value and book
some of the assets, liabilities, revenues, expenses
and commitments; these relate principally to:
(a) The evaluation of possible impairment losses for
certain assets.
(b) The useful lives and residual values of fixed and
intangible assets.
(c) The criteria employed in the valuation of certain
assets.
(d) Air tickets sold that are not actually used.
(e) The calculation of deferred income at the end
of the period, corresponding to the valuation of
kilometers or points credited to holders of the
loyalty programs which have not yet been used.
(f) The need for provisions and where required, the
determination of their values.
(g) The recoverability of deferred tax assets.
These estimates are made on the basis of the best
information available on the matters analyzed.
In any case, it is possible that events will require
modification of the estimates in the future, in
which case the effects would be accounted for
prospectively.
Additionally, the management has applied judgment
in determining that LATAM Airlines Group S.A. has
control over TAM S.A. and Subsidiaries for accounting
purposes and therefore has consolidated their
financial statements. The above on the basis that
LATAM issued their ordinary shares in exchange for
all of the outstanding common and preferred shares
of TAM (except those shareholders of TAM who did
not accept exchange and which were subject of
the squeeze-out described in Note 18.2), entitling
9
5
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 5. SEGMENTAL INFORMATION
The Company reports information by segments as
established in IFRS 8 “Operating segments”. This
standard sets rules for the reporting of information
by segments in the financial statements, plus
reporting about products and services, geographical
areas and principal customers.
An operating segment is defined as a component
of an entity on which financial information is
held separately and which is evaluated regularly
by the senior management in making decisions
with respect to the assignment of resources and
evaluation of results.
The Company has determined that it has two
operating segments: the air transportation and the
customer loyalty program (“Multiplus”).
(a) For the periods ended
Air transport At
December 31,
Multiplus
At December 31,
Eliminations
At December 31,
Consolidated
At December 31,
2012
2011
2012
2011
2012
2011
2012
2011
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Income from ordinary
activities
9,733,950
5,585,440
400,860
Other operating income
211,955
132,804
Interest income
51,004
14,453
Interest expense
(294,447)
(139,077)
8,201
26,485
(151)
TOTAL NET INTEREST
EXPENSE
Depreciation and
amortization
(243.443)
(124,624)
26,334
(784,038)
(396.475)
(849)
SEGMENT PROFIT
(51,190)
320,197
62,146
Participation of the entity
in the income of associates
972
458
-
Expenses for income tax
(101,019)
(61,789)
(1,193)
Assets of segment
19,978,154
7,648,659
637,195
Investments in associates
1,619
991
2,138
Purchase of non-monetary
assets of segment
-
1,394,640
-
-
-
-
-
-
-
-
-
-
-
-
-
(412,621)
-
-
-
-
-
-
-
-
(22,082)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,722,189
5,585,440
220,156
132,804
77,489
14,453
(294,598)
(139,077)
(217,109)
(124,624)
(784,887)
(396,475)
10,956
320,197
972
458
(102,212)
(61,789)
20,593,267
7,648,659
3,757
991
2,448,530
1,394,640
0
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
For the period ended at
December 31,
2012
ThUS$
620,263
890,167
1,268,573
738,803
366,664
3,334,249
266,271
1,525,009
712,190
9,722,189
220,156
2011
ThUS$
557,549
616,625
1,135,904
523,749
367,642
258,300
228,871
1,312,376
584,424
5,585,440
132,804
The Company’s revenues by geographic area are as follows:
Perú
Argentina
USA
Europe
Colombia
Brazil
Ecuador
Chile
Asia Pacífic and rest of Latin America
INCOME FROM ORDINARY ACTIVITIES
OTHER OPERATING INCOME
The Company allocates revenues by geographic area
based on the point of sale of the passenger ticket or
cargo. Assets are composed primarily of aircraft and
aeronautical equipment, which are used throughout
the different countries, so it is not possible to assign
a geographic area.
The Company has no customers that individually
represent more than 10% of sales.
For the period ended at December 31, 2012 the income
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
1
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 6. CASH AND CASH EQUIVALENTS
Cash
Cash on hand
Overnight
TOTAL CASH
Time deposits
Mutual funds
TOTAL CASH EQUIVALENTS
TOTAL CASH AND CASH EQUIVALENTS
The balance at December 31, 2012 Cash and cash
equivalents, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
Cash and cash equivalents are denominated in the
following currencies at December 31, 2012, and
December 31, 2011:
Currency
Argentine peso (*)
Brazilian real
Chilean peso (*)
Colombian peso
Euro
US Dollar
Strong bolivar (**)
Other currencies
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
70,381
149,723
40,212
28,758
15,502
230,776
51,346
63,565
20,020
6,616
148,274
7,668
5,688
158,313
21,589
6,239
TOTAL
650,263
374,407
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
6,835
147,373
119,713
273,921
64,667
311,675
376,342
650,263
4,605
17,013
46,028
67,646
150,427
156,334
306,761
374,407
(*) The Company has no currency derivative contracts (forward)
at December 31, 2012 (ThUS$ 110,339 at December 31,
2011), for conversion into dollars of investments in pesos.
For currency derivative contracts, for conversion into dollars
for the investments in Argentine pesos, the Company has no
outstanding contracts at December 31, 2012.
(**) In Venezuela, effective 2003, the authorities decreed that
all remittances abroad should be approved by the Currency
Management Commission (“CADIVI”). Despite having free
availability of bolivars in Venezuela, the Company has certain
restrictions for freely remitting these funds outside Venezuela.
At December 31, 2012, the restricted amount, in US dollars is
ThUS$ 51,346 (ThUS$ 23,914 at December 31, 2011).
2
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The Company has no
transactions that must be disclosed.
significant non-cash
Other inflows (outflows) of cash at 31 December 2012
and 31 December 2011 are detailed as follow.
Fuel hedge
Hedging margin guarantees
Guarantees
Commodities fuel derivatives
Bank commissions, taxes paid and other
TOTAL OTHER INFLOW (OUTFLOWS) OPERATION FLOW
Opening balance Cash and cash equivalents acquired companies
Amount paid by Squeeze Out TAMS S.A (*)
Certificate of bank deposits
Other
TOTAL OTHER INFLOWS (OUTFLOWS) INVESTMENT FLOW
Aircraft Financing advances
Credit card loan manager
Settlement of derivative contracts
Other
For the period ended
December 31,
2012
ThUS$
14,237
12,057
(13,974)
(20,479)
(42,274)
(50,433)
263,986
(167,589)
(69,254)
-
27,143
2011
ThUS$
51,611
(40,519)
(1,609)
(7,987)
(8,995)
(7,499)
1,122
-
-
(577)
545
(242,804)
163,754
76,280
(50,827)
(13,728)
-
(9,219)
(7,686)
TOTAL OTHER INFLOWS (OUTFLOWS) FINANCING FLOW
(231,079)
146,849
3
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 7. FINANCIAL INSTRUMENTS
7.1 FINANCIAL INSTRUMENTS BY CATEGORY
As of December 31, 2012
Assets
Loans and
receivables
Hedge
derivatives
Held for
trading
Initial
designation
as fair value
through profit
and loss
Total
Cash and cash equivalents
Other financial assets, current (*)
Trade and others accounts
receivable, current
Accounts receivable from
related entities, current
Other financial assets, non current (*)
Accounts receivable, non current
TOTAL
Liabilities
Other liabilities, current
Trade and others accounts
payable, current
Accounts payable to related
entities, current
Other financial liabilities, non current
Accounts payable, non current
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
338,588
162,367
1,426,330
15,187
72,470
50,612
2,065,554
-
4,104
-
-
1,118
-
5,222
-
74,359
-
-
507
-
311,675
395,713
-
-
-
-
650,263
636,543
1,426,330
15,187
74,095
50,612
74,866
707,388
2,853,030
Other
financial
liabilities
Hedge
derivatives
Held for
trading
Total
ThUS$
ThUS$
ThUS$
ThUS$
1,977,255
65,598
4,477
2,047,330
1,652,955
274
7,582,302
731,235
-
-
111,040
-
-
-
5,515
-
1,652,955
274
7,698,857
731,235
TOTAL
11,944,021
176,638
9,992
12,130,651
(*) The value presented at fair value through profit and loss on initial recognition, corresponds to private investment funds; and
loans and receivables corresponds to guarantees given.
4
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
At December 31, 2011
Assets
Held for
maturity
Loans to
receivables
Hedge
derivatives
Held for
trading
Initial
designation
as fair value
through
profit and
loss
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Cash and cash equivalents
-
218,073
-
156,334
-
374,407
Other financial
assets, current (*)
Trade and others accounts
receivable, current
Accounts receivable to
related entities, current
Other financial assets,
non current (*)
Accounts receivable,
non current
37,359
98,392
31,319
-
-
508
-
531,354
838
21,325
7,491
-
-
-
-
-
-
-
-
-
60,733
227,803
-
-
-
-
531,355
838
21,833
7,491
TOTAL
37,867
877,474
31,319
156,334
60,733
1,163,727
Liabilities
Other liabilities, current
Trade and other accounts
payable, current
Accounts payable to
related entities, current
Other financial liabilities,
non current
Accounts payable, non current
TOTAL
Other
financial
liabilities
Hedge
derivatives
Held for
trading
Total
ThUS$
ThUS$
ThUS$
ThUS$
537,334
645,086
367
40,016
4,907
582,257
-
-
-
-
645,086
367
2,978,973
120,304
9,859
3,109,136
354,930
4,516,690
-
-
354,930
160,320
14,766
4,691,776
(*) The value presented in held to maturity corresponds mainly to domestic and foreign bonds and other investments; in
designated as at fair value through profit and loss on initial recognition corresponds to private investment funds; and loans and
receivables corresponds to guarantees given.
5
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
7.2 FINANCIAL INSTRUMENTS BY CURRENCY
a) Assets
Cash and cash equivalents
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Strong bolívar
Other currencies
Other financial assets (current and non current)
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Strong bolívar
Other currencies
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
650,263
70,381
149,723
40,212
28,758
15,502
230,776
51,346
63,565
710,638
131
545,426
648
2,828
7,825
142,254
601
10,925
374,407
20,020
6,616
148,274
7,668
5,688
158,313
21,589
6,239
249,636
125
3,066
588
4,175
291
241,008
5
378
Trade and other accounts receivable, current
1,426,330
531,355
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Strong bolívar
Other currencies
Accounts receivable, non-current
Brazilian real
Chilean peso
US Dollar
Other currencies
Accounts receivable from related entities, current
Brazilian real
Chilean peso
US Dollar
TOTAL ASSETS
ARGENTINE PESO
BRAZILIAN REAL
CHILEAN PESO
COLOMBIAN PESO
EURO
US DOLLAR
STRONG BOLÍVAR
OTHER CURRENCIES
33,049
561,746
132,869
8,086
67,287
530,380
2,759
90,154
50,612
6,677
9,564
34,123
248
15,187
611
14,565
11
24,879
35,467
63,818
34,583
8,266
348,921
1,247
14,174
7,491
-
7,422
9
60
838
-
809
29
2,853,030
1,163,727
b) Liabilities
Liabilities information is detailed
in the table within Note 3 Financial
risk management
103,561
1,264,183
197,858
39,672
90,614
937,544
54,706
164,892
45,024
45,149
220,911
46,426
14,245
748,280
22,841
20,851
6
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 8. TRADE, OTHER ACCOUNTS RECEIVABLE
AND NON-CURRENT ACCOUNTS RECEIVABLE
Trade accounts receivable
Other accounts receivable
TOTAL TRADE AND OTHER ACCOUNTS RECEIVABLE
LESS: ALLOWANCE FOR IMPAIRMENT LOSS
TOTAL NET TRADE AND ACCOUNTS RECEIVABLE
LESS: NON-CURRENT PORTION – ACCOUNTS RECEIVABLE
TRADE AND OTHER ACCOUNTS RECEIVABLE, CURRENT
The balance at December 31, 2012 of Trade, other
accounts receivables and non-current accounts
receivables, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
The fair value of trade and other accounts receivable
does not differ significantly from the book value.
The maturity of these accounts at the end of each
period is as follows:
Day
Expired from 1 to 90 days
Expired from 91 to 180 days
More than 180 days overdue (*)
Judicial, pre-judicial collection and protested documents
Accounts receivable that were evaluated in their ability to recover
As of
December
31, 2012
As of
December
31, 2012
ThUS$
ThUS$
1,369,465
182,980
1,552,445
(75,503)
1,476,942
(50,612)
1,426,330
474,852
84,519
559,371
(20,525)
538,846
(7,491)
531,355
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,226,120
33,160
10,705
23,977
29,556
45,947
428,706
24,082
564
975
10,549
9,976
TOTAL
1,369,465
474,852
(*) Value of this segment corresponds primarily to Accounts receivable that were evaluated in their ability to recover, therefore
not requiring a provision.
7
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The receivable past due but not impaired at the end
of each period is as follows:
Expired from 1 to 90 days
Expired from 91 to 180 days
More than 180 days overdue
TOTAL
The amounts of individually impaired Trade and
other accounts receivable are as follows:
Judicial, pre-judicial collection and protested documents
Debtors under pre-judicial collection process and portfolio sensitization
TOTAL
Currency balances that make up the Trade
receivables, non-current accounts receivable and
accounts receivables at December 31, 2012 and
December 31, 2011, are as follows:
CURRENCY
Argentine Peso
Brazilian Real
Chilean Peso
Colombian peso
Euro
US Dollar
Strong bolivar
Other currency
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
33,160
10,705
23,977
67,842
24,082
564
975
25,621
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
29,556
45,947
75,503
10,549
9,976
20,525
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
33,049
568,423
142,433
8,086
67,287
564,503
2,759
90,402
1,476,942
24,879
35,467
71,240
34,583
8,266
348,930
1,247
14,234
538,846
8
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The Company records allowances when there is
evidence of impairment of trade receivables. The
criteria used to determine that there is objective
evidence of impairment losses are the maturity of
the portfolio, specific acts of damage (default) and
specific market signals.
Maturity
Impairment
Judicial and pre-judicial collection assets
Over 1 year
Between 6 and 12 months
100%
100%
50%
Specifically for TAM S.A. the situation is different, the
estimate of the provision is by document, those due
in more than 180 days are provisioned 100%, except
for those that are considered real active guarantees.
The movement in the allowance for impairment loss
of Trade accounts and Other accounts receivables
between January 1, 2011 and December 31, 2012 is as
follows:
As of January 1, 2011
Write-offs
(Increase) decrease in allowance
ThUS$
(22,077)
4,060
(2,508)
CLOSING BALANCE AS OF DECEMBER 31, 2011
(20,525)
As of January 1. 2012
Write-offs
(Increase) decrease in allowance
Addition for business combination
Conversion difference affiliates
(20,525)
3,312
(2,857)
(54,511)
(922)
CLOSING BALANCE AS OF DECEMBER 31, 2012
(75,503)
Once pre-judicial and judicial collection efforts are
exhausted, the assets are written off against the
allowance. The Company only uses the allowance
method rather than direct write-off, to ensure
control.
9
6
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Historic and current re-negotiations are not relevant
and the policy is to analyze case by case in order
to classify them according to the existence of
risk, determining whether it is appropriate to re-
classify accounts to pre-judicial recovery. If such re-
classification is justified, an allowance is made for
the account, whether overdue or falling due.
The maximum credit-risk exposure at the date of
presentation of the information is the fair value of
each one of the categories of accounts receivable
indicated above.
As of
December
31, 2012
Gross
Impaired
exposure
Gross
exposure
Exposure
net of risk
concen-
trations
Gross
exposure
As of
December
31, 2011
Gross
Impaired
exposure
Exposure
net of risk
concen-
trations
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Trade accounts receivable
1,.369,465
(75,503)
1,293,962
Other accounts receivable
182,980
-
182,980
474,852
84,519
(20,525)
-
454,327
84,519
There are no relevant guarantees covering credit
risk and these are valued when they are settled;
no materially significant direct guarantees exist.
Existing guarantees,
if appropriate, are made
through IATA.
0
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 9. ACCOUNTS RECEIVABLE FROM/
PAYABLE TO RELATED ENTITIES
The Accounts receivable from and payable to related
entities as of December 31, 2012 and December 31,
2011, respectively, are as follows:
(a) Accounts Receivable
Tax No.
Related party
Relationship
Country
of origin
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Currency
Transaction
deadlines
Nature of
transaction
96.810.370-9
Inversiones Costa
Verde Ltda. y CPA.
78.591.370-1
Bethia S.A. y Filiales
87.752.000-5
96.812.280-0
Granja Marina
Tornagaleones S.A.
San Alberto S.A.
y Filiales
Controlling
shareholder
Others related
parties
Others related
parties
Others related
parties
Foreign
Foreign
Foreign
TAM Aviação Executiva
e Taxi Aéreo S.A.
Others related
parties
Companhia Brasileira de
Serviços de Fidelização
Others related
parties
Inversora Aeronautica
Argentina
Others related
parties
Argentina
Chile
1
Chile
14,534
Chile
Chile
Brazil
Brazil
30
-
14
597
11
19
758
32
29
-
-
-
CLP
CLP
CLP
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
US$
30 to 45 days
Monetary
BRL
BRL
US$
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
TOTAL CURRENT ASSETS
15,187
838
On December 28, 2012, Inmobiliaria Aeronáutica S.A.
as seller and Sotraser S.A. (Subsidiary of Bethia S.A.)
as purchaser, entered into an agreement to purchase
the land called “Lot No. 12 of parcellation project
Lo Echevers”. The value of the sale amounts to
ThUS$ 14,217.
1
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(b) Accounts payable
Tax No.
Related party
Relationship
Country
of origin
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Currency
Transaction
deadlines
Nature of
transaction
96.847.880-K
96.921.070-3
Lufthansa Lan
Technical Training S.A.
Austral Sociedad
Concesionaria S.A.
78.591.370-1
Bethia S.A. y Filiales
Associate
Chile
237
Associate
Other related
parties
Chile
Chile
Brazil
Foreign
Foreign
Made In Everywhere
Repr. Com. Distr. Ltda.
Other related
parties
Inversora Aeronaútica
Argentina
Other related
parties
Argentina
TOTAL CURRENT
LIABILITIES
-
14
23
-
274
US$
CLP
CLP
BRL
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
US$
30 to 45 days
Monetary
147
2
116
-
102
367
Transactions between related parties have been
carried out on free-trade conditions between
interested and duly-informed parties.
2
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 10. INVENTORIES
The Inventories at December 31, 2012 and December
31, 2011 respectively, are detailed below:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Technical stock
Non-technical stock
150,130
31,153
57,836
14,951
TOTAL PRODUCTION
SUPPLIERS
181,283
72,787
The balance at December 31, 2012 of Inventories,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
The items included in this heading are spare parts and
materials that will be used mainly in consumption
in in-flight and maintenance services provided to
the Company and third parties, which are valued at
average cost, net of provision for obsolescence that
as of December 31, 2012 amounts to ThUS$ 1,174
(ThUS$ 1,685 as of December 31, 2011). The resulting
amounts do not exceed the respective net realizable
values.
As of December 31, 2012, the Company recorded
ThUS$ 127,989 (ThUS$ 41,213 as of December 31,
2011) within the income statement, mainly due to in-
flight consumption and maintenance, which forms
part of Cost of Sales.
3
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 11. TAX ASSETS
The composition of Tax assets is as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
110,609
100,263
9,657
220,529
73,516
73,516
68,755
24,727
5,307
98,789
42,958
42,958
CURRENT
Sales tax
Tax income
Others
TOTAL CURRENT
NON-CURRENT
Sales tax
TOTAL NON-CURRENT
The balances at December 31, 2012 of Tax assets,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
4
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 12. OTHER FINANCIAL ASSETS
The composition of Other financial assets is as
follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
632,439
4,104
636,543
72,977
1,118
74,095
196,484
31,319
227,803
21,833
-
21,833
CURRENT
(a) Other financial assets
(b) Hedging asset
TOTAL CURRENT
NON-CURRENT
(a) Other financial assets
(b) Hedging asset
TOTAL NON-CURRENT
The balance at December 31, 2012 of Other financial
the effects of Business
assets,
Combinations with TAM S.A. and Subsidiaries.
incorporates
(a) Other financial assets
Other financial assets as of December 31, 2012 and
December 31, 2011, respectively, are as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
CURRENT
Private investment funds
317,598
60,733
Guarantees for margins
of derivatives
Financial letters
Deposits in guarantee (aircraft)
Certificate of deposit CBD
Other guarantees given
Other investments
Domestic and foreign bonds
121,889
79,171
73,611
33,012
77,316
7,466
799
748
-
11,657
-
7,564
-
37,359
TOTAL CURRENT
632,439
196,484
NON-CURRENT
Deposits in guarantee (aircraft)
Deposits in guarantee (loan)
Other guarantees given
Other investments
37,247
29,344
5,879
507
15,498
-
5,827
508
TOTAL NON-CURRENT
72,977
21,833
TOTAL OTHER FINANCIAL ASSETS
705,416
218,317
5
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(b) Hedging assets
Hedging assets as of December 31, 2012 and
December 31, 2011, are as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
6
-
4,098
4,104
95
1,023
1,118
73
631
30,615
31,319
-
-
-
CURRENT
Fair value of interest
rate derivatives
Fair value of foreign
currency derivatives
Fair value of fuel
price derivatives
TOTAL CURRENT
NON-CURRENT
Fair value of foreign
currency derivatives
Fair value of fuel
price derivatives
TOTAL NON-CURRENT
TOTAL HEDGING ASSET
5,222
31,319
Foreign currency derivatives include the fair value
of forward exchange and collars contracts.
The
types of derivative hedging contracts
maintained by the Company at the end of each
period are presented in Note 21.
6
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 13. OTHER NON-FINANCIAL ASSETS
The composition of Other non-financial assets is as
follows:
(b) Other assets
Other assets as of December 31, 2012, and December
31, 2011 are as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
CURRENT
Aircraft maintenance reserve
123,299
Contributions to SITA
Others
696
-
-
841
318
TOTAL CURRENT
123,995
1,159
NON-CURRENT
Aircraft maintenance reserve
149,084
Judicial deposits
Contributions to SITA
Others
TOTAL NON-CURRENT
54,336
474
304
204,198
-
-
-
4,016
4,016
TOTAL OTHER ASSETS
328,193
5,175
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
45,829
123,995
169,824
39,707
204,198
243,905
31,552
1,159
32,711
11,189
4,016
15,205
CURRENT
a) Advance payments
b) Other assets
TOTAL CURRENT
NON-CURRENT
a) Advance payments
b) Other assets
TOTAL NON-CURRENT
(a) Advance payments
Advance payments as of December 31, 2012 as of
December 31, 2011 are as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
CURRENT
Aircraft insurance and others
Aircraft leases
Handling and ground
handling services
Others
TOTAL CURRENT
NON-CURRENT
Aircraft leases
Others
TOTAL NON-CURRENT
12,643
18,703
158
14,325
45,829
20,732
18,975
39,707
7,954
13,196
2,941
7,461
31,552
11,189
-
11,189
TOTAL ADVANCE PAYMENTS
85,536
42,741
7
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 14. NON-CURRENT ASSETS (OR DISPOSAL
GROUPS) CLASSIFIED AS HELD FOR SALE
Non-current assets and disposal groups held for sale
as of December 31, 2012, and December 31, 2011 are
as follows:
Item balances are shown net of provision, which
as of December 31, 2012 amounted to ThUS$ 23,413
(ThUS$ 15,504 at December 31, 2011).
The Company has no discontinued operations as of
December 31, 2012.
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Aircraft
Rotables
Inventories on consignment
Engines
Scrapped aircraft
TOTAL
44,878
1,184
686
542
365
47,655
1,537
28
527
2,204
365
4,661
The balance at December 31, 2012 of Non-current
assets or disposal groups classified as held for sale,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
During the year 2012, a transfer of an aircraft Boing
767-200, two A318-100 aircraft, the land located in
Avenida Presidente Riesco N° 5537 and the land
located in Avenida Circunvalación Américo Vespucio
N° 1401 from the item Property, plant and equipment
to Non-current assets or groups of assets for disposal
classified as held for sale. Were sold during the third
quarter the Boeing 767-200 and the land located in
Avenida Presidente Riesco, and during the fourth
quarter the land located in Avenida Circunvalación
Américo Vespucio. Otherwise, during the second and
third quarter of 2012 retirements were made, as a
result of sales of engines of Boeing 737-200 fleet.
8
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 15. INVESTMENTS IN SUBSIDIARIES
investments
investments
in companies
The Company has
recognized as
in subsidiaries. All
the companies defined as subsidiaries have been
consolidated within the financial statements of
LATAM Airlines Group S.A. and Subsidiaries. The
consolidation also includes special-purpose entities
and private investment funds.
The following is a summary of financial information
with respect to the sum of the financial statements
of subsidiary companies, special-purpose entities
and private investment funds that have been
consolidated:
As of December 31, 2012
Assets
ThUS$
Liabilities
ThUS$
Current
Non-Current
TOTAL
2,453,764
3,747,068
7,634,339
5,389,364
10,088,103
9,136,432
As of December 31, 2011
Current
Non-Current
TOTAL
Assets
ThUS$
Liabilities
ThUS$
493,662
1,498,840
618,360
917,171
1,992,502
1,535,531
For the period ended
December 31,
2012
2011
ThUS$
ThUS$
Total operating revenues
6,494,944
2,619,157
Total expenses
(6,586,805)
(2,577,685)
TOTAL NET INCOME
(91,861)
41,472
The summarized financial information at December
31, 2012
incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries..
9
7
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Significant subsidiaries detailed as of December 31,
2012
Name of significant subsidiary
Country of
incorporation
Functional
currency
% Ownership
Nature and scope of significant
restrictions on transferring
funds to controller
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas
Nacionales del Ecuador S.A.
Aerovías de Integración
Regional, AIRES S.A.
TAM S.A.
Peru
Chile
Argentina
Chile
Ecuador
Colombia
Brazil
US$
US$
ARS
US$
US$
COP
BRL
69.97858
99.89803
94.99055
99.89804
Without significant restrictions
Without significant restrictions
Without significant restrictions
Without significant restrictions
71.94990
Without significant restrictions
98.21089
Without significant restrictions
99.99938
Without significant restrictions
Summary financial
subsidiaries.
information of significant
Statement of financial position as of December 31, 2012
Results for the period
ended December 31, 2012
Name of significant
subsidiary
Total Assets
Current
Assets
Non-current
Assets
Total
Liabilities
Current
Liabilities
Non-current
Liabilities
Revenue
Net
Income
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas
Nacionales del Ecuador S.A.
Aerovías de Integración
Regional, AIRES S.A.
159,361
727,091
165,961
357,725
133,448
172,856
144,463
249,174
25,913
554,235
21,498
108,551
150,319
371,663
141,454
114,302
149,263
169,501
139,653
26,731
1,056
1,.047,106
202,162
1,801
87,571
292,066
538,328
373,157
2,513
(50,693)
9,152
11,144
74,204
40,531
33,673
71,284
68,068
3,216
305,177
(14,077)
165,032
58,457
106,575
58,398
46,434
11,964
283,870
(75,522)
TAM S.A. (*)
8,292,729
2,026,549
6,266,180
7,517,696
3,039,500
4,478,196
3,645,409
(45,163)
(*) Corresponds to consolidated information of TAM S.A. and Subsidiaries.
0
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Significant subsidiaries detailed as of December 31,
2011.
Name of significant subsidiary
Country of
incorporation
Functional
currency
%
Ownership
Nature and scope of significant
restrictions on transferring
funds to controller
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas
Nacionales del Ecuador S.A.
Aerovías de Integración
Regional, AIRES S.A.
Summary financial information of
significant subsidiaries
Peru
Chile
Argentina
Chile
Ecuador
US$
US$
ARS
US$
US$
69.97858
99.89803
94.99055
99.89804
Without significant restrictions
Without significant restrictions
Without significant restrictions
Without significant restrictions
71.94990
Without significant restrictions
Colombia
COP
98.21089
Without significant restrictions
Summary financial
subsidiaries.
information of significant
Statement of financial position as of December 31, 2011
Results for the period
ended December 31, 2011
Name of significant
subsidiary
Total Assets
Current
Assets
Non-current
Assets
Total
Liabilities
Current
Liabilities
Non-current
Liabilities
Revenue
Net
Income
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas
Nacionales del Ecuador S.A.
Aerovías de Integración
Regional, AIRES S.A.
139,888
765,829
136,579
348,943
124,485
188,937
108,561
237,627
15,403
576,892
28,018
111,316
128,979
343,799
114,037
116,663
128,025
122,450
112,555
26,332
954
221,349
1,482
90,331
916,861
258,298
438,137
370,697
71,598
42,369
29,229
61,102
58,726
2,376
278,039
920
57,140
(1,972)
26,146
2,303
134,983
76,936
58,047
80,271
70,112
10,159
282,493
(25,860)
1
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 16. EQUITY ACCOUNTED INVESTMENTS
The composition of investments accounted for using
the equity method is as follows:
(a) Related companies
(b) Joint Ventures
EQUITY ACCOUNTED INVESTMENTS
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,619
2,138
3,757
991
-
991
The balance at December 31, 2012 of Equity accounted investments, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries..
(a) Related Companies
The following summarized financial information is
the sum of the financial statements of the investees,
corresponding to the statements of financial
position as of December 31, 2012 and December 31,
2011, and the statements of income for the periods
ending as of December 31, 2012 and December 31,
2011.
As of December 31, 2012
Current
Non-current
TOTAL
As of December 31, 2011
Current
Non-current
TOTAL
Assets
ThUS$
Liabilities
ThUS$
3,193
419
3,612
1,421
109
1,530
Assets
ThUS$
Liabilities
ThUS$
2,649
269
2,918
721
115
836
2
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
For the period ended
December 31
2012
ThUS$
3,704
(2,759)
945
2011
ThUS$
2,896
(1,902)
994
Total operating revenues
Total expenses
SUM OF NET INCOME
As an investment in associates, the Company has
shown its holdings in the following companies:
Austral Sociedad Concesionaria S.A. and Lufthansa
Lan Technical Training S.A. The Company made no
investments in associates during the year 2012.
Company
Country of
incorporation
Functional
currency
Austral Sociedad
Concesionaria S.A.
Lufthansa
Lan Technical
Training S.A.
Chile
Chile
CLP
CLP
Percentage of ownership
Cost os investment
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
%
20.00
50.00
%
ThUS$
ThUS$
20.00
50.00
661
702
661
702
These companies do not have significant restrictions
on the ability to transfer funds.
3
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The movement of investments in associates between
January 1, 2011 and December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Participation in profits
Other reductions, investments in associated entities
Dividends received
TOTAL CHANGES IN INVESTMENTS IN ASSOCIATED ENTITIES
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Participation in profits
Other increases, investments in associated entities
Dividends received
TOTAL CHANGES IN INVESTMENTS IN ASSOCIATED ENTITIES
CLOSING BALANCE AS OF DECEMBER 31, 2012
The Company records the gain or loss on its
investments in associates on a monthly basis in
the consolidated statement of income, using the
equity method. The Company has no investments
in associates which are not accounted for using the
equity method.
ThUS$
593
502
(25)
(79)
398
991
991
295
685
(352)
628
1,619
(b) Joint Venture
Multiplus S.A., a subsidiary of TAM S.A. and
AIMIA Newco UK LLP (“Aimia”) jointly control the
Companhia Brasileira de Servicos de Fidelização
S.A. (“CBSF”). The company was incorporated on
April 2, 2012, whose corporate name was changed to
Prismah Fidelidade S.A. (“Prismah”).
The purpose of Prismah Fidelidade S.A. is the
provision of various services, the development of
programs related to loyalty programs/customer
relationships and sales incentive programs for
companies. Their activities include but are not
limited to: the customer relationship management,
technical and technological consulting, and through
points programs or other ways of possible changes,
the conversion of loyalty program points.
The shareholding participation in Prismah Fidelidade
S.A., does not allow unilateral decisions that affect
investment returns. Multiplus S.A. owns 50% of
company shares and participation is accounted by
the equity method proportional investment, initially
recognized at cost. The participation in earnings
of the company are recognized in income and the
participation in changes in reserves are recognized
in reserves of Multiplus S.A.
Amount
of
shares
-
500
6,571,500
-
6,572,000
ThUS$
-
1
3,215
(1,078)
2,138
4
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Movement investment al December 31, 2012
Beginning balance at December 31, 2011
Capital aware - AAG Constituent (*)
Capital increase - AGE (**) 09/18/2012
Result of equity equivalence
ENDING BALANCE AT DECEMBER 31, 2012
(*) General Assembly Act
(**) Extraordinary General Assembly
The company Prismah Fidelidade S.A. as of
December 31, 2012, has the following items::
Social capital at December 31, 2012 ThUS$
Number of ordinary shares
“Ordinary shares owned by Multiplus S.A.”
Participation %
6,432
13,144,000
6,572,000
50
As of
December
31, 2012
ThUS$
6,432
2,137
(2,156)
(1,078)
4,356
2,275
2,356
164
(2,320)
Liquid equity
Investment value
Loss for the year
Result of the heritage equity
Current assets
Non-current assets
Current liabilities
Year Revenues
Expense in the period
5
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 17. INTANGIBLE ASSETS OTHER THAN
GOODWILL
The details of intangible assets are as follows:
CLASSES OF
INTANGIBLE
ASSETS (NET)
Computer software
Developing software
Airport slots
Trademarks
Other assets
TOTAL
CLASSES OF
INTANGIBLE
ASSETS (GROSS)
Computer software
Developing computer
software
Airport slots
Trademarks
Other assets
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
144,244
60,040
1,561,130
82,373
806
1,848,593
25,124
39,395
-
-
404
64,923
As of
December
31, 2012
As of
December
31, 2011
ThUS$
223,586
ThUS$
73,486
60,040
39,395
1,561,130
82,373
1,372
-
-
808
1,928,501
113,689
The balance at December 31, 2012 of Intangible
assets other than goodwill,
incorporates the
effects of Business Combinations with TAM S.A. and
Subsidiaries.
6
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The movement in Intangible assets other than
goodwill between January 1, 2011 and December 31,
2012 is as follows:
Computer
software Net
Developing
software
Airport slots
Trademarks
Other
assets Net
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Opening balance as
of January 1, 2011
Additions
Withdrawals
Amortization
CLOSING BALANCE AS OF
DECEMBER 31, 2011
Opening balance as
of January 1, 2012
Additions
Withdrawals
Acquisitions through
business combinations
26,074
8,904
(184)
(9,670)
25,124
25,124
18,768
(1,637)
78,106
19,109
20,286
-
-
39,395
39,395
43,633
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,238
1,552,016
81,892
Transfer software
55,618
(51,392)
Subsidiaries conversion
difference
Amortization
(757)
(30,978)
166
-
-
9,114
-
-
481
-
566
-
-
(162)
404
404
-
(2)
563
-
3
45,749
29,190
(184)
(9,832)
64,923
64,923
62,401
(1,639)
1,740,815
4,226
9,007
(162)
(31,140)
CLOSING BALANCE AS OF
DECEMBER 31, 2012
144,244
60,040
1,561,130
82,373
806
1,848,593
programs as of December 31, 2012 amounts to ThUS$
79,342 (ThUS$ 48,362 as of December 31, 2011). The
accumulated amortization of other identifiable
intangible assets as of December 31, 2012 amounts
to ThUS$ 566 (ThUS$ 404 as of December 31, 2011).
The airport slots correspond to an administrative
authorization for the arrival and departure of
aircraft, in a specific airport, within a period of time.
Intangible assets with defined useful lives consist
primarily of licensing and computer software, for
which the Company has established useful lives of
between 3 and 7 years.
The amortization of the period is shown in the
consolidated statement of income in administrative
expenses. The accumulated amortization of computer
7
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 18. GOODWILL AND BUSINESS
COMBINATION
18.1 GOODWILL
The goodwill represents the excess of cost of
acquisition over the fair value of the participation
of the Company in the identifiable net assets of
the subsidiary at the acquisition date. Goodwill at
December 31, 2012 amounted to ThUS$ 3,008,657
(ThUS$ 163,777 at December 31, 2011)
At December 31, 2012, the Company performed an
impairment test based on the value in use and no
impairment was identified. The testing is done at
least once per year.
The value in use of those cash generating units
to which goodwill has been assigned has been
that yields, occupation
determined assuming
factors and fleet capacity are maintained at current
obtainable levels. The Company projects cash flows
for the initial periods based on internal budgets
and extrapolate the final value of these periods
based on a growth factor consistent with the long-
term economic projections in the markets in which
the units operate. The determined cash flows are
discounted at a rate which takes into account the
time value of money and risks related to those cash
generating units which have not been taken into
account in estimation of the units’ future cash flows.
The movement of Goodwill from January 1, 2011 to
December 31, 2012, is as follows:
Aerovías de
Integración
Regional.
TAM S.A.
AIRES S.A.
AEROASIS S.A.
Other
societies
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Opening balance as of January 1, 2011
Additions by business combinations
Initial recognition modification (*)
Increase (decrease) due to
exchange rate differences
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Additions by business combinations
Amendment initial recognition (*)
-
-
-
-
-
-
2,118,057
700,458
94,224
-
(820)
25
93,429
93,429
-
-
Increase (decrease) due to
exchange rate differences
16,552
9.219
CLOSING BALANCE AS OF DECEMBER 31, 2012
2,835,067
102,648
-
6,736
-
(123)
6,613
6,613
-
-
653
7,266
63,770
157,994
-
-
(35)
63,735
63,735
-
-
6,736
(820)
(133)
163,777
163,777
2,118,057
700,458
(59)
26,365
63,676
3,008,657
(*) The amendments relate to initial recognition of changes in the Fair value determined at the time of the Business Combination.
In TAM S.A. these changes are mainly relate to: fair value of financial instruments, fair value of the fleet and recognition of labor,
civil and tax contingency. The maximum time that the standard gives (IFRS 3) to make changes is one year from the date of
acquisition of the combined companies..
8
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
by Absorption dated June 22, 2012 by the same
parties in the same Notary which the purpose was
to invalidate the inclusion of 17,550 shares of TAM
accepted for exchange in Brazil for shares of LAN
which corresponded to duplicate orders that were
not timely identified as such. Because of this, the
result of the Exchange Offer in Brazil amounted to
29,706,339 shares of TAM, instead of 29,723,889 shares
of TAM. This should be reflected in the Register
of Shareholders so that Banco Itaú on behalf of
investors was due to discount 15,795 shares of the
Company.
On July 18, 2012, the Comissão de Valores Mobiliários
(“CVM”), by Deed No. 330/2012 informed TAM of the
cancellation of its registration as a public company
which, dated July 19, 2012, TAM was informed by a
Essential Matter.
On July 27, 2012, TAM made use of the Squeeze-Out
granted by the Brazilian legislation, under which a
compulsory could rescue all TAM shares that were
not exchanged in the exchange offer or contributed
by controlling shareholders of TAM. Since TAM shares
received in the exchange offer, plus the shares
committed by the controlling shareholders of TAM,
represented 95.9% of the total outstanding shares of
TAM, the aforementioned condition was met on the
remaining 4.1% through the disbursement by TAM of
339 million Brazilian Real.
At December 31, 2012 the ownership structure of
TAM was as follows:
18.2 BUSINESS COMBINATION
(a) TAM S.A. and Subsidiaries
Dated June 22, 2012 the merger was successfully
completed between LAN Airlines S.A. (today LATAM
Airlines Group S.A.), with Sister Holdco S.A. and Holdco
II S.A., two companies specially constituted for the
purpose of the association between the Company
and TAM S.A. which was reflected in the deed of
execution of merger issued by such companies at the
same time, and it was rectified by deed dated July 10,
2012. These scriptures recorded the share exchange
of Sister Holdco S.A. and Holdco II S.A. for LAN´s
shares in one related of 0.9 of LAN´s shares for each
Sister Holdco S.A. and Holdco II S.A.. That exchange
occurred with the delivery of the respective LAN
shares to shareholders of Sister Holdco S.A. and the
respective BDRs (“Brazilian Depositary Receipts”)
and ADRs (“American Depositary Receipts”) from LAN
to the shareholders of Holdco II S.A. abroad on June
27, 2012, that is, TAM shareholders who accepted the
exchange offer.
Under IFRS 3 this operation has been registered as a
Business Combination consigning to the Company as
purchaser of TAM. Besides the fact that LATAM is the
one who issuing the shares in the combination, this
is based on the economic rights and relative vote
relating of the former shareholders of LAN and TAM
over the combined entity.
The share exchange offer materialized with the
exchange previously referenced was 99.9% of the
TAM shares that accepted that TAM would stop
being a public company in Brazil, which fulfilled
the condition for the cancellation of registration,
requirement for the success of the exchange offer.
As a consequence of the end of that process: (i)
concluded the process of Business Combination of
LAN and TAM, and (ii) the renaming of LAN Airlines
S.A. to LATAM Airlines Group S.A. became effective.
On July 10, 2012, in Santiago´s Notary of Eduardo
Diez Morello, Sister Holdco S.A., Holdco II S.A.
and the Company granted a deed of rectification
Materialization Statement on Merger by Absorption
writing Materialization Statement issued Merger
9
8
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Holdco I S.A.
Shares
Series A (voting):
Series B (economic)
TOTAL
TAM S.A.
Shares
ON (voting):
PN (non-voting):
TOTAL
TEP Chile S.A.
(owned by the controlling
shareholders of TAM)
LATAM Airlines Group S.A.
Total
938 (80.58%)
226 (19.42%)
0
938
55,413,621 (100.00%)
55,413,847
1,164
55,413,621
55,414,785
Holdco I S.A.
LATAM Airlines Group S.A
Total
55,413,784 (100%)
0
55,413,784
0
55,413,784
94,718,931 (100%)
94,718,931
94,718,931
150,132,715
Considering the acquisition date for accounting
purposes was June 22, 2012, the definition and
determination of
adjustments of Business
Combination at December 31, 2012 is not complete,
being at this date, provisional in character. The main
assets and liabilities that are still subject to fair
value calculations are: Intangibles, Contingencies
and certain items of Property, plant and equipment.
The maximum period that the standard provides for
this purpose is one year.
The assets and liabilities of the statement of
financial position at June 22, 2012 of TAM S.A. and
Subsidiaries are as follows:
TAM is a leading airline in Brazil with 35 years of
operation, over 30 thousand employees, a fleet of 160
aircraft, sales of 7,300 million United States dollars
and a market share (2011) Domestic 41.2% in Brazil
and 88.1% on international routes operated for the
Brazilian airline.
This Business Combination has created the leading
airline in the region in terms of coverage and fleet.
Additionally, the business models of both companies
are complementary creating a significant potential
in terms of networking and
for development
connectivity to its passengers.
The combined company will offer to its passengers
in 22 countries and
around 150 destinations
transporting cargo to 169 destinations in 27 countries.
Among the benefits that passengers of both
airlines LATAM and TAM will have are, the increased
connectivity, improved routes and frequencies, and
reduced connection times. Additionally, members of
frequent flyer programs LANPASS and TAM Fidelidade
may earn and redeem miles/points in the complete
flight network of LATAM and TAM.
0
9
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Expressed in ThUS$
Book Value
FairValue
Cash and cash equivalents
Other financial assets
Other non-financial assets
Trade and other accounts receivable
Accounts receivable from related entities
Inventories
Tax assets
Non-current assets (or disposal groups)
classified as held for sale
Other financial assets
Other non-financial assets
Accounts receivable
Intangible assets other than goodwill
Property, plant and equipment
Current tax assets, non-current
Deferred tax assets
TOTAL ASSETS
Other financial liabilities
Trade and other accounts payables
Accounts payable to related entities
Other provisions
Tax liabilities
Other non-financial liabilities
Other financial liabilities
Accounts payable
Accounts payable to related entities
Other provisions
Deferred tax liabilities
Other non-financial liabilities
TOTAL LIABILITIES
NET ASSETS
263,986
743,586
27,380
1,027,949
25
70,123
174,718
8,865
66,493
325,171
13,682
282,690
4,651,274
4,266
253,476
7,913,684
1,048,847
731,394
62
14,236
63,239
969,575
3,717,019
454,289
45
189,101
52,835
94,483
7,335,125
578,559
263,986
743,586
27,380
1,022,010
25
69,823
151,949
8,865
66,493
305,706
13,682
1,740,815
4,233,592
4,266
181,953
8,834,131
1,054,225
642,863
62
14,236
65,185
970,299
3,748,677
434,921
45
619,840
204,062
94,483
7,848,898
985,233
The airport slots (landing and take-offs) have been
measured at fair value at the date of the combination
and its useful lives are classified as indefinite, which
shall be subject to impairment test annually.
The Goodwill recognized on the acquisition of TAM
S.A and Subsidiaries reflects the excess value of
the transaction that cannot be attributed to assets
and liabilities. This value expresses the synergies
that are expected to be achieved through the
Business Combination. Therefore, in the statement
of financial position of LATAM Airlines Group S.A.,
Goodwill of ThUS$ 2,818,515 has been recognized.
1
9
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Goodwill determination:
ThUS$
ThUS$
Purchase price
Less:
3,782,244
963,729
Fair value of assets and
liabilities acquired
985,233
Noncontrolling interest
(21,504)
GOODWILL
2,818,515
The determination of the purchase price is explained
in the following table:
Number of shares
LAN Exchange
(a)
Share price
a fair value
at June 22
exchange
rate at
June 22
US$
(b)
Purchase price
ThUS$
(a) times (b)
Squeeze Out At
July exchange
rate at June 22
ThUS$
Total purchase price
ThUS$
135,119,066
26.76973 (*)
3,617,101
165,143
3,782,244
was ThUS$ 3,645,409, the net result considered in the
consolidated financial statements of the group, at
December 31, 2012, being ThUS$ (45,163).
(*) Value of the share at June 22 $ 13,489
Exchange rate as of June 22 503.89
The capital increase originated in the merger, is
determined by the social capital amount of Sister
Holdco S.A. and Holdco II S.A., equivalent to ThUS$
951,409. The difference between this value and the
purchase price, amounting to ThUS$ 2,665,692 is
shown in Other reserves.
The costs incurred by LATAM Airline Group S.A.
to make the Business Combination amounts to
in the Income
ThUS$50,647, and are recorded
statement when they were incurred.
In regards to non-controlling interest, this is valued
at fair value of acquired assets and liabilities at
December 31, 2012.
The income contribution of TAM S.A. and Subsidiaries
2
9
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(b) Aerovías de Integración Regional, AIRES S.A.
On November 26, 2010 LAN Pax Group S.A., a subsidiary
of the Company, acquired 98.942% of the Colombian
company Aerovías de Integración Regional, AIRES
S.A.
This acquisition was made through the purchase of
100% of the shares of the Panamanian corporations
AKEMI Holdings S.A. and SAIPAN Holding S.A., which
owned the aforementioned percentage of AIRES S.A.
The purchase price was ThUS$ 12,000.
Aerovías de Integración Regional, AIRES S.A., founded
in 1980, at the date of acquisition it was the second
largest operator within the Colombian domestic
market with a market share of 22%. AIRES S.A. offered
regular service to 27 domestic destinations within
Colombia as well as 3 international destinations.
Synergies are expected between the combination
of AIRES S.A. in the Colombian market and efficiency
of the business model of LATAM Airlines Group S.A.
Additionally, better performance is expected by the
business of LATAM Airlines Group S.A. (passengers
and cargo) through an increase in coverage in Latin
America.
The Business Combination is recognized in the
statement of financial position of the Company and
Subsidiaries as Goodwill of ThUS$ 94,224.
Summary statement of financial position at acquisitions date:
Currents assets
Non-current assets
ThUS$
27,315
Current liabilities
31,652
Non-current liabilities
Equity
TOTAL ASSETS
58,967
TOTAL LIABILITIES
ThUS$
125,193
20,327
(86,553)
58,967
Controlling Interest
(82,224)
Goodwill determination:
Controlling interest
Purchase price
GOODWILL
ThUS$
82,224
12,000
94,224
3
9
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(c) AEROASIS S.A.
Dated February 15, 2011, LAN Pax Group S.A. subsidiary
of the Company acquired 100% of Colombian society
AEROASIS S.A. The purchase price was ThUS$ 3,541.
AEROASIS S.A. is a corporation incorporated under
the laws of the Republic of Colombia through Public
Deed No. 1,206 dated May 2, 2006.
The Business Combination is recognized in the
statement of financial position of the Company and
Subsidiaries as goodwill of ThUS$ 6,736.
Summary statement of financial position at acquisition date:
Currents assets
Non-current assets
ThUS$
1,802
3,010
Current Liabilities
Non - Current Liabilities
Equity
TOTAL ASSETS
4,812
TOTAL LIABILITIES
Controlling interst
(3,195)
ThUS$
8,007
-
(3,195)
4,812
Goodwill determination
Controlling interest
Purchase price
GOODWILL
ThUS$
3,195
3,541
6,736
4
9
1
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 19. PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and
equipment is as follows:
Gross Book Value
Acumulated depreciation
Net Book Value
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Construction in progress
1,153,003
1,087,563
Land
Buildings
65,307
245,939
35,673
101,123
-
-
-
-
(70,869)
(23,185)
Plant and equipment
7,946,519
5,335,840
(1,640,530)
(1,211,814)
Own aircraft
6,979,986
4,921,907
(1,278,738)
(1,123,871)
966,533
76,956
413,933
3,376
(361,792)
(41,799)
(87,943)
(1,998)
1,153,003
1,087,563
65,307
175,070
6,305,989
5,701,248
604,741
35,157
35,673
77,938
4,124,026
3,798,036
325,990
1,378
Other
Machinery
Information technology
equipment
Fixed installations
and accessories
Motor vehicles
Leasehold improvements
Other property, plants
and equipment
171,568
89,678
(131,105)
(67,087)
40,463
22,591
81,251
70,706
87,004
64,936
45,161
94,485
(38,908)
(29,838)
(48,451)
(65,276)
(26,943)
(62,986)
42,343
22,255
21,728
35,098
18,218
31,499
5,812,401
832,772
(1,875,827)
(338,774)
3,936,574
493,998
Financial leasing aircraft
5,657,286
772,.887
(1,835,736)
(308,805)
3,821,550
Other
TOTAL
155,115
59,885
(40,091)
(29,969)
115,024
15,710,654
7,690,607
(3,912,765)
(1,762,625)
11,797,889
5,927,982
464,082
29,916
The balance at December 31, 2012 of Property, plant
and equipment, incorporates the effects of Business
Combinations with TAM S.A.and Subsidiaries.
5
9
1
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a
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F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The movement in the different
categories of Property, plant and
equipment from January 1, 2011
to December 31, 2012 is shown
below:
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(c) Composition of the fleet
Aircraft included in the Company´s Property, plant
and equipment:
Aircraft
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Boeing 777
Boeing 777
Boeing 787
Airbus A318
Airbus A319
Airbus A320
Airbus A321
Airbus A330
Airbus A340
Airbus A340
TOTAL
Operating leases:
Aircraft
Boeing 767
Boeing 767
Boeing 777
Airbus A319
Airbus A320
Airbus A321
Airbus A330
Airbus A340
Boeing 737
Bombardier
Bombardier
TOTAL
TOTAL FLEET
Model
300
300ER
300F
200ER
300ER
Freighter
800
100
100
200
200
200
300
500
Model
300ER
300F
Freighter
100
200
200
200
300
700
Dhc8-200
Dhc8-400
As of
December
31, 2012
As of
December
31, 2011
3
30
8
-
8
2
3
5
39
76
8
18
2
2
-
21
8
1
-
-
-
10
24
33
-
-
4
-
204
101
As of
December
31, 2012
As of
December
31, 2011
8
4
2
18
65
1
2
3
6
10
4
123
327
10
4
2
-
9
-
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1
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49
150
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O
P
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R
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A
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N
N
A
(d) Method used for the depreciation of Property,
plant and equipment:
Method
Useful life
minimum
maximum
Buildings
Straight line without residual value
Plant and equipment
Straight line with residual value
of 20% in the short-haul fleet and
36% in the long-haul fleet. (*)
Information technology equipment
Straight line without residual value
Fixed installations and accessories
Straight line without residual value
Motor vehicle
Straight line without residual value
Leasehold improvements
Straight line without residual value
Other property, plant and equipment
Straight line with residual
value of 20% in the
short-haul fleet and 36% in
the long-haul fleet. (*)
20
5
5
10
10
5
3
50
20
10
10
10
5
20
(*) Except for certain technical components, which are depreciated on the basis of cycles and flight hours.
As a result of the Business Combination with TAM S.A. and Subsidiaries 65 aircraft were incorporated with remarketing clause (**)
under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years.
Its residual values are estimated according to market value at the end of such contracts.
Additionally, for the same Business Combination, 5 aircraft were added under operating lease contracts, which according to the
stated policy, are classified as finance leases because the present value of the payments represents most of the economic value of
the property. The useful life assigned is 6 years, according to the duration of the contracts
(**) Aircraft with remarketing clause are those that are required to sell at the end of the contract.
The depreciation charged to income in the period, which is included in the consolidated statement of income, amounts to ThUS$
622,122 (ThUS$ 329,081 for the period ended December 31, 2011). Depreciation charges for the year are recognized in Cost of sales
and administrative expenses in the consolidated statement of income.
(e) Additional information regarding Property,
plant and equipment:
i. Property, plant and equipment pledged as
guarantee::
In the period ended December 31, 2012 direct
guarantees were added for three aircraft Airbus
A319-100, seven Airbus A320-200 aircraft, nine Boeing
767-300 aircraft, six Boeing 777-300 aircraft (four
passengers and two cargo) and three Boeing 787-800
aircraft. During the first quarter the Company sold
its participation in the permanent establishments
Quetro Leasing LLC, Codorniz Leasing Limited,
Pochard Leasing LLC, Garza Leasing LLC and Caiquen
Leasing LLC. As such the Company eliminated direct
guarantees associated with two aircraft Airbus
A319-100 and seven aircraft Boeing 767-300 (six
passenger aircrafts and one freighter). Additionally,
during the second semester of 2012 the guaranties
were eliminated for three aircraft A318-100 due to
the sale, of two aircraft A340-300 and one aircraft
B767-300F.
9
9
1
s
t
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m
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t
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S
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O
P
E
R
L
A
U
N
N
A
Description of Property, plant and equipment
pledged as guarantee:
Creditor of guarantee
Assets
committed
Fleet
As of
December
31,2012
As of
December
31,2011
Existing
Debt
ThUS$
Book
Value
ThUS$
Existing
Debt
ThUS$
Book
Value
ThUS$
Boeing 767
1,296,704
1,640,071
1,032,921
1,305,915
Wilmington Trust Company
Aircraft and engines
Banco Santander S.A.
Aircraft and engines
Boeing 787
Airbus A319
Airbus A320
Airbus A318
BNP Paribas
Aircraft and engines
Airbus A319
Credit Agricole
Aircraft and engines
Airbus A320
Airbus A340
Airbus A320
Airbus A319
858,221
81,698
626,317
121,172
360,100
261,139
44,002
68,096
19,531
JP Morgan
Aircraft and engines Boeing 777
280,698
937,074
111,458
782,609
150,026
501,836
333,105
107,625
156,355
105,349
324,159
13,750
89,287
411,043
187,705
301,327
284,265
93,019
34,530
54,491
-
24,664
117,106
504,827
239,530
404,723
350,387
114,376
163,746
215,978
-
TOTAL DIRECT GUARANTEE
4,017,678
5,149,667
2,502,338
3,441,252
The amounts of existing debt are presented at
nominal value. Book value corresponds to the
carrying value of the goods provided as guarantees.
Additionally, there are indirect guarantees related
to assets recorded in Property, plant and equipment
whose total debt at December 31, 2012 amounted
to ThUS$ 2,888,753 (ThUS$ 316,859 at December
31, 2011). The book value of assets with indirect
guarantees as of December 31, 2012 amounts to
ThUS$ 3,777,715 (ThUS$ 504,355 as of December 31,
2011).
The balance at December 31, 2012 of Property, plant
and equipment, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
0
0
2
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2
T
R
O
P
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L
A
U
N
N
A
ii. Commitments and others
Fully depreciated assets and commitments for
future purchases are as follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Gross book value of fully
depreciated property,
plant and equipment still in use
Commitments for the
acquisition of aircraft (*)
188,214
43,626
24,500,000
14,500,000
(*) According to the manufacturer’s price list.
In December 2009, the Company signed a purchase
commitment with Airbus S.A.S. for the purchase of 30
aircraft of the A320 family with deliveries between
2011 and 2016. Later, in December 2010 the Company
signed a new commitment to this manufacturer for
the acquisition of 50 aircraft of the same family with
deliveries between 2012 and 2016. Additionally, in
June 2011, a contract was signed for 20 additional
aircraft of the A320 NEO family with deliveries
between 2017 and 2018.
With regards to the above, as of December 31,
2012, and as a result of different aircraft purchase
contracts signed with Airbus S.A.S., there remain
78 Airbus aircraft of the A320 family to be delivered
between 2013 and 2018. The approximate amount
is ThUS$ 6,400,000, according to the manufacturer’s
price list. Additionally, the Company has active
purchase options for 4 A320 NEO aircraft.
Otherwise purchase contracts were signed with
The Boeing Company during February, May and
December 2011, for 3, 5 and 2 B767-300 aircraft
respectively.
aircraft purchase contracts signed with The
Boeing Company, remain to receive a total of 4
767-300 aircraft during 2013 and 23 787 Dreamliner
aircraft, with delivery dates between 2013 and
2017. The approximate amount, according to
the manufacturer’s price list, is ThUS$ 5,000,000.
Additionally, the Company has valid purchase
options for 15 787 Dreamliner aircraft.
The acquisition of these aircraft is part of the
strategic plan for the long-term fleet. This plan also
involves the sale of 15 Airbus A318 model between
2011 and 2013. It is estimated that this sale will have
no significant impact on results. During 2011 the
first 5 aircraft were sold. During 2012 sold another 3
and during 2013 the Company plans to sell the last 7.
Additionally, as a result of the Business Combination
with TAM S.A. and Subsidiaries the following
commitments are incorporated:
In November 2006, a purchase commitment was
signed with Airbus S.A.S. for the acquisition of 31
A320 family aircraft and 6 A330-200 aircraft, with
deliveries between 2007 and 2010. Subsequently,
in January 2008 signed a new commitment for the
acquisition of 20 additional A320 family aircraft
and 4 aircraft A330-200, with deliveries between
2010 and 2014, also signed a purchase commitment
for 22 A350 aircraft. In July 2010, signed a purchase
commitment with Airbus S.A.S. for the acquisition
of 20 A320 family aircraft with deliveries between
2014 and 2015 and on the same date the option was
exercised to purchase 5 A350. In October 2011, a new
commitment was signed to this manufacturer for
the acquisition of 10 additional aircraft of the A320
family with deliveries between 2016 and 2017, plus
22 family aircraft A320 NEO with deliveries between
2016 and 2018.
With the above, at December 31, 2012, as a result of
the different aircraft purchase agreements signed
with Airbus S.A.S., remain to receive 71 aircraft
Airbus A320 family, with deliveries between 2013 and
2018, and 27 Airbus aircraft A350 family with delivery
dates starting from 2015. Additionally, the Company
has valid purchase options for 10 A320 family aircraft
and 5 Airbus NEO A350.
As of December 31, 2012, and as a result of different
In December 2008, a new commitment purchase
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i
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2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
agreement was signed with The Boeing Company for
2 B777 aircraft with deliveries in 2013, and in February
2011 an agreement was signed for the purchase of
another 2 B777 aircraft with deliveries in 2014.
With the above, at December 31, 2012, due to
the various purchase contracts signed with The
Boeing Company, remain to receive 4 B777 aircraft.
Additionally, the Company has valid purchase
options for 2 B777 aircraft.
The approximate amount of individual purchase
contracts incorporated for the effect of the Business
Combination with TAM S.A. and Subsidiaries is ThUS$
13,100,000, according to the manufacturers price list.
iii. Capitalized
Property, plant and equipment.
interest costs with respect to
For the periods ended
December 31,
2012
2011
%
2.60
3.51
Average rate of
capitalization
of capitalized
interest costs
Costs of capitalized
interest
ThUS$
45,069
33,342
2
0
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
iV. Financial leases
The detail of the main financial leases is as
follows:
Lessor
Aircraft
Model
As of
December
31,2012
As of
December
31,2011
Agonandra Statutory Trust
Agonandra Statutory Trust
Air Canada
AWMS I (AWAS)
Bluebird Leasing LLC
Caiquen Leasing LLC
Cernicalo Leasing LLC
Codorniz Leasing Limited
Eagle Leasing LLC
FLYAFI 1 S.R.L.
FLYAFI 2 S.R.L.
FLYAFI 3 S.R.L.
Forderum Holding B.V. (GECAS)
Garza Leasing LLC
General Electric Capital Corporation
Intraelo BETA Corpotation (KFW)
Juliana Leasing Limited
Linnet Leasing Limited
Airbus A319
Airbus A320
Airbus A340
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Airbus A319
Boeing 767
Boeing 777
Boeing 777
Boeing 777
Airbus A320
Boeing 767
Airbus A330
Airbus A320
Airbus A320
Airbus A320
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)
Airbus A320
NBB São Paulo Lease CO. Limited (BBAM)
Petrel Leasing LLC
Pochard Leasing LLC
Quetro Leasing LLC
Seagull Leasing LLC
SG Infraestructure Italia S.R.L.
SL Alcyone LTD (Showa)
TMF Interlease Aviation B.V.
TMF Interlease Aviation B.V.
TMF Interlease Aviation II B.V.
TMF Interlease Aviation II B.V.
TMF Interlease Aviation III B.V.
TMF Interlease Aviation III B.V.
TMF Interlease Aviation III B.V.
TMF Interlease Aviation III B.V.
Wacapou Leasing S.A
Airbus A321
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Boeing 777
Airbus A320
Airbus A320
Airbus A330
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A321
Airbus A330
Airbus A320
Wells Fargo Bank North National Association (ILFC)
Airbus A330
100
200
500
300
300F
300F
300F
100
300ER
300ER
300ER
300ER
200
300ER
200
200
200
200
200
200
300ER
300ER
300ER
300F
300ER
200
200
200
100
200
100
200
200
200
200
200
4
2
2
3
2
1
2
2
1
1
1
1
2
1
6
1
2
4
1
1
1
2
3
-
1
1
12
1
5
2
3
12
7
10
1
1
-
-
-
-
2
-
2
-
1
-
-
-
-
-
-
-
-
4
-
-
1
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
TOTAL
102
11
3
0
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Leasing contracts where the Company acts as the
lessee of aircrafts establish duration between 12
and 18 year terms and semi-annual, quarterly and
monthly payments of obligations.
Additionally, the lessee will have the obligation
to contract and maintain active the insurance
coverage for the aircraft, perform maintenance
on the aircraft and update the airworthiness
certificates at their own cost.
Fixed assets acquired under financial leases
are classified as Other property, plant and
equipment. As of December 31, 2012 the Company
had one hundred and two aircraft (eleven aircraft
as of December 31, 2011).
During the first quarter of 2012, due to the sale of
its participation in the permanent establishments
Caiquen Leasing LLC, Codorniz Leasing Limited,
Garza Leasing LLC, Pochard Leasing LLC and
Quetro Leasing LLC, the Company increased its
number of aircraft on lease by seven Boeing 767-
300 (one freighter and six passenger aircrafts)
and two A319-100. Therefore, these aircraft
were reclassified from the Plant and equipment
category to the category Other property plant
and equipment.
As a result of the Business Combination 81
aircraft capital leases were added as financial
leasing, and during the third quarter of 2012 two
more Airbus A320-200 were added in this way.
The book value of assets under financial leases as
of December 31, 2012 amounts to ThUS$ 3,863,193
(ThUS$ 464,082 as of December 31, 2011).
The minimum payments under financial leases
are as follows:
As of December 31, 2012
No later than one year
Between one and five years
Over five years
TOTAL
As of December 31, 2011
No later than one year
Between one and five years
Over five years
TOTAL
Gross Value
Interest
Present
Value
ThUS$
ThUS$
ThUS$
523,033
(66,090)
456,943
1,687,596
(186,145)
1,501,451
1,135,262
(57,455)
1,077,807
3,345,891
(309,690)
3,036,201
Gross Value
Interest
Present
Value
ThUS$
ThUS$
ThUS$
78,369
207,365
59,152
344,886
(7,622)
(18,657)
(2,078)
(28,357)
70,747
188,708
57,074
316,529
4
0
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
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2
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2
T
R
O
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E
R
L
A
U
N
N
A
NOTE 20. TAXES AND DEFERRED TAXES
Deferred tax assets and liabilities are offset if there
is a legal right to offset assets and liabilities for
income taxes relating to the same tax authority.
The balances of deferred taxes are as follows:
Concept
Depreciation
Leased assets
Amortizacion
Provissions
Revaluation of financial instruments
Assets
Liabilities
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ThUS$
ThUS$
(662)
-
15,148
16,266
5,178
(547)
-
14,255
9,998
-
548,618
105,554
69,335
(247,743)
(30,110)
Tax losses
105,652
35,300
(328,608)
Revaluation property, plant and equipment
Intangibles
Others
TOTAL
-
-
3,047
144,629
-
-
1,142
60,148
(45,579)
498,674
(12,092)
558,049
The balance at December 31, 2012 of deferred taxes,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
The balance of deferred tax assets and liabilities are
composed principally of temporary differences to
reverse in the long term.
338,741
65,240
36,667
47,757
(28,788)
(83,297)
-
-
(6,695)
369,625
5
0
2
s
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a
i
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a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Movements of
Deferred tax assets
and liabilities from
January 1, 2011 to
December 31, 2012
are as follows:
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Deferred tax assets not recognized:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
Temporary differences
Tax losses
TOTAL
-
1,439
1,439
2,152
35
2,187
Deferred tax assets on tax loss carry-forwards, are
recognized to the extent that it is likely to provide
relevant tax benefit through future taxable profits.
The Company has not recognized deferred tax assets
of ThUS$ 1,439 (ThUS$ 35 at December 31, 2011)
compared to a loss of ThUS$ 5,265 (ThUS$ 103 at
December 31, 2011) to offset against future years tax
benefits.
Expense (income) for deferred and current income
taxes for the periods ended at December 31, 2012 and
December 31, 2011, respectively, are as follows:
Expense for current income tax
Current tax expense
Adjustment to previous year’s current tax
Other current tax expense (income)
TOTAL CURRENT TAX EXPENSE, NET
Expense for deferred income taxes
Deferred expense (income) for taxes related to the creation and reversal of temporary differences
Reduction (increase) in value of deferred tax assets during the evacuation of its usefulness.
TOTAL DEFERRED TAX EXPENSE, NET
INCOME TAX EXPENSE
For the periods ended
December 31
2012
ThUS$
2011
ThUS$
35,527
(13,886)
12
21,653
79,155
1,404
80,559
102,212
19,470
3,877
-
23,347
40,051
(1,609)
38,442
61,789
7
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N
A
Composition of income tax expense (income):
Current tax expense, net, foreign
Current tax expense, net, Chile
TOTAL CURRENT TAX EXPENSE, NET
Deferred tax expense, net, foreign
Deferred tax expense, net, Chile
DEFERRED TAX EXPENSE, NET, TOTAL
INCOME TAX EXPENSE
For the period ended
December 31,
2012
ThUS$
31,791
(10,138)
21,653
(54,980)
135,539
80,559
102,212
2011
ThUS$
4,486
18,861
23,347
(20,876)
59,318
38,442
61,789
Reconciliation of tax expense using the legal rate to the tax expense using the
effective rate:
For the period ended
December 31,
2012
ThUS$
22,633
70,441
(10,686)
(7,029)
27,437
(584)
79,579
102,212
2011
ThUS$
76,410
(10,571)
1,916
(11,094)
5,087
41
(14,621)
61,789
Tax expense using the legal rate
Tax effect of legal rate change
Tax effects of rates in other jurisdictions
Tax effect of non-taxable operating revenues
Tax effect of disallowable expenses
Other increases (decreases)
TOTAL ADJUNSTMENTS TO TAX EXPENSE USING THE LEGAL RATE
TAX EXPENSE USING THE EFFECTIVE RATE
Reconciliation of legal tax rate to effective tax rate:
Legal tax rate
Effect of tax rates for legal rate change
Effect of tax rates in other jurisdictions
Effect of tax rate on non-taxable operating revenues
Effect of tax rate on disallowable expenses
Efecto en tasa impositiva de gastos no deducibles
TOTAL ADJUSTMENTS TO THE LEGAL TAX RATE
TOTAL EFFECTIVE TAX RATE
For the period ended
December 31,
2012
2011
%
20.00
62.24
(9.44)
(6.21)
24.24
(0.52)
70.31
90.31
%
20.00
(2.77)
0.50
(2.89)
1.33
0.01
(3.82)
16.18
8
0
2
s
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2
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L
A
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N
N
A
On September 27, 2012, the Law N° 20,630 was
published in the Official Journal that “Improves Tax
Legislation and Finance Education Reform”. Among
the major tax reforms that the amending Law
contains, the First Category Tax Rate was modified
which must be declared and paid beginning in the
2013 tax year.
The above implies, that the rate of income tax for
the tax year 2013 is 20%. Therefore, for purposes of
the closing financial statements beginning as of
Deferred taxes related to items charged to net equity:
September 30, 2012, this should be considered in
determining the provision for income taxes and the
determination of deferred tax rate of 20%.
Thereby, at December 31, 2012 the Company had tax
expense considering the increased rate of 17% to
20%, which meant a higher recorded tax expense by
ThUS$ 70,441.
Aggregate deferred taxation of components of other comprehensive income
Aggregate deferred taxation related to items charged to net equity
TOTAL DEFERRED TAXES RELATED TO ITEMS CHARGED TO NET EQUITY
Deferred tax effects of the components of other comprehensive income:
For the period ended
December 31,
2012
ThUS$
(5,357)
(257)
(5,614)
2011
ThUS$
8,708
(355)
8,353
Cash-flow hedges
Translation adjustment
Cash-flow hedges
Translation adjustment
As of
December
31, 2012
Amount before
Taxes
Income tax
expense (income)
ThUS$
2,510
(18,692)
ThUS$
2,623
2,734
5,357
As of
December
31, 2011
Amount before
Taxes
Income tax
expense (income)
ThUS$
40,368
10,864
ThUS$
(6,862)
(1,846)
(8,708)
Amount
after
Taxes
ThUS$
5,133
(15,958)
Amount
after
Taxes
ThUS$
33,506
9,018
9
0
2
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N
N
A
NOTE 21. OTHER FINANCIAL LIABILITIES
The composition of Other financial liabilities is as
follows:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
CURRENT
(a) Interest bearing loans
1,977,255
537,334
(b) Derivatives not recognized as a hedge
(c) Hedge derivatives
TOTAL CURRENT
NON-CURRENT
4,477
65,598
4,907
40,016
2,047,330
582,257
(a) Interest bearing loans
7,582,302
2,978,973
(b) Derivatives not recognized as a hedge
(c) Hedge derivatives
TOTAL NON-CURRENT
5,515
111,040
9,859
120,304
7,698,857
3,109,136
The balance at December 31, 2012 of Other financial
liabilities, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
0
1
2
s
t
n
e
m
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t
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N
N
A
(a) Interest bearing loans
Obligations with credit
instruments:
institutions and debt
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
242,955
519,762
411,313
1,174,030
273,682
471,896
57,647
1,977,255
219,319
3,432,919
3,652,238
1,123,840
2,615,924
190,300
153,386
379
310,217
463,982
-
70,747
2,605
537,334
247,725
2,159,055
2,406,780
-
245,782
326,411
CURRENT
Loans to exporters
Bank loans
Guaranteed obligations
SUBTOTAL BANK LOANS
Obligation with the public
Financial leases
Other loans
TOTAL CURRENT
NON-CURRENT
Bank loans
Guaranteed obligations
SUBTOTAL BANK LOANS
Obligation with the public
Financial leases
Other loans
TOTAL NON-CURRENT
7,582,302
2,978,973
TOTAL OBLIGATIONS WITH FINANCIAL
INSTITUTIONS
9,559,557
3,516,307
All interest-bearing liabilities are recorded using
the effective interest rate method. Under IFRS, the
effective interest rate for loans with a fixed interest
rate does not vary throughout the loan, while in
the case of loans with variable interest rates, the
effective rate changes on each date of repricing of
the loan.
Currency balances that make the interest bearing
loans at December 31, 2012 and December 31, 2011,
are as follows:
CURRENCY
Brazilian real
Euro
US Dollar
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
326,394
1,785
-
-
9,231,378
3,516,307
9,559,557
3,516,307
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7
1
2
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l
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i
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n
a
n
i
F
2
1
0
2
T
R
O
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E
R
L
A
U
N
N
A
Summary of other financial non-current loans (other
than bank loans, obligations with the public and
financial leases)
CURRENT
a) Other interest bearing loans (see note 21 a)
b) Derivative not recognized as a hedge (see note 21 b)
c) Hedge derivatives (see note 21 c)
TOTAL CURRENTS
NON-CURRENT
a) Other interest bearing loans (see note 21 a)
b) Derivative not recognized as a hedge (see note 21 b)
c) Hedge derivatives (see note 21 c)
TOTAL NON-CURRENTS
(b) Derivatives not recognized as a hedge.
Derivatives not recognized as a hedge as of December
31, 2012 and December 31, 2011, respectively, is as
follows:
CURRENT
Interest rate derivative not recognized as a hedge
TOTAL CURRENT
NON-CURRENT
Interest rate derivative not recognized as a hedge
TOTAL NON-CURRENT
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
57,647
4,477
65,598
127,722
190,300
5,515
111,040
306,855
2,605
4,907
40,016
47,528
326,411
9,859
120,304
456,574
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
4,477
4,477
5,515
5,515
4,907
4,907
9,859
9,859
TOTAL OTHER FINANCIAL LIABILITIES
9,992
14,766
8
1
2
s
t
n
e
m
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t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(c) Hedge derivatives
Hedge derivatives as of December 31, 2012 and
December 31, 2011 are as follows:
CURRENT
Accrued Interest from the last date of interest rate swap
Fair value interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
TOTAL CURRENT
NON-CURRENT
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
TOTAL NON-CURRENT
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
4,660
37,076
10,502
13,360
65,598
5,027
34,105
-
884
40,016
104,547
120,304
4,530
1,963
-
-
111,040
120,304
TOTAL HEDGING LIABILITIES
176,638
160,320
The foreign currency derivatives are forward
exchange and collars contract.
9
1
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Hedging operation
The fair values of assets/(liabilities), by type
of derivative, of the contracts held as hedging
instruments are presented below:
Forward starting swaps (FSS) (1)
Interest rate options (2)
Interest rate swaps (3)
Fuel collars (4)
Fuel swap (5)
Currency forward (6)
Currency collars (7)
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
-
6
(19,703)
73
(146,283)
(139,733)
(911)
(9,000)
-
(15,228)
19,016
11,599
(253)
-
(1) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest
rate for long-term loans incurred in the acquisition of aircraft to be produced from the future contract date. These contracts are
recorded as cash flow hedges.
(2) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR
interest rate for long-term loans incurred in the acquisition of aircraft. These contracts are recorded as cash flow hedges.
(3) Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3, 6 and 12 months
LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as
cash flow hedges.
(4) Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel
purchases.
(5) Covers the significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel
purchases.
(6) Covers investments denominated in Chilean pesos to changes in the US Dollar - Chilean Peso exchange rate, with the aim of
ensuring investment in dollars.
(7) Covers TAM’s revenues recorded in another currency.
0
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
During the periods presented, the Company only
maintains cash flow hedges. In the case of fuel
hedges, the cash flows subject to said hedges will
impact results over the next 18 months from the
consolidated statement of financial position date,
where as in the case of interest rate hedging, the
hedges will impact results over the life of the related
loans, which are valid for 12 years. The hedges
on investments will impact results continuously
throughout the life of the investment (up to 3
months), while the cash flows occur at the maturity
of the investment.
During the periods presented, there have not
occurred hedging operations of future highly
probable transaction that have not been realized.
During the periods presented, there has been hedge
ineffectiveness recognized
in the consolidated
statement of income, for currency collars.
Since none of the coverage resulted in the recognition
of a non-financial asset, no portion of the result of
the derivatives recognized in equity was transferred
to the initial value of such assets.
The amounts recognized in comprehensive income
during the period and transferred from net equity to
income are as follows:
Debit (credit) recognized in comprehensive income during the year
Debit (credit) transferred from net equity to income during the year
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
(2,510)
(26,470)
(40,368)
62
1
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 22. TRADE AND OTHER ACCOUNTS
PAYABLES
The composition of Trade and other accounts
payables is as follows:
CURRENT
(a) Trade and other accounts payables
(b) Accrued liabilities at the reporting date
TOTAL TRADE AND OTHER ACCOUNTS PAYABLES
The balance at December 31, 2012 of Trade and
other accounts payables, incorporates the effects
of Business Combinations with TAM S.A. and
Subsidiaries.
(a) Trade and other accounts payable as of December
31, 2012 and December 31, 2011 are as follows:
Trade creditors
Leasing obligations
Other accounts payabe (*)
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,364,237
288,718
531,481
113,605
1,652,955
645,086
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,036,436
30,818
296,983
410,533
18,849
102,099
1,364,237
531,481
(*) Includes agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in
Note 23.
The details of Trade and other accounts payables are
as follows:
2
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Aircraft fuel
Boarding Fee
Other personnel expenses
Landing and other aviation fees
Suppliers' technical purchases
Fleet (jol)
Professional services and advisory
Marketing
Handling and ground handling
Ground services
Aircraft and engines leasing
Services on board
Leases, maintenance and IT services
Tax recovery program (*)
U.S.A. Department of Justice (**)
Crew
Maintenance
Aviation insurance
Communications
Distrubution sistem
Others
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
360,618
203,690
134,357
121,464
64,981
59,181
52,903
51,360
49,738
38,436
30,818
26,674
24,433
19,668
18,387
16,233
8,619
7,465
5,038
1,389
68,785
134,088
80,253
32,833
41,900
36,387
-
29,870
22,183
34,743
7,563
18,849
12,929
13,419
-
18,387
9,780
11,252
6,274
5,881
3,137
11,753
TOTAL TRADE AND OTHER ACCOUNTS PAYABLES
1,364,237
531,481
is
(*) Fiscal Recovery Program in Brazil (REFIS), established in Law No. 11.941/09 and Provisional Measure No. 449/2009.
REFIS
intended to allow the settlement of tax debts through a special mechanism to pay and refinance..
(**) Includes agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in
Note 23.
(b) The liabilities accrued at December 31, 2012 and
December 31, 2011, are as follows:
Accrued personnel expenses
Accounts payable to personnel (*)
Aircraft and engine maintenance
Others accrued liabilities
TOTAL ACCRUED LIABILITIES
(*) Profits and bonds participation (Note 26 letter b)
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
174,147
70,625
22,053
21,893
46,034
38,391
11,178
18,002
288,718
113,605
3
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 23. OTHER PROVISIONS
The detail of Other provisions as of December 31,
2012 and December 31, 2011 is as follows:
CURRENT
PROVISION LEGAL CLAIMS (1)
Civil contingencies
Labor contingencies
Tax contingencies
TOTAL OTHER PROVISIONS, CURRENT
NON-CURRENT
PROVISION LEGAL CLAIMS (1)
Civil contingencies
Labor contingencies
Tax contingencies
Other
PROVISION FOR EUROPEAN COMMISION INVESTIGATION (2)
TOTAL OTHER PROVISIONS, NON-CURRENT
TOTAL OTHER PROVISIONS (3)
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
14,776
171
6,772
21,719
68,236
125,119
326,048
6,066
10,865
536,334
558,053
260
331
6,772
7,363
1,024
1,005
3,700
5,981
10,675
22,385
29,748
(1) The amount represents a provision for certain legal claims made against the Company by former employees, regulatory agencies
and others. The charge for the provision is shown in the consolidated statement of income in Administrative expenses. It is expected
that the current balance as of December 31, 2012 will be applied during the next 12 months.
(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight
market.
(3) Referenced value in Note 35 Contingencies.
The balance at December 31, 2012 of Other provisions,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
4
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The movement of provisions between January 1, 2011
and December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Increase in provisions
Provision used
Reversal of unused provision (*)
Exchange difference
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Increase in provisions
Provision used (**)
Reversal of unused provision
Additions due to business combination
Subsidiaries conversion difference
Exchange difference
Legal claims
European
Commission
Investigation
Total
ThUS$
ThUS$
ThUS$
21,957
12,085
(3,592)
(11,518)
141
19,073
19,073
5,596
(115,123)
(449)
634,076
3,724
291
10,916
-
-
-
(241)
32,873
12,085
(3,592)
(11,518)
(100)
10,675
29,748
10,675
29,748
-
-
-
-
-
190
5,596
(115,123)
(449)
634,076
3,724
481
CLOSING BALANCE AS OF DECEMBER 31, 2012
547,188
10,865
558,053
(*) Is mainly related to the reversal of tax contingencies.
(**) The deposit judicial in guarantee, regarding the Fundo Aeroviário (FA), in the amount of MUSD $115, was done in order to suspend
the enforceability of the tax credit. The company is discussing over the Tribunal the constitutionality of the requirement made by
FA in a legal suit. Initially it was covered by the effects of a provisional remedy, meaning that, the company was not obligated to
collect the tax while there was not a judicial decision in this regard. However, the decision taken by a judge in the first instance was
publicized in an unfavorable way, revoking the provisional remedy relief. As the legal suit is still in progress (TAM appealed from this
first decision), the company needed to do the deposit judicial in guarantee to suspend the enforceability of such tax credit. Finally,
if the final decision is favorable to the company, the deposit already made is going to come back to TAM. On the other hand, if the
tribunal confirms the first decision, such deposit will be converted in a definitive payment in favor of the Brazilian Government.
European Commission Provision:
(a) This provision was established because of the
investigation brought by the Directorate General for
Competition of the European Commission against
more than 25 cargo airlines, including Lan Cargo
S.A., as part of a global investigation begun in 2006
regarding possible unfair competition on the air
cargo market. This was a joint investigation by the
European and U.S.A. authorities. The start of the
investigation was disclosed through a Essential
Matter report dated December 27, 2007. The U.S.A.
portion of the global
investigation concluded
when Lan Cargo S.A. and its subsidiary, Aerolíneas
Brasileiras S.A. (“ABSA”) signed a Plea Agreement
with the U.S.A. Department of Justice, as disclosed
in a Essential Matter report notice on January 21,
2009.
(b) A Essential Matter report dated November 9, 2010,
reported that the General Direction of Competition
had issued its decision on this case (the “decision”),
under which it imposed fines totaling € 799,445,000
5
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(seven hundred and ninety nine million four hundred
and forty-five thousand Euros) for infringement of
European Union regulations on free competition
against eleven (11) airlines, among which are LATAM
Airline Group S.A. and Lan Cargo S.A., Air Canada,
Air France, KLM, British Airways, Cargolux, Cathay
Pacific, Japan Airlines, Qantas Airways, S.A.S. and
Singapore Airlines.
(c) Jointly, LATAM Airline Group S.A. and Lan Cargo
S.A., have been fined in the amount of € 8,220,000
(eight million two hundred twenty thousand Euros)
for said infractions, which was provisioned in the
financial statements of LATAM Airline Group S.A..
This is a minor fine in comparison to the original
decision, as there was a significant reduction in fine
because LATAM Airline Group S.A. cooperated during
the investigation.
(d) On January 24, 2011, LATAM Airline Group S.A.
and Lan Cargo S.A. appealed the decision before the
Court of Justice of the European Union. At December
31, 2012, the provision reached the amount of ThUS$
10,865 (ThUS$ 10,675 at December 31, 2011)
6
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 24. TAX LIABILITIES
The composition of Tax liabilities is as follow:
CURRENT
Sales tax
Retentions
Income tax
Others
TOTAL CURRENT
The balances at December 31, 2012 of Tax liabilities,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
47,122
14,512
45,413
8,434
115,481
5,197
13,138
9,750
1,284
29,369
7
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 25. OTHER NON-FINANCIAL LIABILITIES
Other non-financial liabilities as of December 31,
2012 and December 31, 2011 are as follows:
Current
Deferred revenues
Dividends payable
Sale leaseback
Other sundry liabilities
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,909,896
4,023
7,867
20,744
969,873
85,318
-
2,446
TOTAL OTHER NON-FINANCIAL LIABILITIES, CURRENT
1,942,530
1,057,637
Non-current
Deferred revenues
Other sundry liabilities
TOTAL OTHER NON-FINANCIAL, NON CURRENT
101,259
62
101,321
-
-
-
TOTAL OTHER NON-FINANCIAL LIABILITIES
2,043,851
1,057,637
The balance at December 31, 2012 of Other non-
financial
liabilities current and non-current,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
8
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 26. EMPLOYEE BENEFITS
Liability for employee benefits as of December 31,
2012 and December 31, 2011, respectively, are as
follows:
(b) The liability for short-term benefits as of
December 31, 2012 and December 31, 2011
respectively, is detailed below:
As of
December
31, 2012
As of
December
31, 2011
ThUS$
12,594
240
5,532
ThUS$
10,556
280
2,296
Pension payments
Termination payments
Other obligations
As of
December
31, 2012
As of
December
31, 2011
ThUS$
70,625
ThUS$
38,391
Profit-sharing and bonuses (*)
TOTAL LIABILITY FOR EMPLOYEE
BENEFITS
18,366
13,132
(*) Accounts payables to the personnel (Note 22 letter b)
The balance at December 31, 2012 of Employee
benefits,
incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
(a) The movement in Pension and termination
payments and other obligations between January 1,
2011 and December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Increase (decrease) current service provision
Benefits paid
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Increase (decrease) current service provision
Benefits paid
CLOSING BALANCE AS OF DECEMBER 31, 2012
ThUS$
9,657
5,482
(2,007)
13,132
13,132
5,274
(40)
18,366
The participation in profits and bonuses corresponds
to an annual incentives plan for achievement of
objectives.
(c) Employment expenses are detailed below:
For the periods ended
December 31,
Salaries and wages
2012
ThUS$
1,296,101
Short-term employee benefits
397,824
Termination benefits
Other personnel expenses
32,864
181,084
2011
ThUS$
764,396
85,681
18,207
144,219
TOTAL
1,907,873
1,012,503
For the period ended at December 31, 2012 the
personnel expenses,
the effects
of Business Combinations with TAM S.A. and
Subsidiaries.
incorporates
9
2
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 27. ACCOUNTS PAYABLE, NON-CURRENT
Non-current accounts payable as of December 31,
2012 and December 31, 2011 are as follows::
Fleet financing (JOL)
Tax recovery program (*)
Other accounts payable (**)
Aircraft and engine maintenance
Provision for vacations and bonuses
Other sundry liabilities
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
140,769
207,089
21,594
335,834
9,954
15,995
271,965
-
36,000
38,540
7,982
443
TOTAL ACCOUNTS PAYABLE, NON-CURRENT
731,235
354,930
(*) Fiscal Recovery Program in Brazil (REFIS), established in Law No. 11.941/09 and Provisional Measure No. 449/2009. REFIS is
intended to allow the settlement of tax debts through a special mechanism to pay and refinance.
(**) Agreement entitled “Plea Agreement” with the Department of Justice of United States of America; its short-term part is in
Trade and other payable. See details in Note 23.
The balance at December 31, 2012 of accounts payable non-current, incorporates the effects of Business
Combinations with TAM S.A. and Subsidiaries.
0
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 28. EQUITY
(a) Capital
The Company’s objective
is to maintain an
appropriate level of capitalization that enables it to
ensure access to the financial markets for carrying
out its medium and long-term objectives, optimizing
the return for its shareholders and maintaining a
solid financial position.
The Capital of the Company is managed and
composed in the following form:
The capital of the Company at December 31, 2012
amounts to ThUS$ 1,501,018 divided into 479,098,052
common stock of a same series (ThUS$ 473,907,
divided into 340,326,431 shares as of December
31, 2011), no par value. There are no special
series of shares and no privileges. The form of its
stock certificates and their issuance, exchange,
disablement, loss, replacement and other similar
circumstances, as well as the transfer of the shares,
is governed by the provisions of Corporations Law
and its regulations.
(b) Subscribed and paid shares
As of December 31, 2012, the total number of shares
authorized is 488,355,791 shares no par value,
according to the capital increase approved at the
Extraodinary Shareholders’ Meeting of December
21, 2011 by 147,355,882 ordinary shares no par value.
Of this increase, 142,555,882 shares, was allocated
to the merger with companies Sister Holdco S.A.
and Holdco II S.A.; and 4,800,000 shares will be
allocated to compensation plans for employees
of the Company and its subsidiaries. At the end
of December 2012, 343,978,986 are fully paid and
135,119,066 were subjected to exchange for shares of
the Sister Holdco S.A. and Holdco II S.A.
As reported by Essential Matter dated June 28,
2012, the Board agreed to submit to the approval
of shareholders of the Company that the remaining
7,436,816 shares that were not used in the exchange,
not be used for the purpose of creating and
implementing a compensation plan for employees
of the Company and its subsidiaries, as provided
in Article 24 of the Corporations Law, but instead
preferably intended to be offered to shareholders of
LATAM Airlines Group S.A., according to article 25 of
the Corporation Law.
According to the information through Essential
Matter dated August 3, 2012, to this date, the Board
agreed to call Extraordinary Shareholders Meeting
to discuss, among other matters, that the referred
7,436,816 shares were intended to be offered
preferentially to shareholders of the Company and
the balance not subscribed, was offered and placed
on the market in general. The aforementioned
Extraordinary Shareholders Meeting held on
September 4, 2012, agreed, among other matters, the
approval of the remaining 7,436,816 shares of total
142,555,882 shares issued under the authorization
of the Extraordinary Shareholders Meeting dated
December 21, 2011, and were not to be exchanged
for shares of the Sister Holdco S.A. and Holdco
II S.A., were intended to be offered preferably
between the LATAM shareholders under Article 25
of the Corporations Law and that the unsubscribed
balance, would be offered and placed on the market
in general.
The re-destination and placement of those shares
was approved by the Superintendency of Securities
and
Insurance, dated December 11, 2012. On
December 20, 2012, the Board of Directors agreed
to start, from December 21, 2012, the period of
preferred option of those shares, proceeded to fix
the price of placing them, which was reported to
the Superintendency of Securities and Insurance by
Essential Matter on the same date. At December 31,
2012, 2,988,885 of the said 7,436,816 shares had been
placed of which 2,979,077 were paid. The Information
on the result of this placement is available in Note
40 on Subsequent Events.
At December 31, 2011, of the total shares subscribed,
340,326,431 shares have been fully paid (includes
7,000 shares paid on December 30, 2011 and
1
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
registered in the Register of Shareholders in January
2012), leaving 673,569 shares reserved for issuance
under option contracts.
The following table shows the movement of the
authorized and fully paid shares described above
between January 1, 2011 and December 31, 2012
Movement of authorized shares
Authorized shares as of January 1, 2011
Increase Capital as of December 21, 2011
Issued shares merger companies sister Holco S.A. and Holdcol S.A.
Compensation plans for employees
Authorized shares as of December 31, 2011
Authorized shares as of January 1, 2012
Increase capital option closing year 2007 options over canceled shares
Authorized shares as of December 31, 2012
Movement fully paid shares (*)
Paid shares as of January 1, 2011
Exercise stock options increase capital 2007
Paid shares as of December 31, 2011
Paid shares as of January 1, 2012
Exercise stock options increase capital 2007
Exchange of shares for merger Companies Sister Holdco S.A. and Holdco II S.A.
Placement of the remaining preferred shares issued for merger
with companies sister Holdco S.A. and Holdco II S.A.
Paid shares as of December 31, 2012 (*)
N° of
shares
341,000,000
142,555,882
4,800,000
488,355,882
488,355,882
(91)
488,355,791
N° of
shares
338,790,909
1,535,522
340,326,431
340,326,431
673,478
135,119,066
Amount
ThUS$
453,444
23,135
476,579
476,579
10,226
951,409
2,979,077
68,986
479,098,052
1,507,200
(*) Amounts reported represent only those arising from the payment of the outstanding shares, does not consider the capitalization
costs for issuance and placement of shares by ThUS$ (3,510) at December 31, 2012 and ThUS$ (2,672) to December 31, 2011.
The movement of stock options over shares related to the capital increase in 2007 is detailed in Note 38.
2
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(c) Treasury stock
At December 31, 2012, of the total number of shares
subscribed and paid, the Company has acquired
7,401 shares, from the shareholders who exercised
the right to retirement, for an amount of ThUS$
203.
(d) Other sundry reserves
The movement of Other sundry reserves between
January 1, 2010 and December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Stock option plans
Deferred tax
Transactions with non-controlling interest
Capitalization share issuance and placement cost (1)
Legal reserves
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Stock option plan
Deferred tax
Transactions with non-controlling interest
Cost of issuance and placement of shares (2)
Capitalization share issuance and placement cost (2)
Higher value for TAM S.A. share exchange
Legal reserves
Stock option
plans
Other
reserves
Total
ThUS$
ThUS$
ThUS$
5,401
2,084
(355)
-
-
-
7,130
7,130
(1,299)
(257)
-
-
-
-
-
62
-
-
5,463
2,084
(355)
(1,801)
(1,801)
2,672
429
1,362
1,362
-
-
(1,604)
(3,510)
3,510
2,672
429
8,492
8,492
(1,299)
(257)
(1,604)
(3,510)
3,510
2,665,692
2,665,692
1,232
1,232
CLOSING BALANCE AS OF DECEMBER 31, 2012
5,574
2,666,682
2,672,256
(1) Capitalization share issuance and placement costs caused by the capital increase carried out in 2007, as set out Extraordinary
Shareholders Meeting held on December 21, 2011.
(2) The costs of issuance and placement of shares recognized in reserves during the first half of 2012 were capitalized during the
month of September 2012, according to the minutes of the Extraordinary Meeting of Shareholders held on September 4, 2012.
3
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(d.1) Reserves for stock option plans
These reserves are related to the “Share-based
payments” explained in Note 38.
(d.2) Other reserves
The balance of Other reserves comprises the
following:
Higher value for TAM S.A. share exchange (1)
Reserve for the adjustment to the value of fixed assets (2)
Transactions with non-controlling interest (3)
Others
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
2,665,692
2,620
(3,405)
1,775
2,666,682
-
2,620
(1,801)
543
1,362
(1) Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco
II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these
exchange shares of LATAM Airlines Group S.A. at June 22, 2012.
(2) Corresponds to the technical revaluation of fixed assets authorized by the Superintendence of Securities and Insurance in
1979, in Circular No. 1,529. The revaluation was optional and could be taken only once, the reserve is not distributable and can
only be capitalized.
(3) Corresponds to the loss generated by the participation of Lan Pax Group S.A., in the capital increase for Aerovías de
Integración Regional, AIRES S.A. by ThUS$ (621) at December 31, 2012 (ThUS$ (1,801) at December 31, 2011) and the loss generated
by the participation of Lan Cargo S.A. Investment in the capital increase carried out by Línea Aérea Carguera de Colombia S.A. by
ThUS$ (983) at December 31, 2012.
(e) Reserves with effect in other comprehensive
income.
The movement of Reserves with effect in other
comprehensive income between January 1, 2011 and
December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Derivatives valuation gains (losses)
Deferred tax
Conversion difference subsidiaries
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Derivatives valuation gains (losses)
Deferred tax
Conversion difference subsidiaries
CLOSING BALANCE AS OF DECEMBER 31, 2012
Currency
translation
reserve
Cash flow
hedging
reserve
Total
ThUS$
ThUS$
ThUS$
(4,257)
-
1,855
(10,915)
(107,050)
(111,307)
(40,368)
(40,368)
6,862
8,717
-
(10,915)
(13,317)
(140,556)
(153,873)
(13,317)
(140,556)
(153,873)
-
(2,727)
19,618
3,574
5,003
(5,177)
-
5,003
(7,904)
19,618
(140,730)
(137,156)
4
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(e.1) Currency translation reserve
These originate from exchange differences
arising from the translation of any investment
in foreign entities (or Chilean investment with
a functional currency different to that of the
parent), and from loans and other instruments in
foreign currency designated as hedges for such
investments. When the investment (all or part)
is sold or disposed and loss of control occurs,
these reserves are shown in the consolidated
statement of income as part of the loss or gain on
the sale or disposal. If the sale does not involve
loss of control, these reserves are transferred to
non-controlling interests.
(e.2) Cash flow hedging reserve
These originate from the fair value valuation
at the end of each period of the outstanding
derivative contracts that have been defined as
cash flow hedges. When these contracts expire,
these reserves should be adjusted and the
corresponding results recognized.
(f) Retained earnings
The movement of Retained earnings between
January 1, 2010 and December 31, 2012 is as follows:
Opening balance as of January 1, 2011
Result for the period
Other decreases
Dividends
CLOSING BALANCE AS OF DECEMBER 31, 2011
Opening balance as of January 1, 2012
Result for the period
Other decreases
Dividends
ThUS$
949,214
320,197
(632)
(151,981)
1,116,798
1,116,798
10,956
163
(21,749)
CLOSING BALANCE AS OF DECEMBER 31, 2012
1,106,168
5
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(g) Dividends per share
As of December 31, 2012
Description
Date of dividend
Amount of the dividend (ThUS$)
Final
dividend, 2011
04-26-2012
18,462
Mandatory
minimum
dividend, 2012
12-31-2012
3,287
Number of shares among which the dividend is distributed
340,999,909
479,098,052
Dividend per share (US$)
0.05414
0.00686
As of December 31, 2011
Description
Date of dividend
Amount of the dividend (ThUS$)
Number of shares among which
the dividend is distributed
Final
dividend, 2010
Interim
dividend, 2011
Interim
dividend, 2011
04-29-2011
10,386
08-30-2011
56,595
12-20-2011
85,000
339,310,509
339,358,209
340,164,105
Dividend per share (US$)
0.03061
0.16677
0.24988
The Company’s dividend policy is that dividends
distributed will be equal to the minimum required
by law, i.e. 30% of the net income according to
current regulations. This policy does not preclude
the Company from distributing dividends in excess
of this obligatory minimum, based on the events and
circumstances that may occur during the course of
the year.
At December 31, 2012, dividends are provisioned for
a minimum mandatory dividend corresponding to
30% of the value of Company. This amount is in the
category Other non-financial liabilities, current.
6
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 29. REVENUE
The detail of revenues is as follows:
Passengers
Cargo
TOTAL
For the periods ended
December 31,
2012
ThUS$
2011
ThUS$
7,978,664
4,008,910
1,743,525
1,576,530
9,722,189
5,585,440
For the period ended at December 31, 2012 the
incorporates the effects of Business
Revenue,
Combinations with TAM S.A. and Subsidiaries.
7
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 30. COSTS AND EXPENSES BY NATURE
(a) Costs and operating expenses
The main operating costs and administrative
expenses are detailed below:
Other rentals and landing fees
Aircraft fuel
Comissions
Other operating expenses
Aircraft rentals
Aircraft maintenance
Passenger services
TOTAL
(b) Depreciation and amortization
Depreciation and amortization are detailed below:
Depreciation (*)
Amortization
TOTAL
For the periods ended
December 31,
2012
ThUS$
1,052,594
2011
ThUS$
671,614
3,434,569
1,750,052
308,941
1,288,151
313,038
297,618
239,848
209,255
646,051
174,197
182,358
136,049
6,934,759
3,769,576
For the periods ended
December 31,
2012
ThUS$
753,747
31,140
784,887
2011
ThUS$
386,644
9,831
396,475
(*) Includes the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases.
(c) Personnel expensesl
The costs for personnel expenses are disclosed in
Liability for employee benefits (See Note 26).
8
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(d) Financial costs
The detail of financial costs is as follows:
Bank loan interest
Financial leases
Other financial instruments
TOTAL
For the periods ended
December 31,
2012
ThUS$
213,332
46,893
34,373
2011
ThUS$
109,168
12,265
17,644
294,598
139,077
Costs and expenses by nature presented in this note
plus the Employee expenses disclosed in Note 26, are
equivalent to the sum of cost of sales, distribution
costs, administrative expenses, other expenses
and financing costs presented in the consolidated
statement of income by function.
For the period ended at December 31, 2012 the
Cost and expenses by nature, incorporates the
effects of Business Combinations with TAM S.A. and
Subsidiaries.
9
3
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 31. GAINS (LOSSES) ON THE SALE OF NON-
CURRENT ASSETS NOT CLASSIFIED AS HELD
FOR SALE
The gains (losses) on sales of non-current assets not
classified as held for sale as of December 31, 2012
and 2011 are as follows:
Property, plant and equipment
TOTAL
For the periods ended
December 31,
2012
ThUS$
(2,836)
(2,836)
2011
ThUS$
(172)
(172)
0
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 32. OTHER INCOME, BY FUNCTION
Other income by function is as follows:
Duty free
Aircraft leasing
Logistics and courier
Customs and warehousing
Tours
Other miscellaneous income
TOTAL
For the periods ended
December 31,
2012
ThUS$
17,463
28,863
-
24,537
74,226
75,067
2011
ThUS$
16,874
12,701
10,958
24,677
43,952
23,642
220,156
132,804
For the period ended at December 31, 2012 of
Other income, by function, incorporates the effects
of Business Combinations with TAM S.A. and
Subsidiaries.
1
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 33. FOREIGN CURRENCY AND EXCHANGE
RATE DIFFERENCES
The functional currency of LATAM Airlines Group
S.A. is the US dollar, also it has subsidiaries whose
functional currency is different to the US dollar,
such as the Chilean peso, Argentine peso, Colombian
peso and Brazilian real, the latter due to Business
Combinations with TAM S.A. and Subsidiaries.
The functional currency is defined primarily as the
currency of the primary economic environment in
which an entity operates in each state and all other
currencies are defined as foreign currency.
Considering the above, the balances by currency
mentioned in this note correspond to the sum of
foreign currency of each of the entities that make
LATAM Airlines Group S.A. and Subsidiaries.
It was also necessary to apply the above definition
to the December 2011 amounts, for comparative
purposes.
Current assets
(a) Foreign currency
The foreign currency detail of balances of monetary
items in current and non-current assets is as follows::
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
CASH AND CASH EQUIVALENTS
337,223
216,747
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
OTHER FINANCIAL ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
68,705
3,308
40,091
671
15,502
94,035
51,346
63,565
30,936
-
2,167
550
2,147
8
18,020
601
7,443
12,956
6,616
148,148
864
5,688
14,647
21,589
6,239
17,214
1
1,127
499
18
291
14,948
5
325
2
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Current assets
As of
December
31, 2012
ThUS$
TRADE AND OTHER ACCOUNTS RECEIVABLE
503,601
As of
December
31, 2011
ThUS$
160,882
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
ACCOUNTS RECEIVABLE FROM
RELATED ENTITIES
Chilean peso
U.S. dollar
TAX ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
TOTAL ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. Dollar
Strong bolivar
Other currency
9,441
33,313
130,736
3,153
67,287
166,758
2,759
90,154
14,565
14,565
-
64,553
3,740
10,753
24,764
924
4,618
1,649
351
17,754
950,878
81,886
49,541
210,706
6,895
87,415
280,462
55,057
178,916
8,450
35,467
61,839
28,150
8,266
3,289
1,247
14,174
838
809
29
45,524
1,792
8,475
14,651
124
522
-
-
19,960
441,205
23,199
51,685
225,946
29,156
14,767
32,913
22,841
40,698
3
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Non-current assets
OTHER FINANCIAL ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
ACCOUNTS RECEIVABLE
Chilean peso
U.S. dollar
Other currency
TAX ASSETS, LONG TERM PORTION
Argentine peso
U.S. dollar
Other currency
DEFERRED TAX ASSETS
Other currency
TOTAL ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
31,329
8
3,505
98
524
7,817
15,895
3,482
14,812
9,564
5,000
248
22,105
41
1
22,063
4,203
4,203
72,449
49
3,505
9,662
524
7,817
20,896
29,996
4,388
1
1,939
89
2,166
-
140
53
7,482
7,422
-
60
17,951
17,951
-
-
-
-
29,821
17,952
1,939
7,511
2,166
-
140
113
4
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The foreign currency detail of balances of monetary
items in current liabilities and non-current is as
follows:
Current liabilities
Up to 90 days
91 days to 1 year
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ThUS$
ThUS$
OTHER FINANCIAL LIABILITIES CURRENT
U.S. dollar
Euro
241,473
240,871
602
-
-
-
TRADE AND OTHER ACCOUNTS PAYABLES
825,391
292,133
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
ACCOUNTS PAYABLE TO RELATED ENTITIES
Chilean peso
U.S. dollar
TAX LIABILITIES
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
21,398
38,506
72,643
29,268
38,540
208,858
2,710
413,468
14
14
-
12,840
2,125
2,925
3,019
200
3,261
325
985
14,968
32,898
74,576
26,594
10,921
44,115
1,269
86,792
367
118
249
7,520
305
1,724
3,238
-
468
593
1,192
589,105
589,070
35
19,850
-
8
-
-
-
12,272
-
9
11,938
10,062
-
1,695
6,157
-
52
-
-
-
-
-
-
-
-
-
-
-
-
697
1,431
22
51
-
-
-
1,012
-
334
678
-
-
-
-
5
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Current liabilities
Up to 90 days
91 days to 1 year
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ThUS$
ThUS$
OTHER NON-FINANCIAL LIABILITIES
48,935
51,884
Brazilian real
Chilean peso
Colombian peso
U.S. dollar
Strong bolivar
Other currency
98
120
3,082
44,056
1,211
368
-
114
16,135
35,392
239
4
16
10
-
-
-
-
6
3,827
235
361
-
3,231
-
-
TOTAL LIABILITIES
1,128,653
351,904
608,971
17,111
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Non-current liabilities
OTHER FINANCIAL LIABILITIES
U.S. dollar
Euro
ACCOUNTS PAYABLE
Chilean peso
U.S. dollar
Other currency
Other provisions
Argentine peso
Brazillian real
Chilean peso
Euro
Other currency
TOTAL NON-CURRENT LIABILITIES
Argentine peso
Brazilian real
Chilean peso
Euro
U.S. dollar
Other currency
23,523
41,529
75,796
32,550
42,403
494,110
3,921
414,821
15,273
34,622
78,046
42,729
11,389
80,349
1,508
87,988
-
18
11,938
-
1,730
595,227
-
58
-
578
11,101
-
697
4,662
22
51
More than 1 to 3 years
More than 3 to 5 years
More than 5 years
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
623,828
622,680
1.148
313,215
8,286
303,631
1,298
16,187
664
808
36
10,865
3,814
953,230
664
808
8,322
12,013
926,311
5,112
-
-
-
7,530
6,549
-
981
11,821
651
466
29
10,675
-
859,526
859,526
-
138
138
-
-
-
-
-
-
-
-
19,351
859,664
651
466
6,578
10,675
-
981
-
-
138
-
859,526
-
-
-
-
76
76
-
-
-
-
-
-
-
-
76
-
-
76
-
-
-
1,811,660
1,811,660
-
-
-
-
-
-
-
-
-
-
-
1,811,660
-
-
-
-
1,811,660
-
-
-
-
10
10
-
-
-
-
-
-
-
-
10
-
-
10
-
-
-
6
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
General summary of foreign currency:
TOTAL ASSETS
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
TOTAL LIABILITIES
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
NET POSITION
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
1,023,327
81,935
53,046
220,368
7,419
95,232
301,358
55,057
208,912
471,026
41,151
53,624
233,457
31,322
14,767
33,053
22,841
40,811
5,362,178
388,452
24,187
42,355
96,194
32,550
56,146
4,686,834
3,921
419,991
57,748
10,691
124,174
(25,131)
39,086
(4,385,476)
51,136
(211,079)
15,924
35,666
95,811
42,729
22,761
85,011
1,530
89,020
25,227
17,958
137,646
(11,407)
(7,994)
(51,958)
21,311
(48,209)
7
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(b) Exchange differences
Exchange differences recognized in the income
statement, except for financial instruments mea-
sured at fair value through profit or loss for the year
ended December 31, 2012 and 2011, generated a gain
of ThUS$ 66,685 and a loss of ThUS$ 256, respectively.
Exchange differences recognized in equity as re-
serves for currency translation differences for the
year ended December 31, 2012 and 2011, represented
a gain of ThUS$ 18,692 and a loss of ThUS$ 10,864, re-
spectively.
The following shows the current exchange rates for
the U.S. dollar, on the dates indicated:
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
Strong bolivar
Australian dollar
Boliviano
Mexican peso
New Zealand dollar
Peruvian Sol
Uruguayan peso
As of
December
31, 2012
As of
December
31, 2011
4.91
2.04
479.96
1,760.00
0.76
4.30
0.96
6.86
12.99
1.22
2.55
19.05
4.30
1.87
519.20
1,936.00
0.77
4.30
0.98
6.86
13.96
1.28
2.69
19.80
For the period ended at December 31, 2012 of
Foreign currency and exchange rate differences,
incorporates the effects of Business Combinations
with TAM S.A. and Subsidiaries.
8
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 34. EARNINGS PER SHARE
Basic earnings
Earnings attributable to
controlling company’s
equity holders (ThUS$)
Weighted average number
of shares, basic
For the periods ended
December 31,
2012
2011
10,956
320,197
412,267.624
339,424,598
Basic earnings per share (US$)
0.02657
0.94335
Diluted earnings
Earnings attributable to
controlling company’s
equity holders (ThUS$)
Weighted average number
of shares, basic
Adjustment diluted weighted
average shares stock options
Weighted average number
of shares, diluted
For the periods ended
December 31,
2012
2011
10,956
320,197
412,267,624
339,424,598
-
271,380
412,267,624
339,695,978
DILUTED EARNINGS PER SHARE (US$)
0.02657
0.94260
9
4
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 35. CONTINGENCIES
Lawsuits
(i) Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries
Company
Court
Case No.
Origin
Stage of trial
Atlantic Aviation
Investments LLC
(AAI)
Supreme
Court of the
State of New
York County
of New York.
07-6022920
Atlantic Aviation
Investments LLC
(AAI)
Supreme
Court of the
State of New
York County
of New York.
602286-09
Atlantic Aviation
Investments
LLC. ("AAI"), an indirect subsid-
iary LATAM Airlines Group S.A.,
incorporated under the laws of
the State of Delaware, sued in
August 29th, 2007 Varig Logistics
S.A. ("Variglog") for non-payment
of four documented loans in
credit agreements governed by
New York law. These contracts
establish the acceleration of
the loans in the event of sale of
the original debtor, VRG Linhas
Aéreas S.A.
Atlantic Aviation Investments LLC.
(“AAI”) sued on July 24, 2009 Mat-
lin Patterson Global Advisers LLC,
Matlin Patterson Global Opportu-
nities Partners II LP, Matlin Patter-
son Global Opportunities Partners
(Cayman) II LP and Logistics LLC
Volo (a) as alter egos of Variglog
for non-payment of the four loans
mentioned in the previous note
and (b) for breach of its obligation
to guarantee and other obliga-
tions under the Memorandum of
Understanding signed between
the parties on September 29, 2006.
Amounts
commited
ThUS$
17,100
plus
interest
and costs
In implementation stage in Swit-
zerland, the conviction stated
that Variglog should pay the
principal, interest and costs in
favor of AAI. It keeps the embar-
go of Variglog funds in Switzer-
land with AAI. Variglog is in the
process of judicial recovery in
Brazil and has asked Switzerland
to recognize the judgment that
declared the state of judicial re-
covery.
17,100
plus
interest,
costs and
damages
AAI filed a “summary judgment”
(abbreviated trial) which the
court ruled favorably. The de-
fendants appealed this decision
which was ultimately dismissed
by the High Court. The cause was
turned back to the lower court
for determination of the amount
actually payable by the appli-
cants (damages).
Aerotransportes
Mas de Carga S.A.
Federal Court
of fiscal and
administrative
justice.
31698/11-
17-01-8
Nullity trial against the tax au-
thority's refusal to restore bal-
ance in favor of VAT.
Presentation of evidence.
4,900
0
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Lan Cargo S.A. y
LATAM Airlines
Group S.A.
In the High
Court of
Justice
Chancery
División
(Inglaterra)
and Directie
Juridische
Zaken Afdeling
Ceveil Recht
(Países Bajos).
Aerovías de
Integración
Regional,
AIRES S.A.
Juzgado
Tercero Civil
del Circuito
de Bogotá.
Aerolinhas
Brasileiras S.A.
Administrative
Council for
Economic
Defense, Brazil
-
-
-
Case is in evidence discovery
process.
Undeter-
mined
possible
violations
Lawsuits filed against European
freight
airlines by users of
services in private prosecutions
as a result of the investigation
for
of
airline competition freighters,
especially fuel surcharge. Lan
Cargo S.A. and LATAM Airlines
Group S.A, have been sued in
court proceedings as
third
parties, based in England and
the Netherlands.
On July 31, 2012 the demander
filed a memorial rectifying the
demand. By order on August 23,
2012 (reported by state August 27,
2012), the Court considered the
demand remedied and resolved
the
objection
requirement, stating that it did
not prosper. Also ordered to pay
the costs guarantee call for a
million pesos COP. ($ 1,000,000).
preliminary
On December 10, 2008, the
aircraft HK-4491 was
in the
airport
in Bucaramanga, and
after start of the engine No.
2, to start the engine starting
procedure of the engine No.
1, failure occurred in the start
system and pressurization of
the aircraft. The demander,
Mrs. Milena Paez,
alleged
contractual liability for what
lost
happened because she
hearing capacity in her right ear
and her family, professional and
community life were affected,
breaking the obligation to keep
airline passengers safe until
their destination.
Aires S.A. was
d e m a n d e d
with a main
claim of ap-
proximately
ThUS$ 1,768,
i.e. COP 1,900
million (equi-
valent
to
3,550 SMMLV
(*), plus the in-
liqui-
terests
dated
from
D e c e m b e r
2008, an item
that genera-
tes an addi-
COP
tional
1,500 million,
equivalent to
2,800 SMMLV ).
(*) SMMLV: Current
legal monthly
minimum wage.
for
Investigation
possible
violations of airline competition
fuel
freighters,
surcharge
especially
Investigation pending. CADE has
not yet issued a final decision.
Indetermined
1
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Aerolane
Líneas Aéreas
Nacionales del
Ecuador S.A.
2nd District
Court
Guayaquil
09504-
2010-0114
Order Determining the Value
Added Tax (VAT) 2006.
Sentence pending
4,565
Aerolane
Líneas Aéreas
Nacionales del
Ecuador S.A.
Tribunal Fiscal
de Guayaquil.
6319-4064-05
Judicial proceedings against the
Regional Director of the Internal
Revenue Services Guayaquil, for
overpayment of taxes.
Tax Litigation Division of the
National Court accepts appeal
of
IRS. Extraordinary Action
Protection for the Constitutional
Court.
4,210 plus
interest
Aerolane
Líneas Aéreas
Nacionales del
Ecuador S.A.
Internal
revenue
services.
17502-
2012-0082
Determination Act for 2006 In-
come Tax, which have unknown
CEDT requesting certification of
branch expenses, ARC commis-
sions without Withholding of In-
come Tax, etc. Process initiated
in 2012.
(ii) Trials received by LATAM AIRLAINS GROUP S.A. and subsidiries
Sentence pending.
8,971
LATAM Airlines
Group S.A. y
Lan Cargo S.A.
European
commission
and Canada
LATAM Airlines
Group S.A. y
Lan Cargo S.A.
Competition
Bureau
Canadá.
-
-
Investigation for possible vio-
lations of airline competition
freighters, especially fuel sur-
charge. On December 26, 2007,
the Directorate General for Com-
petition of the European Com-
mission notified Lan Cargo S.A.
and LATAM Airlines Group S.A. of
a case against twenty-five cargo
airlines, including Lan Cargo S.A.,
for possible violations of free com-
petition in the European air cargo
market, especially the alleged fix-
ing a fuel surcharge and freight.
On November 9, 2010, the Director-
ate General for Competition of the
European Commission notified
Lan Cargo S.A. and LATAM Airlines
Group SA the imposition of a fine
in the amount of ThUS$ $ 10,865.
This penalty is being appealed by
Lan Cargo SA and LATAM Airlines
Group S.A. The outcome of this ap-
peal cannot be predicted.
Investigation for possible vio-
lations of airline competition
freighters, especially fuel sur-
charge
On April 14, 2008, the notification
of the European Commission
was answered. The appeal was
filed on January 24, 2011.
10,865
Investigation pending
Undeter-
mined
2
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
LATAM Airlines
Group S.A.
Tenth
Civil Court
of Santiago
-
The company Jara Jara and Lim-
ited sues LATAM Airlines Group
S.A. based on the damage they
have caused due to the criminal
complaints filed for the crime
of fraud against them in 2008,
which were dismissed for good.
They claim that the damage
caused by LATAM Airlines Group
S.A. affected their prestige and
business continuity.
First instance.
11,935
Aerolane
Líneas Aéreas
Nacionales del
Ecuador S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Civil Court 20
Pichincha.
374-2012 LA
Passenger demand for misuse by
counter agent of credit card.
Waiting for conciliation hearing
date.
5,500
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
Tribunal Re-
gional Federal
da 2 da Região
the (Court of
the Second
Region).
10314.720023
/ 2011-15
Notice of Violation to request
Import tax collection (“II”) and
the Excise Tax (“IPI”) over the im-
ports of certain aircraft.
Decision in favor at first instance
by determining the exclusion
of BRL$ 700 millions. Currently
waiting for the judgment on
the letter of appeal and the vol-
untary appeal filed by the Com-
pany.
2001.51.01.
012530-0
Ordinary judicial action brought
to declare that there is no legal
relationship obligating the Com-
pany to raise the Air Fund.
granted
Protection
re-
move the charge by the Fundo
Aeroviário (FA). Pending the com-
pletion of the survey.
to
Tribunal Re-
gional Federal
da 3a Região
(Court of the
Third Region)
2007.61.05.
014317-3
(AI 2008.03.00.
004494-2)
presented
to
Requirements
eliminate possible sanctions
for noncompliance with special
customs regime of temporary
admission.
16643.000087
/2009-36
Notice of Violation of the re-
quirement to pay the social con-
tribution on net profit ("CSL").
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
The main process associated
with this case ruled favorably
to the interests of the Company.
Currently awaiting the imple-
mentation of the same decision
in the present case.
Decisions of first and second ad-
ministrative instance adverse to
the interest of the company. Cur-
rently awaiting the decision of
the wew action brought by the
company.
376,827
123,204
50,205
35,447
3
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
10880.725950
/2011-05
Compensation claims of social
contributions PIS and COFINS.
Currently awaiting for the judg-
ment in the event of disagree-
ment presented by the Company.
32,586
Pantanal Linhas
Aéreas S.A.
Regional Court
of the Third
District.
1997.0002503-9
Execution filed to collect tax
penalties for breach of special
customs regime of temporary
admission.
Waiting for the decision of the
second instance. Favorable sen-
tence.
25,789
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State
of Sao Paulo)
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
10314.720181
/2011-75
Order to require the collection
of II, IPI and social contribu-
tions PIS and COFINS affecting
imports of aircraft components.
Pending the decision of the first
administrative instance.
23,792
16643.000085
/2009-47
Order compound to demand the
income tax and CSL derived from
royalties expense detail and the
use of the brand TAM.
First
instance decision unfa-
vorable to the interests of the
company. Currently expecting
ruling on the appeal filed by the
Company.
15,687
10831.012344
/2005-55
Infraction II presented to de-
mand payment and social contri-
butions of PIS and COFINS aris-
ing from the loss of unidentified
international cargo.
Partially favorable decision at
the first administrative
level.
Currently awaiting the decision
of appeal by the Company.
12,619
3.123.785-0
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently expecting the ruling
on the appeal filed by the Com-
pany.
10,951
3.130.043-1
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently expecting ruling on
the appeal filed by the Company.
10,531
4
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
Secretary of
Finance of
the State of
Sao Paulo.
Secretary of
Finance of
the State of
Sao Paulo.
Tribunal Re-
gional Federal
da 3a Região
(Court of the
Third Region).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretary
of Federal
Revenues of
Brazil (Internal
Revenue Ser-
vice of Brazil).
3.099.486-0
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently expecting ruling on
the appeal filed by the Company.
10,531
11610.001360
/2001-56
Application for reimbursement
of social security contributions
of PIS.
Unfavorable ruling in the first
and second administrative in-
stances. Currently expecting fis-
cal execution ruling.
8,864
3.117.001-8
Notice of infringement demand-
ing payment of ICMS on imports
of aircraft
Pending decision on the appeal
filed by the Company.
8,712
3.120.346-2
Notice of infringement demand-
ing payment of ICMS on imports
of aircraft.
Pending decision on the appeal
filed by the company.
8,375
2006.03.00.
022504-6
Penalty forcing IRPJ collection in
the months of February, March
and August 1998.
Pending first instance ruling.
8,066
3.120.355-3
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently awaiting a ruling on
the appeal filed by the Company.
7,970
0045794
Notice of infraction registered
to demand payment of COFINS
social contribution in the third
quarter of 1997.
Expected the ruling on impeach-
ment filed by the Company
7,941
5
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Governo do
Estado de São
Paulo (State
Government
of Sao Paulo).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
3.120.286-0
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of main trial.
7,234
990.172
Fiscal Execution to demand pay-
ment of ICMS that affects the im-
port of aircraft.
Trial suspended. It now expects
the end of main trial.
6,956
3.123.000-3
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of main trial.
6,950
3.099.563-2
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently awaiting a ruling on
the appeal filed by the Company.
6,427
Tam Linhas
Aéreas S.A.
Internal Rev-
enue Service.
2002.61.19.
001123-1
Injunction filed to prevent recov-
ery of IPI on imports of aircraft.
Currently awaiting a ruling on
the appeal filed by the Company.
Tam Linhas
Aéreas S.A.
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
4.002.475-1
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Expected the ruling on impeach-
ment filed by the Company.
6,360
6,184
6
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria
da Fazenda
do Estado da
Paraíba (Secre-
tary of Finance
of the State
of Paraiba).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria
da Receita
Federal (Inter-
nal Revenue
Service).
3.019.886-0
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of main trial.
5,693
93300008.09.
00000883
/2009-31
Order of infringement to de-
mand payment of ICMS in par-
ticular operations.
Currently awaiting a ruling on
the appeal filed by the Company.
5,626
3.123.770-8
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently awaiting a ruling on
the appeal filed by the Company.
5,604
3.154.701-1
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Expected the ruling on impeach-
ment filed by the Company.
5,480
3.146.575-4
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of main trial.
5,309
10880-
676.339
/2009-13
Order of infringement to de-
mand payment of IRPJ.
Expected the ruling on impeach-
ment filed by the Company.
5,264
7
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
National Social
Security Insti-
tute – INSS.
2006.03.00.
080569-5
Regular judicial action filed to
cancel the collection of INSS on
amounts paid by way of trans-
portation benefit.
Pending decision on the appeal
filed by the company.
5,202
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria da
Fazenda do Es-
tado de Goiás
(Secretaria
de Hacienda
del Estado
de Goias).
Secretaria da
Receita Fed-
eral (Servicio
de Impuestos
Internos de
Brazil).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
Secretaria da
Fazenda do
Estado de São
Paulo (Secre-
tary of Finance
of the State of
Sao Paulo).
3.146.651-5
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of main trial.
5,174
3032722060291 Order of infringement to de-
mand payment of ICMS in par-
ticular operations.
Currently awaiting a ruling on
the appeal filed by the Company.
5,309
16643.000088
/2009-81
Order of infringement to de-
mand payment of IRPJ and CSLL.
Currently awaiting a ruling on
the appeal filed by the Company.
4,850
3.117.801-7
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Trial suspended. It now expects
the end of mai trial.
4,816
3.129.987-8
Order of infringement to de-
mand payment of ICMS govern-
ing the importation of aircraft.
Currently awaiting arulin on the
appeal riled by the company.
4,537
8
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Company
Court
Case No.
Origin
Stage of trial
Amounts
commited
ThUS$
Tam Linhas
Aéreas S.A.
1st Civil Court
of the District
of Navegantes
/ SC.
033.03.013110-6
(precautionary)
033.03.014870-
(ordinary).
We are currently awaiting the
evaluation of our objection to
the expert report.
4,637
Action filed by a former sales
representative of TAM demand-
ing compensation
for moral
and economic damage in con-
sequence of the alleged wrong-
ful termination of contract and
unfounded trade representative
land freight transport other than
agreeing in advance the estab-
lishment of protection enforce-
able court.
Tam Linhas
Aéreas S.A.
Labour Court
of Porto Alegre.
0000504-
79.2010.5.
04.0014
Class action by the Union of
Aviation Workers of Porto Alegre
which requires payment of the
bond risk for maintenance em-
ployees.
Process in the last instance,
waiting
judgment of appeal.
5,046
Approximate
value /
Estimated
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
Labour Justice
Guarulhos / SP
-
Jurisdiction
of Labor Gua-
rulhos.
Labour Justice
Salvador / BA -
Labor Jurisdic-
tion Salvador
/ BA.
0000728-
47.2010.5.
02.0313
Class action by the Union of Avia-
tion Workers of Guarulhos/SP
which requires payment of risk
bonus for all workers of the base.
Process in the second instance,
awaiting the judgment of the ap-
peal on both parts.
53,020
Approximate
value /
Estimated
0000033-
78.2011.5.
05.0021
Class action by the National
Union of Aviation workers,
which requires payment of risk
bonus for all employees of the
SSA base.
Process in the first instance.
Awaiting sentencing.
Tam Linhas
Aéreas S.A.
Labour Justice
Sao Paulo.
001680-
65.2011.5.
02.0030
Action by the Union State Aero-
vias de São Paulo/SP that re-
quires payment of hazard pay
for all employees.
Procedure according to comple-
tion.
Tam
Aéreas S.A.
Linhas
Labour Court
Brasilia.
01683.2009.
015.10.003
Action by the Union Aerovias
Brasilia/DF demanding payment
of hazard compensation for all
maintenance employees.
Process in the last instance.
Awaiting the outcome of the ap-
peal.
13,010
Approximate
value /
Estimated
15,645
Approximate
value /
Estimated
4,717
Approximate
value /
Estimated
In order to deal with any financial obligations arising from legal proceedings outstanding at December 31, 2012, whether civil, labor or tax,
LATAM Airlines Group S.A., has made provisions, which at the end of these financial statements, reached the sum of ThUS$ 558,053 which is
disclosed in Note 23.
The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.
the Asamblea General de Debenturista granted the
requested waiver and as a result, this obligation
shall be classified within current financial liabilities
and non-current in the next financial statements.
9
5
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
NOTE 36. COMMITMENTS
(a) Loan covenants
With respect to various
loans signed by the
Company for the financing of Boeing 767, 777 and
787 aircraft, which carry the guarantee of the United
States Export–Import Bank, limits have been set on
some of the Company’s financial indicators on a
consolidated basis. Moreover, and related to these
same contracts, restrictions are also in place on the
Company’s management in terms of its ownership
and disposal of assets.
Additionally, with respect to various loans signed
by its subsidiary Lan Cargo S.A. for the financing
of Boeing 767F and 777F aircraft, which carry the
guarantee of the United States Export–Import Bank,
restrictions have been established to the Company´s
management and its subsidiary Lan Cargo S.A. in
terms of shareholder composition and disposal of
assets.
In connection with the financing of spare engines
for its Boeing 767, 767F, 777, 777F and 787, which
are guaranteed by the Export - Import Bank of the
United States, restrictions have been placed on the
ownership structure of their guarantors and their
legal successor in case of merger.
In relation to credit agreements entered into by the
Company, for the current period local banks have set
limits to some financial indicators of the Company
on a consolidated basis. At December 31, 2012, the
Company is in compliance with these indicators.
The subsidiary TAM Linhas Aéreas S.A., in connection
with the issuance of debentures (CVM 476) by
original amount of ThR$ 600,000 in 2009, has
established financial limit indicators to TAM Linhas
Aéreas S.A.. Anticipating a possible declaration of
breach of this limit at the end of December 2012,
TAM Linheas Aéreas S.A. requested a waiver to the
Asamblea General de Debenturista and according
to IFRS accounting standards, financial liabilities
related to this issuance of debentures are classified
in current financial liabilities. On February 14, 2013,
0
6
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(b) Commitments under operating leases as lessee
Details of the main operating leases are as follows:
Lessor
ACS Aircraft Finance Bermuda Ltd. - Aircastle (WFBN)
Air Canada (Sublessor)
Airbus Financial Services
Aircraft 76B-26261 Inc. (ILFC)
Aircraft 76B-26327 Inc. (ILFC)
Aircraft 76B-26329 Inc. (ILFC)
Aircraft 76B-27597 Inc. (ILFC)
Aircraft 76B-27613 Inc. (ILFC)
Aircraft 76B-27615 Inc. (ILFC)
Aircraft 76B-28206 Inc. (ILFC)
Aircraft
Boeing 737
Airbus A340
Airbus A340
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Aircraft Solutions Lux V S.ÀR.L. (AVMAX)
Bombardier Dhc8-200
ALC A319 1703, LLC (*)
Aviacion Centaurus, A.I.E (Santander) (*)
Aviación Centaurus, A.I.E. (*)
Aviación Real A.I.E (*)
Aviación Real A.I.E (*)
Aviación Tritón A.I.E. (*)
Avolon Aerospace AOE 19 Limited
Avolon Aerospace AOE 20 Limited
Avolon Aerospace AOE 6 Limited
AWAS (SWEDEN TWO) AB (*)
AWAS 4839 Trust
AWAS 5125 Trust
AWAS 5178 Limited
AWAS 5234 Trust
Baker & Spice Aviation Limited (*)
BOC Aviation Pte. Ltd.
Celestial Aviation Trading 35 Ltd. (GECAS)
CIT Aerospace International
CIT Aerospace International (*)
CIT Aerospace International (*)
Continuity Air Finance IV B.V (BOC) (*)
Airbus A319
Airbus A319
Airbus A321
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Boeing 767
Boeing 767
Airbus A319
Airbus A320
Airbus A319
Delaware Trust Company, National Association (CRAFT)
Bombardier Dhc8-200
Eden Irish Aircr Leasing MSN 1459 (AERCAP) (*)
GECAS Sverige Aircraft Leasing Worldwide AB (*)
Airbus A320
Airbus A320
As of
December
31, 2012
As of
December
31, 2011
1
1
2
1
-
1
-
1
1
1
1
1
3
1
1
1
3
1
1
1
2
1
1
1
1
2
1
1
1
3
4
1
9
1
10
1
1
-
1
1
1
1
1
1
1
1
-
-
-
-
-
-
1
1
1
-
1
-
-
-
-
1
1
1
-
-
-
9
-
-
1
6
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Lessor
GECAS Sverige Aircraft Leasing Worldwide AB (*)
GFL Aircraft Leasing Netherlands B.V. (GECAS) (*)
International Lease Finance Corporation
International Lease Finance Corporation
International Lease Finance Corporation (*)
JB 30244, Inc. - AWAS
JB 30249, Inc. - AWAS
Aircraft
Airbus A330
Airbus A320
Boeing 737
Boeing 767
Airbus A320
Boeing 737
Boeing 737
KN Operating Limited (NAC)
Bombardier Dhc8-400
MASL Sweden (1) AB (MACQUARIE) (*)
MASL Sweden (2) AB (MACQUARIE) (*)
MASL Sweden (7) AB (MACQUARIE) (*)
MASL Sweden (8) AB (MACQUARIE) (*)
MCAP Europe Limited - Mitsubishi (WTC)
MSN 32415, LLC - AWAS
Orix Aviation Systems Limited
Pembroke B737-7006 Leasing Limited
RBS Aerospace Limited (*)
SKY HICH V LEASING COMPANY LIMITED (*)
Sunflower Aircraft Leasing Limited - AerCap
Volito Aviation August 2007 AB (*)
Volito Aviation November 2006 AB (*)
Volito Brasilien AB (*)
Volito November 2006 AB (*)
Wells Fargo Bank North National Association (ACG) (*)
Wells Fargo Bank North National Association (ACG) (*)
Wells Fargo Bank North National
Association (BAKER & SPICE) (*)
Wells Fargo Bank North National Association (BOC) (*)
Wells Fargo Bank North National Association (BOC) (*)
Wells Fargo Bank Northwest N.A (AVOLON) (*)
Wells Fargo Bank Northwest National
Association (ACG) (*)
Wells Fargo Bank Northwest National
Association (BOC) (*)
Wells Fargo Bank Northwest, N.A. (GECAS)
Wells Fargo Bank Northwest, N.A. (GECAS)
Wilmington Trust Company (ILFC) (*)
Zipdell Limited (BBAM) (*)
TOTAL
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Boeing 737
Boeing 737
Airbus A320
Boeing 737
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Boeing 767
Boeing 777
Airbus A319
Airbus A320
As of
December
31, 2012
As of
December
31, 2011
2
1
2
1
1
-
-
4
1
1
1
1
1
-
3
2
6
1
2
2
2
1
2
1
2
1
3
2
4
2
1
4
2
1
1
-
-
2
1
-
1
1
4
-
-
-
-
1
1
2
2
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
4
2
-
-
123
49
(*) The composition of the fleet as operating leases at December 31, 2012, incorporates the effects of Business Combinations with
TAM S.A. and Subsidiaries. The rentals are shown in results for the period for which they are incurred.
2
6
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The minimum future lease payments not yet payable
are the following:
No later than one year
Between one and five years
Over five years
TOTAL
The minimum lease payments charged to income are
the following:
Minimum operating lease payments
TOTAL
As of
December
31, 2012
As of
December
31, 2011
ThUS$
380,713
852,659
235,658
1,469,030
ThUS$
169,842
443,256
92,264
705,362
For the periods ended
December 31,
2012
2011
ThUS$
310,496
310,496
ThUS$
168,369
168,369
In December 2010, the Company added one Airbus
A 320-200 aircraft for a period of eight months, the
latter finally returned in May 2011. Additionally, in
November and December 2010 added two Boeing
767-300F for periods of seven and six months,
respectively.
In January 2011 the Company added to the fleet three
aircraft, a Boeing 767-300F with a contract term of
five years, one Airbus A320-200 for a period of seven
years and one Airbus A319-100 for a period of four
months which was returned in May 2011. In July 2011
the Company added two Airbus A320-200 aircrafts
for a period of eight years, while in August and
September 2011, the Company received an Airbus
A320-200 aircraft for a period of eight years. On the
other hand, in September 2011 a Bombardier Dhc8-
200 aircraft was returned due to termination of the
lease term.
In September 2011, the Company signed a contract
to establish the early departure of three Boeing 737-
700. The return of these three aircraft was completed
during the second quarter of 2012.
During the second quarter of 2012, added three
Airbus A320-200 aircraft leased for a period of 8 years.
During the third quarter of 2012, it the Company
added two Airbus A320-200 aircraft, leased for
periods of 6 and 8 years. In addition, two Boeing 767-
300 aircraft and two Airbus A320-200 were returned
given the end of the lease contract.
The operating lease agreements signed by the
Company and its subsidiaries state that maintenance
of the aircraft should be done according to the
manufacturer’s technical instructions and within
the margins agreed in the leasing agreements, a
cost that must be assumed by the lessee. The lessee
should also contract insurance for each aircraft to
cover associated risks and the amounts of these
assets. Regarding rental payments, these are
3
6
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
unrestricted and may not be netted against other
accounts receivable or payable between the lessor
and lessee.
At December 31, 2012 the Company has existing
letters of credit related to operating leasing as
follows:
Creditor Guarantee
Debtor
Type
Value
ThUS$
Release
date
Air Canada
LATAM Airlines Group S.A.
One letter of credit
1,800
February 13, 2013
Celestial Aviation
Trading 16 Limited
Lan Cargo S.A.
Two letter of credit
3,500
April 25, 2013
GE Capital Aviation Services Limited LATAM Airlines Group S.A.
Six letter of credit
GE Capital Aviation Services Limited
Lan Cargo S.A.
Five letter of credit
International Lease Finance Corp
LATAM Airlines Group S.A.
Eight letter of credit
Orix Aviation System Limited
LATAM Airlines Group S.A.
Two letter of credit
TAF Mercury
TAF Venus
LATAM Airlines Group S.A.
One letter of credit
LATAM Airlines Group S.A.
One letter of credit
CIT Aerospace International
LATAM Airlines Group S.A.
Two letter of credit
17,052
15,222
3,880
6,520
4,000
4,000
3,240
January 10, 2013
November 16, 2013
February 26, 2013
May 5, 2013
December 11, 2013
December 11, 2013
May 13, 2013
Wells Fargo Bank Northwest,
National Association
LATAM Airlines Group S.A.
One letter of credit
2,530
June 30, 2013
Baker & Spice Aviation Limited
Tam Linhas Aéreas S.A.
Four letter of credit
30,428
April 23, 2013
BOC Aviation (USA) Corporation
Tam Linhas Aéreas S.A.
Four letter of credit
8,365
February 3, 2013
Cit Aerospace International
Tam Linhas Aéreas S.A.
Seven letter of credit
26,382
January 10, 2013
DVB Group Merchant
Bank (Asia) Ltd.
Tam Linhas Aéreas S.A.
Two letter of credit
6,386
April 13, 2013
GE Capital Aviation Services Limited
Tam Linhas Aéreas S.A.
Twelve letter of credit
Masl Sweden
Tam Linhas Aéreas S.A.
Six letter of credit
RBS Aerospace Limited
Tam Linhas Aéreas S.A.
Five letter of credit
8,380
6,163
7,425
May 23, 2013
October 4, 2013
May 31, 2013
SMBC Aviation
Tam Linhas Aéreas S.A.
Three letter of credit
12,143
February 24, 2013
Volito November 2006 Ab
Tam Linhas Aéreas S.A.
Three letter of credit
1,311
September 17, 2013
168,727
4
6
2
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
2
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(c) Other commitments
At December 31, 2012 the Company has existing
letters of credit, certificates of deposits and warranty
insurance policies as follows:
Creditor Guarantee
Debtor
Type
Value
ThUS$
Release
date
Deutsche Bank A.G.
LATAM Airlines Group S.A.
Three letter of credit
30,000
January 31, 2013
The Royal Bank of Scotland plc
LATAM Airlines Group S.A.
Two letter of credit
18,000
January 8, 2013
Dirección General de Aviación Civil de Chile
LATAM Airlines Group S.A.
Sixty two ticket guarantee
16,970
September 1, 2013
Comisión Europea
LATAM Airlines Group S.A.
One letter of credit
10,686
February 11, 2013
Dirección Seccional de Aduanas de Bogotá
Línea Aérea Carguera
de Colombia S.A.
Three insurance policies guarantee
5,025
June 10, 2013
Washington International Insurance
LATAM Airlines Group S.A.
Six letter of credit
Metropolitan Dade County
LATAM Airlines Group S.A.
Five letter of credit
PK Airfinance US, INC.
Tam Linhas Aéreas S.A.
Three letter of credit
GE Capital Aviation Services Limited
Tam Linhas Aéreas S.A.
Three letter of credit
12ª Vara Cível da Comarca de Natal/RN
Tam Linhas Aéreas S.A.
One insurance policies guarantee
6ª Vara da Fazenda Pública de São Paulo/SP
Tam Linhas Aéreas S.A.
One insurance policies guarantee
3ª Vara da Fazenda Pública de São Paulo
Tam Linhas Aéreas S.A.
One insurance policies guarantee
2,700
1,675
4,800
4,162
2,347
2,474
1,402
April 5, 2013
May 31, 2013
September 23, 2013
October 8, 2013
May 17, 2013
March 1, 2013
May 28, 2014
12ª Vara da Fazenda Pública
do Estado de São Paulo
Tam Linhas Aéreas S.A.
One insurance policies guarantee
1,392
January 28, 2014
Vara De Execuções Fiscais De Santa Cataria
Tam Linhas Aéreas S.A.
One insurance policies guarantee
3,780
November 20, 2013
6ª Vara de Execuções Fiscais
Federal de Campo Grande/MS
Tam Linhas Aéreas S.A.
Two insurance policies guarantee
73,142
January 4, 2014
União Federal
Tam Linhas Aéreas S.A.
One insurance policies guarantee
2,533
July 24, 2015
Execuções Fiscais Estaduais da
Comarca de São Paulo
Tam Linhas Aéreas S.A.
One insurance policies guarantee
1,158
May 25, 2014
2ª Vara Cível da Comarca de Bauru/SP
Tam Linhas Aéreas S.A.
One insurance policies guarantee
1,000
November 14, 2014
183,246
5
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NOTA 37.
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(c) Compensation of key management
The Company has defined for these purposes that
key management personnel are the executives who
define the Company’s policies and major guidelines
and who directly affect the results of the business,
considering the levels of Vice-Presidents, Chief
Executives and Directors..
For the periods ended
December 31,
2012
ThUS$
15,146
653
395
5,060
1,412
2011
ThUS$
9,696
185
665
5,011
2,084
Remuneration
Management fees
Non-monetary benefits
Short-term benefits
Share-based payments
TOTAL
22,666
17,641
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NOTE 38. SHARE-BASED PAYMENTS
(a) LATAM Airlines Group S.A. compensation plans.
carried out during the first quarter of 2010 and
established a new term and exercise price.
The original grant and subsequent amendments
have been formalized through the signing of option
contracts for the subscription of shares according
to the proportions shown in the accrual schedule,
which are related to the permanence of the
executive on those dates for exercising the options:
The compensation plans implemented through the
granting of options to subscribe and pay for shares,
which have been granted since the last quarter of
2007, are shown in the consolidated statements of
financial position in accordance with IFRS 2 “Share-
based payments”, booking the effect of the grate
date fair value of the options granted as a charge to
remuneration on a straight-line basis between the
date of granting the options and the date on which
these become vested.
During the last quarter of 2009, the original terms
of the plan were amended regarding subscription
and payment of options. These modifications were
Percentage
Period
30%
70%
From October 29, 2010
until March 31, 2012
From October 30, 2011
until March 31, 2012
These options have been valued and booked at their
fair value on the grant date, determined using the
“Black-Scholes-Merton” method.
All options expired on March 31, 2012.
Stock options under a share-
based payment agreement
Number of share options
Balance as of January 1, 2011
Stock options exercised
Closing balance as of December 31, 2011
Balance as of January 1, 2012
Stock options annulled
Stock options exercised
Closing balance as of December 31, 2012
2,209,091
(1,535,522)
673,569
673,569
(91)
(673,478)
-
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N
N
A
Entry data for option valuation model used for stock
options granted.
Weighted average
share price
Exercise
price
Expected
volatility
Life of
option
Dividends
expected
Risk-free
interest
US$ 17.3
US$ 14.5
33.2%
1.9 years
50%
0.0348
(b) Subsidiaries compensation plans
TAM Linhas Aereas S.A. and Multiplus S.A., both
subsidiaries of TAM S.A., have outstanding stock
options at December 31, 2012, which amounted to
972,344 shares and 891,261 shares, respectively.
TAM Linhas Aéreas S.A.
Description
1st Grant
2nd Grant
3rd Grant
4th Grant
1st Extraordi-
nary Grant
3nd Extraordi-
nary Grant
4th Extraordi-
nary Grant
Total
Date
12-28-2005
11-30-2006
12-14-2007
05-28-2010
09-27-2007
04-01-2010
04-01-2010
-
119,041
259,857
363,446
230,000
-
-
972,344
Outstanding
option number
Multiplus S.A.
Description
1st Grant
2nd Grant
3rd Grant
4th Grant
1st Extraordi-
nary Grant
2nd Extraordi-
nary Grant
3th Extraordi-
nary Grant
Total
Date
10-04-2010
11-08-2010
04-16-2012
10-04-2010
10-04-2010
10-04-2010
04-16-2012
Outstanding
option number
61,463
2,245
362,272
-
403,235
-
62,046
891,261
The Options of TAM Linhas Aéreas S.A., under the
plan’s terms, are divided into three equal parts and
employees can run a third of its options after three,
four and five years respectively, as long as they
remain employees of the company. The agreed term
of the options is seven years.
For Multiplus S.A., the plan’s terms provide that
the options granted to the usual prizes are divided
into three equal parts and employees may exercise
one-third of their two, three and four, options
respectively, as long as they keep being employees
of the company. The agreed term of the options is
seven years after the grant of the option. The first
extraordinary granting was divided into two equal
parts, and only half of the options may be exercised
after three years and half after four years. The
second extraordinary granting was also divided into
two equal parts, which may be exercised after one
and two years respectively.
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N
A
Both companies have an option that contains a
“service condition” in which the exercise of options
depends exclusively on the delivery services
by employees during a predetermined period.
Terminated employees will be required to meet
certain preconditions in order to maintain their right
to the options.
The state, in relation to the acquisition of the share’s
rights, in both companies is as follows:
Company
Number of shares
Accrued options
Number of shares
Non accrued options
TAM Linhas Aéreas S.A.
Multiplus S.A.
972,344
-
-
891,261
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A
Ecuador:
•
the
Starting
an
environmental management system project for
our operations at the new airport in Quito.
implementation
of
USA:
•
the
Starting
an
environmental management system project for
our cargo operation in Miami.
implementation
of
During 2012
Environmental Division was US$ 526,074.
the expenses
incurred by
the
NOTE 39. THE ENVIRONMENT
In 2010 the Group completed the creation of the
Environmental Division of LAN Airlines S.A., whose
structure has allowed it to manage environmental
issues inside the Company on a global level over
the last two years. The main objective of this
department
implement a management
system and environmental programs that meet the
increasingly demanding requirements globally and
with it, position the Company as an industry leader
in global environmental issues.
to
is
One of the functions of the Environmental Division
is to develop, in conjunction with the various
areas of the Company, continuous improvement
programs in their internal processes that generate
environmental benefits and to complement those
programs currently in process.
The main initiatives in 2012 on environmental issues
were as follow:
Chile:
•
•
Implementation of the first commercial flight
within South America with Biofuel used
cooking oil;
Studies and external audits and environmental
issues, particularly in diagnostics and updating
environmental compliances.
Peru:
• Measurement and external Verification of
Carbon Footprint in LAN Perú S.A.
•
Purchase carbon credits in the amount of
US$ 49,000 to offset the emissions of our
operations on the ground.
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A
NOTE 40. EVENTS SUBSEQUENT TO THE DATE
OF THE FINANCIAL STATEMENTS
1. Devaluation in Venezuela:
On February 8, 2013, Exchange Arrangement N°14 was
published in the Official Gazette of the Bolivarian
Republic of Venezuela according to which effective
February 9, 2013, the exchange rate was set at 6.30
bolivars per US$1. Until that date, the exchange rate
was 4.30 bolivars per US$1.
Article 9 of the same Arrangement added that
foreign currency sale transactions corresponding
to applications that had been marked received by
the Foreign Currency Administration Commission
as of February 8, 2013 for, among other purposes,
international passenger, cargo and mail air carriage
duly licensed by the National Executive Branch, will
be settled using the exchange rate of 4.30 bolivars
per US$1.
2. Suspension of the B787 Fleet Operation:
On January 16, 2013, All Nippon Airways and Japan
Airlines suspended their Boeing 787 operations
because of recent occurrences with the battery
systems of those aircraft. On the same date, the
Federal Aviation Administration (“FAA”) instructed
the Boeing 787 operators in the United States of
America to suspend their flights until inspections
and actions were taken regarding the battery system.
Therefore, in coordination with the Chilean Civil
Aviation Board (“DGAC”), the Company decided
to suspend
its Boeing 787 operations until
further notice.
Boeing has been working on resolving the problems
that led to the suspension of the Boeing 787 fleet.
There has not yet been any official decision by the
FAA, so it is impossible to determine when that fleet
will resume operation.
3. Employee Compensation Plan for the Company
and its subsidiaries:
At a Special Shareholders Meeting held December
21, 2011, the Company’s shareholders approved,
among other matters, an increase in its capital
by US$1,465,372,970.09 through the issuance of
147,355,882 common shares with no par value.
US$47,733,352.49 of that increase, corresponding to
the issuance of 4,800,000 shares, would be allocated
to compensation plans for employees of the
Company and its subsidiaries, pursuant to Article 24
of the Companies Law.
The main conditions for these compensation
plans are:
(a) Upon a recommendation by the Company’s
Executive Committee, the Board will determine
the employees of the Company and its subsidiaries
included
in the Compensation Plan and the
number of options for the acquisition of shares in
the Company that will be allocated to each, after
which a stock option agreement will be signed with
each employee.
(b) Until the shares in the option are subscribed,
the optionee will have no economic or political
rights and will not be considered in the quorum for
shareholders meetings.
(c) The options allocated to each employee will
accrue in parts on the following three dates: 1) 30%
on December 21, 2014: (2) 30% on December 21, 2015
and (3) 40% on June 21, 2016, subject to remaining in
the company’s employ.
(d) The price payable for each share allocated to the
Compensation Plan, if the options are exercised, will
be CLP$11,000. It will be calculated, adjusted and
payable in the manner indicated in letter h) below.
(e) Once the options accrue, in the aforesaid parts,
the employee may exercise them in whole or in part,
in which case he must subscribe and pay for the
respective shares at once, in the act of subscription,
in cash, by check, by bank check, by electronic
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fund transfer or any other instrument or paper
representing money payable on demand. Partial
exercise may be for no less than 10% of all options
held by the Employee.
(f) The period during which the employee must
exercise the options after they have accrued
according to letter c) above will expire December 21,
2016. If the employee has not exercised or waived
the options in that period, he will be understood,
for all purposes, to have waived the options and,
accordingly, all rights, powers, promises or offers
in relation to the subscription of cash shares in the
Company will be deemed extinguished and it will
be understood that the employee has irrevocably
waived any right or power in relation thereto. The
Company will be released from any obligation.
(g) If the employee resigns from his position or his
employment contract is terminated for any reason
other than the reasons contained in article 160 of
the Labor Code, only the options accrued through
the date of termination of the employment contract
may be exercised, always provided the period for
exercise of the options is in force.
The employee will also forfeit the right to exercise
the options, whether or not they have accrued, if he
is severed for any of the reasons contained in article
160 of the Labor Code.
The heirs or legatees of the employee shall exercise
the rights and fulfill the obligations in substitution
for the employee should he die, and the above
provisions in this letter shall consequently not
apply. In that case, all of the options granted shall
accrue automatically and the heirs or legatees must
exercise them within 180 calendar days after the
date of the employee’s death. The employee shall
retain his rights to the options in the event of a
permanent disability and may exercise them in the
periods indicated above.
(h) The price payable for these shares, if the
respective options are exercised, will be expressed
in Dollars of the United States of America (“Dollars”),
for the equivalent in that currency to the Placement
Price indicated in letter d) above on the date when
the Company’s Board of Directors sets it (the “Pricing
Date”), converted at the observed dollar exchange
rate published in the Official Gazette on the Pricing
Date. As of the Pricing Date, said price expressed
in Dollars will be adjusted by the change in the
Consumer Price Index (CPI) published monthly by the
U.S. Department of Labor, from the Pricing Date to
the date of subscription and payment of the shares.
The subscription price shall be paid in pesos, local
currency, converted at the observed dollar exchange
rate published in the Official Gazette on the date of
subscription and payment of the shares.
(i) The options may not be assigned, liened or
transferred in any way by the employee. However,
the employee may state his waiver of the options
at any time by sending a certified letter of waiver to
the Chief Financial Officer of the Company.
4. Decision on Global Alliance:
On March 7, 2013, the Company informed the
Insurance Commission of the
Securities and
following material event:
(a) In Decision N° 37 dated September 21, 2011 (the
“Decision”), the Antitrust Court (“TDLC”) approved
the concentration transaction between LAN Airlines
S.A. (now called LATAM Airlines Group S.A.) and TAM
Linhas Aereas S.A., subject to fulfillment of the
conditions stipulated in that Decision.
(b) The sixth condition imposed by the TDLC’s
Decision requires that “LATAM resign from at least
one of the two global alliances in which the parties
to this Transaction, LAN and TAM, are members,
in the period of 24 months as from the date of
consummation of the Transaction.”
(c) The Conselho Administrativo de Defesa Economica
(the Administrative Economic Defense Council, or
CADE) of Brazil approved the merger of TAM S.A. and
LAN Airlines S.A. by resolution issued December 14,
2011, which was partially amended on February 8, 2012,
subject to fulfillment of the conditions stipulated in
said resolution. One of those definitive conditions was
that the petitioners, namely LAN Airlines S.A. and TAM
S.A., submit the choice of the global alliance in which
they will participate to approval by CADE in the period
of 22 months after consummation of the concentration
transaction, i.e., as from June 22, 2012.
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(d) In order to fulfill the aforesaid conditions imposed
by each of TDLC and CADE, the Board of Directors of
LATAM Airlines Group resolved, at a regular Board
meeting held March 5, 2013, to choose oneworld as
its global alliance for the airlines in its group. As a
result, TAM Linhas Aereas S.A. (“TAM”) and Aerovias
de Integracion Regional-Aires S.A. (“Lan Colombia”)
will join oneworld in which LATAM Airlines Group
and 13 others are already members.
(e) In the opinion of the Board of LATAM Airlines
Group, this global alliance is the one best suited to
the company’s interests and has the most synergies
with LATAM Airlines Group. It also offers the best
benefits, more connectivity and products for
our passengers.
(f) TAM’s Board also resolved to resign from TAM’s
membership in the Star Alliance global alliance,
which will take effect in the second quarter of 2014,
on a date to be disclosed during 2013.
(g) TAM is expected to officially join oneworld during
the second quarter of 2014, as soon as it leaves Star
Alliance. That date will also be announced this year.
(h) LAN Colombia is expected to join oneworld in the
fourth quarter of 2013.
(i) Finally, this decision by the Board of LATAM Airlines
Group S.A. will be presented in due course to CADE,
according to the terms of its aforesaid resolution
and to applicable procedure.
5. Covenants of TAM Linhas Aéreas S.A.:
Our subsidiary, TAM Linhas Aéreas S.A., has set
limits on some of its financial indicators in relation
to the issuance of debentures (CVM 476) in 2009 for
an original amount of ThR $600,000. Anticipating a
potential declaration of default on those limits at
the close of December 2012, TAM Linheas Aéreas
S.A. requested a waiver by the General Debenture
Holder Assembly and according to IFRS accounting
standards, the financial
liabilities relating to
this debenture issue are classified as a current
financial liability. On February 14, 2013, the General
Debenture Holder Assembly granted that waiver,
so this obligation will be classified as current
and non-current financial liabilities in the future
financial statements.
6. Placement of remainder in the exchange of
shares:
On September 4, 2012, the Company held a special
shareholders meeting convened by
its Board
of Directors on August 3, 2012. At that meeting,
shareholders decided, among other matters, that the
remainder of 7,436,816 shares in LATAM out of a total
of 142,555,882 shares issued under authorization of
the Special Shareholders Meeting held December
21, 2011 that were not exchanged for shares in
Sister Holdco S.A. and Holdco II S.A. be allocated
to a preemptive offer among LATAM shareholders
according to article 25 of the Companies Law,
and that any unsubscribed balance be placed on
the market.
Placement of these shares was approved by the
Securities and Insurance Commission on December
11, 2012. On December 20, 2012, the Company’s Board
of Directors agreed to begin the right of first refusal
period for such shares effective December 21, 2012
and to set the placement price at CLP$11,000 per
share, all of which was informed to the Securities
and Insurance Commission by a disclosure on the
same date. At the end of that right of first refusal
period, i.e., on January 19, 2013, 6,857,190 shares
of that remainder had been subscribed and paid,
leaving a balance of 579,626 unsubscribed shares.
That balance was auctioned on the Santiago Stock
Exchange, Securities Exchange, on January 23, 2013
at a price of CLP$11,921 per share.
7. Capital increase of Multiplus S.A.
On March 8, 2013 the company Multiplus S.A.,
subsidiary of TAM S.A., published the following
Significant matter:
Multiplus S.A. (BM&FBOVESPA: MPLU3) (“Company”),
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pursuant to Law 6404 of December 15, 1976, as
amended (“Corporation Law”), Instruction 358/02
issued by the Brazilian Securities and Exchange
Commission (“CVM”), as amended, and article 7
of CVM Instruction 471 of August 8, 2008 (“CVM
Instruction 471”), hereby informs its shareholders
and the market in general that:
Today, the Company presented ANBIMA – the
Brazilian Association of Capital and Financial
Market Entities
(“ANBIMA”) with a request for
the preliminary analysis of the registration of a
primary public distribution of registered common
book-entry shares with no par value issued by the
Company, free and clear of any encumbrances
(“Shares” and “Offering”, respectively). Said request
for the preliminary analysis for the registration
of the Offering will obey the simplified procedure
envisaged in CVM Instruction 471 and in the
ANBIMA Regulation and Best Practices Code for
Agreement Activities.
The Offering will be coordinated by Banco BTG
Pactual S.A. (“Lead Manager” and “Stabilizing Agent”)
and Banco J.P. Morgan S.A. and will comprise the
primary public distribution of Shares in Brazil on
the unorganized over-the-counter market, pursuant
to CVM Instruction 400 of December 29, 2003, as
amended (“CVM Instruction 400”), including best
placement efforts abroad for qualified institutional
investors resident and domiciled in the United
States of America, defined in accordance with Rule
144A of the Securities Act of 1933, through operations
that are exempt from prior registration as per said
Securities Act, as well as for investors in other
countries, except the United States of America and
Brazil, who are not resident in the United States of
America or constituted in accordance with its laws.
The Company’s shareholders will not be entitled to
pre-emptive rights as per article 172 of Corporation
Law, although they will have priority to subscribe to
shares proportional to their share of the Company’s
total capital stock, pursuant to the Offering
documentation (“Priority Offering”).
In accordance with article 24 of CVM Instruction
400, the number of Shares initially offered may be
augmented by an over-allotment option of up to 15%
of the total Shares initially offered (“Over-Allotment
Option”), to be granted by the Company to the
Stabilizing Agent in order to meet any excess demand
determined during the Offering. In addition, without
prejudice to the Over-Allotment Option, pursuant to
article 14, paragraph 2 of CVM Instruction 400, the
number of Shares initially offered, excluding the
Over-Allotment Option, may, at the criterion of the
Company, be augmented by up to 20% of the total
Shares initially offered under the same conditions
and at the same price as the Shares initially offered
(“Additional Shares”).
The amount of the Offering, excluding the Over-
Allotment Option and the Additional Shares, is
estimated at approximately R$ 800 million (eight
hundred million reais), although this may vary
depending on effective demand for the Shares
demonstrated during the course of the Offering.
The sale price of the Shares will be determined
after conclusion of the bookbuilding process,
based on the following parameters: (i) the price
of the Shares on the BM&FBOVESPA; and (ii) the
indications of interest, due to the nature of
demand (by volume and price), collected during the
bookbuilding process.
The Offering, and its terms and conditions, were
approved by a meeting of the Company’s Board of
Directors on March 7, 2013. The effective capital
increase within the limits of authorized capital, with
the exclusion of existing shareholders’ pre-emptive
rights, pursuant to article 172, item I of Corporation
Law, and the price per share will be approved by
a meeting of the Company’s Board of Directors
to be held before the CVM grants registration of
the Offering.
This communication should not be regarded as an
announcement of a Share offering. The Offering
will be subject to national and international market
conditions. In due time, the Company will publish
a Notice to the Market containing information on:
(i) the remaining characteristics of the Offering;
(ii) the
locations from where the preliminary
prospectus can be obtained; (iii) the estimated
Offering disclosure dates and locations; and (iv)
the conditions, procedures, reserve period and
bookbuilding period. The Offering’s registration
request is currently under study and the Offering
will only begin when it has been duly registered
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with the CVM.
The Company will keep the market informed of any
important decisions regarding the Offering. Finally,
pursuant to Official Letter Ofício-Circular/CVM/SEP/
N°01/2013, the Company hereby declares that its
Management opted to discontinue the disclosure of
its guidance in item 11 of its Reference Form, given
the need to align its guidance disclosure policy with
the procedures of its independent auditors and
other consultants in the context of public offerings
of securities issued by the Company in Brazil and
abroad, in accordance with CVM Instruction 400.
The Consolidated Financial Statements of LATAM
Airlines Group S.A. and Subsidiaries as December 31,
2012 were approved at Board of Directors Meeting
held March 19, 2013.
INFORMATION ABOUT SUBSIDIARIES AND
AFFILIATED COMPANIES
LATAM AIRLINES GROUP S.A.
8
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LATAM Airlines Group S.A.
NOMBRE: LATAM AIRLINES GROUP S.A., CHILEAN TAX Nº 89.862.200-2
Official Gazette of 14 January 2012. The change of
name came into force on 22 June 2012.
LATAM Airlines Group S.A. is subject to the regulation
applicable to listed joint stock companies and is
registered with the Superintendencia de Valores y
Seguros (SVS), Chile’s stock market regulator, under
Inscription N° 0306 of 22 January 1987.
Note: The financial information about subsidiaries
presented below has been summarized. Their
complete financial statements are available to the
public at our corporate headquarters and at the
Superintendencia de Valores y Seguros (SVS).
Incorporation: Established as a limited liability
company by public deed of 30 December 1983,
extended by Public NotaryEduardo Avello Arellano,
an extract of which was recorded at Folio 20,341 Nº
11,248 of 1983 of the Santiago Business Register and
published in the Official Gazette of 31 December
1983.
By public deed of 20 August 1985, extended by
Public Notary Miguel Garay Figueroa, the company
became a joint stock company under the name
of LíneaAéreaNacionalde Chile S.A. (now LATAM
Airlines Group S.A.). As regards aeronautic and radio
communication concessions, traffic rights and other
administrative concessions, this company was
expressly designated by Law N°18.400 as the legal
continuation of the state company created in 1929.
The Extraordinary Shareholders’ Meeting of LAN
Chile S.A. held on 23 July 2004 agreed to change the
company’s name to “LAN Airlines S.A.”. An extract
of the public deed corresponding to the Meeting’s
minutes was recorded on the Business Register of the
Real Estate Registry Office at Folio 25,128 Nº 18,764 of
2004 and was published in the Official Gazette of 21
August 2004. Thechange of namecameintoforceon 8
September 2004.
The Extraordinary Shareholders’ Meeting of LAN
Airlines S.A. held on 21 December 2011 agreed to
change the company’s name to “LATAM Airlines Group
S.A.” An extract of the public deed corresponding to
the Meeting’s minutes was recorded on the Business
Register of the Real Estate Registry Office at Folio
4,238 Nº 2,921 of 2012 and was published in the
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 9
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TAM S.A. and Subsidiaries
BOARD OF DIRECTORS:
Chairman:
Directors:
Maria Cláudia Oliveira Amaro
Maurício Rolim Amaro
Noemy Almeida Oliveira Amaro
Flávia Turci
Enrique Cueto Plaza
Ignacio Cueto Plaza
Incorporation: Joint stock company established in
Brazil in May 1997.
Purpose: To participate as a shareholder in other
companies, especially companies that provide
regular national and international air transport
services and other activities associated, related
and complementary to regular air transport.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$ 404,169
ThUS$ (28,166)
100,00%
3,76%
Sociedades Filiales de TAM
S.A. y Participación
TAM Linhas Aereas S.A. y filiales
Multiplus S.A.
Transportes Aereos del Mercosur S.A.
Pantanal Linhas Aereas S.A.
Corsair Participações Ltda.
TP Franchising Limited
100,00%
72,87%
94,98%
100,00%
100,00%
99,99%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
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TAM S.A. and Subsidiaries
Consolidated Statements of Financial Position
As of December
31, 2012
ASSETS
Total current assets other than non-current assets (or disposal groups) classified
as held for sale or as held for distribution to owners
Non-current assets (or disposal groups) classified as held for sale or as held for
distribution to owners
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Parent’s ownership interest
Non-controlling interest
Total equity
TOTAL LIABILITIES AND EQUITY
Consolidated Statements of Income by Function
Revenues
Gross margin
Income before taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Net income for the period attributable to:
Owners of the parent
Non-controlling interest
NET INCOMEFOR THE PERIOD
2.017.632
8.917
2.026.549
6.266.180
8.292.729
3.039.500
4.478.196
7.517.696
753.907
21.126
775.033
8.292.729
As of the period
betweenJune 22th
and December
31th of 2012
ThUS$
3.645.409
615.475
(22.171)
(5.995)
(28.166)
(45.163)
16.997
(28.166)
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 1
8
2
Consolidated Statements of Comprehensive Income by Function
As of the period
between June 22th
and December
31th of 2012
NET INCOMEFOR THE PERIOD
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Comprehensive income attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Consolidated Statements of Changes in Equity
Equity as ofJune 22, 2012
Comprehensive income for the period
Dividends
Other increase (decrease) in equity
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
Parent’s
ownership
interest
Non-
controlling
interest
ThUS$
963.736
(40.072)
-
(169.757)
753.907
ThUS$
21.497
17.847
(19.997)
1.779
21.126
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Effects of variation in the exchanges rate on cash and cash equivalents
Cash and cash equivalents at end of period
ThUS$
(28.166)
5.941
(22.225)
(40.072)
17.847
(22.225)
Total
equity
ThUS$
985.233
(22.225)
(19.997)
(167.978)
775.033
As of the
period
between
June 22th and
December
31th of 2012
MUS$
(28.166)
195.418
(537.981)
(63.317)
(6.587)
320.716
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 2
8
2
LAN Cargo S.A.
and Subsidiaries
Board of directors
Chairman:
Directors:
José Cox Donoso
Juan José Cueto Plaza
Ramón Eblen Kadis
Ignacio Cueto Plaza
Enrique Cueto Plaza
INCORPORATION: Established as a closed joint stock
company by public deed of 22 May 1970, extended
by Public Notary Sergio Rodríguez Garcés, with
the assets and liabilities of the Línea Aérea del
Cobre Limitada (Ladeco Limitada) which had been
established by public deed of 3 September 1958,
extended by Public Notary Jaime García
Palazuelos. The company’s bylaws have since been
amended on a number of occasions, most recently by
public deed of 20 November 1998, recorded at Folio
30,091 Nº 24,117 of the Santiago Business Register
and published in the Official Gazette of 3 December
1998, under which Ladeco S.A. merged through
incorporation with Fast Air Carrier S.A., a subsidiary
of LAN Chile S.A.
Under public deed of 22 October 2001 corresponding
to the Extraordinary Shareholders’ Meeting of
Ladeco S.A. held on the same date, its name was
changed to “LAN Chile Cargo S.A.”. An extract of this
deed is recorded on the Business Register of the
Santiago Real Estate Registry Office at Folio 27,746
Nº 22,624 of 2001 and was published in the Official
Gazette of 5 November, 2001. The change of name
came into force on 10 December 2001.
Under public deed of 23 August 2004 corresponding
to the Extraordinary Shareholders’ Meeting of LAN
Chile Cargo S.A. held on 17 August 2004, its name was
changed to “LAN Cargo S.A.” An extract of this deed
is recorded on the Business Register of the Santiago
Real Estate Registry Office at Folio 26,994 Nº 20,082 of
2004 and was published in the Official Gazette of 30
August 2004.
PURPOSE: To engage in and develop, on its own
account or on behalf of others, the following
activities: transport in general in any of its forms
and, in particular, the air transport of passengers,
cargo and mail within and outside Chile; tourism,
hotel and other complementary activities in any of
their forms within and outside Chile; the purchase,
sale, manufacture and/or assembly, maintenance,
renting or any other form of use of aircraft, spare
parts and aeronautic equipment, either on its
own account or on behalf of third parties, and
their exploitation on any account; the provision
of all types of services and consultancy related
to transport in general and to air transport in
particular, in any of its forms whether consisting
of ground support, maintenance, technical or any
other type of consultancy, within and outside Chile;
and, all types of activities related to tourism, hotels
and the other activities and goods referred to above,
within and outside Chile. In compliance with these
objectives, the Company may make investments or
become a partner in other companies by acquiring
shares or rights or interests in any other type of
association, whether existing or formed in the
future, and may in general perform all the acts and
enter into all contracts necessary and pertinent to
fulfill the above objectives.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$ 83,225
ThUS$55,356
99,8980%
2,20%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
3
8
2
LAN Cargo S.A.: Shareholdings
Sociedades Filiales de LAN
Cargo S.A. y Participación
in subsidiaries
Laser Cargo S.R.L
Aircraft Internacional Leasing Limited
Ediciones Ladeco América S.A.
Ladeco Cargo S.A.
Fast Air Almacenes de Carga S.A.
Prime Airport Services Inc. y filial
LAN Cargo Overseas Limited y filiales
Transporte Aéreo S.A.
Consorcio Fast Air Almacenes de Carga S.A. -
Laser Cargo S.R.L. Unión Transitoria de Empresas
LAN Cargo Inversiones S.A. y filial
Connecta Corporation
99,99%
99,98%
99,00%
99,00%
99,89%
100,00%
99,98%
99,99%
100,00%
99,00%
100,00%
LAN Cargo S.A. and subsidiaries
(Closed joint stock company)
Consolidated Statements of Financial Position
ASSETS
Total current assets other than non-current assets (or disposal groups) classified
as held for sale or as held for distribution to owners
Non-current assets (or disposal groups) classified as held for sale or as held for
distribution to owners
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Parent’s ownership interest
Non-controlling interest
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
484.594
499.321
2.318
2.291
486.885
716.666
501.639
528.033
1.203.551
1.029.672
296.223
455.291
215.112
292.417
751.514
507.529
447.028
518.600
5.009
3.543
452.037
522.143
1.203.551
1.029.672
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 4
8
2
Consolidated Statements of Income by Function
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Net income for the period attributable to:
Owners of the parent
Non-controlling interest
NET INCOME FOR THE PERIOD
For the periods ended
December 31,
2012
2011
ThUS$
ThUS$
1.333.780
40.465
(47.360)
(7.996)
(55.356)
(55.478)
122
(55.356)
1.292.997
59.930
111.710
(14.657)
97.053
96.365
688
97.053
Consolidated Statements of Comprehensive Income by Function
NET INCOMEFOR THE PERIOD
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Comprehensive income attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
For the periods ended
December 31,
2012
ThUS$
(55.356)
1.055
(54.301)
(54.308)
7
(54.301)
2011
ThUS$
97.053
(1.162)
95.891
95.199
692
95.891
Consolidated Statements of Changes in Equity
Parent’s
ownership
interest
Non-
controlling
interest
Total
equity
EQUITY AS OF JANUARY 1, 2011
Comprehensive income for the period
Dividends
Other increase (decrease) in equity (161)
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
EQUITY AS OF JANUARY 1, 2012
Comprehensive income for the period
Dividends
Other increase (decrease) in equity
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
ThUS$
456.106
95.199
(32.544)
(161)
518.600
518.600
(54.308)
(15.901)
(1.363)
447.028
ThUS$
2.752
692
(14)
113
3.543
3.543
7
-
1.459
5.009
ThUS$
458.858
95.891
(32.558)
(48)
522.143
522.143
(54.301)
(15.901)
96
452.037
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 5
8
2
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Effects of variation in the exchanges rate on cash and cash equivalents
Cash and cash equivalents at end of period
For the periods ended
December 31,
2012
ThUS$
125.990
(11.677)
2011
ThUS$
71.438
104.682
(118.848)
(177.751)
(4.535)
(2)
12.688
(1.631)
(74)
17.225
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 6
8
2
LAN Perú S.A.
BOARD OF DIRECTORS:
Chairman:
Directors:
Emilio Rodríguez Larraín Salinas
Enrique Cueto Plaza
Ignacio Cueto Plaza
Alejandro de la Fuente Goic
Jorge Harten Costa
Alejandro García Vargas
Luis Enrique Gálvez de la Puente
INCORPORATION:
company in Peru on14 February 1997.
Established as a joint stock
PURPOSE: To provide air transport services for
passengers, cargo and mail, domestically and
internationally, in compliance with civil aeronautical
laws.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$4,341
ThUS$2,683
70,00%
0,04%
LAN Perú S.A.
(Closed joint stock company)
Balance Sheet
Assets
Liabilities
Shareholder equity
Equity and Liabilities
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
167.121
147.055
20.066
167.121
143.212
126.881
16.331
143.212
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
7
8
2
Income Statement
Operating revenues
Operating profit
Non-operating income (loss)
Incometax
Net income
For the periods ended
December 31,
2012
ThUS$
1.121.219
4.336
78
(1.731)
2.683
2011
ThUS$
975.522
2.182
685
(1.874)
993
Statements of Changes in Equity
Changes in
equity paid-
in-capital
Changes in
surplus
revaluation
Changes in
legal
reserve
Changes in
retained
earnings
Changes in
Equity total
ThUS$
ThUS$
OPENING BALANCE AS OF JANUARY 01, 2011
Revaluation of land
Deferred tax revaluation of land
Years’profit
CLOSING BALANCE AS OF DECEMBER 31, 2011
OPENING BALANCE AS OF JANUARY 01, 2012
Revaluation of land
Dividends
ThUS$
4.341
-
-
-
4.341
4.341
-
-
3.229
2.330
(699)
-
4.960
4.960
7.760
-
868
-
-
-
868
868
-
-
-
Deferred tax revaluation of land
-
(2.328)
Years’profit
CLOSING BALANCE AS OF DECEMBER 31, 2012
-
4.341
-
-
10.392
868
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of period
ThUS$
5.169
ThUS$
13.707
-
2.330
-
(699)
993
993
6.162
6.162
-
(4.380)
16.331
16.331
7.760
(4.380)
-
(2.328)
2.683
6.162
2.683
20.066
For the periods ended
December 31,
2012
ThUS$
(3.134)
(6.636)
(4.380)
(14.150)
41.982
2011
ThUS$
(3.209)
(5.377)
-
(8.586)
56.132
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
8
8
2
Inversiones LAN S.A.
and Subsidiaries
BOARD OF DIRECTORS:
Chairman:
Directors:
Enrique Cueto Plaza
Ignacio Cueto Plaza
Alejandro de la Fuente Goic
Roberto Alvo Milosawlewitsch
Enrique Elsaca Hirmas
INCORPORATION: Established as a closed joint stock
company by public deed of 23 January 1990, extended
by Public Notary Humberto Quezada M., recorded at
Folio 3,462 Nº 1,833 of 1990 of the Santiago Business
Register and published in the Official Gazette of 2
February 1990.
PURPOSE: To invest in all types of property, whether
moveable or real, tangible or intangible; in addition,
the company may form other companies of all
types and acquire rights in, administer, modify and
liquidate existing companies.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$ 458
ThUS$ (111)
99,71%
0,03%
Inversiones LAN S.A.: Shareholdings in subsidiaries
Transport Aviation Leasing Limited
Hawk Aviation Management Ltd
Falcon Aviation Management Ltd
Aviation Administration Services Ltd
Cargo Aircraft Leasing Limited
Passenger Aircraft Leasing Limited
Andes Airport Services S.A.
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
98,00%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
9
8
2
INVERSIONES LAN S.A.: SHAREHOLDINGS IN SUBSIDIARIES
(Closed joint stock company)
Consolidated Statements of Financial Position
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
ASSETS
Total current assets other than non-current assets (or disposal groups) classified
as held for sale or as held for distribution to owners
5.001
4.230
Non-current assets (or disposal groups) classified as held for sale or as held for
distribution to owners
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Parent’s ownership interest
Non-controlling interest
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
948
5.574
10.607
16.181
9.158
556
9.714
6.466
1
6.467
16.181
573
5.178
9.121
14.299
7.650
171
7.821
6.476
2
6.478
14.299
Consolidated Statements of Income by Function
For the periods ended
December 31,
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Net income for the period attributable to:
Owners of the parent
Non-controlling interest
NET INCOME FOR THE PERIOD
2012
ThUS$
24.667
4.854
(201)
90
(111)
(112)
1
(111)
2011
ThUS$
22.546
3.232
(427)
73
(354)
(347)
( 7)
(354)
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 0
9
2
Consolidated Statements of Comprehensive Income by Function
NET INCOME FOR THE PERIOD
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Comprehensive income attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Statement of Changes in Equily
Equity as of January 1, 2011
Comprehensive income for the period
Other increase (decrease) in equity
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
Equity as of January 1, 2012
Comprehensive income for the period
Other increase (decrease) in equity
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
For the periods ended
December 31,
2012
ThUS$
(111)
152
41
37
4
41
2011
ThUS$
(354)
49
(305)
(306)
1
(305)
Parent’s
ownership
interest
Non-
controlling
interest
Total equity
ThUS$
ThUS$
ThUS$
7.320
(306)
(538)
6.476
6.476
37
(47)
6.466
8
1
(7)
2
2
4
(5)
1
7.328
(305)
(545)
6.478
6.478
41
(52)
6.467
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Effects of variation in the exchanges rate on cash and cash equivalents
Cash and cash equivalents at end of period
For the periods
ended December 31,
2012
2011
ThUS$
ThUS$
4.677
(4.547)
96
226
(2)
290
814
(859)
-
(45)
(24)
66
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 1
9
2
Inmobiliaria Aeronáutica S.A.
BOARD OF DIRECTORS:
Chairman:
Directors:
Enrique Cueto Plaza
Alejandro de la Fuente Goic
Armando Valdivieso Montes
INCORPORATION: Established as a closed joint stock
company by public deed of 1 August 1995, extended
by Public Notary Gonzalo de la CuadraFabres,
recorded at Folio 21,690 N° 17,549 of 1995 of the
Santiago Business Register and published in the
Official Gazette of 14 September 1995.
PURPOSE: To acquire and sell real estate and rights
over real estate; to develop, plan, sell and build real
estate and real estate projects; to rent, administer
and exploit real estate in any other way, whether on
its own account or on behalf of third parties.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$1,147
ThUS$17,719
100,00%
0,17%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
2
9
2
INMOBILIARIA AERONAUTICA S.A.
(Closed joint stock company)
Statements of Financial Position
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
Statements of Income by Function
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Statements of Comprehensive Income by Function
NET INCOMEFOR THE PERIOD
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
15.620
41.607
57.227
17.226
5.803
23.029
34.198
57.227
2.908
62.672
65.580
1.676
32.425
34.101
31.479
65.580
For the periods ended
December 31,
2012
ThUS$
50.256
24.671
23.514
(5.795)
17.719
2011
ThUS$
8.961
4.765
4.444
(960)
3.484
For the periods ended
December 31,
2012
ThUS$
17.719
17.719
2011
ThUS$
3.484
3.484
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 3
9
2
Statements of Changes in Equity
EQUITY AS OF JANUARY 1, 2011
Comprehensive income for the period
Dividends
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
EQUITY AS OF JANUARY 1, 2012
Comprehensive income for the period
Dividends
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Effects of variation in the exchanges rate on cash and cash equivalents
Cash and cash equivalents at end of period
Changes in
paid-in-
capital
Changes in
retainedearnings
Changes in
net equity
total
ThUS$
1.147
-
-
1.147
1.147
-
-
1.147
ThUS$
ThUS$
29.348
3.484
(2.500)
30.332
30.332
17.719
(15.000)
33.051
30.495
30.495
(2.500)
31.479
31.479
17.719
(15.000)
34.198
For the periods ended
December 31,
2012
ThUS$
(22.860)
22.986
1
127
1
142
2011
ThUS$
1.366
332
(1.680)
18
(6)
14
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 4
9
2
Lantours División Servicios
Terrestres S.A. and subsidiary
BOARD OF DIRECTORS:
Chairman:
Directors:
Damián Scokin Rimolo
Armando Valdivieso Monte
Andrés del Valle Eitel
INCORPORATION: Established as a closed joint stock
company by public deed of 22 June 1987, extended
by Santiago Public Notary RaúlUndurragaLaso,
recorded at Folio 13,139 N° 8,495 of 1987 of the
Santiago Business Register and published in the
Official Gazette of 2 July 1987. The company’s bylaws
have been amended on a number of occasions, most
recently under public deed of 27 July 2010, extended
by Santiago Public Notary Patricio RabyBenavente,
recorded at Folio 39,034 N° 26,946 of 2010 of the
Santiago Business Register and published in the
Official Gazette of 12 August 2010.
PURPOSE: To exploit, administer and represent local
or overseas companies or businesses dedicated to
hotel, shipping, air transport and tourism activities;
to exploit, on its own account or on behalf of third
parties, car rental activities; to import, export,
produce, market and distribute, on its own account
or on behalf of others, in domestic or international
markets, any type of goods whether raw materials,
inputs or finished products.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$225
ThUS$1,300
100,00%
0,00%
Lantours División Servicios Terrestres
S.A. : Shareholdings in subsidiary
Lantours División Servicios
Terrestres II S.A.
99,99%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
5
9
2
LANTOURS DIVISION SERVICES TERRESTRES S.A. AND SUBSIDIARY
(Closed joint stock company)
Statements of Financial Position
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
Statements of Income by Function
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Statements of Comprehensive Income by Function
NET INCOMEFOR THE PERIOD
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
2.411
267
2.678
2.121
32
2.153
525
2.678
2.283
251
2.534
1.745
4
1.749
785
2.534
For the periods ended
December 31,
2012
ThUS$
9.399
5.600
1.598
(298)
1.300
2011
ThUS$
7.872
4.575
1.082
(222)
860
For the periods ended
December 31,
2012
MUS$
1.300
1.300
2011
MUS$
860
860
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 6
9
2
Statements of Changes in Equity
EQUITY AS OF JANUARY 1, 2011
Comprehensive income for the period
Dividends
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
EQUITY AS OF JANUARY 1, 2012
Comprehensive income for the period
Dividends
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of period
Changes
in paid-in-
capital
Changes in
retainedearnings
Changes in
net equity
total
ThUS$
ThUS$
ThUS$
225
-
-
225
225
-
-
225
80
860
(380)
560
560
1.300
(1.560)
300
305
860
(380)
785
305
1.300
(1.560)
525
For the periods ended
December 31,
2012
2011
ThUS$
ThUS$
1.604
(41)
(1.560)
3
11
444
(69)
(380)
(5)
8
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 7
9
2
LAN Pax Group S.A. and
Subsidiaries
BOARD OF DIRECTORS:
Chairman:
Directors:
Ignacio Cueto Plaza
Alejandro de la Fuente Goic
Enrique Elsaca Hirmas
Incorporation: Established as a closed joint stock
company by public deed of 27 September 2001,
extended by Santiago Public Notary Patricio
ZaldivarMackenna, recorded at Folio 25,636 N° 20,794
of the Santiago Business Register on 4 October 2001
and published in the Official Gazette of 6 October
2001.
Purpose: To invest in all types of property, whether
moveable or real, tangible or intangible; in addition,
the company may form other companies of all
types and acquire rights in, administer, modify and
liquidate existing companies. In general, it may
acquire, sell and exploit all types of goods, whether
on its own account or on behalf of others, and
perform acts of any type and enter into contracts
of any kind that are conducive to its objectives. It
may also develop and undertake any other activity
resulting from its purpose and/or linked, related,
pursuant or complementary to this purpose.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$425
ThUS$(82,277)
100,00%
0,00%
LAN Pax Group S.A.: Shareholdings in subsidiaries
Inversora Cordillera S.A. and subsidiaries
Lantours S.A. (Ex Siventas S.A.)
Atlantic Aviation Investments LLC
Perdiz Leasing LLC
Akemi Holdings S.A.
Saipan Holdings S.A.
Aeroasis S.A.
Aerolane, Líneas Aéreas
Nacionales del Ecuador S.A.
Puerto Montt Holding S.A.
and subsidiaries
95,78%
100,00%
99,00%
99,00%
100,00%
100,00%
100,00%
71,92%
99,875%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
8
9
2
LAN PAX GROUP S.A. AND SUBSIDIARIES
(Closed joint stock company)
Estado de Situación Financiera Clasificado Consolidado
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY
Parent’s ownership interest
Non-controlling interest
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
Consolidated Statements of Income by Function
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Net income for the period attributable to:
Owners of the parent
Non-controlling interest
NET INCOME FOR THE PERIOD
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
228.849
228.532
293.559
236.257
522.408
464.789
582.742
447.140
55.109
55.144
637.851
502.284
(112.395)
(3.048)
(41.935)
4.440
(115.443)
(37.495)
522.408
464.789
For the periods ended
December 31,
2012
MUS$
1.130.295
128.389
(114.478)
32.201
2011
MUS$
722.701
88.125
(46.074)
16.784
(82.277)
(29.290)
(77.269)
(27.622)
(5.008)
(1.668)
(82.277)
(29.290)
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 9
9
2
Consolidated Statements of Comprehensive Income by Function
NET INCOMEFOR THE PERIOD
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Comprehensive income attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Consolidated Statements of Changes in Equity
EQUITY AS OF JANUARY 1, 2011
Comprehensive income for the period
Other increase (decrease) in equity
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
EQUITY AS OF JANUARY 1, 2012
Comprehensive income for the period
Other increase (decrease) in equity
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
For the periods ended
December 31,
2012
ThUS$
(82.277)
(6.087)
2011
ThUS$
(29.290)
(5.690)
(76.190)
(34.980)
(70.823)
(5.367)
(33.228)
(1.752)
(76.190)
(34.980)
Parent’s
ownership
interest
Non-
controlling
interest
Total equity
ThUS$
(7.082)
(33.228)
(1.625)
(41.935)
(41.935)
(70.823)
363
ThUS$
(3.175)
(1.752)
9.367
4.440
4.440
(5.367)
(2.121)
ThUS$
(10.257)
(34.980)
7.742
(37.495)
(37.495)
(76.190)
(1.758)
(112.395)
(3.048)
(115.443)
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Effects of variation in the exchanges rate on cash and cash equivalents
Cash and cash equivalents at end of period
For the periods ended
December 31,
2012
ThUS$
2011
ThUS$
(134.249)
(115.774)
4.310
145.516
116.611
(13.328)
(144)
42.335
(2.498)
27.244
( 1)
55.807
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 0
0
3
LAN Chile Investments Limited
and subsidiaries
BOARD OF DIRECTORS:
Chairman:
Directors:
Enrique Cueto Plaza
Alejandro de la Fuente Goic
Andrea Williams
INCORPORATION: Established as a limited liability
company by public deed of 30 July 1999 in the
Cayman Islands and recorded in the Cayman Islands
Company Register on the same date.
PURPOSE: To invest in all types of property, whether
moveable or real, tangible or intangible.
Subscribed and paid-in capital:
Net income:
Shareholding:
% of consolidated assets:
ThUS$10
ThUS$(10)
100,00%
0,00%
LAN Chile Investments Limited:
Shareholdings in subsidiary
Inversiones La Burguería S.A.
99,90%
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012
1
0
3
LAN CHILE INVESTMENTS LIMITED AND SUBSIDIARIES
(Limited liability company)
Consolidated Statements of Financial Position
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Total current liabilities
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Parent’s ownership interest
TOTAL EQUITY
TOTAL LEABILITIES AND EQUITY
Consolidated Statements of Income by Function
Revenues
Gross margin
Income before income taxes
Income tax expense
NET INCOMEFOR THE PERIOD
Net income for the period attributable to:
Owners of the parent
Non-controlling interest
NET INCOME FOR THE PERIOD
As of
December
31, 2012
As of
December
31, 2011
ThUS$
ThUS$
4.419
-
4.419
11
5.236
5.247
4.420
-
4.420
2.088
3.150
5.238
(828)
(828)
4.419
(818)
(818)
4.420
For the periods ended
December 31,
2012
ThUS$
-
-
(10)
-
(10)
(10)
-
(10)
2011
ThUS$
278.039
37.692
1.578
889
2.467
1.820
647
2.467
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 2
0
3
Consolidated Statements of Comprehensive Income by Function
NET INCOMEFOR THE PERIOD
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Comprehensive income attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Consolidated Statements of Changes in Equity
EQUITY AS OF JANUARY 1, 2011
Comprehensive income for the period
Other increase (decrease) in equity
PRIOR YEAR ENDING BALANCE AS OF DECEMBER 31, 2011
EQUITY AS OF JANUARY 1, 2012
Comprehensive income for the period
CLOSING BALANCE AS OF CURRENT YEAR ENDING
BALANCES DECEMBER 31, 2012
Consolidated Statements of Cash Flows – Direct Method
Net cash flow from (used in) operating activities
Net cash flow from (used in) investment activities
Net cash flow from (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of period
For the periods ended
December 31,
2012
ThUS$
(10)
-
(10)
(10)
-
(10)
2011
ThUS$
2.467
-
2.467
1.820
647
2.467
Parent’s
ownership
interest
Non- controlling
interest
Total
equity
ThUS$
ThUS$
ThUS$
(2.634)
1.820
(4)
(818)
(818)
(10)
(828)
6
647
( 653)
-
-
-
-
(2.628)
2.467
(657)
(818)
(818)
(10)
(828)
For the periods ended
December 31,
2012
ThUS$
-
-
-
-
1
2011
ThUS$
18.494
(27.479)
6.325
(2.660)
1
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012 3
0
3
SWORN STATEMENT
As Directors and Chief Financial Officer of LATAM
Airlines Group, we declare under oath our
responsibility on the veracity of the information
contained in this Annual Report.
Mauricio Rolim Amaro
President
María Claudia Amaro
Director
Ramón Eblen Kadis
Director
Carlos Heller Solari
Director
Juan José Cueto Plaza
Director
José María Eyzaguirre Baeza
Director
Gerardo Jofré Miranda
Director
Georges De Bourguignon Arndt
Director
Francisco Luzón López
Director
Alejandro de la Fuente Goic
Chief Financial Officer
Subsidiaries and Affiliated CompaniesANNUAL REPORT2012