ANNUAL REPORT
2013
INDEX
01. Introduction
Message from the Chairman of the Board
Message from the Chief Executive Officer
02. Our company
Business Strategy
Our History
Fleet
Destinations
Our People
Company Information
03. Corporate Governance
Board of Director
Senior Managment
Corporate Governance Practices
Ownership Structure and Principal Shareholders
Financial Policy
04. Operations
International Passenger Operations
Brazil
Chile
Perú
Colombia
Argentina
Ecuador
Cargo Operations
Customer Loyalty Programs
Property Plants and Equipment
05. Results 2013
Industry Overview
Regulatory Framework
Financial Results
Awards and Recognitions
Stock Market Information
Additional Information
Material News
Risk Factors
06. Sustainability
07. Financial Statement
EE.FF
Susidiaries and Affiliated Companies
Sworn Statement
3
4
6
8
9
11
14
22
27
29
30
31
36
46
54
57
61
62
65
67
69
72
75
77
79
82
85
87
88
90
96
101
104
108
109
115
119
132
132
335
INTRODUCTION
LATAM AIRLINES GROUP S.A
01
ANNUAL REPORT 20133 INTRODUCTION /
MESSAGE FROM THE CHAIRMAN OF THE BOARD
MAURICIO ROLIM AMARO
Dear Shareholders,
For LATAM Airlines Group, Latin America’s
largest airline company, 2013 was a year of
intense activity and work. In addition to
the challenges inherent in a merger of its
magnitude - among which I would like to
highlight the key pillars of the integration
of the corporate cultures of TAM and LAN,
the
standardization of administrative
processes across practically all areas and
the conversion of the two companies’
different operating systems - we faced an
increase in competition in the domestic and
international markets in which we operate.
It is important to note that these events
also occurred in the context of a still timid
improvement of the US economy and a
much slower process of recovery in Europe.
Moreover, the price of oil, affected by the risk
of propagation of the current war in Syria,
remained high in 2013, reaching over US$117/
barrel.
In Brazil, our largest and most important
market, a reduction in economic activity
meant that passenger traffic showed only
a modest 1.4% increase. Nonetheless, by
maintaining our strategy of seat capacity
discipline, we were again able to increase
our load factor which reached over 80%,
its highest level ever in the history of TAM.
At the same time, we maintained a healthy
average 40% market share.
Despite this challenging situation, LATAM
successfully raised US$940 million in a capital
increase. This not only significantly reduced
our leverage and financial costs but will also
allow us to implement investments in new-
generation systems and aircraft that will
be critical for LATAM’s sustainable growth
through to the end of the present decade.
ANNUAL REPORT 20134 In this extremely complex context, LATAM
is forging its identity and strengthening its
corporate vision and mission.
In 2013, we showed flexibility in responding
successfully to the difficulties posed by more
competitive markets and demonstrated
precisely the reasons for which we created
LATAM Airlines Group. Our company has
a unique advantage - we are leaders and
culturally represent a continent. At the same
time, we are South America’s largest airline
and the airline that is present in the greatest
number of countries. That differentiates
us but also implies a great responsibility as
regards the region’s economic development.
Our position allows us to offer greater
connectivity for passengers and greater
agility in the transport of cargo, bringing
the
together,
people closer
business environment and reducing logistics
costs. In this task, we have on our side the
best practices we have inherited from TAM
and LAN.
improving
But we can and must expect more from our
company in 2014.
LATAM has an obligation to constantly
improve
its corporate governance, the
returns it offers shareholders, the integral
support it provides for its collaborators and
the respect it shows for its passengers and
other clients.
Thank you and I wish you an excellent year.
Maurício Amaro
Chairman of the Board LATAM Airlines Group
ANNUAL REPORT 20135
INTRODUCTION /
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
ENRIQUE CUETO
Dear shareholders,
The year 2013 was extremely important
for our Company. Following the merger in
June 2012 of LAN and TAM, South America’s
largest airlines, it was the first year in which
we operated as LATAM Airlines Group. I can
say with great pride that, thanks to this
association, we are the region’s leading
company in terms of size and coverage and,
for our passengers and cargo clients, seek to
be the best alternative for reaching any part
of the world with the best service.
Our results in 2013 reflect the fact that this
was a transition year in which we invested
much time and resources, striving our
utmost to advance firmly towards our goal.
The progress we achieved during our first
complete year as LATAM Airlines Group was
enormous. In the case of our international
and cargo operations, the integration is
already a reality. Our domestic operation
in Brazil has been restructured and today
makes a positive contribution to the Group’s
results. And, as reflected in the improvement
in our financial results, we have achieved the
expected progress in capturing the synergies
offered by the merger. This has also meant
a sustained improvement in our balance
sheet indicators, putting us on course to
recover our investment grade, an important
indicator in a volatile industry such as ours.
I think it is particularly important to highlight
the efforts made to adapt our fleet plan in
order to give priority to the incorporation
of latest-generation aircraft for our short
and long-haul operations. This has implied
an important investment, particularly this
year and next, with a view to developing the
flexibility needed to implement future fleet
renewals without impacting our operations
or future financial results, ensuring a
competitive advantage that is sustainable in
the long term.
ANNUAL REPORT 20136 Creating a preferred airline for the continent
is not a short-term task and the work ahead
will be hard, calling for great commitment
from all of us who work at the Company. We
are optimistic because we are convinced
that the merger of LAN and TAM will position
us as one of the most solid, sustainable and
reliable airline operators in the industry and
that this will bring greater prosperity for
our region and all the LATAM Airlines Group
family.
We know that association processes take
time and are complex, posing challenges
that call for great learning efforts on the
part of all those involved. In our case, there
are organizational challenges that imply
the development of the capacity to adapt,
on the part of senior management and
all the other members of our workforce.
Other challenges involve the integration of
systems and, above all, our people who are
of different nationalities and come from
different cultures, making the process even
more complex since building mutual trust
takes time. I am, however, convinced that we
have the best team in the industry and will
be able to continue to rise to this challenge.
Any business transformation process affects
people and they are our principal asset.
That is why I would particularly like to pay
tribute to and thank the over 52 thousand,
employees who make up the Company. Their
work, dedication and commitment have been
decisive in our performance during this first
year as LATAM Airlines Group. And, I would
like to invite them all to keep alive that spirit
of collaboration in the coming years and to
feel proud of their role as protagonists in an
historic project for Latin America’s aviation
industry, designed to create one of the
world’s three largest airlines.
Enrique Cueto P.
CEO LATAM Airlines Group
ANNUAL REPORT 20137
OUR COMPANY
LATAM AIRLINES GROUP S.A
02
ANNUAL REPORT 20138 OUR COMPANY /
BUSINESS STRATEGY
In its first complete year of operations as
LATAM Airlines Group, the Company ranked
among the world’s 12 largest airlines and the
leading operator in South America in terms
of fleet size and destinations served. The
association between LAN and TAM is, in other
words, fulfilling its objective of becoming
a global player, competing in a context of
open skies in which the trend is towards ever
greater consolidation of the international
airline market.
For its operations, the Company today has
a fleet of over 330 aircraft with an average
age of less than seven years that stands out
as one of the most modern in the industry.
Under its strategy, the Company seeks to
maintain leadership in efficiency through
constant renewal of its aircraft, improving
the product it offers and supporting care for
the environment, with all the advantages
afforded by being one of the first operators of
new high-yield technologies. It is important
to note that the Company was a pioneer
in the western world in incorporating the
Boeing 787, the most modern aircraft of its
type.
In addition to maintaining a safe and
efficient fleet with a low average age,
another pillar of the Company’s strategy is to
constantly strengthen the connectivity of its
network in order to offer the best and largest
network of routes within South America and
connections between the region and the rest
of the world.
The group has a local presence in seven
markets
- Chile, Brazil, Argentina, Peru,
Ecuador, Colombia and Paraguay - which
together represent around 90% of regional
traffic. In addition, it has a key position in
the principal hubs connecting South America
with the rest of the world - São Paulo and
Lima - and has numerous alliances and
commercial agreements with the industry’s
best airlines. This is reflected in the fact
that one in two people who fly in South
America do so with LAN or TAM, the airlines
recognized as offering the region’s best
service to customers.
ANNUAL REPORT 20139 to strengthen São Paulo’s Guarulhos airport
as the region’s principal hub. It is, in addition,
progressing in the rationalization of capacity
on certain routes, fleet modernization
and
continuous
improvement of service standards.
standardization
and
to
reduce
its exposure
On the financial front, in 2013, the Company
continued
to
variations in exchange rates and, particularly,
the Brazilian real. As of the end of the year,
hedging for the real for the period January-
December 2014 reached US$500 million.
improving
The Company is also working to strengthen
its balance sheet,
its main
financial indicators in order to recover
its investment grade, an important and
differentiating factor in a high-volatility
industry. As of December 2013, LATAM
Airlines Group’s borrowing level and liquidity
showed important improvements due to an
increase in generation of cash flow and the
capital increase for US$940.5 million that
was successfully completed in January 2014.
In addition to the geographic diversification
of its operations, another strength of LATAM
Airlines Group is its successful combination
of its passenger and cargo businesses in a
strategy that seeks to maximize load factors
on passenger planes through the use of their
bellies to transport cargo, complementing
the use of freighters and diversifying its
sources of income. The flexibility afforded
by this business model allows the Company
to increase returns on its routes, reduce
the impact of seasonal factors and increase
load factors. As of December 2013, 83% of its
revenues were contributed by its passenger
business and 14% by its cargo operation,
among others.
Looking to the future, the Company’s priority
is to successfully complete the integration of
LAN and TAM, boosting the best practices,
strengths and competitive advantages of
the two airlines, in order to achieve greater
efficiency at lower costs and, in so doing,
capture projected synergies worth between
US$600 million and US$700 million a year by
2016.
In this context, one of the Company’s
principal achievements in the first stage of
the merger was the complete restructuring
of its domestic operations in Brazil in order to
introduce changes that will be sustainable in
the long term and lay the foundations for its
future growth in the region’s largest market
and the third largest in the world. In the case
of its international passenger business in
which the operations of LAN and TAM have
been fully integrated, the Company is seeking
ANNUAL REPORT 201310
OUR COMPANY /
OUR HISTORY
1929
Línea Aerea Nacional de Chile (LAN)
founded by Comandante Arturo
Merino Benítez.
1986
Acquisition by TAM of VOTEC-Brasil
Central Linhas Aéreas, another
regional airline operating in the north
and center of the country.
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.
1989
1990
Start of privatization of LAN: the
Chilean government sells a 51% stake
to local investors and Scandinavian
Airlines System (SAS).
Central
Brasil
Transportes Aéreos Meridonais.
renamed
TAM-
1993
Launch by TAM of TAM Fidelidade,
Brazil’s first frequent flyer program.
1970
LAN begins flights to Europe.
1975
1976
of
Foundation
TAM-Transportes
Aéreos Regionais by Capitan Rolim
Adolfo Amaro.
Launch of TAM services in Brazilian
cities, especially Mato Grosso and
São Paulo.
1994
1996
1983
Constitution of Linea Aerea Nacional
– Chile Limitada, through CORFO
1985
LAN becomes a joint stock company.
Privatization of LAN completed with
the acquisition of a 98.7% stake by
its current controllers and other
shareholders.
Acquisition by TAM of Lapsa airline
from the Paraguayan government
and creation of TAM Mercosur; start
of São Paulo-Asunción flights.
ANNUAL REPORT 201311
1997
Acquisition by TAM of Lapsa airline
from the Paraguayan government
and creation of TAM Mercosur; start
of São Paulo-Asunción flights.
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.
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
in LAN’s
Further step
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.
2001
LAN Alliance with
Iberia and
inauguration of Miami cargo terminal.
2006
Launch of new LAN Premium Business
Class.
2001
Creation of TAM Technology Center
and Service Academy in São Paulo.
2006
TAM S.A. lists on the NYSE / Start
of flights to London and, through
agreement with Air France, to Zurich
and Geneva.
ANNUAL REPORT 201312
2007
Implementation of low-cost model in
domestic markets; capital increase of
US$320 million; purchase orders for
32 Boeing 787 Dreamliners.
2010
Acquisition of Colombia’s Aires
airline.
2010
TAM officially joins Star Alliance.
2011
LAN and TAM sign binding agreements
related to the business combination
of the two airlines.
2012
2013
LATAM Airlines Group is born as a
result of the business combination
between LAN and TAM
Capital increase for US$ 940.5 million.
/ LATAM Airlines Group chooses
oneworld as its global alliance.
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.
2008
Completion of renewal of LAN’s
short-haul fleet with aircraft from the
Airbus A320 family.
2008
receives
TAM
777-300ER.
its first Boeing
2009
2009
Start of cargo operations in Colombia
and domestic passenger operations
in Ecuador.
Launch of Multiplus Fidelidade;
acquisition of Pantanal
Linhas
Aéreas.
ANNUAL REPORT 201313 OUR COMPANY /
FLEET
In 2013, LATAM Airlines Group’s fleet
comprised over 330 aircraft which, with
an average age of less than seven years,
stood out as one of the most modern in the
industry.
In the framework of the integration process,
LATAM decided in the second half of 2013 to
implement a far-reaching fleet restructuring
plan. The plan consists in reducing the
number of models operated, gradually
taking less efficient models out of service
and allocating the most appropriate planes
to each of its markets. Starting in the last
quarter of 2013 and over the next some 30
months, the Company will gradually ground
all its A-330s, A-340s, B737s, Q400s and
Q200s in favor of the most efficient models
available in the market.
In 2013, the Company used principally aircraft
from the Airbus A320 family for short-haul
passenger operations. As of December 2013,
its fleet for these operations - domestic
routes and regional routes within South
America - comprised 236 aircraft from this
family, positioning it as one of the world’s
three largest operators of Airbus planes.
The short-haul fleet plan envisages constant
renewal of aircraft, designed both to
maintain its position in the vanguard of
the international industry, with modern
and efficient aircraft and the resulting
advantages in terms of maintenance and the
Company’s commitment to the environment,
and to meet the needs of its projected
growth. In line with this, the Company has
already withdrawn from service it’s A318s,
the smallest and oldest aircraft in the Airbus
A320 family, and is modernizing all its A320
fleet by incorporating sharklets, advanced-
technology devices installed on wings that
reduce aerodynamic resistance,
improve
takeoff capacity, increase fuel use efficiency
and reduce both CO2 emissions (by around
4%) and noise. In April 2013, the Company
received the first A320s equipped with
sharklets.
However, the focus of LATAM Airlines Group
as regards its short-haul fleet plan is on the
Airbus A320neo and A321 models whose
operating costs per ASK are 6% lower than
for the A320.
ANNUAL REPORT 201314
The fleet plan also envisages orders for 27
Airbus A-350s through to 2019. Equipped with
cutting-edge technology, they will allow the
Company to strengthen its long-haul routes.
This model forms part of the new mid and
long-haul line of aircraft and its use will
imply a leap in efficiency as compared to the
existing models in this category. Its operating
cost per ASK is 25% less than that of TAM’s
A330s and it also implies a corresponding
reduction in CO2 emissions.
As of December 2013, the Company’s cargo
fleet comprised 12 Boeing 767Fs and four
Boeing 777Fs. These are the most modern
freighters of their type in the industry and
represent
improvements on
the B767 in that they have double its cargo
capacity but only consumer 50% more fuel.
important
LATAM Airlines Group’s short term fleet plan
implies a fleet commitment of US$1,168
million in 2014 and US$1,893 million in 2015.
LATAM Airlines Group has placed orders for
36 modern Airbus A320neos, respectively, for
delivery between 2016 and 2018. This new
option within the A320 family has a more
efficient engine and the new sharklets, a
combination offering benefits that include a
reduction of up to 15% in fuel consumption.
This, in turn, implies avoidance of 3,600
tonnes of CO2 emissions per year per aircraft.
The A321 is a larger version of the A320 and
will be used to serve high-density routes
within South America. As of December 2013,
the Company had ten A321s in service -
operated by TAM - and, under its fleet plan,
will receive a further ten in 2014 and 12 in
2015, taking it to a total 60 A321 for 2017.
In the case of its long-haul fleet, the
Company’s strategy also seeks to incorporate
the best technology and to position it as
an industry leader on efficiency. In 2013, it
incorporated two new Boeing 787 of which,
by December 2013, it had a total of five out
of an order for 32 that will be completed over
the next five years. Regarded as the most
efficient aircraft of its type and offering
numerous advantages for passengers, the
B787 stands out for its unrivalled fuel yield,
giving it an operating cost per ASK that
is 12% less than that of LAN’s Boeing 767.
These latest-generation planes began to be
used in 2013 on the Santiago-Madrid and
Santiago-New York routes.
ANNUAL REPORT 201315
MAINTENANCE
In 2013, the Company started the process of
integrating TAM MRO (Maintenance, Repair
and Overhaul) capabilities and processes
with LAN Heavy Maintenance capabilities
and Heavy Maintenance outsourcing under a
new coordinated LATAM MRO structure.
LATAM MRO provides services mainly for
LATAM’s fleet but also for some third-party
clients. Its premises in the São Carlos (SP/
Brazil) Technological Center have an area of
100,000 m², with their own 1,720-m runway,
while its facilities at the Santiago Internatio-
nal Airport (Chile) cover an area of 10,000 m².
LATAM MRO is audited and certified by
international aviation authorities
major
from the United States, Europe, Brazil,
Chile, Argentina, Ecuador, Paraguay and
Canada as well as other countries for Heavy
Maintenance, Components Repair and
Overhaul for the Airbus A320 family, A-330s,
Boeing 767s, 777s and 787s, ATR42/72s and
the Embraer E-Jet 170/190 families. It also has
minor capabilities for the repair and overhaul
of Airbus A-340 and Boeing 777 components.
In 2013, it expanded its capacity and can
ten
now simultaneously accommodate
narrowbody/widebody aircraft and two
regional/turboprop aircraft.
In addition,
it has a hangar exclusively for stripping
and painting and 29 technical workshops,
including a full Landing Gear Repair and
Overhaul Workshop
and Hydraulics,
Pneumatics, Electronics (ATEC), Electrical
Components, Electroplating, Composites,
Wheels and Brakes, Interiors and Escape
Slide Workshops.
In 2013, LATAM MRO carried out 1.8 million
man-hours of work (a 10% increase on 2012),
serviced 277 aircraft for LATAM and other
clients, delivered approximately 58,000
components and performed 14 landing gear
overhauls. It covered almost 100% of the
TAM fleet’s (Airbus A320 family and A-330)
demand for Heavy Maintenance and 75%
of its demand for Components Repair and
Overhaul. Its external maintenance and
repair clients include Azul, Trip, Avianca, the
Brazilian Air Force, Embraer, Goodrich and
Hamilton Sundstrand.
ANNUAL REPORT 201316
At São Carlos, it also offers engineering
capabilities and a full technical training
center to develop TAM’s capabilities in terms
of human skills. In 2013, it provided a total of
90,000 hours of training to more than 6,000
students through 80 different basic courses.
Passenger
A319-100
A320-200
A321-200
A330-200
A340-300/500
B737-700
B767-300
B777-300 ER
B787-8/-9
Dash 8-200
Dash 8-Q400
Rented
Owned
Total
15
65
1
12
4
5
6
2
2
7
3
39
95
9
8
2
0
37
8
3
0
0
54
160
10
20
6
5
43
10
5
7
3
Total Passenger
122
201
323
Cargo
B767 Freighter
B777 Freighter
Total Cargo
4
2
6
8
2
10
12
4
16
Total
128
211
339
ANNUAL REPORT 201317 AIRBUS A320 FAMILIY
A319-100
Length: 33.8 mts
Width: 34.1 mts
Seats: 144
Cruising Speed: 850 km/h
Maximun weight at take-off: 70,000 kg
A320-200
Length: 37.6 mts
Width: 34.1 mts
Seats: 168 - 174
Cruising Speed: 850 km/h
Maximun weight at take-off: 77,000 kg
A321-200
Length: 44.51 mts
Width: 34.1 mts
Seats: 220
Cruising Speed: 850 km/h
Maximun weight at take-off: 89,000 kg
ANNUAL REPORT 201318 AIRBUS A340 FAMILIY
BOEING FAMILIY
A340-300
Length: 63.7 mts
Width: 60.3 mts
Seats: 260
Cruising Speed: 896 km/h
Maximun weight at take-off: 275,000 kg
A340-500
Length: 67.9 mts
Width: 63.45 mts
Seats: 267
Cruising Speed: 907 km/h
Maximun weight at take-off: 372,000 kg
Boeing 737-700
Length: 39.5 mts
Width: 35.7 mts
Seats: 148
Cruising Speed: 828 km/h
Maximun weight at take-off: 70,000 kg
ANNUAL REPORT 201319 Boeing 767-300
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
Boeing 777-300 ER
Length: 73.9 mts
Width: 64.8 mts
Seats: 362
Cruising Speed: 896 km/h
Maximun weight at take-off: 347,800 kg
Boeing 787-8
Length: 56.69 mts
Width: 60.0 mts
Seats: 247
Cruising Speed: 913 km/h
Maximun weight at take-off: 227,930 kg
ANNUAL REPORT 201320 DASH FAMILIY
BOEING FREIGHTER FAMILIY
Dash 8-200
Length: 22.25 mts
Width: 25.89 mts
Seats: 37
Cruising Speed: 500 km/h
Maximun weight at take-off: 16,470 kg
Dash 8Q-400
Length: 32.81 mts
Width: 28.4 mts
Seats: 78
Cruising Speed: 667 km/h
Maximun weight at take-off: 29,260 kg
Boeing Freighter 767
Length: 54.2 mts
Envergadura: 47.6 mts
Load time: 438,1 m3
Cruising Speed: 896 km/h
Maximun weight at take-off: 186,880 kg
Boeing Freighter 777
Length: 63.7 mts
Envergadura: 64.8 mts
Load time: 652,7 m3
Cruising Speed: 896 km/h
Maximun weight at take-off: 347,450 kg
ANNUAL REPORT 201321 OUR COMPANY /
DESTINATIONS
PASSENGER AND CARGO (INTERNATIONAL)
ANNUAL REPORT 201322 PASSENGER AND CARGO (BRASIL)
PASSENGER AND CARGO (CHILE)
ANNUAL REPORT 201323 PASSENGER AND CARGO (PERÚ)
PASSENGER AND CARGO (COLOMBIA)
ANNUAL REPORT 201324 PASSENGER AND CARGO (ARGENTINA)
PASSENGER AND CARGO (ECUADOR)
ANNUAL REPORT 201325 ONLY CARGO
CODESHARE
ANNUAL REPORT 201326 OUR COMPANY /
OUR PEOPLE
OUR PEOPLE
As of December 2013, LATAM Airlines Group
had 52,997 employees of 57 different
is,
nationalities across 23 countries.
as a result, a multicultural as well as
multinational company. This is an important
advantage in terms of understanding the
different markets where it operates and
their people but also poses great challenges
for the merger process.
It
The Company’s Human Resources area has
played a decisive role in mitigating the
impacts that any organizational change has
on the life of people, who are our principal
asset, and, for everyone, this has meant an
important learning effort.
In 2013, work continued on the development
of a single cultural model for LATAM Airlines
Group in order to embed and consolidate the
new Company’s identity. An objective that
* Employees by country
is transversal to the Company is to have in
place a high-performance human team that
is committed and geared to the customer. In
line with this, we have worked together to
standardize some policies and both airlines
have modified their organizational structure.
In 2013, the standardization of the Corporate
Academy’s courses on Instructor Training
and Quality Model permitted the integration
of the two airlines’ training areas. In addition,
the Leadership syllabus of the Leadership
School in Brazil was implemented, thereby
standardizing the training of leaders across
the Company. Cross-training was also
provided for LAN and TAM employees in the
group’s airport systems and procedures
and courses on service were designed and
implemented for people joining the company
in areas with contact with passengers.
ANNUAL REPORT 201327 In addition, the Company launched a single
recruitment portal which can be accessed
through links on both LAN.com and TAM.com.
br. It publishes offers of jobs throughout
the Company and, for the first time, allows
market candidates to obtain information
about job opportunities and the vacancies
available and to apply through this portal for
jobs in any country and any of the businesses
that form part of LATAM Airlines Group.
The standardization of the principal HR
processes at the LATAM Airlines Group
level was completed in 2013. This included,
for example, the areas of performance
evaluation and succession planning.
Other milestones included the implementation
of a unified base of information in which each
employee can update his or her own information
and career interests and HR heads and
personnel can see and manage information
about the persons for whom they are
responsible.
In June 2013, an internal job posting process
was launched. This provides the Company’s
employees with access to information about
vacancies available anywhere in the world
and allows them to apply online.
*Employees by area
ANNUAL REPORT 201328
OUR COMPANY /
COMPANY INFORMATION
LATAM AIRLINES S.A
Chilean Tax N° (RUT): 89.862.200-2
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 Stock Exchange
FINANCIAL INFORMATION
Investor Relations
LATAM Airlines Group S.A.
Avenida Presidente Riesco 5711, 20th Floor
Las Condes, Santiago, Chile
Tel: (56) (2) 2565 8785
Email: Investor.Relations@lan.com
SHAREHOLDER ENQUIRIES
Depósito Central de Valores
Huérfanos 770, 22nd Floor
Santiago, Chile
Email: 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
Tel: From outside US (651) 453-2128
Tel: Global Invest Direct (800) 428-4237
Email: 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
Email: dr.itau@itau-unibanco.com.br
EXTERNAL AUDITORS
Pricewaterhouse Coopers
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
ANNUAL REPORT 201329 CORPORATIVE
GOVERNANCE
LATAM AIRLINES GROUP S.A
03
ANNUAL REPORT 201330 CORPORATIVE GOVERNANCE /
BOARD OF DIRECTORS
MAURICIO ROLIM AMARO
Chairman of the Board
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 also chairs the Councils
of Administration of Multiplus S.A. and TAM
Aviação Executiva e Táxi Aéreo S.A.
Mr. Amaro is a member of the Strategy,
Leadership, Finance and Brand, Product
and Frequent Flyer Program Committees of
LATAM Airlines Group.
RUT: 48.143.165-4
Mrs. María Claudia Amaro, who holds a
in business administration and
degree
marketing, has been a member of LATAM
Airlines Group’s Board of Directors 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
a member of the Councils of Administration
of Multiplus S.A. and TAM Aviação Executiva
e Táxi Aéreo S.A.
Mrs. Amaro is a member of the Strategy,
Leadership, Brand, Product and Frequent
Flyer Program, Long Haul and Marketing
Committees of LATAM Airlines Group.
RUT: 48.143.164-6
ANNUAL REPORT 201331 JUAN JOSÉ CUETO PLAZA
GEORGES DE BOURGUIGNON ARNDT
Mr. Juan José Cueto Plaza, an economist and
business administrator, has been a member
of the Board of Directors of LATAM Airlines
Group since 1994. He currently serves as
executive vice-president of
Inversiones
Costa Verde, a position he has held since
1990, and is a member of the boards of
companies
include Costa Verde
Aeronáutica S.A., Sinergia Inmobiliaria S.A.,
Minera Michilla S.A., Consorcio Maderero S.A.
and Universidad San Sebastián.
that
Mr. Cueto is a member of the Finance and
Brand, Product and Frequent Flyer Program
Committees of LATAM Airlines Group.
RUT: 6.694.240-6
from
Mr. Georges de Bourguignon holds an
the Catholic
economics degree
University of Chile and an MBA from Harvard
University. He was elected to the Board
of Directors 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 a director of Sal Lobos, the Chilean
subsidiary of Germany’s K+S group, and of
Salmones Austral. Before founding Asset
Chile, he served as vice-president of Citibank
S.A. in Chile and as an economics lecturer at
the Catholic University of Chile.
Mr. de Bourguignon is a member of the
Directors’ Committee of LATAM Airlines
Group.
RUT: 7.269.147-4
ANNUAL REPORT 201332 RAMÓN EBLEN KADIS
JOSÉ MARÍA EYZAGUIRRE BAEZA
Mr. Ramón Eblen Kadis, an economist and
business administrator, has been a member
of the Board of Directors of LATAM Airlines
Group since June 1994. He has served as
chairman of Comercial Los Lagos Ltda.,
Inversiones Santa Blanca S.A., Inversiones
Andes SpA, Granja Marina Tornagaleones S.A.
and TJC Chile S.A.
Mr. Eblen is a member of the Directors’
Committee and the Leadership and Brand,
Product and Frequent Flyer Program
Committees of LATAM Airlines Group.
RUT: 4.346.062-5
Mr. José María Eyzaguirre Baeza, a lawyer,
joined the Board of Directors 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, The
North Face and Kipling. He previously served
on the boards of other companies that
include Embotelladora Andina S.A. and AES
Gener S.A.
RUT: 7.011.679-0
ANNUAL REPORT 201333 CARLOS HELLER SOLARI
GERARDO JOFRÉ MIRANDA
Mr. Carlos Heller Solari, an agricultural
engineer, joined the Board of Directors of
LATAM Airlines Group in May 2010. He has
great experience in the retail, transport
and agricultural sectors. He is currently
vice-chairman of Bethia
investment
company and owner of Axxion) and chairman
of Axxion S.A., Megavisión, Club Hípico de
Santiago, Sotraser S.A. and Agrícola Ancali.
In addition, he is a director 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.
(an
RUT: 8.717.000-4
Mr. Gerardo Jofré Miranda, an economist
and business administrator,
joined the
Board of Directors of LATAM Airlines Group
in May 2010. He is chairman of the board of
the National Copper Corporation of Chile
(Codelco) and a director of Air Life Chile S.A.
as well as president of 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 CEO of different
companies in the group.
Mr. Jofré chairs the Directors’ Committee
and Finance Committee of LATAM Airlines
Group and is a member of its Strategy and
Leadership Committees.
RUT: 5.672.444-3
ANNUAL REPORT 201334
administration of companies that include
one of the world’s most successful fashion
retailers, Inditex-Zara (1996-2012) as well as
in different positions in institutions of the
most diverse nature such as his membership
of the Patronato de la Fundación Príncipe
de Asturias, as chairman of Fundación
Argentaria and his current responsibility as
vice-chairman of the Biblioteca Nacional de
España.
Mr. Luzón is a member of the Strategy and
Finance Committees of LATAM Airlines Group.
RUT: 48.171.119-3
FRANCISCO LUZÓN LÓPEZ
Mr. Francisco Luzón López joined the Board
of Directors of LATAM Airlines Group in
September 2012. For the past two years, he
has been an adviser to the Inter-American
Development Bank (IDB) and a visiting leader
at the China Europe International Business
School (CEIBS) in Shanghai (2012-2013). He
is currently an adviser to the European
Stability Mechanism (ESM) (September 2013),
an independent member of the Council of
Administration of Willis Group (June 2013)
and chairman of the Council of the ICADE
Business School. 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. Between 1991 and 1996, he
served as chairman and CEO of Argentaria. In
1987, after 15 years as an executive in different
positions at Grupo Banco de Vizcaya, he
was appointed as
its councilor-director
general and, in 1988, as councilor-director
general of Grupo BBV. During his career, Mr.
Luzón has also served on the councils of
ANNUAL REPORT 201335 CORPORATIVE GOVERNANCE /
SENIOR MANAGMENT
ENRIQUE CUETO
CEO LATAM AIRLINES GROUP
Enrique Cueto Plaza is the Chief Executive
Officer of LATAM Airlines Group and has over
30 years’ experience in the airline industry.
From 1983 to 1993, he served as general
manager of Fast Air Carrier, a Chilean cargo
airline. Subsequently, in 1993 and 1994, he
was a member of the Board of Directors
of LAN Airlines and became its executive
vice-president in August 2012. Following the
merger with TAM, he became CEO of LATAM
Airlines Group S.A., a post he continues to
hold.
Mr. Cueto is an active member of the
Governing Board of the oneworld® alliance
and of the Governing Board and Strategic
Committee of the International Air Transport
Association (IATA). He is also a member of
the boards of the Chilean Manufacturers’
(SOFOFA) and the Endeavor
Association
foundation, an organization that promotes
entrepreneurship in Chile.
RUT: 6.694.239-2
ANNUAL REPORT 201336 IGNACIO CUETO
CEO LAN
MARCO BOLOGNA
CEO TAM
Mr. Ignacio Cueto Plaza is Chief Executive
Officer of LAN, a post he has held since 2005.
He began his career in the airline industry in
1985 at Fast Air where, through to 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 chairman 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 general manager for passengers
at LAN Airlines, a position he held until his
appointment to his present post.
RUT: 7.040.324-2
Since May 2010, Mr. Marco Antonio Bologna
has served as chairman of TAM S.A., the
holding company for TAM Linhas Aéreas,
TAM Airlines
(formerly TAM Mercosur)
headquartered in Asunción, Paraguay, and
Multiplus S.A. He is also a member of the
boards of Suzano Papel and Celulose S.A.
Mr. Bologna joined TAM in March 2001 as
vice-president for finance and administration
and director of investor relations. Three
years later, he became chairman of TAM
Linhas Aéreas. In December 2007, he left
the company and became a consultant to
TAM Empreendimentos e Participações S.A.
From March 2009 to April 2010, he served
as chairman of TAM Aviação Executiva e
Táxi Aéreo S.A. and, from September 2009
to June 2012, as a member of the Council
of Administration of TAM S.A. He was also
chairman of TAM Linhas Aéreas between
March 2012 and May 2013.
His career includes 24 years’ experience in
the financial market. In 1978, Mr. Bologna
graduated as a production engineer from the
Polytechnic School of the University of São
Paulo (USP) and has studied financial services
at the Manchester Business School, England.
ANNUAL REPORT 201337 CLAUDIA SENDER
TAM President
ARMANDO VALDIVIESO
LAN President
Mr. Armando Valdivieso Montes is LAN´s
President, a post to which he was appointed
in 2012, following the integration of the
businesses of LAN and TAM. Since 2006,
he had served as LAN’s general manager
for passengers. From 1997 to 2005, he was
general manager for cargo at LAN Airlines
and, from 1995 to 1997, 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.
RUT: 8.321.934-3
Mrs. Claudia Sender is the President of
TAM Linhas Aéreas S.A. since May 2013. She
joined the company in December 2011 as its
commercial and marketing vice-president. In
June 2012, when the merger of TAM and LAN
was completed with the creation of LATAM
Airlines Group, she took responsibility for the
Brazil Domestic Business Unit with expanded
functions that include customer service.
For much of her career, Mrs. Sender has
worked in the consumer goods sector, with
a focus on marketing and strategic planning.
Before joining TAM, she was vice-president
for marketing at Whirlpool Latin America
where she worked for seven years. She
previously worked as a consultant at Bain
& Company where she developed projects
for large companies in different sectors,
including TAM and other global airlines. She
holds a degree in chemical engineering from
the Polytechnic School of the University of
São Paulo (USP) and an MBA from Harvard
Business School, United States.
ANNUAL REPORT 201338 DAMIAN SCOKIN
Senior Vice President of International
Passenger Operations
LATAM Airlines Group
Mr. Damian Scokin is LATAM Airlines Group’s
International
Senior Vicep-president of
passenger operations. He was previously
general manager of LAN Argentina where
he was responsible for the 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, Peru 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.
RUT: 14.729.102-7
CRISTIAN URETA
Senior Vice-President of Cargo Operations
LATAM Airlines Group
Mr. Cristián Ureta is LATAM Airlines Group’s
Senior Vice-President of Cargo Operations,
a post to which he was appointed in 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.
RUT: 9.488.819-0
ANNUAL REPORT 201339 ROBERTO ALVO
CCO LATAM Airlines Group
JEROME PAUL JAQUES CADIER
CMO LATAM Airlines Group
Mr. Roberto Alvo Milosawlewitsch is LATAM
Airlines Group’s Chief Corporate Officer,
a post he has held since 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 and manager for development
and financial planning and deputy finance
manager 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.
RUT: 8.823.367-0
Jerome Cadier has been LATAM Airlines
Group’s Chief Marketing Officer since March
2013. He had previously worked since 2003
at Whirlpool Home Appliances in Brazil
where he served as national sales manager
and vice-president of marketing. During
this period, he also served for two years as
president of Whirlpool in Australia and New
Zealand. Between 1995 and 2002, Mr. Cadier
was a consultant at McKinsey & Company
in Brazil. He studied industrial engineering
at the Polytechnic School of the University
of São Paulo (1994) and holds a master’s
degree from the Kellogg Graduate School of
Management (1999).
RUT: 24.363.805-4
ANNUAL REPORT 201340 EMILIO DEL REAL
Senior Vice-President of Human Resources
LATAM Airlines Group
ANDRÉS OSORIO
CFO LATAM Airlines Group
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 Chile’s 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 for executive development
for customer management in Latin America
and manager for training and recruitment.
Mr. Andrés Osorio is LATAM Airlines Group’s
Chief Financial Officer, a post to which he was
appointed in August 2013. He holds a degree
in economics and business administration
from the Catholic University of Chile and has
over 20 years’ experience leading the finance
areas of companies such as Cencosud, where
he served for seven years as corporate
finance manager, and Metrogas S.A. and
Pinturas Ceresita S.A. He was also general
manager of Empresas Indumotora and a
partner at PricewaterhouseCoopers.
RUT: 9.908.112-0
RUT 7.035.559-0
ANNUAL REPORT 201341 EJERCICIO 2013
Board Members
Mauricio Rolim Amaro
Maria Claudia Amaro
Francisco Luzón López
Juan José Cueto Plaza
Rámon Eblen Kadis
Gerardo Jofré Miranda
Carlos Heller Solari
José Maria Eyzaguirre Baeza
George de Bourguignon Arndt
Position
Director´s
Remuneration US$
Committe of Directors´
member fee US$
Total
President
Director
Director
Director
Director
Director
Director
Director
Director
US$
58,912
27,850
32,982
35,784
35,767
37,521
19,553
23,483
25,221
US$
-
-
-
-
27,361
25,588
-
-
27,361
US$
58,912
27,850
32,982
35,784
63,128
63,109
19,553
23,483
52,582
ANNUAL REPORT 201342 The term “Directors”, used to report the
remunerations of the Company’s executives,
is used in the sense of these posts or internal
terms and not the legal sense envisaged
in Section IV of Chile’s Law No. 18.046 on
Corporations. The remunerations or fees
of the members of the Company’s Board of
Directors are reported in the corresponding
section of this Annual Report.
In addition, for the purposes of this Annual
Report, all reference to “principal executives”
is understood to be to the internal posts or
levels of Vice-President, General Manager,
Senior Director and Director as set out above.
In 2013, the Company paid its principal
executives (considering the levels of Vice-
Presidents, General Managers,
Senior
Directors and Directors as defined above)
a total of US$26,012,562 plus US$7,394,288
in incentives for performance during 2012,
which were paid in March 2013. As a result,
the Company paid its principal executives
total gross remunerations of US$33,406,850.
For the purposes of
its management
structure, LATAM Airlines Group S.A. uses
names or terms that are standard in local
and, particularly, international companies
and serve to indicate the seniority of the
its
different executives who comprise
administration as well as their respective
salary levels.
In accordance with the above, the internal
terms used in LATAM Airlines Group for the
purposes of seniority, supervision and salary
scales are as follows:
1. Senior Vice-President. Term indicating
the Company’s principal executives.
2. Vice-President. Term indicating senior
executives who report to the Executive
Vice-President, a Senior Vice-President
or a General Manager.
3. Senior Director.
indicating
executives who report to a Senior Vice-
President or a Vice-President.
Term
4.
Director. Term indicating executives
who report to a Senior Vice-President or
a Vice-President.
5. Senior Manager.
indicating
executives who
report to a Vice-
President, a Senior Director or a Director.
Term
6. Manager. Term indicating an executive
who reports to a Senior Director, a
Director or a Senior Manager.
7. Assistant Manager or Coordinator. Term
indicating an executive who reports to a
Senior Manager or a Manager.
ANNUAL REPORT 201343 COMPENSATION PLANS
At the Extraordinary Shareholders’ Meeting
held on 21 December 2011, the Company’s
shareholders approved
issue of
4,800,000 shares for compensation plans
for the employees of the Company and its
subsidiaries (the “2011Compensation Plan”).
the
The principal conditions of
Compensation Plan are as follows:
the 2011
1. 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.
2. 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.
3. The period in which employees may
exercise the options, once accrued, will
expire on 21 December 2016.
4. The price to be paid for each share
allocated to the Compensation Plan, if
the respective options are exercised,
will be US$17.22. As from the date of its
setting, 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 Dólar Observado (Observed Dollar)
published in the Diario Oficial (Official
Gazette) at the same date on which they
are subscribed and paid.
As of 31 December 2013, a total of 4,497,000
shares from the 2011 Compensation Plan
had been assigned to company employees,
corresponding almost exclusively to senior
executives in the corporate posts indicated
above. There remained, therefore, a balance
of 303,000 shares that had not been allocated.
To date, none of the options has accrued or
been exercised in line with point 1 above.
At the Extraordinary Shareholders’ Meeting
which took place on 11 June 2013, the
Company’s shareholders approved, among
other decisions, the issue of 1,500,000 shares
for compensation plans for the employees of
the Company and its subsidiaries (the “2013
Compensation Plan”).
The 2013 Compensation Plan has the
following general characteristics:
1. The options assigned to each employee
will all accrue on 15 November 2017,
subject to the employee remaining with
the Company.
2. Once the options have accrued at the
date indicated, employees may exercise
in which
them totally or partially
case they must subscribe and pay the
respective options at the moment of
subscribing them in cash or by check,
bank check, electronic transfer or any
ANNUAL REPORT 201344 other instrument representing money
payable on sight. If exercised partially,
this may not be for less than 10% of the
total options allocated to the employee.
3. The period in which employees may
exercise the options, once accrued as
indicated in point 3 above, will expire
on 11 June 2018. If the employee has
not exercised or waived the options by
this date, it will be understood for all
purposes that the employee has waived
the options and that, as a result, all
right, power, promise or offer related to
subscription of the Company’s shares
has ceased to exist and the employee
has irrevocably renounced all right or
power in relation to the shares, freeing
the Company from any obligation.
4. The price to be paid for each share
allocated to the 2013 Compensation
Plan,
if the respective options are
exercised, will be US$16.40. As from the
first day of the preferential option period
through to the date of subscription
and payment of the shares, 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. The options will
be paid in Chilean pesos at the exchange
rate for the Dólar Observado (Observed
Dollar) published in the Diario Oficial
(Official Gazette) at the same date on
which they are subscribed and paid.
A date for implementation of the 2013
Compensation Plan has yet to be set and
no shares corresponding to the Plan have,
therefore, so far been allocated.
ANNUAL REPORT 201345 CORPORATIVE 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
the Valparaíso
and
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).
Exchange
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 their 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 the issue
of 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 the
issue of 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 the Company’s
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.
ANNUAL REPORT 201346 STRUCTURE
BOARD OF DIRECTORS OF
LATAM AIRLINES GROUP
As of 31 de December 2013, LATAM Airlines
Group had a total of 1,588 registered
shareholders. The Company is controlled
by the Cueto group, represented by Costa
Verde Aeronáutica S.A., Inversiones Nueva
Costa Verde Aeronáutica Ltda., Costa Verde
Aeronáutica SpA, Inversiones Priesca Dos
y Cía. Ltda., Inversiones Caravia Dos y Cía.
Ltda., Inversiones El Fano Dos y Cía. Ltda.,
Inversiones La Espasa Dos S.A., Inversiones
Puerto Claro Dos Limitada and Inversiones
Mineras del Cantábrico S.A. As of end-2013,
these companies together held a 25.99%
stake while the remainder corresponded to
different institutional investors, companies
and individuals. As of 31 December 2012,
7.91% of the Company was held in the form of
ADRs and 0.73% 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.
LATAM Airlines Group’s Board of Directors
has nine members and
the body
for analyzing and defining
responsible
the Company’s strategic vision, thereby
playing a fundamental role in its corporate
governance.
is
All the Board seats come up for election
every two years and, under LATAM Airlines
Group’s statutes, directors are elected
through cumulative voting. 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.
and
LATAM Airlines Group’s Board holds ordinary
monthly meetings
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
its functions and powers
monthly and
are those established by the applicable
legislation and regulation.
ANNUAL REPORT 201347 DIRECTORS’ COMMITTEE OF LATAM
AIRLINES GROUP
law,
listed
Under Chilean
joint stock
least one
companies must appoint at
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. 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. These include:
•
•
•
•
•
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 to express 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 credit 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.
for
(Nº 18.046) and
directors’
requirements
The
in Chile’s
independence are set out
Corporations Law
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 principal
executives or a family relationship with
the latter or 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.
As of 31 December 2013, all the members of the
Directors’ Committee, who also act as part
of the Audit Committee, were independent
directors as 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.
ANNUAL REPORT 201348 ANNUAL REPORT OF THE DIRECTORS’
COMMITTEE
In accordance with Article 50 bis of Law
Nº 18.046, the matters examined by the
Directors’ Committee during 2013 are set out
below.
»
1. Ordinary Session N°130 29/1/13:
System of remunerations and
compensation plan for LAN executives
LATAM compliance plan
Approval of fees of PWC
»
»
2. Extraordinary Session N°17 19/3/13:
»
»
Review of Financial Statements at 31
December 2012
Approval of fees of PWC
3. Ordinary Session N°131 26/3/13:
»
»
»
Annual report on the Committee’s
activities
Proposal for external auditors and pri-
vate credit rating agencies for 2013
Closure of 2012 audit plan and 2013 plan
4. Ordinary Session N°132 30/4/13:
»
»
»
Presentation of Financial Statements
to SEC (20F)
Closure of 2012 audit plan and 2013 plan
Approval of fees of PWC
»
Presentation by PWC on adjustments
to the figures of TAM’s Financial Sta-
tements in order to close the calcula-
tion of goodwill for the merger of the
businesses of LAN and TAM
9. Extraordinary Session N°19 6/8/13:
»
Advance of work on determining ad-
justments to the figures of TAM’s Fi-
nancial Statements in order to close
the calculation of goodwill for the mer-
ger of the businesses of LAN and TAM
10. Extraordinary Session N°20 12/8/13:
»
Advance of work on determining
adjustments to the figures of TAM’s
Financial Statements in order to close
the calculation of goodwill for the
merger of the businesses of LAN and TAM
11. Extraordinary Session N°21 20/8/13
»
Review of Financial Statements at 30
June 2013
12. Ordinary Session N°136 27/8/13
»
Communications
the
Company about goodwill since the
date of the merger
issued by
5. Extraordinary Session N°18 14/5/13:
13. Ordinary Session N°137 27/9/13
»
Review of Financial Statements at 31
March 2013
6. Ordinary Session N°133 28/5/13:
»
»
»
TAM capital increase
Closure of 2012 audit plan and 2013 plan
Other business
7. Ordinary Session N°134 25/6/13:
»
Preliminary closure of calculation of
goodwill for LATAM transaction
8. Ordinary Session N°135 30/7/13:
»
»
»
»
registration
information
Request for information presented by
the Committee to the administration
in Ordinary Session N°136
about
Additional
of
accounting
the
the adjustments
in the
calculation of goodwill related to the
merger of LAN and TAM
Reserved memo N°640 and ordinary
memo N°20377 of the Superintendencia
de Valores y Seguros (SVS)
Approval of fees of PWC
identified
14. Extraordinary Session N°22 8/10/13
ANNUAL REPORT 201349 »
approval
of
Review
and
complementary
information to be
filed with the Superintendencia de
Valores y Seguros (SVS) in relation to
the Company’s Financial Statements
at 30 June 2013
15. Ordinary Session N°138 29/10/13:
»
»
»
Agreement on price and conditions
of compensation plan for employees
of the Company and its subsidiaries
Extraordinary
approved
21
of
Shareholders’ Meetings
December 2011 and 11 June 2013
2013 Audit Plan
Other business
by
16. Extraordinary Session N°23 11/11/13
»
Review of Financial Statements at 30
September 2013
17. Ordinary Session N°139 26/11/13
2013 External Audit Plan (PWC)
Review of compensation plans and
others
»
»
18. Extraordinary Session N°24 17/12/13
»
Advance of audit plan
19. Ordinary Session N°140 18/12/13
»
Analysis of impairment issue or, in
other words, adjustment of value of
certain long-term assets.
SUBCOMMITTEES OF THE BOARD OF
DIRECTORS OF LATAM AIRLINES GROUP
four
following
subcommittees
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
to
review, discuss and make recommendations
to the Board about the issues related to
their respective areas of responsibility:
(i) Strategy Subcommittee, (ii) Leadership
Subcommittee, (iii) 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.
The Strategy Subcommittee will focus on
corporate strategy, current strategic affairs
and the three-year plans and budgets of
the main business units and functional
areas and high-level review strategies. The
Leadership Subcommittee will focus on
areas that include group culture, high-level
organizational
appointment
structure,
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, the succession 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,
ANNUAL REPORT 201350 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.
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.
LATAM Airlines Group has carried out different
transactions with its subsidiaries, 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 and 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 2013.
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 policy on habitual operations 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 policy
on habitual operations 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 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 the Company’s principal
executives 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.
ANNUAL REPORT 201351 market-sensitive
mechanisms for continuous disclosure
of
information
and mechanisms for the protection
of confidential
information by the
Company’s employees and executives.
4. Compliance Program. Managed by
LATAM’s Compliance Area, which forms
part of
the Legal Vice-Presidency,
in coordination with and under the
supervision of the Board of Directors and
its Directors’ Committee, this Program
supervises compliance with the laws and
regulation applicable to LATAM Airlines
Group’s businesses and activities in the
different countries in which it operates.
PILLARS OF LATAM AIRLINES GROUP’S
CORPORATE GOVERNANCE
Notwithstanding the
responsibilities of
the Company’s Board of Directors and
its Directors’ Committee, LATAM Airlines
Group’s administration 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. These 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 (www.lan.ethicspoint.
com) and TAM
(www.eticatam.com.
br). These facilities provide employees
with a direct and private online channel
through which to report any concerns
in the knowledge that these will be
properly processed or
investigated
without any risk of reprisal against the
person reporting them.
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 Superintendencia de Valores
y Seguros and, since Law Nº 20.382
on Corporate Governance came into
force, also by Chilean securities market
LATAM Airlines Group,
legislation.
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,
ANNUAL REPORT 201352 CORPORATE GOVERNANCE PRACTICES
In its Session N°378, held on 25 June 2013, the
Board of Directors of LATAM Airlines Group
approved the Report on the Company’s
Corporate Practices, prepared in accordance
with General Norm N° 341 issued by the
Superintendencia de Valores y Seguros
(SVS) on 29 November 2012. The information
required under this norm is as of December 31
of each year and must be presented by March
31 of the subsequent year. Notwithstanding
this, the first report under this norm had to
be presented by 30 June 2013 and refer to the
practices in force as of 31 March 2013.
The information filed annually with the SVS
must refer to the following matters:
•
•
•
•
The functioning of the Board of Directors;
The relation between the Company, its
shareholders and the general public;
The replacement and remuneration of
the Company’s principal executives;
The definition,
implementation and
supervision of the Company’s internal
control policies and procedures and risk
management.
ANNUAL REPORT 201353 CORPORATIVE GOVERNANCE /
OWNERSHIP STRUCTURE AND PRINCIPAL SHAREHOLDERS
31 December, 2013
Shareholder
COSTA VERDE AERONAUTICA S.A.
TEP CHILE S.A.
J P MORGAN CHASE BANK
INVERSIONES NUEVA COSTA VERDE AERONAUTICA LTDA
BANCO DE CHILE ON BEHALF OF NON-RESIDENT THIRD PARTIES
COSTA VERDE AERONAUTICA SPA
AXXION S.A.
INVERSIONES ANDES SPA
INVERSIONES HS SPA
BANCO ITAÚ ON BEHALF OF INVESTORS
BANCO SANTANDER ON BEHALF OF FOREIGN INVESTORS
AFP PROVIDA S.A. TYPE C FUND
31 December, 2012
Shareholder
COSTA VERDE AERONAUTICA S.A.
TEP CHILE S.A.
J P MORGAN CHASE BANK
LARRAIN VIAL S.A. CORREDORA DE BOLSA
COSTA VERDE AERONAUTICA SPA
AXXION S.A.
INVERSIONES ANDES SPA
AXXDOS S A
N° of shares as of 31/12/2013
% of total
86,386,914
65,554,075
42,318,030
22,314,277
20,134,096
20,000,000
18,473,333
16,120,777
15,028,024
14,554,107
10,050,999
7,974,373
16.1%
12.2%
7.9%
4.2%
3.8%
3.7%
3.5%
3.0%
2.8%
2.7%
1.9%
1.5%
N° of shares as of 31/12/2012
% of total
80,445,407
65,554,075
29,516,208
22,071,446
20,000,000
16,994,337
14,288,695
13,551,636
16.8%
13.7%
6.2%
4.6%
4.2%
3.6%
3.0%
2.8%
2.7%
2.4%
2.3%
2.2%
INVERSIONES NUEVA COSTA VERDE AERONAUTICA LTDA
12,824,095
BANCO DE CHILE ON BEHALF OF NON-RESIDENT THIRD PARTIES
11,329,732
BANCO ITAÚ ON BEHALF OF INVESTORS
BANCHILE CORREDORES DE BOLSA S.A.
10,989,090
10,314,524
ANNUAL REPORT 201354 PRINCIPAL CONTROLLING GROUPS
31 December, 2013
31 December, 2012
ANNUAL REPORT 201355 DIVIDENDS
The Company’s policy is to pay the minimum
dividends required by law or, in other
words, 30% of profits 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 for 2011 corresponded to 50%
of that year’s distributable profits while
those for 2012 corresponded to 30% of that
year’s distributable profits.
Distributable profits in 2011, 2012 and 2013
for the payment of dividends corresponded
to the annual earnings attributable to
holders of a stake in the controller’s net
equity, calculated as the net profit reported
in accordance with international financial
reporting standards.
The table below shows the dividend per
share paid during the past three years.
Year of profits
against which
dividend paid
Payment date
Typo
Total dividend
paid
N° of shares
Dividend per
share
Dividendo
por ADR
15 September 2011
Provisional
56,590,766
339,334,209
2011
12 January 2012
Provisional
85,000,207
340,164,105
17 May 2012
Definitive
18,461,735
340,999,909
0.16677
0.24988
0.05414
0.16677
0.24988
0.05414
2012
17 May 2013
Definitive
3,288,127
483,547,819
0.0068
0.00680
2013
No dividends distributed
ANNUAL REPORT 201356 CORPORATIVE 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
conditions external to the 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 members of
the Board of Directors, meets periodically to
review and approve matters not regulated
by the Financial Policy.
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
the growth of
proportionate
to
•
•
•
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 Financial Investment
Policy.
Reduce the impact on the Company’s net
margin of market risks such as variations
in the price of fuel, exchange rates and
interest rates.
Reduce
diversification
investments
counterparties.
counterparty
risk
through
on
and operations with
caps
and
of
• 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, a deterioration of the financial
ratios established in undertakings with
ratings agencies, etc.
ANNUAL REPORT 201357 The Company’s Financial Policy establishes
guidelines and restrictions for managing
operations related to Liquidity and Financial
Investment,
and
Management of Market Risk.
Financing
Activities
decisions so as to optimize return adjusted
for exchange-rate risk, subject to maintaining
an adequate level of security and liquidity. In
addition, it seeks to manage risk through the
diversification of counterparties, maturities,
currencies and instruments.
LIQUIDITY AND FINANCIAL INVESTMENT
POLICY
FINANCING POLICY
In 2013, LATAM Airlines Group carried out
capital market operations for some US$1,390
million in order to increase its liquidity and,
as of end-December, had a liquidity ratio
of approximately 19% of total sales. These
operations included a capital increase of
approximately US$784 million and the issue
of a bond for US$450 million securitized with
future receivables for credit card sales in the
United States and Canada by its passenger
and cargo businesses. In January 2014, the
Company also raised an additional US$156
million through the sale of the remnant
shares from the capital increase which took
place in December 2013.
The Company maintained an adequate level
of liquidity for protection against potential
external shocks and the industry’s inherently
cyclical nature.
In addition, it maintained lines of credit
for a total of US$185 million with local and
overseas financial institutions which, as of
year-end, it had not used. During the year, it
continued to finance 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 2013,
LATAM Airlines Group held a total of US$2,561
in cash and easily convertible
million
securities and US$539 million in advances on
aircraft financed out of its own resources.
the Company’s Financial
The aim of
Investment Policy is to centralize investment
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. As an additional financing
measure, an important percentage of the
Company’s fleet acquisition undertakings
take the
leasing
arrangements.
form of operational
In the case of short-term financing, the
Company held around 9% of its total debt
as of 31 December 2013 in the form of loans
to exporters/importers in order to finance
working capital needs.
A further objective of the Financing Policy
is to ensure a stable profile of debt maturity
and rental commitments, including debt
service and fleet rental payments, that is
consistent with the Company’s operating
flows.
ANNUAL REPORT 201358 MARKET RISK POLICY
Due to the nature of its operations, LATAM
Airlines Group 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 or partially against
these risks, the Company uses different
derivatives to fix or cap increases in the
underlying assets. Market Risk is managed in
an integrated manner and takes into account
the correlation between each exposure.
In order to operate with counterparties, the
Company must have a line approved and an
ISDA or LFC contract signed with the chosen
counterparty. Counterparties must have a
credit 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. The hedging indices used by LATAM
Airlines Group are principally Brent crude
(BRENT) and the US Gulf Coast Jet 54.
The Company’s Fuel Hedging Policy restricts
the minimum and maximum range of fuel
to be hedged depending on its capacity
to pass on changes in these costs and the
market outlook as reflected in the fuel price.
In addition, the Policy 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.
ii. Interest-rate risk of cash flow
improvement
Variations in interest rates bear a strong
international economic
relation to the
situation, with an
in the
long-term outlook leading to 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 floating-rate debt
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.
In order to reduce the risk related to an
increase in interest rates, LATAM Airlines
Group has acquired interest-rate swaps and
call options.
The instruments that may be used under
its Interest-Rate Hedging Policy are swaps,
reverse swaps, call options and forward-
start swaps.
ANNUAL REPORT 201359 iii. Local exchange-rate risk
The US dollar is the functional currency
used by the parent company for the prices
of
its
its services, the composition of
classified financial situation and effects on
its operating results. There are two types
of exchange-rate risk: flow risk and balance
sheet risk.
Flow risk arises as a result of the net position
of revenues and costs in currencies other
than the US dollar. The Company sells
most of its services in US dollars, in prices
equivalent to the US dollar or in Brazilian
reais. Approximately 57% of its revenues are
denominated in US dollars and approximately
30% in Brazilian reais. A large part of its costs
are denominated in US dollars or equivalents
to the US dollar. This is the case, particularly,
of fuel costs, airport charges, aircraft rentals,
insurance and aircraft components and
accessories. Remunerations, on the other
hand, are denominated in local currencies.
As a result, some 67% of the Company’s total
costs are denominated in US dollars and
approximately 24% in Brazilian reais.
The tariffs of LATAM Airlines Group’s cargo
and
international passenger businesses
are set in US dollars while, in its domestic
businesses, a mix exists. In Peru, 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 and the euro.
LATAM Airlines Group has partially hedged
against exchange-rate risk by acquiring
currency forwards. As of 31 December 2013,
hedging for the Brazilian real for the period
January-December 2014 reached US$500
million.
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.
rates because
Balance sheet risk occurs when
items
included there are exposed to variations
in exchange
they are
denominated in a currency other than the
functional currency. The main mismatch is
in TAM S.A. whose functional currency is
the Brazilian real while a large part of its
liabilities are denominated in US dollars.
In 2013, in order to reduce the impact of
the
appreciations or depreciations of
real against the US dollar on its results,
the Company carried out transactions
that reduced the net dollar-denominated
liabilities of TAM S.A. These operations
included loans between companies in the
group, a reduction of its short-term debt in
US dollars and a reduction in debt related to
the fleet.
The Company’s aim is to continue with
these transactions in order to achieve the
maximum possible reduction in balance
sheet exposure in 2014.
ANNUAL REPORT 201360 OPERATIONS
LATAM AIRLINES GROUP S.A
04
ANNUAL REPORT 201361 OPERATIONS /
INTERNATIONAL PASSENGER OPERATIONS
PASSENGERS
Airlines Group’s
LATAM
international
passenger operations include both long-haul
flights connecting South America with the
rest of the world and services within the
region and the Caribbean. The year 2013
marked a key milestone in the merger of LAN
and TAM since this was the first complete year
in which the two airlines’ operations were
managed in an integrated manner by LATAM
Airlines Group, enabling it to offer customers
a better product and, by increasing the
connections available through a single
network, broaden the scope of its transport
of passengers.
As a result, the Company offered a total of 24
international destinations served by a joint
fleet of 102 aircraft. It carried 12.8 million
passengers on international routes, of which
5.3 million corresponded to long-haul routes
and 7.5 million to regional routes, allowing
the Company to maintain a position of
leadership on its principal routes.
from
performed
During the year, there was an increase in
competition
international airlines
offering flights to South America while
European markets
below
expectations. In response, LATAM Airlines
Group implemented a strategy that, through
detailed management of routes and, in some
cases, a rationalization of capacity, focused
on profitability. This strategy explained, for
example, the consolidation of São Paulo’s
Guarulhos International Airport as a new
hub for regional and long-haul flights in
South America. This permitted a reduction of
flights from Rio de Janeiro to Europe and the
United States.
in
traffic
Consolidated passenger
the
Company’s international markets grew by
2.4% on the previous year while capacity
increased by 2.3%. As a result, the load factor
reached a solid 82.3%, up by 0.1 percentage
points on 2012.
ANNUAL REPORT 201362 former,
In the
the case of
long-haul passenger
In
operations, North America and Europe are
LATAM Airlines Group’s two most important
it serves six
markets.
destinations: Mexico City, Miami, Orlando,
New York, Los Angeles and San Francisco.
It is the second largest passenger operator
between South America and the United
States, carrying 3.3 million passengers to and
from this country in 2013.
In the case of Europe, complementarity
between the routes previously operated
separately by LAN and TAM means that
LATAM Airlines Group can now serve five
cities: Madrid, Frankfurt, Paris, London and
Milan. In addition, the Company has services
to Oceania, with routes to Auckland and
Sydney.
In 2013, LAN successfully
incorporated
its first Boeing 787 on some strategic
international routes such as Santiago-Madrid
and Santiago-New York. TAM also made
changes in its fleet, partially grounding its
ten oldest and least efficient Airbus A-330s
and replacing part of this capacity with six
Boeing 767s that previously formed part
of LAN’s fleet. This resulted in important
efficiency gains and, through the inclusion of
a business class with full-flat seats, allowed
TAM to offer a better product to corporate
customers.
On routes between the United States
and Latin America, LATAM Airlines Group
accounts for 26% of total capacity, after
American Airlines with 36% and followed by
United Airlines and Delta Air Lines with 13%
and 12%, respectively. In the case of routes
to Europe, LATAM Airlines Group accounts
for 13% of total capacity and its main
competitors are Air France-KLM and IAG,
each with 22%.
An important milestone for the Company’s
international passenger business was the
code sharing agreement signed by TAM and
American Airlines in August 2013, which
has allowed the Company to offer greater
connectivity to its passengers within the
United States from Miami, Orlando and New
York, initially to 37 destinations that include
Las Vegas, Chicago and Boston. Similarly,
customers of American Airlines can now
travel to 17 cities in Brazil on flights operated
by TAM from São Paulo and Rio de Janeiro.
As well as the increase in connectivity, the
agreement between TAM and American
Airlines also allows the customers of each
airline to participate in the other’s loyalty
program, making use of this network even
more attractive.
In August 2013, LAN Colombia also
loyalty
implemented code sharing and
program agreements with American Airlines.
These were the first such agreements entered
into by the Colombian subsidiary with
another airline. This has permitted the sale
of code-sharing flights from Colombian cities
such as Cali, Barranquilla and Cartagena via
Bogotá to 12 destinations in North America
such as Atlanta, Boston and Orlando via
Miami.
ANNUAL REPORT 201363
to
in order
At the organizational level, the merger
process implied the adoption of a number
of measures and best revenue management
practices in the Company’s international
business area
capture
synergies. These measures included the
homogenization of LAN’s and TAM’s fares and
the implementation of a cross-selling system
for their flights as well as the establishment
of code sharing on a number of routes. In
addition, their international commercial and
airport offices were integrated and common
policies were defined in this area in order to
capture the merger’s benefits in the different
markets.
Although the two airlines maintain their
respective loyalty programs, work began
in 2013 on their harmonization. The two
airlines also standardized their
in-flight
entertainment systems
- available on
long-haul flights - increasing the number
of films from 45 to 110 and consolidating
the group’s position in South America as
the airline offering the broadest range of
in-flight entertainment.
These new agreements extend the historic
relation between the LATAM group and
American Airlines to operations
in the
Colombian and Brazilian markets, giving an
important boost to its operations between
Latin America and the United States.
In October 2013, LAN Colombia joined the
oneworld global alliance, fostering the
transport of the alliance’s members to and
from the Colombian market and bringing all
the LAN group into the alliance. TAM remains
a member of Star Alliance but has announced
that it will join oneworld as from 1 April 2014,
thereby consolidating the participation of
LATAM Airlines Group in the alliance.
In the regional business, it’s the broad
the
network of destinations allowed
Company to consolidate its positions as
the leading airline in south America, LATAM
Airlines Group achieved a 52% market share,
where its main competitors are Avianca-Taca,
Aerolíneas Argentinas and GOL, achieved
a 22%, 10% and 8%, respectively. For this
operations the company used a fleet of
aircraft from the Airbus 320 and Boeing 767
families.
In 2013, the Company also expanded its
presence in the Caribbean, inaugurating
the Bogotá-Aruba route, operated by LAN
Colombia with two nighttime flights a week
that seek to leverage a tourist destination
that attracts one million visitors a year. At the
end of 2013, the Company also announced the
opening of a new route between Argentina
and Brazil, starting on 2 January 2014, to
connect the cities of Rosario and São Paulo,
with daily non-stop flights operated by TAM.
ANNUAL REPORT 201364 OPERATIONS /
BRAZIL
is
far
South
by
domestic
America’s
Brazil
largest
passenger market
and the third largest in the world. In
2013, a total of 90 million passengers
the country.
flew on
routes within
routes, maintaining
In 2013, TAM carried 32 million passengers
its
on domestic
position as the leading operator with a 40%
market share.
Its principal competitors
are GOL, Azul and Avianca, with market
shares of 35%, 13% and 7%, respectively.
TAM served 40 destinations within Brazil,
using a fleet of 173 aircraft, mostly from the
Airbus A320 family and including the first
ten Airbus A321s it has incorporated and
which have allowed it to cover high-density
routes such as São Paulo-Fortaleza and São
Paulo-Recife more efficiently.
In 2013, the domestic passenger operation
in Brazil faced a difficult context, due
principally to the weak performance of the
country’s economy - with GDP growth of just
2.3% - which was reflected in a reduction of
demand in the corporate passenger segment.
In addition,
the marked depreciation
of the Brazilian real, which reached in
average 10,4%, exerted pressure on costs
denominated in dollars while the market
continued to be characterized by the excess
capacity that, in recent years, has affected
the returns of the airline industry as a whole.
this
complex
situation,
Despite
TAM
achieved significant improvements in its
operation. In this, a decisive role was played
by the discipline with which it continued
to implement the plan for restructuring
its domestic business which it launched in
ANNUAL REPORT 201365 2012 in a bid to achieve changes that will be
sustainable in the long term and, in this way,
to lay the foundations for profitable growth.
One of the pillars of the strategy applied
by the Company in this market is supply
adjustment. A 1.1% reduction of capacity in
2012 was followed by a further 8.4% reduction
in 2013. This has resulted in an increase in
unit income, thanks to a higher load factor
and a higher yield, both of which showed a
sustained improvement over the course of
the year. In 2013, revenues per ASK (RASK)
showed a significant increase, mostly driven
by a load factor that, at 79.7%, was up by 6.1
percentage points on 2012 and reached levels
that TAM had not achieved for over five years.
addition,
the Company
In
achieved
ongoing progress in the implementation
of best revenue management and market
segmentation practices through a complete
overhaul of its fare structure, a measure that,
in 2013, allowed it to maintain its leadership
segment.
corporate passenger
in
the
In the case of costs, a number of initiatives
were implemented in a quest for efficiency
gains. These included the incorporation of
ten A321s which reduce the cost per ASK
by 6%. For operational reasons and in line
with the Company’s capacity adjustment,
there was also a reduction in personnel.
Looking to the future, TAM will continue
to deepen the structural changes that
are beginning to become apparent
in
the Brazilian domestic market, which
represents around a third of the total
capacity of LATAM Airlines Group and
around 30% of its revenues and is, therefore,
one of its most important businesses.
ANNUAL REPORT 201366 OPERATIONS /
CHILE
In 2013, the Chilean domestic market was
characterized by
important growth of
demand to which LAN successfully responded
with an expansion strategy based on the
consolidation of existing destinations.
In 2013, LAN carried close to 7 million
passengers within Chile, up by 11% on 2012.
Its domestic traffic in Chile has more than
doubled in six years since it launched its “the
new way to fly” model in order to boost and
contribute to the development of air travel
in the country by stimulating demand and
allowing people who had never flown before
to access this means of transport.
LAN serves 16 domestic destinations
-
covering the country from north to south
- and, in 2013, used a fleet from the Airbus
A320, A319 and A318 families. The last Airbus
A318s were taken out of service in 2013 and
replaced with Airbus A319s, which are more
efficient to operate in smaller airports.
In 2013, the growth of LAN’s domestic traffic
was driven by routes to the mining north of
the country and, particularly, the cities of
Calama, Antofagasta and Copiapó. In July,
over 100,000 passengers flew the Santiago-
Antofagasta route, setting a new record for
domestic routes.
MILLION
PASSENGERS
% MARKET SHARES
LAN
SKY AIRLINES
PAL AIRLINES
OTROS1
77%
19%
3%
%
AIRCRAFT
DOMESTIC
DESTINATIONS
ANNUAL REPORT 201367 However, the south of Chile also contributed
to LAN’s growth, with the 438,270 passengers
who flew the Punta Arenas route representing
an increase of 13% on the previous year.
Consolidation of the Company’s service
to Chiloé via Puerto Montt continued,
improving the quality of life of some 60,000
people by allowing them to reduce journey
times and connecting them with the rest of
the world as well as boosting the island as
one of Chile’s leading tourist attractions.
LAN achieved a 77% share of the domestic
market measured in RPK (excluding Easter
Island). Its principal competitors are Sky
Airline and Principal Airlines (PAL), with
market shares of 19% and 3%, respectively.
LAN’s consolidated passenger traffic (RPK)
rose by 12% as compared to the previous
year while its capacity (ASK) increased by
14.1%, giving a load factor of 80%.
ANNUAL REPORT 201368 OPERATIONS /
PERU
Peru is South America’s fastest growing
economy and, although its expansion in
2013 was below expectations, the domestic
airline market remained very dynamic and,
at 14.8%, the increase in the number of
passengers transported was among the
highest in the region. In the case of LAN
Perú, this was reflected in the close to 5.3
million people carried on domestic routes
which represented an increase of 17% on the
previous year.
Its consolidated passenger traffic (RPK) was
up by 16.3% on 2012 while capacity (ASK)
increased by 16.4%, giving a load factor that,
at a solid 80.6%, was similar to its level in
2012.
In 2013, the Company served 14 domestic
destinations and, transported 69% of the
passengers. Due to increased competition,
this represented a drop on the previous
year but LAN Perú nonetheless maintained
its position as the leading airline in the
Peruvian market. On domestic routes, its
main competitors are Avianca, Peruvian
Airlines, Star Perú and LC Perú but LAN Perú
stands out as offering the greatest variety
of destinations, frequencies and services for
domestic and international travelers.
START OF OPERATIONS
LAN PERÚ 1999
MILLION
PASSENGERS
MARKET SHARES
LAN PERÚ
PERUVIAN AIRLINES
STAR PERÚ
AVIANCA - TACA
OTROS4
63%
11%
8%
14%
%
AIRCRAFT
DOMESTIC
DESTINATIONS
ANNUAL REPORT 201369 The Company, for example, increased the
number of daily flights it offers from Lima
to destinations such as Piura, Chiclayo and
Iquitos. In addition, it launched a direct flight
on the Cusco-Arequipa route and on the route
to Puerto Maldonado, thereby facilitating the
country’s integration. In September, it also
extended the times at which it offers flights
to Cusco, taking advantage of a modern
satellite navigation system which allows
it to operate with complete safety outside
daylight hours, and is, in fact, the only airline
with this capability. In a further measure
to boost domestic passenger traffic, the
Company introduced more economic fares
for inter-regional routes with a stopover
in Lima. The results have been more than
encouraging, with traffic quadrupling on
some of these routes.
At the beginning of the year, LAN Perú
operated a fleet of 14 Airbus A319s but,
during the year, took one of these aircraft
out of service and incorporated three Airbus
A320s, the first of which arrived in August.
These aircraft are equipped with sharklets,
an advanced-technology device installed on
their wings which improves takeoff capacity,
increases fuel consumption efficiency and
reduces CO2 emissions by around 4% as well
as the noise footprint. Thanks to this alone,
LAN Perú expects to avoid annual emissions
of some 1,000 tonnes CO2 per aircraft.
In 2013, LAN Perú also continued to improve
its infrastructure. In August, it added a
Boeing 767 flight simulator to its modern
(CIT), which
Technical Training Center
installations and
latest-generation
has
ANNUAL REPORT 201370
equipment for the training of Peruvian pilots
and crew. In addition, as part of its Plan of
Coverage of Face-to-Face Sales Points, it
installed 18 kiosks, three islands and two
new sales offices around the country.
line with
its objective of offering
In
customers a better service, LAN Perú
implemented a change of
successfully
International
Jorge Chávez
in the
hub
Airport. This will allow
it to generate
competitive advantages that facilitate the
operation’s future growth, resolving current
infrastructure limitations, positioning the
operation in a timetable that is ideal for the
Company and improving the connectivity
of all the flights it operates. In addition, the
Company implemented the Lean philosophy
of work, geared to the simplification and
improvement of processes at the airport and
the achievement of operational efficiencies.
In 2013, LAN Perú was recognized as one of
the country’s ten preferred employers in
a ranking prepared by Arellano Marketing
and Laborum, companies which specialize
in labor issues. It also became the first
airline in Peru and the only one in South
America to obtain the Socially Responsible
Company
international
recognition awarded to companies that
make a voluntary and public commitment
to socially responsible management as
part of their culture and business strategy.
(ESR) seal, an
ANNUAL REPORT 201371 OPERATIONS /
COLOMBIA
Just two years after its start of operations as
LAN Colombia, this Company has gradually
consolidated a position as a very attractive
alternative for corporate travelers and
tourists in a market characterized by intense
and growing competition. This was possible
thanks to the adoption of different measures
designed to achieve brand recognition
and customer loyalty in a process that was
further deepened in 2013.
LAN Colombia is the result of the acquisition
in December 2010 of the local Aires airline. Its
deteriorated situation called for a complete
restructuring in order to bring it into line
with LAN’s safety, punctuality, efficiency and
service quality standards. This was achieved
in record time and culminated successfully
at the end of 2011 with the change of brand.
The Company has since gone on to show
a sustained expansion and increase in its
coverage of routes within the country. With a
network that, as of December 2013, included
20 domestic destinations, positioning it as
one of the operators offering the greatest
coverage, LAN Colombia transported over
4.2 million passengers on domestic flights
in 2013, up by 15% on the previous year. This
gave it a 18% market share, positioning it
as the second largest airline after Avianca.
Other competitors in the domestic market
are Copa, Viva Colombia, EasyFly and Satena.
START OF OPERATIONS
LAN COLOMBIA 2011
MILLION
PASSENGERS
% MARKET SHARES
LAN COLOMBIA
AVIANCA
VIVA COLOMBIA
COPA
OTROS6
18%
58%
9%
9%
%
AIRCRAFT
DOMESTIC
DESTINATIONS
ANNUAL REPORT 201372 In this context, the Company launched a
new route between Cali and San Andrés in
the second half of the year and increased
the number of flights per day on the
Bucaramanga and Barranquilla
routes
from four to five and from six to seven,
respectively. New flights were also added on
its routes from Bogotá to Ibagué, Puerto Asís
and Neiva and from Medellín’s Enrique Olaya
Herrera Airport to Montería and Pereira.
In 2013, the Company made further progress
with a fleet renewal plan that forms part of
a strategy to increase returns. This process,
which began in 2012, entails the gradual
withdrawal from service of the Boeing 737-
700s and Bombardier Dash aircraft that it
inherited from Aires and their replacement
by more modern and efficient models such
as those of the Airbus A320 family. This
process will be completed in 2014 and will
mean cost efficiencies for LAN Colombia.
As of December 2013, LAN Colombia was
using seven aircraft from the Airbus A320
family, four Boeing 737s and eight Dash8-
200s to serve its domestic markets. In 2014, it
is scheduled to receive four new Airbus A320s
which will allow it to continue expanding
the operation and the number of flights it
offers.
At the beginning of March, the Company
completed
its recertification under the
IATA Operational Safety Audit (IOSA) system
(equivalent to quality certification in other
industries). As part of this process, all areas
of the operation - some 1,200 processes -
were audited without any non-conformance
being detected.
At the end of the year, LAN Colombia
inaugurated a VIP Lounge at Bogotá’s El
Dorado airport. With the highest standards
of comfort and gastronomy, it is a further
tangible incentive for customer loyalty. In
an international ranking prepared by the VIP
design magazine, it was identified as one of
the world’s ten best VIP lounges.
(RPK) rose by 10%
LAN Colombia’s consolidated passenger
traffic
in 2013 as
compared to the previous year while
increased by 2.0%. This
capacity
gave an average
load factor of 80%,
up by 6.2 percentage points on 2012.
(ASK)
ANNUAL REPORT 201373
Thanks to a code sharing agreement between
LAN Colombia and American Airlines which
came into force in August, the Company was
able to expand its offer of flights in the United
States to 12 destinations via Miami while
American Airlines began to offer flights to
Barranquilla, Bucaramanga, Cartagena and
Pereira, four of Colombia’s most important
cities.
In October, LAN Colombia
joined the
oneworld alliance. As a result, all of LAN’s
international operations are now members
of this alliance which brings together 13 of
the world’s most prestigious airlines, all of
which are committed to providing a service
of excellence. Through this alliance, LAN
Colombia’s passengers now have access to
a network of 950 destinations in over 150
countries.
ANNUAL REPORT 201374 OPERATIONS /
ARGENTINA
LAN’s domestic operations in Argentina
began in June 2005 with just two routes.
By December 2013, however, the Company
was serving 14 domestic destinations
from Buenos Aires, connecting the capital
the country’s other main cities
with
important contribution
and making an
flights.
local
to
network
the
of
In the eight years since it started operations,
LAN Argentina has positioned
itself as
one of the most important operators of
domestic flights, doing so despite fare
restrictions and the impossibility of fully
low-cost model. Its
implementing LAN’s
position
in the 2.3 million
domestic passengers it transported in 2013
which represented a 29% market share.
is reflected
For
its domestic flights, the Company
has a fleet of ten Airbus A320s, which are
regarded as the most modern and efficient
in the industry for operations of this type.
In 2013, consolidated passenger traffic (RPK)
increased by 0.3% while capacity (ASK) grew
by 1.2%, giving a load factor of 73%. On
domestic routes, the Company competes
principally with the flagship Aerolíneas
Argentinas, which has a 70% market share.
In 2013, LAN repeatedly faced complexities
that hampered its operations to and from
the Company
Argentina. Despite
maintained permanent dialogue with
this,
ANNUAL REPORT 201375 the authorities and achieved operational
continuity in line with its commitment
to the country, its passengers and their
connectivity with the rest of the region.
The milestones of the year included the
inauguration in January of a VIP Lounge in
the new terminal of the Ezeiza International
Airport. This was LAN’s first VIP lounge outside
Santiago, Chile. It is a spacious facility with
an area of over 550 square meters, a totally
renovated image and numerous services for
the premium passengers of LAN, TAM and
the other airlines of the oneworld alliance.
In February,
the Company opened a
commercial office in the center of the city of
San Isidro in order to strengthen its presence
in the northern part of Greater Buenos
Aires. As a result, it now has a network of
17 commercial offices around the country.
In April, it went on to centralize the offices of
LAN and TAM in the Costa Salguero Complex
in Buenos Aires. This allowed it to consolidate
the
two airlines’ administrative and
commercial operations in a single location.
ANNUAL REPORT 201376 START OF OPERATIONS
LAN ECUADOR 2009
OPERATIONS /
ECUADOR
launching
its domestic passenger
Since
in 2009, LAN Ecuador has
operations
gradually
consolidated
a
established
position as an important operator on routes
within the country. This was possible thanks
to constant efforts to offer the best product
in terms of safety, connectivity and service.
With 1.3 million passengers transported in
2013, up by 8.8% on the previous year, the
Company is on the way to positioning itself
as the airline carrying the largest number
of domestic passengers. In 2013, it achieved
a 33.2% share of the market in which it
competes principally with the flagship
Tame airline and with Aerogal, owned by
the Avianca-TACA alliance, with market
shares of 42.7% and 24.0%, respectively.
routes and
In 2013, LAN Ecuador served six destinations
through the Quito-Guayaquil, Quito-Cuenca
the
and Guayaquil-Cuenca
Quito/Guayaquil route to the San Cristóbal
and Baltra Islands in the Galápagos as well
as the new Quito-Manta route, launched
in March with two flights daily. However,
as part of a process of restructuring of
itineraries and domestic routes, this latter
service temporarily ceased to operate in
September. For its domestic operations, LAN
Ecuador uses a fleet of three Airbus A320s.
In
consolidated
passenger traffic increased by 15%, despite
the important contraction seen across the
industry in the corporate passenger market.
Its capacity (ASK) experienced an important
LAN Ecuador’s
2013,
MILLION
PASSENGERS
% MARKET SHARES
LAN ECUADOR
TAME
AEROGAL
33%
43%
24%
AIRCRAFT
DOMESTIC
DESTINATIONS
ANNUAL REPORT 201377 28.7% increase, resulting in a reduction of
nine percentage points in load factor to 70%.
For the fourth consecutive year, LAN Ecuador
received the Prize for Service Quality (airline
category) awarded by the Ekos magazine.
This recognition confirms that the Company
has fulfilled its promise to offer the country
a world-class airline, with high punctuality
standards and an efficient service for both
corporate passengers and tourists, giving
priority to meeting clients’ requirements.
LAN
challenges which
The
Ecuador
successfully addressed in 2013 included the
transfer of its operations from the old Mariscal
Sucre International Airport to the new Quito
terminal in Tababela, two hours from the
capital, which was inaugurated in February.
This represented a significant challenge
for all Ecuador’s airline industry which had
operated at the old airport for 60 years.
ANNUAL REPORT 201378 OPERATIONS /
CARGO
The process of association between LAN and
TAM marked a milestone for this business
unit since the cargo operations of the two
airlines and their respective subsidiaries
were integrated both operationally and
commercially.
With 1.2 million tonnes transported in 2013,
up by 1.3% on the previous year, the Company
and its subsidiaries positioned themselves
as the largest air cargo operator in Latin
America and, particularly, Brazil. They offered
clients the greatest connectivity between
the region and the rest of the world, with
134 destinations in 23 countries, modern
infrastructure, a wide range of products
and services and the flexibility to adapt to
market conditions and needs.
In the latter, a key role has been played by the
business model developed by the Company
and its subsidiaries. Based on the efficient
operation of a fleet of freighters combined
with optimization of the belly capacity of
the passenger planes to which it has access,
this contributes to the profitability of routes,
permits adjustment of the operation to
economic cycles and increases load factors.
the
2013,
cargo business
conditions, due
faced
In
difficult
to a weak
macroeconomic context. As a result, the
internationally grew by
cargo business
only 1.2% and competition was intense.
ANNUAL REPORT 201379
At the regional level, demand for imports
on routes from the United States to Latin
America was down by 4% on the previous year,
with Brazil and Argentina as the destinations
most affected. The principal export markets,
however, performed healthily, growing by
11%, despite specific seasonal impacts such
as phytosanitary problems with salmon in
Chile and the climatic phenomena that hit
production of asparagus in Peru between
June and August and of fruit in Argentina in
October.
The
intensification of competition was
driven both by the increase in capacity in
passenger planes internationally and the
increase in the cargo capacity of regional and
international operators whose markets have
been affected and who have incorporated
latest-generation freighters.
regional
Faced with this situation, the Company’s
strategy in 2013 focused on optimizing use of
the belly of passenger planes on international
and
routes, accompanied by
supply discipline and the optimization of
its cargo network. This was complemented
by constant efforts to ensure efficiency in
operating costs and support areas as well
as the development and improvement of the
processes, systems and infrastructure of the
cargo business.
In this context, management of the belly
capacity of TAM’s international passenger
fleet was integrated with the rest of the
network of cargo operators, rather than
being managed separately in the different
markets. As a result, the load factor rose
from 47% in 2012 to 54% in 2013. An important
part of this increase was explained by routes
from Europe and the United States to Brazil,
where the load factor improved by almost
20 percentage points as compared to 2012,
and the successful use of flights from Brazil
to the United States and Europe to transport
perishable cargo from different points in
South America. Indeed, over 60% of the cargo
carried on these flights had its origin outside
Brazil, an achievement in which the team
work of the commercial and operational
areas played a decisive role. An important
milestone in this task was the launch of a
regional cargo operation between Brazil,
Argentina and Chile, which also permitted
improved utilization of the Company’s cargo
fleet.
Similarly, in the Brazilian domestic market,
progress was successfully achieved in the
process of integrating the cargo operation
of ABSA (previously LAN CARGO’s subsidiary
in Brazil) with the capacity of the bellies
of TAM’s passenger fleet, positioning TAM
Cargo (previously ABSA) as the principal
cargo operator on routes within the country
with a market share of close to 50%. Annual
revenues (in Brazilian reais) rose by 15%,
with the increase driven new businesses
such as the operation for the Brazilian Postal
Service as well as by commercial initiatives
related to the optimization of tariffs and
the filling of each flight, leveraging the
capacity of the domestic cargo network and
the bellies of passenger planes in Brazil.
In addition, operating costs (in reais) were
reduced by 9%, thanks to improvements in
operational processes and application of
the LEAN methodology. An IT system for the
management and administration of domestic
cargo was also implemented, representing
an investment of some US$3.6 million, while
ANNUAL REPORT 201380 around US$2.0 million was invested in the
installation of critical workhouses in Manaos
and Rio de Janeiro, which will enable the
Company to improve its service to clients.
In 2013, the cargo traffic of the Company and
its subsidiaries was down by 0.7% on 2012
while capacity measured in ATKs was up by
0.2%. This gave a load factor of 58.3% which
represented a drop of 0.5 percentage points
on 2012.
The long-term strategy of LAN CARGO and its
subsidiaries seeks to transform the bellies
of the passenger fleet of LATAM Airlines
Group into their principal competitive edge,
allowing them to offer clients an attractive
alternative and enhancing their portfolio of
products and the connectivity and coverage
of their cargo network.
ANNUAL REPORT 201381 OPERATIONS /
CUSTOMER LOYALTY PROGRAMS
However,
In 2013, LAN and TAM continued to
operate their respective loyalty programs
independently.
passengers
registered with the two programs were able
to earn and redeem kilometers/points on any
flight of the network administered by the two
airlines in accordance with each program’s
redemption rules and each company’s fares
and seat availability.
LANPASS
is the frequent flyer program
created by LAN in 1984 to reward the
preference and loyalty of its passengers
with different benefits. Members of the
program can exchange LANPASS kilometers
for free tickets, products from the program’s
catalogue or other options such as gift cards
for use at some retail stores.
Members of the program earn LANPASS
kilometers every time they fly with LAN, TAM
or any of the airlines in the oneworld alliance
as well as when shopping with or using the
services of companies around the world
which have an agreement with it. In 2013, the
program incorporated new partners in Chile,
Argentina, Peru, Ecuador and Colombia.
In January 2013, a new category of LANPASS
member, Comodoro Black, was introduced.
This
is the highest elite category and
members are attended by Special Services
executives and, with their direct family
group, have access to preferential services
and maximum priority for upgrades.
As of December 2013, LANPASS had 8.5
million members, up by 15% on the previous
year, principally in Chile, Peru, Argentina,
Colombia, Ecuador and the United States.
ANNUAL REPORT 201382 TAM established TAM Fidelidade, Brazil’s
first frequent flyer program, in 1993. It is also
designed to reward those who fly regularly
with the airline with different benefits and
exclusive offers. Members currently earn
points each time they use flights operated
by TAM, LAN and Star Alliance airlines, when
they use their TAM Itaucard credit card or
buy products from the TAM Viajes tourist
operator. As from 1 April 2014, TAM will,
however, cease to belong to Star Alliance
and will become a member of the oneworld
alliance like LAN.
Members of the program can use points
for tickets throughout the domestic and
international network of TAM and
its
associates. Points can also be exchanged
for an upgrade, providing this is available.
As of 2013, TAM Fidelidade had some 11
million members, principally in Brazil. This
represented an increase of 5% on 2012.
TAM Fidelidade forms part of Multiplus,
a subsidiary of TAM created in 2009 and
listed on the stock market since 2010.
Multiplus is Brazil’s largest and best loyalty
network and allows members to accumulate
in a single account,
Multiplus points
directly by shopping at over 13,000 stores
across different segments and indirectly by
transferring points from another affiliated
program. Points can be exchanged for over
420,000 different products and services.
ANNUAL REPORT 201383
As of 2013, the Multiplus network had over
460 partners and 12 million registered users.
At the end of 2013, Roberto Medeiros was
appointed as the company’s new CEO and
his principal objective will be to expand
the accumulation and redemption of points
in different sectors of the economy and to
consolidate the position of Multiplus as
Brazil’s principal customer loyalty network.
In addition, Multiplus and TAM Líneas Aéreas
have signed a new contract improving the
alignment of incentives for the maintenance
of a long-term relationship between the two
companies and increasing the stability of
this relationship.
ANNUAL REPORT 201384 OPERATIONS /
PROPERTY, PLANTS AND EQUIPMENT
LAN’S PROPERTY, PLANT AND EQUIPMENT
Headquarters
Other Facilities
facilities are
Our main
located near
the Comodoro Arturo Merino Benítez
International Airport. The complex includes
office space, conference space and training
facilities dining facilities and mock-up cabins
used for crew instruction.
Our corporate offices are located in a more
central location in Santiago, Chile.
Maintenance Base
Our maintenance base is located on a site inside
the grounds of the Comodoro Arturo Merino
Benítez International Airport. This facility
contains our aircraft hangar, warehouses,
workshops and offices, as well aircraft
parking area capable of accommodating
short-haul aircraft.
up
seventeen
to
We own a flight-training center on the side
of the Comodoro Arturo Merino Benítez
International Airport. We have
also
developed a recreational facility for our
employees with Airbus’ support. The facility,
denominated “Parque LAN,” is located on
land that we own near the Comodoro Arturo
Merino Benítez International Airport.
LAN PERU’S PROPERTY, PLANT AND
EQUIPMENT
LAN Peru has approximately 19,000 m2 built.
All facilities are leased and are distributed as
follows:
Administrative Offices: 7,000 m2
Sales Offices: 2,000 m2
Concessions airports: 10,000 m2
Miami Facilities
We occupy site at the Miami International
Airport that has been leased to us by the
airport under a concession agreement.
Our facilities include corporate building,
cargo warehouse (including meter cooling
area) and aircraft-parking platform and
approximately of furnished office space.
LAN COLOMBIA’S PROPERTY, PLANT AND
EQUIPMENT
LAN Colombia has approximately 27,500
m2 built. All facilities are leased and are
distributed as follows:
Administrative Offices: 4,500 m2
Sales Offices: 1,700 m2
Concessions airports: 21,300 m2
ANNUAL REPORT 201385
LAN ECUADOR’S PROPERTY, PLANT AND
EQUIPMENT
Base Maintenance
LAN Ecuador has approximately 14,500
m2 built. All facilities are leased and are
distributed as follows:
Administrative Offices: 1,600 m2
Sales Offices: 1,000 m2
Concessions airports: 11,900 m2
At Hangars II and V in Congonhas Airport,
which TAM has offices and hangars. This
site also houses the areas of Aircraft
Maintenance, Procurement and Logistics of
Aeronautical Materials.
LAN ARGENTINA’S PROPERTY, PLANT AND
EQUIPMENT
Other Facilities
In São Paulo, TAM has other facilities such as:
Commercial Headquarters, Uniform Building,
Morumbi Office Tower and a Call Center
Building. Besides, in São Paulo, TAM has the
offices belonging to the Group as: Multiplus
Office, TAM Viagens Office, one store of TAM
Viagens and Bahia state.
In Guarulhos, TAM has a Passenger Terminal,
Operational Areas such as Check-in, Ticket
Sales, Check Out, Operations Areas, VIP
Lounges, Aircraft Maintenance, GSE, Cargo
Terminal, Distribution Centers, etc.
LAN Argentina has approximately 18,000
m2 built. All facilities are leased and are
distributed as follows:
Administrative Offices: 6,600 m2
Sales Offices: 2,600 m2
Concessions airports: 8,700 m2
TAM’S PROPERTY PLANT AND EQUIPMENT
Headquarters
TAM’s main facilities are located in São Paulo,
in hangars within the Congonhas Airport and
nearby. At Congonhas Airport, TAM leases
hangars belonging to INFRAERO (the Local
Administrator Airport): Hangar VII, Hangar
VIII, Hangar III.
The Service Academy is located about 2.5
km from Congonhas Airport, is a separate
property which TAM owns, exclusively for the
areas of Selection, Medical Service, Training,
and Mock-ups.
ANNUAL REPORT 201386 RESULTS 2013
LATAM AIRLINES GROUP S.A
05
ANNUAL REPORT 201387 RESULTS 2013 /
INDUSTRY OVERVIEW
and
capacity
Consolidation
rationalization and
the development
of cooperation agreements, processes
which characterized the airline industry
in 2013, have played a key role in the
recent improvement in its performance.
In the United States and Europe, various
mergers meant a reduction in the number
of operators and this was accompanied
by a proliferation of bilateral agreements
between operators in the two continents
for the unification of their commercial
policies and the joint offer of services,
resulting in industry consolidation and a
rational competitive environment focusing
on profitability. At the domestic and
regional level, a trend towards adoption
of the low-cost model and the unbundling
of the different services that comprise the
travel experience has permitted better
segmentation of the different types of
passenger in line with their specific travel
needs.
North America saw a marked improvement
in the profitability of its operators who
completed the process of consolidation,
generating large airline groups that account
for the majority of traffic. This permitted
better management of capacity, with an
offer of services that resulted in healthy
load factors. In addition, the European
market starts to recover, showing signs of
growth with improvements in the tourist
demand. Moreover, there is an improvement
in premium traffic between Europe and the
United States in response to the improved
economic outlook.
the
economies
Asia-Pacific
the
In
depreciation of the local currencies had
a negative impact on both, demand and
the costs of local airlines as well as the
revenues of international operators with
flights to the region. Moreover, there was
an increase in competition on routes to Asia
and the Pacific from Middle Eastern carriers
seeking to take advantage of their strategic
geographic location to transform their cities
of origin into important international hubs.
Latin America continued to benefit from
the decoupling of
its economies from
the international economic crisis which,
together with the low penetration of air
travel in the region, was reflected in an
expansion of demand. It was, indeed, the
region with the world’s second highest
rate of growth of demand. This prompted
airlines from other continents to divert
increasing the
capacity to the region,
competitive pressures
local
airlines. In addition, the depreciation of
Latin American currencies against the
dollar affected domestic operations since
the proportion of the costs of the region’s
airlines that are in dollars exceeds that of
their revenues.
faced by
The Brazilian market, that represents 50%
of the region’s traffic, benefited from the
capacity reduction strategy that have
been implementing the main competitors,
gaining healthy load factor and significant
improvements in the unit revenues.
ANNUAL REPORT 201388 Latin American cargo operators were
affected by entry of the capacity of
operators from other regions, with idle
capacity in their own markets, at a time
when the global demand remained weak.
Fuel prices showed only limited variations
over the course of the year, with a slight
downward trend.
Given the changes that have occurred in the
market’s structure, the International Air
Transport Association (IATA) increased its
estimate of the industry’s global earnings
in 2014 to US$19.7 billion, which would
represent a net margin of 2.6%. Operating
margins would average 4.7%, according
to IATA, but the United States and Latin
America would see higher figures of 6.4%
and 5.1%, respectively. Thanks to the
capacity discipline seen globally in 2013,
IATA anticipates a load factor that, at 81%,
would set a new record. This would be the
result of an average 5.2% expansion of global
capacity (ASK) and an average 6.0% increase
in traffic (RPK), with the Middle East, Latin
America, Africa and Asia-Pacific all showing
above average growth of both indicators. In
the case of cargo, IATA forecasts an average
2.1% increase in traffic (ATK) while capacity
would expand in line with the increase in
the belly capacity of passenger operations.
Average global passenger and cargo yields
would drop by 0.6% and 2.1%, respectively.
Finally, IATA anticipates a 3.4% reduction in
the Brent oil price and a 2.7% reduction in
the price of jet fuel.
ANNUAL REPORT 201389
RESULTS 2013 /
REGULATORY FRAMEWORK
Below is a brief description of the most
important aspects of the aviation regulation,
antitrust and other governing Chile.
CHILE´S AERONAUTICAL REGULATION
Both the DGAC and the JAC oversee and
regulate the Chilean aviation industry. The
DGAC reports directly to the Chilean Air Force
and is responsible for supervising compliance
with Chilean laws and regulations relating
to air navigation. The JAC is the Chilean civil
aviation authority. Primarily on the basis
of Decree Law No. 2,564, which regulates
commercial aviation, the JAC establishes the
main commercial policies for the aviation
industry in Chile, regulates the assignment
of international routes, and the compliance
with certain insurance requirements, and the
DGAC regulates flight operations, including
personnel, aircraft and security standards, air
traffic control and airport management. We
have obtained and maintain the necessary
authority from the Chilean government
to conduct flight operations,
including
authorization certificates from the JAC and
technical operative certificates from the
DGAC, the continuation of which is subject
to the ongoing compliance with applicable
statutes, rules and regulations pertaining
to the airline industry, including any rules
and regulations that may be adopted in the
future.
Chile is a contracting state, as well as a
permanent member, of the ICAO, an agency
of the United Nations established in 1947
to assist in the planning and development
of international air transport. The ICAO
establishes technical standards for the
industry, which
international aviation
incorporated
Chilean authorities have
into Chilean laws and regulations. In the
absence of an applicable Chilean regulation
concerning safety or maintenance, the DGAC
has incorporated by reference the majority
of the ICAO’s technical standards. We believe
that we are in material compliance with all
relevant technical standards.
ROUTE RIGHTS
Domestic Routes.
in
connection with
Chilean airlines are not required to obtain
permits
carrying
passengers or cargo on any domestic routes,
but only to comply with the technical
and insurance requirements established
respectively by the DGAC and the JAC. There
are no regulatory barriers that would prevent
a foreign airline from creating a Chilean
subsidiary and entering the Chilean domestic
market using that subsidiary. On January 18,
2012 the Secretary of Transportation and the
Secretary of Economics of Chile announced
steps towards unilaterally opening the
Chilean domestic skies in the near term.
International Routes.
services on
As an airline providing
international routes, LAN is also subject
to a variety of bilateral civil air transport
agreements that provide for the exchange of
air traffic rights between Chile and various
other countries. There can be no assurance
that existing bilateral agreements between
Chile and foreign governments will continue,
and a modification, suspension or revocation
of one or more bilateral treaties could have
a material adverse effect on our operations
and financial results.
ANNUAL REPORT 201390 International route rights, as well as the
corresponding landing rights, are derived
from a variety of air transport agreements
negotiated between Chile and foreign
governments. Under such agreements,
the government of one country grants the
government of another country the right
to designate one or more of its domestic
airlines to operate scheduled services to
certain destinations of the former and, in
certain cases, to further connect to third-
country destinations.
In Chile, when additional route frequencies
to and from foreign cities become available,
any eligible airline may apply to obtain them.
If there is more than one applicant for a
route frequency the JAC awards it through a
public auction for a period of five years. The
JAC grants route frequencies subject to the
condition that the recipient airline operate
them on a permanent basis. If an airline fails
to operate a route for a period of six months
or more, the JAC may terminate its rights to
that route. International route frequencies
are freely transferable. In the past, we have
generally paid only nominal amounts for
international route frequencies obtained in
uncontested auctions.
AIRFARE PRICING POLICY.
Chilean airlines are permitted to establish
their own domestic and international fares
without government regulation. For more
information, see “—Antitrust Regulation”
below. In 1997, the Antitrust Commission
approved and
imposed a specific self-
regulatory fare plan for our domestic
operations in Chile consistent with the
Antitrust Commission’s directive to maintain
a competitive environment. According to this
plan, we must file notice with the JAC of any
increase or decrease in standard fares on
routes deemed “non-competitive” by the JAC
and any decrease in fares on “competitive”
routes at least twenty days in advance. We
must file notice with the JAC of any increase
in fares on “competitive” routes at least ten
days in advance. In addition, the Chilean
authorities now require that we justify
any modification that we make to our fares
on non-competitive routes. We must also
ensure that our average yields on a non-
competitive route are not higher than those
on competitive routes of similar distance.
REGISTRATION OF AIRCRAFT.
Aircraft registration in Chile is governed by
the Chilean Aeronautical Code (“CAC”). In
order to register or continue to be registered
in Chile, an aircraft must be wholly owned by
either:
•
•
•
a natural person who is a Chilean citizen; or
a legal entity incorporated in and having
its domicile and principal place of
business in Chile and a majority of the
capital stock of which is owned by Chilean
nationals, among other requirements
established in article 38 of the CAC.
The Aeronautical Code expressly allows
the DGAC to permit registration of aircraft
belonging to non-Chilean
individuals
or entities with a permanent place of
business in Chile. Aircraft owned by
non-Chileans, but operated by Chileans
or by an airline which is affiliated with
a Chilean aviation entity, may also be
registered in Chile. Registration of any
aircraft can be cancelled if it is not in
ANNUAL REPORT 201391
compliance with the requirements for
registration and, in particular, if:
•
•
the ownership requirements are not
met; or
the aircraft does not comply with any
applicable safety requirements specified
by the DGAC.
SAFETY
The DGAC requires that all aircraft operated
by Chilean airlines be registered either with
the DGAC or with an equivalent supervisory
body in a country other than Chile. All
aircraft must have a valid certificate of
airworthiness issued by either the DGAC
or an equivalent non-Chilean supervisory
entity. In addition, the DGAC will not issue
maintenance permits to a Chilean airline
until the DGAC has assessed the airline’s
maintenance capabilities. The DGAC renews
maintenance permits annually, and has
approved our maintenance operations.
Only DGAC-certified maintenance facilities
or facilities certified by an equivalent non-
Chilean supervisory body in the country
where the aircraft is registered may maintain
and repair the aircraft operated by Chilean
airlines. Aircraft maintenance personnel at
such facilities must also be certified either
by the DGAC or an equivalent non-Chilean
supervisory body before assuming any
aircraft maintenance positions.
SECURITY
The DGAC establishes and supervises the
implementation of security standards and
regulations for the Chilean commercial
aviation
industry. Such standards and
regulations are based on
standards
international commercial
developed by
aviation organizations. Each airline and
airport in Chile must submit an aviation
security handbook to the DGAC describing
its security procedures for the day-to-day
operations of commercial aviation and
procedures
training.
LAN has submitted its aviation security
handbook to the DGAC. Chilean airlines
that operate international routes must also
adopt security measures in accordance with
the requirements of applicable bilateral
international agreements.
for staff security
AIRPORT POLICY
The DGAC supervises and manages airports
in Chile, including the supervision of take-
off and landing charges. The DGAC proposes
airport charges, which are approved by the
JAC and are the same at all airports. Since the
mid-90s, a number of Chilean airports have
been privatized, including the Comodoro
Arturo Merino Benítez International Airport
in Santiago. At the privatized airports, the
airport administration manages the facilities
under the supervision of the DGAC and JAC.
ENVIRONMENTAL AND NOISE REGULATION
There are no material environmental
regulations or controls
imposed upon
airlines, applicable to aircraft, or that
otherwise affect us in Chile, except for
laws and regulations of
environmental
general applicability. There
is no noise
restriction regulation currently applicable
in Chile. However, Chilean
to aircraft
authorities are planning to pass a noise-
ANNUAL REPORT 201392 related regulation governing aircraft that fly
to and within Chile. The proposed regulation
will require all such aircraft to comply with
certain noise restrictions, referred to in
the market as Stage 3 standards. LAN’s
fleet already complies with the proposed
restrictions so we do not believe that
enactment of the proposed standards would
impose a material burden on us.
ANTITRUST REGULATION
The Chilean antitrust authority, which we
refer to as the Antitrust Court (previously the
Antitrust Commission), oversees antitrust
matters, which are governed by Decree Law
No. 211 of 1973, as amended, or the Antitrust
Law. The Antitrust Law prohibits any entity
from preventing, restricting or distorting
competition in any market or any part of any
market. The Antitrust Law also prohibits any
business or businesses that have a dominant
position in any market or a substantial part
of any market from abusing that dominant
position. An aggrieved person may sue for
damages arising from a breach of Antitrust
Law and/or file a complaint with the Antitrust
Court requesting an order to enjoin the
violation of the Antitrust Law. The Antitrust
Court has the authority to impose a variety
of sanctions for violations of the Antitrust
including termination of contracts
Law,
contrary to the Antitrust Law, dissolution
of a company and imposition of fines and
daily penalties on businesses. Courts may
award damages and other remedies (such as
an injunction) in appropriate circumstances.
As described above under “—Route Rights—
Airfare Pricing Policy,” in October 1997, the
Antitrust Court approved a specific self-
regulatory fare plan for us consistent with
the Antitrust Court’s directive to maintain
a competitive environment within the
domestic market.
Since October 1997, LAN Airlines S.A. and
LAN Express follow a self-regulatory plan,
which was modified and approved by
the Tribunal de la Libre Competencia (the
Competition Court) in July 2005, and further
in September, 2011. In February 2010, the
Fiscalía Nacional Económica (the National
Economic Prosecutor’s Office) finalized the
investigation initiated in 2007 regarding our
compliance with this self-regulatory plan
and no further observations were made
By means of Resolution No. 37/2011, issued
on September 21, 2011 (the “Resolution”), the
Tribunal de Defensa de la Libre Competencia
de Chile
(“TDLC”) approved the merger
between LAN and TAM and imposed 14
mitigation measures on LATAM, which scope
and details are set out in said Resolution
and which, for convenience only, are briefly
described below:
•
•
•
To exchange 4 pairs of daily slots at the
Guarulhos Airport of São Paulo to be
exclusively operated in non-stop flights
servicing the SCL – GRU route.
To extend its frequent flyer program
for a term of 5 years in favor of airlines
operating (or expressing their intention
to operate) the Santiago – São Paulo,
Santiago – Río de Janeiro, Santiago –
Montevideo, and Santiago – Asunción
routes, in the event that the airlines
ask for LATAM to extend the referred
program in connection with the above-
stated routes.
into
interline agreements
To enter
covering the Santiago – São Paulo,
Santiago – Río de Janeiro and/or Santiago
– Asunción
interested
routes with
airlines operating those routes which
approach LATAM for that purpose.
ANNUAL REPORT 201393
•
•
•
•
•
•
•
To observe certain temporary capacity
and offer restrictions on the Santiago –
São Paulo route.
To
implement certain amendments
to LATAM’s Self-Regulatory Fare Plan
applicable to its domestic business.
To renounce before
June 22, 2014,
from either of the two global alliances
to which LAN and TAM belonged
as of the date of the Resolution.
To comply with certain restrictions in
signing and maintain some code-sharing
agreements, without prior consultation
with the TDLC, for specific routes with
carriers which are members or partners
of an alliance other than that to which
LATAM belongs.
To abide by certain restrictions to
participate in future allocations of third,
fourth and fifth freedom traffic rights
between Santiago and Lima, and to
abandon 4 fifth freedom frequencies to
Lima.
to
the
To express
relevant air
transportation authorities its favorable
opinion to the unilateral opening of
the sky for domestic flights within
Chile, operated by airlines based in
foreign States, without
reciprocity
requirements.
To commit, to the extent applicable,
to promoting the growth and regular
operation of the Guarulhos airport in
São Paulo and the Arturo Merino Benítez
airport in Santiago.
•
•
•
•
To comply with certain directives in
granting incentives to travel agencies.
To temporarily maintain, except upon
the occurrence of a force majeure event:
i) at least 12 weekly non-stop round-
trip flights directly operated by LATAM
and covering the routes between Chile
and the U.S.; and ii) at least 7 weekly
round-trip flights directly
non-stop
operated by LATAM and covering the
routes between Chile and Europe.
To comply with certain restrictions on
average revenues from air tickets for
passenger transport on the Santiago –
São Paulo and Santiago – Río de Janeiro
routes; and on published airfares
effective as of the date of the Resolution
for cargo transport on each of the routes
between Chile and Brazil.
To hire an independent consultant for
a term of 3 years to provide advisory
the Federal Economic
services
to
Prosecutor’s Office
overseeing
LATAM’s compliance with the Resolution.
in
The Brazilian Council for Economic Defense
– CADE has approved the LAN/TAM merger
by unanimous decision during the hearing
session of December 14, 2011, subject to
the conditions: (1) the new combined group
(LATAM) should leave one of the two global
alliances to which it was part (Star Alliance
or Oneworld); and (2) the new combined
group (LATAM) should offer to swap two
pairs of slots in Guarulhos International
Airport, to be used by an occasional third
party interested in offering direct non-stop
ANNUAL REPORT 201394
flights between São Paulo and Santiago do
Chile. These impositions are in line with the
mitigation measures adopted by the TDLC, in
Chile.
Furthermore, the merger was submitted
to the antitrust authorities in Germany,
Italy and Spain. All these jurisdictions
granted
clearances
for this transaction. The merger was
filed with
the Argentinean antitrust
authorities, which approval is still pending.
unconditional
ANNUAL REPORT 201395 RESULTS 2013 /
FINANCIAL RESULTS
In 2013, LATAM Airlines Group reported
operating income of US$643.9 million, up by
US$552.5 million on its pro-forma operating
income in 2012. At 4.9%, its operating margin
was up by 4.2 percentage points on the
previous year (pro-forma). This important
increase was explained by a significant
improvement in the financial results of the
Company’s domestic operation in Brazil and
the successful rationalization of capacity in
its international passenger business as well
as by ongoing progress in the integration
process and initiatives to increase efficiency
and take advantage of synergies.
increase
Total revenues in 2013 reached US$13,266.1
million as compared to pro-forma revenues
of US$13,222.1 million in 2012. This 0.3%
in
increase reflected a 0.4%
passenger revenues and a 28.7% increase in
other income which were partly offset by a
4.0% drop in cargo revenues. These results
include the negative impact on revenues
denominated
in Brazilian reais of this
currency’s 10.4% depreciation in 2013. As of
31 December, passenger and cargo revenues
accounted for 83% and 14% of total revenues,
respectively.
Passenger revenues were up by 0.4% in 2013
due to a 2.5% increase in passenger traffic
which was partly offset by a 2.0% drop in
yields. In 2013, the load factor reached 80.8%,
up by 2.3 percentage points on the same
period in 2012 (pro-forma). This increase
was driven by the increase in traffic which
occurred despite a 0.4% reduction in capacity.
Consolidated revenues per ASK (RASK) were
up by 0.8% on 2012 (pro-forma), including the
impact of the real’s depreciation in 2013 on
revenues denominated in this currency. The
international
reduction in capacity in 2013 as compared to
pro-forma capacity in 2012 was principally
the result of an 8.4% reduction in capacity
in the Brazilian domestic market and a
rationalization on
routes,
particularly long-haul routes from Brazil to
Europe. This capacity rationalization was
partly offset by an 11% increase in capacity
in the Company’s Spanish-speaking domestic
markets during 2013.
In addition, the
passenger yield dropped due principally to
the depreciation of the real as well as of the
currencies of the Spanish-speaking markets.
In 2013, cargo revenues were down by 4.0%,
reflecting a 0.5% drop in cargo traffic as
compared to pro-forma traffic in 2012 and
a 3.5% drop in yields. The cargo market’s
weak performance was a result of its weak
ANNUAL REPORT 201396 situation internationally and of an increase
in competition
in South America from
international airlines. The
regional and
drop in yields also reflected the negative
impact on cargo revenues denominated
in Brazilian reais of this currency’s 10.4%
depreciation. In 2013, the company’s cargo
capacity increased by only 0.1% in line with
its strategy of optimizing use of the bellies of
its passenger aircraft and rationalizing use
of its freighters.
In 2013, operating costs reached US$12,622.7
million, down by 3.9% on pro-forma operating
costs in 2012. This resulted in a 3.7% reduction
of the cost per ASK (including net financial
costs). Lower costs reflected principally
a reduction in expenditures on fuel and
wages and the positive impact of the real’s
depreciation on certain components of costs.
At US$4,414.2 million, expenditure on fuel
represented a drop of 7.7% from a pro-forma
US$4,780.3 million in 2012. This was explained
by both lower consumption and lower fuel
prices. In 2013, consumption measured in
gallons was down by 2.2% in line with the
Company’s strategy of rationalization of its
passenger and cargo operations, as reflected
in a 0.2% reduction of ASK-equivalents, and
with the initiatives it implemented during
the year in order to achieve efficiency gains.
In the case of fuel prices, the reduction
reflected a 5.2% drop in the price of fuel
(without hedging). In 2013, the Company also
reported a US$19 million hedging gain as
compared to a US$1.8 million loss in 2012.
Remunerations and employee benefits
showed a drop of 4.0% in 2013, reflecting
principally a reduction of the workforce as
compared to 2012 and the impact of the 10.4%
depreciation of the Brazilian real on wages
paid in this currency. In addition, the Company
reported US$15.5 million in compensation
payments related to voluntary retirements
and exit programs for 800 TAM employees.
In 2013, the Company also reported one-off
costs arising from the fleet restructuring
plan that it began to implement in the
second half of the year. This plan seeks to
meet the Company’s needs in the wake of
the merger and consists in a reduction of
the number of models operated, gradually
taking less efficient models out of service
and allocating the most appropriate planes
to each of its markets. Starting in the last
quarter of 2013 and over the next some 30
months, the Company will gradually ground
all its A330s, A340s, B737s, Q400s and Q200s.
The one-off costs are the result of fines
related to the early return of aircraft and
pre-return maintenance and, in 2013, totaled
US$29 million. Excluding these costs, LATAM’s
operating margin in 2013 reached 5.1%.
Finally, LATAM Airlines Group showed
a net loss of US$281.1 million in 2013 as
compared to a pro-forma loss of US$523.1
million in 2012. This implied a net margin
of -2.1%, representing an improvement of
1.8 percentage points on its net pro-forma
margin in 2012. The Company’s net loss
in 2013 was affected by an exchange-rate
loss of US$482.2 millon due to the 15.1%
depreciation of the Brazilian real between
the 31st of December of 2012 and the 31st of
December 2013.
ANNUAL REPORT 201397
For the year ended December 31
2013
2012
(pro forma)
% Change
REVENUE
Passenger
Carga
Other
11,061,557
1,862,980
341,565
11,016,976
1,939,751
265,365
TOTAL OPERATING REVENUE
13,266,102
13,222,092
EXPENSES
Wages and Benefits
Aircraft Fuel
Comissions to Agents
Depreciation and Amortization
Other Rental and Landing Fees
Passenger Services
Aircraft Rentals
Aircraft Maintenance
(2,492,769)
(4,414,249)
(408,671)
(1,041,733)
(1,373,061)
(331,405)
(441,077)
(477,086)
(2,596,320)
(4,780,2899
(417,124)
(1,087,024)
(1,377,053)
(314,921)
(422,036)
(424,350)
Other Operating Expenses
(1,642,146)
(1,711,600)
0.4%
(4.0)%
28.7%
0.3%
(4.0)%
(7.7)%
(2.0)%
(4.2)%
(0.3)%
5.2%
4.5%
12.4%
(4.1)%
TOTAL OPERATING EXPENSES
(12,622,197)
(13,130,717)
(3.9)%
OPERATING INCOME
Operating Margin
NET INCOME
Net Margin
EBITDA
EBITDA Margin
EBITDAR
EBITDAR Margin
643,905
4.9%
91,375
0.7%
604.7%
4.2 pp
(281,114)
(523,131)
(46.3)%
(2.1)%
(4.0)%
1.8 pp
1,685,638
1,178,399
12.7%
8.9%
2,126,715
1,600,435
16.0%
12.1%
43.0%
3.8 pp.
32.9%
3.9 pp.
ANNUAL REPORT 201398 For the 12 month perios ended
December 31
2013
2012
% Change
System
ASKs-equivalent (millions)
ATKs (millions)
RPKs-equivalent (millions)
RTKs (millions)
Overall Load Factor (based on ASK-equivalent)%
Break-Even Load Factor (based on ASK-
equivalent)%
Yield based on RPK-equivalent (US Cents)
Operating Revenues per ASK-equivalent (US
Cents)
Costs per ASK-equivalent (US Cents)
Costs per ASK-equivalent ex fuel (US Cents)
Fuel Gallons Consumed (millions)
Average Trip Length (thousands km)
212,237
7,652
153,485
4,467
72,3%
73,6%
8,4
6,1
6,2
1,267
1,6
212,670
7,646
151,131
4,488
71,1%
67,1%
8,6
6,1
6,4
1,295
1,6
Total Number of Employees
52,997
53,599
Passenger
ASKs (millions)
RPKs (millions)
Passengers Transported (thousands)
Load Factor (based on ASKs) %
Yield based on RPKs (US Cents)
Revenues per ASK (US cents)
Cargo
ATKs (millions)
RTKs (millions)
Tons Transported (thousands)
Load Factor (based on ATKs) %
Yield based on RTKs (US Cents)
Revenues per ATK (US Cents)
131,691
106,466
66,696
80,8%
10,4
8,4
7,652
4,467
1,171
58,4%
41,7
24,3
132,186
103,886
64,677
78,6%
10,6
8,3
7,646
4,488
1,154
58,7%
43,2
25,4
(0,2)%
0,1%
1,6%
(0,5)%
1,3 pp
6,5 pp
(1,8)%
(0,0)%
(3,7)%
(2,2)%
(0,6)%
(1,1)%
-0,4%
2,5%
3,1%
2,3 pp
(2,0)%
0,8%
0,1%
(0,5)%
1,5%
(0,3) pp
(3,5)%
(4,0)%
ANNUAL REPORT 201399 Passenger and Cargo Revenue Breakdown by Country
Perú
Argentina
USA
Europe
Colombia
Brazil
Ecuador
Chile
Rest of the World
2013
646,217
950,595
1,290,493
937,539
387,999
5,572,884
273,712
1,698,476
1,166,622
Total
12,924,537
% Change
2012
% Change
5%
7%
10%
7%
3%
43%
2%
13%
9%
620,263
890,167
1,268,573
738,803
366,664
3,322,431
266,271
1,525,009
712,191
9,710,372
6%
9%
13%
8%
4%
34%
3%
16%
7%
ANNUAL REPORT 2013100 RESULTS 2013 /
AWARDS AND RECOGNITIONS
Major Awards LATAM Airlines Group in 2012
LATAM AIRLINES GROUP
Latin Lawyer
1st place
“Deal of
Merger”
the Year: LAN-TAM
Santander Global Banking &
Markets-Capital magazine
1st place
“Ranking
companies of 2012”
of most
traded
Global Legal Awards Winners
Honoree: LATAM Airlines Group
“Global M&A Deal of the Year:
Latin America”
Dow Jones Sustainability Index
Only 81 companies recognized
“Emerging Markets”
XVI Annual Contest of Reports of
Listed Companies in Chile
3rd place
“Best Annual Report”
ANNUAL REPORT 2013101 LAN
Word Travel Awards (WTA)
1st place
“South America’s Leading Airline”
Business Traveller’s Cellars in the
Sky Airline Wine Awards
3rd place
“Best-Presented Business Class
Wine List”
La
Segunda-Adimark:
Most Respected Companies
Chile’s
1st place
“Most Respected Company”
Content Marketing Awards
1st place for In magazine
“Best Airline Publication”
Global Traveler Wine Competition
E-Commerce Awards
3rd place
“Best Red Wine
Business Class”
International
1st place
World Airline Awards (Skytrax)
Pearl Awards in Nueva York
1st place
“Best Airline in South America”.
Premier Traveler: The Best of 2013
1st place
“The Best of South America”
The Boston Consulting Group
(BCG) Global Challengers
Among the 100 Global Challengers
Pearl Gold
“Best Use of
magazine: special music number
Illustration”,
In
Jane´s
IHS
Environment
ATC
Award:
1st place
Green Skies of Peru Project
Latin Trade Ranking
1st place in 8 of 11 categories
“The Best Airlines Flying in Latin
America”
ANNUAL REPORT 2013102 TAM
World Airline Awards (Skytrax)
2nd place
“Best Airline in South America”
Global Traveler Wine Competition
2nd place
“Best Red Wine
Business Class”.
International
5th place
“Best Champagne International
First Class” and “Best International
Business Class Wines”
Content Marketing Awards
for Nas Nuvens
2nd place
magazine
“Best Airline Publication”
SocialBakers 4Q2012
5th place
“Airline Most Active
Media in the World”
in Social
Brand
Brazilian Brands.
Finance: Ranking of
1st place
“La Financial Brand of the Most
Valuable Company in Brazil.”
Top
Folha/Grupo
of
Mind-Data-
Folha
1st place
“Airlines”
Top of Mind Internet-DataFolha/
UOL
1st place
“Airlines”
Carta Capital magazine: Most
Admired Companies in Brazil
1st place
“Airline” and “Business Services”.
MERCO Ranking
1st place
“Business Reputation
Transport and Logistics Sector.
in
the
Selecciones magazine: Trusted
Brands Prize
1st place
“Airline”
Grupo Padrão: Companies Most
Respected by Consumers
1st place
“Airline”
ANNUAL REPORT 2013103 RESULTS 2013 /
STOCK MARKET INFORMATION
During 2013, LATAM Airlines Group’s share
price showed a loss of 26.6% while LAN’s
ADR showed a loss of 30.8%. As of 31
December 2012, the Company had a market
capitalization of US$ 8,218 million. In 2012,
LATAM Airlines Group’s shares performed
below Chile’s IPSA share price index, which
showed an annual loss of 14.0%. Regarding
the movements of the stock, this year LATAM
Airlines Group stock had a 100% of market
presence in the Santiago Stock Exchange.
IPSA AND SHARE PRICE
ANNUAL REPORT 2013104 ADR AND SHARE PRICE
BDR AND SHARE PRICE
ANNUAL REPORT 2013105 Quarterly Volume of Share Trading (Santiago Stock Exchange)
Volúmenes Transados por Trimestre Acción (Bolsa de Santiago)
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of
Shares
Traded
47,347,742
58,475,637
76,581,903
50,436,418
64,710,000
107,445,492
57,157,847
38,877,169
31,787,896
47,046,121
60,095,492
68,677,913
Average
Price (CPL)
Total Value (CPL)
9,321
10,281
14,292
14,632
14,373
13,097
12,063
11,286
11,214
9,209
7,064
8,167
731,977,564,550
298,041,173,402
973,595,650,579
508,645,049,034
812,172,800,000
1,006,390,000,000
683,382,000,000
438,423,700,000
356,563,517,000
431,735,536,000
414,584,729,000
567,710,204,600
Quarterly Volume of ADR Trading (Santiago Stock Exchange)
Volúmenes Transados por Trimestre ADR (NYSE)
N° of
Shares
Traded
Avera-
ge Price
(USD$)
Total Value
(USD$)
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
31,175,948
20,585,237
31,053,167
24,414,359
17,180,265
27,871,128
43,620,441
23,579,847
23,842,422
35,452,685
41,500,940
51,531,434
25,65
28,50
21,04
23,27
29,20
25,97
25,37
23,48
23,62
19,05
13,91
15,93
799,544,598
586,730,718
653,274,790
568,234,440
456,019,600
725,219,500
1,080,972,000
560,725,400
562,524,908
665,938,101
573,896,339
822,930,239
ANNUAL REPORT 2013106 Quarterly Volume of ADR Trading (Santiago Stock Exchange)
Volúmenes Transados por Trimestre Acción (Bolsa de Santiago)
2012
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of
Shares
Traded
Average
Price (BRL)
35,857,854
5,982,600
1,118,000
1,581,895
1,027,918
1,214,565
42,280
52,12
50,5
47
45,74
38,10
30,59
37,14
Total Value
(BDR)
2,041,688,000
301,911,500
54,162,270
73,304,033
40,259,529
38,707,827
1,575,240
ANNUAL REPORT 2013107 RESULTS 2013 /
ADDITIONAL INFORMATION
SUPPLIERS
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
in
general and flight crews.
including executives, staff
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.
In 2013, 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., MTU Hannover, Snecma, CFMI
and France/KLM
(engines); Zodiac Seats
US, Recaro, BE Aerospace and Contour
(seats); Teledyne (TCS B787-9); Honeywell
and Rockwell Collins (avionics); Air France,
LUFTHANSA Technik and Fokker Services
(MRO components); Panasonic and Thales
(in-flight entertainment); Messier Bugatti
(landing gear and brakes); UTC Aerospace
In
(Molding); and Heico Corp
addition, the Company has a number of fuel
suppliers such as Raizen, World Fuel Services,
Air BP Copec, Petrobras, Terpel, Cepsa, Exxon
and Vitol.
(repairs).
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. These
types of insurance cover all the risks inherent
to commercial aviation such as aircraft,
engines, spare parts and third-party liability
for passengers, cargo, baggage, merchandise
and airports, etc. Since the merger of LAN
with TAM, insurance for both companies
has been acquired by LATAM Airlines Group
and the
increased volumes negotiated
have resulted in lower operational costs.
ANNUAL REPORT 2013108 RESULTS 2013 /
MATERIAL NEWS
20/12/2013 – 18:00
OTHERS
In accordance with the provisions of Article
9 and Article 10 paragraph 2 of Law No.
18.045, and of General Rule No. 30 of this
Superintendency, on behalf of the Board
of Directors and being duly authorized,
I hereby inform the following MATERIAL
EVENT regarding LATAM Airlines Group S.A.
(“LATAM” or “The Company”), Securities
Registration No. 306, regarding the capital
increase authorized by the Extraordinary
Shareholder’s Meeting held last June 11:
Having the preemptive period to subscribe
62,000,000 shares (which do not include the
shares allocated to the Company and its
subsidiaries’ worker compensation plans
and shares to be placed by the Company tied
to aforementioned capital increase) expired
on December 19, 2013, and based on the
information available to this date, a total of
51.685.128 shares have been subscribed and
paid at a price of US$15,17.- per share, having
raised an equivalent to US$ 784 million,
according the following proportions:
•
Local shares (representing 93% of total
offer): Subscription of 83,8%, equivalent
to 48.740.008 shares;.
(representing
total
• ADRs
offer):
72,9%
equivalent to 2.673.191 shares; and;
6% of
of
Subscription
• BDR (representing 1% of total offer):
Subscription of 57,9%, equivalent to
271.929 shares;
Of the remaining 10.314.872 unsubscribed
shares, the amount of 8.405.276 shares
correspond to the Amaro family, who did
not sell or transfer its preemptive right over
these shares.
Consequently, of the total amount of shares
available during the preemptive period,
excluding those that corresponded to the
Amaro family, 96.4% was subscribed.
The 10.314.872 shares
that were not
subscribed within the preemptive period,
will be freely offered by the Company to
shareholders and/or to third parties, whether
in Chile or abroad, when and in the amounts
the Company’s Board of Director’s deems
appropriate, with the authority to determine
the procedures to do so, as established by the
Corporations Law, its Regulations and the
rules established by the Superintendency of
Securities and Insurance.
ANNUAL REPORT 2013109 01/10/2013 – 08:46
OTHERS
In accordance with the provisions of
Article 9 and Article 10 paragraph 2 of Law
No. 18.045, and General Rule No. 30 of the
Superintendency of Securities and Insurance
of Chile, I hereby inform to you- being duly
empowered by the Board of Directors- the
following Material Event regarding the
company LATAM Airlines Group S.A. (“LATAM
Airlines Group”), Securities Registration No.
306:
•
•
In accordance with the Material Event
dated March 7th, 2013, it was informed
that the ordinary meeting of LATAM
Airlines Group Board of Directors,
held on March 5th, 2013, had agreed to
choose Oneworld as the global airline
alliance for the airlines that are part
of its group. With this decision, TAM
and Aerovías de Integración Regional
- Aires S.A. (“LAN Colombia”) would
enter the Oneworld Alliance and would
join LATAM Airlines Group and the
other members of that global alliance.
Such LATAM Board of Director’s
decision was adopted pursuant to
Resolución No. 37 dated September
21st, 2011, issued by the H. Tribunal
de Defensa de la Libre Competencia
(“TDLC” or “Tribunal for the Defense
of Free Competition”) and the decision
issued by the Brazilian Conselho
Administrativo de Defesa Economica
(“CADE”) on December 14th, 2011,
which was partially amended on
February 8th, 2012; pursuant to which
it was approved the association of LAN
Airlines S.A. (currently LATAM Airlines
Group S.A.) and TAM Linhas Aereas S.A..
•
•
Consequently and according to what
was informed by the Material Event
dated March 7th, 2013, it is hereby
informed that TAM Linhas Aéreas will
leave the Star Alliance as of March
30th, 2014, and will enter the Oneworld
Alliance as of on March 31st, 2014.
Meanwhile, LAN Colombia will enter
the Oneworld Alliance as of October
1st, 2013.
28/08/2013 – 20:18
OTHERS
As required under Article 9 and the second
paragraph of Article 10 of the Securities
Market Law and under General Norm N° 30,
I would, with the due powers, like to report
the following MATERIAL NEWS concerning
LATAM Airlines Group S.A. (“LATAM Airlines
Group”), Securities Register Nº 306:
its rules,
In the context of the global investigation
launched in 2006 into possible infringements
of free competition in the air cargo market,
carried out jointly by the European and US
authorities, Brazil’s Administrative Council
for Economic Defense (“CADE”) launched an
administrative process in 2006 in accordance
with
investigating the period
from July 2003 to October 2005. As part of
this administrative process, CADE today
announced that it had issued its decision
on this case, levying fines for a total of
R$289 million (two hundred and eighty-nine
million reais) on a number of international
airlines including Aerolíneas Brasileras S.A.,
VarigLog, American Airlines and Alitalia.
Aerolíneas Brasileras S.A., a company related
to LATAM Airlines Group, has been fined
ANNUAL REPORT 2013110 R$114 million (one hundred and fourteen
million reais).
This administrative decision by CADE is
subject to appeal to both CADE and the
Federal Courts in Brasilia. ABSA will file the
corresponding appeals and
legal action
against CADE’s decision within the legally
established periods.
21/08/2013 – 12:41
OTHERS
•
•
•
that
it must vacate
Yesterday evening Lan Argentina S.A.,
LATAM Airlines Group’s subsidiary that
operates domestic and
international
flights in Argentina, was notified by the
National Airport Agency of Argentina
(ORSNA)
the
maintenance premises it operates in the
Aeroparque Jorge Newberry Airport of
Buenos Aires within 10 calendar days,
and unilaterally anticipated the expiry of
the contract with the airport concession
company Aeropuertos Argentina 2000
S.A. that was signed on July of 2008
and that, in accordance with its terms,
expires on July of 2023.
Even though it is early to evaluate the
impact of the measure, LATAM Airlines
Group believes that the decision by
ORSNA is illegitimate and that we will
evaluate taking every
legal action
necessary to restate the contract and our
rights to full and complete effectiveness.
We understand this is not an isolated
action but rather one that seems to be
in line with an increasing level of actions
against the Company with the purpose
of damaging our operations in Argentina
measure on the company’s financials
and operations as soon as we complete
our assessment of the situation. In
the meantime, LATAM Airlines Group
its customers and
to
can assure
that Lan
in Argentina
passengers
Argentina S.A. will take every and all
actions that are necessary to continue
to provide as seamless a service as
we can in the present circumstances.
This
illegitimate measure adopted
by ORSNA impacts only our domestic
in
operations
of
Aeroparque
Jorge Newberry Airport
and does not affect our international
from Argentina.
operations to and
Argentina
out
25/06/2013 – 17:16
OTHERS
As provided in Article 9 and in the second
paragraph of Article 10 of the Securities
Market Law, in General Rule #30 and in
Section
II.1)a) of Circular #1375, under
due authorization I hereby advise you as
MATERIAL DISCLOSURE by LATAM Airlines
(“LATAM Airlines Group”),
Group S.A.
Securities Registration #306, in relation to
the recently approved capital increase, that
LATAM Airlines Group has retained placement
agents and legal counsels in Chile and abroad.
11/06/2013 – 18:10
EXTRAORDINARY SHAREHOLDER`S MEETING
On this date an extraordinary shareholders’
meeting was held (the “Meeting”), in which
LATAM’s shareholders adopted the following
agreements/ decisions/ resolutions:
• We will report of the effect of this
•
To increase the capital of the Company in
the amount of USD 1,000 million through
ANNUAL REPORT 2013111 •
•
•
the issuance of 63,500,000 shares, that is,
from the amount of USD 1,652,896,812.43,
divided into 488,347,819 shares of a
single series and with no par value, to
the amount of USD 2,652,896,812.43,
divided into 551,847,819 shares of a
single series and with no par value.
To allocate 1,500,000 shares of the
a
issuance
above mentioned
compensation plan
for LATAM and
its subsidiaries’ executives, pursuant
to the provisions of Article 24 of
the Corporations Law No. 18.046.
to
To authorize the Company’s Board
of Director to freely and with the
broadest
powers/attributions
determine, fix and agree the price,
form, time, procedure and conditions
for placing the aforementioned shares.
the
To authorize LATAM’s Board of Director
issuance of
to proceed with
the shares representing the capital
increase; perform or stipulate/prepare
all necessary procedures/formalities
for the registration and placing of the
same; represent the Company before
any kind of authorities, institutions or
individuals related to the securities
markets; determine all matters related
to the options that are part of the
compensation plans; grant the powers
necessary or convenient to carry out
all or part of the above; and, in general,
to resolve/decide all related matters
that are approved by this Meeting
•
To amend the Company’s Bylaws in such
Articles that are relevant to the corporate
capital in order to conform them to the
amendments described above.
•
•
To delegate to the Board of Directors, for
a five year term, as from the December
21, 2011, the power/attribution to fix
the new placement price of 4,800,000
shares destined to compensation plans
subject to the provisions of Article 24 of
the Corporations Law, pursuant to the
Extraordinary Shareholders’ Meeting
held on December 21, 2011- as amended
the Shareholders’ Extraordinary
by
Meeting held on September 4, 2012-
and amend and determine the terms
and conditions applicable to the latter.
LATAM’s
authorize
To
of
Directors to adopt other agreements
carry
as may be necessary
aforementioned matters
out
Board
the
to
30/04/2013 – 17:34
EXTRAORDINARY SHAREHOLDER`S MEETING.
that
today
the leading airline group in Latin America,
its Board of
announced
Directors agreed to call an Extraordinary
General
for
June 11, 2013,
in order to submit for
shareholder approval the following issues:
Shareholders Meeting
•
To increase the shareholders’ equity
in the amount of
of the Company
US$1.0 billion, through the issuance
of a number of ordinary shares to be
determined by the shareholders, for
the purpose of financing part of its
investment plan for the following years,
especially fleet growth and renewal
requirements, as well as to strengthen
the financial position of the Company;
•
To utilize part of the capital increase for
compensation plans, in accordance with
Chilean corporate law;
ANNUAL REPORT 2013112 •
•
•
To determine the price, mechanism,
timing and procedures for the placement
of the issued shares or to delegate to
the Board of Directors the ability to
determine the price, mechanism, timing,
procedures and other conditions for the
issuance of such shares, including but not
limited to all the terms and conditions
of the Company’s compensation plans.
the
To modify
by-
laws to reflect the agreements of
and.
Shareholders Meeting;
the
Company’s
To adopt the necessary agreements
in order to implement the decisions
modifications
the
and
the shareholders.
agreed upon by
by-law
29/04/2013 – 19:07
DISTRIBUTION OF PROFITS (PAYMENT OF
DIVIDENDS)
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
Latam Airlines Group S.A. (LATAM) held April
29, 2013, LATAM’s shareholders approved
payment of the final dividend proposed
by the Board at its meeting held March
26, 2013, consisting of the distribution of
30% of the 2012 fiscal year profits, equal to
US$3,288,125.17.
27/03/2013 – 08:56
EXTRAORDINARY SHAREHOLDER`S MEETING.
As provided in Articles 9 and 10 of the
Securities Market Law and in General Rule
#30, under due authorization, please be
advised that at a Regular Meeting held
March 26, 2013, the Board of Directors of
LATAM Airlines Group S.A. (hereinafter the
“Company”) resolved to convene a Regular
Shareholders Meeting at 11:00 a.m. on April
29, 2013 to discuss the following matters:
•
•
•
•
•
•
•
•
and
approval of the annual report, balance
statements
financial
sheet
the fiscal
of
for
the Company
2012;
31,
year ending December
approval of the payment of a final dividend
on account of the 2012 fiscal year profits;
the compensation to be paid to the
Company’s Board of Directors for the
fiscal year ending December 31, 2013;
to be paid
the compensation
the
and
year
Company’s
budget
its
ending December
Audit
for
to
Committee
the fiscal
2013;
31,
the appointment of
the external
auditing firm and risk rating agencies
for the Company; and the reports on
the matters indicated in Section XVI of
Companies Law 18,046;
information on the cost of processing,
printing and sending the information
the
indicated
Securities and Insurance Commission;
in Circular 1816 of
designation of the newspaper in which
the Company will make publications; and
interest
the purview of a Regular
other matters of corporate
within
Shareholders Meeting of the Company.
ANNUAL REPORT 2013113
07/03/2013 – 08:57
OTHERS
•
•
•
•
(“TDLC”)
In Decision #37 dated September 21,
(the “Decision”), the Antitrust
2011
the
Court
approved
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.
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.”
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.
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. and Aerovias de
Integracion Regional- Aires S.A. (“Lan
Colombia”) will join oneworld in which
LATAM Airlines Group and 13 others are
already members.
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
for our passengers.
and products
The Board of TAM S.A. (“TAM”) also
resolved that TAM Linhas Aereas S.A.
resigns from its 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.
TAM Linhas Aereas S.A. 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.
LAN Colombia is expected to join
oneworld in the fourth quarter of 2013.
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.
•
•
•
•
•
ANNUAL REPORT 2013114 RESULTS 2013 /
RISK FACTORS
RISKS RELATED TO THE MERGER OF LAN
AND TAM
The success of the merger of LAN and TAM
and its ability to capture the expected
benefits will depend partly on
the
Company’s skills. There is, however, a risk
that the LATAM group could be unable to
achieve all the expected synergies. LATAM
has incurred and will continue to incur
important costs and expenses related to
the merger of the businesses of LAN and
TAM and the integration of their commercial
operations. We do not control TAM’s shares
with voting rights or its Board of Directors.
Uncertainty related to the merger of the
businesses of LAN and TAM may trigger a
loss of managers or other key employees
and this could negatively affect LATAM’s
operations. Following the merger with TAM,
LATAM’s financial results are more exposed
to fluctuations in exchange rates. LATAM’s
future results will be affected if it is unable to
manage the expanded operations efficiently
after completion of the merger. Following
the merger, Fitch Ratings Inc. (Fitch) reduced
its credit rating for LATAM. This reduction
or others could have a negative effect on
LAN’s business. Merger of the frequent
flyer programs of LAN and TAM may take
time. LATAM will have to withdraw from
the alliance of airlines to which LAN or TAM
belongs by April 2014.
ANNUAL REPORT 2013115 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. Our
business is highly regulated and changes in
the regulatory environment within which we
operate could negatively affect our business
and operating results. We depend on
strategic alliances and commercial relations
in many countries where we operate and our
business could be negatively impacted if
any of our 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 tourists’ habits or raise costs, such as
epidemics, weather conditions and natural
disasters, 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. Our
operations are subject to fluctuations in the
supply and cost of aircraft fuel which could
negatively affect our businesses. We rely
on maintaining a 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. 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 have
invested in new Boeing 787 aircraft, known
as Dreamliners, whose operation has been
delayed due to measures adopted by the
Federal Aviation Administration (FAA).
intense competition
Losses and liabilities caused by accidents
affecting one or more aircraft could have
a significant negative
impact on our
in
businesses. The
the airline industry can adversely affect
our level of operations. Chile could open
its airline industry to overseas airlines
without restrictions which could change
the competitive situation in Chile’s airline
sector and affect our business and operating
results. A recent proposal by the Brazilian
government could result in the reallocation of
certain landing and takeoff rights at Brazilian
airports. If this proposal is implemented as
currently formulated, it would reduce our
access to important airport infrastructure
and could negatively affect our operating
results. Some of our competitors could
receive external support with a negative
impact on our competitive position. If, in
future, we are unable to incorporate rented
aircraft into our fleet at acceptable prices
and conditions, our business could suffer. We
are incorporating a number of technologies
and new equipment and their phase-in could
have a negative impact on our service and
operating standards.
Our business could be adversely affected
if we were unable to cover our important
ANNUAL REPORT 2013116 RISKS INHERENT TO CHILE, BRAZIL AND
OTHER EMERGING MARKETS WHERE WE
OPERATE
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 the other countries where we
operate could adversely affect our revenues
and profitability. The government of Brazil
exercises an important influence over the
Brazilian economy and may continue to
do so, which could have a negative impact
on our business, financial situation and
operating results. It is not possible to predict
the future fiscal, monetary, social security
and other policies that will be adopted by
the present or future governments in Brazil
or the possibility of a negative impact of
our policies on the Brazilian economy. In
addition, possible political crises could
affect investor and public confidence which
could result in economic deceleration and an
impact on the market prices of the securities
issued by Brazilian companies. 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.
future financing requirements. Our business
could be negatively affected by our high
borrowing level and aircraft rental liabilities
as compared to our equity. Changes in
interest rates could have negative effects on
our interest payments, business, financial
situation, operating results and outlook as
well as on the market price of our ADRs, BDRs
and preferential shares. Higher insurance
costs and/or significant reductions in its
coverage would affect our financial situation
and operating results.
failures
Problems in air control systems or other
technical
could disrupt our
operations and have a significant adverse
effect on our business. 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.
Collective action by our employees could
cause operational difficulties and negatively
affect our business. Increases in labor costs,
which represent a significant part of our
operating costs, would directly affect our
earnings. We may experience difficulties in
finding, training and retaining employees.
In Brazil, the regulatory framework for
civil aviation is undergoing a process of
change and we have not yet been able to
evaluate the implications of these changes
for our business and operating results. Our
operations are subject to local, national
and international environmental regulation
and the costs of compliance with the
applicable norms or the consequences of
non-compliance could negatively affect our
results, business or reputation.
ANNUAL REPORT 2013117 RISKS RELATED TO OUR COMMON SHARES
AND ADRS
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 they 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-Chilean
residents who invest in our shares. Holders of
our ADRs could, in certain circumstances, be
unable to exercise their preferential rights.
ANNUAL REPORT 2013118 SUSTAINABILITY
LATAM AIRLINES GROUP S.A
06
ANNUAL REPORT 2013119 SUSTAINABILITY /
In 2013, the LATAM group carried out its
first integrated materiality process in a
bid to map the main social, economic and
environmental issues and impacts related
to its businesses. In the process, the views
of its principal stakeholders were taken into
account, with the people consulted including
company executives, other employees,
clients, suppliers, market analysts and
industry experts, in order to identify the
aspects of the group’s socio-environmental
management that require attention.
The process, which consisted in individual
interviews, working meetings, panels
and online consultation, resulted in the
preparation of LATAM Airlines Group’s
Materiality Matrix and the definition of
priority issues for the Company which were,
in turn, validated by senior management.
This process is a key input for the design
over the coming years of an integrated
sustainability strategy. At present, LAN and
TAM each have their own sustainability
policies, drawn up before the association
process. It is anticipated that, in 2014, a
corporate strategy will be prepared, based
on these consultations as well as the
business’s guidelines and strategic pillars,
which will permit proactive action on the
principal issues and impacts on society.
issues
identified
in the
The principal
materiality process are presented below,
except for financial issues which are covered
in greater depth elsewhere in this Report.
ANNUAL REPORT 2013120 ENVIRONMENT
The airline industry is responsible for 2% of
the greenhouse gas emissions produced in
the world by human activity. Airlines are,
therefore, making great efforts in this field
and have achieved significant improvements
as regards aerodynamics, engines and
operations that are reflected in a 70% gain
reduction in efficiency over the past 40 years.
In awareness of this impact, we have as
an industry undertaken to make ongoing
improvements and achieve “Carbon Neutral
Growth” by 2020. This undertaking, which is
unique in the world, reaffirms the industry’s
commitment to balancing care for the
environment with international economic
development.
The
industry’s principal environmental
impacts take the form of CO2 emissions, noise
and the waste generated by the operation of
flights and ground activities. As a company,
we are aware of these impacts and are taking
a series of measures to minimize them.
The objectives we have established are to
manage our carbon footprint responsibly, to
minimize the impact of our operations and
to promote the efficient use of resources
and the minimization of waste. Examples
of our efforts include fleet renewal, the
introduction of new flight technologies,
operational management in the air and
on the ground and the measurement and
external verification of our carbon footprint.
In the case of fleet renewal, we now have a
fleet with an age of less than seven years.
In addition, the equipment of our aircraft
with winglets and sharklets has allowed us
ANNUAL REPORT 2013121 to reduce CO2 emissions. It is important to
note that LATAM Airlines Group was one of
the first companies to incorporate the new
Boeing 787, the latest-generation aircraft
which reduces CO2 emissions by 20% and
noise by 40%.
In addition, we have incorporated new flight
technologies such as Required Navigation
Performance (RNP), a navigation and landing
system based on satellite positioning
technology. This has resulted in important
improvements in our operation such as
in CO2 emissions, shorter
a reduction
flight times, more direct routes and fewer
cancellations for weather reasons.
In the case of operational management in
the air and on the ground, the LEAN Fuel or
Smart Fuel program has implemented at
least 20 initiatives focusing on reducing fuel
consumption and continuous improvement
that resulted in the avoidance of emissions
of some 230,000 tonnes of CO2 in 2013.
In addition, the 2012 carbon footprint of
LAN and its subsidiaries, which form part of
the LATAM Group, was externally verified in
2013, marking an important environmental
achievement for the Company. Thanks to
LAN Perú’s program of compensation for
its ground operations, the Company also
contributed to reforestation of the Peruvian
Amazon for the second consecutive year.
ANNUAL REPORT 2013122 Another key concern
is to reduce the
noise generated due to the nature of the
Company’s operations. To this end, different
measures have been implemented and have
reduced noise levels. In one example of
these measures, it now operates with latest-
generation engines that comply with the
strictest noise standards of the International
Civil Aviation Organization (ICAO).
The Company also seeks to promote
development and use of more efficient
alternative energies that have less impact on
the environment. In its bid to achieve an ever
more sustainable operation, LAN Colombia
marked a milestone in the history of civil
aviation in that country and the region by
operating the first flight in Colombia to use
second-generation biofuel.
As a company, we would like to underline
that our operations are always governed by
current environmental legislation and that,
in order to ensure compliance, we adhere to
the highest quality and safety standards.
We are pleased that our work in this field
has been recognized, both for the Company’s
excellent report for the Carbon Disclosure
Project (CDP) and as one of the three
companies in Chile that best manage climate
change.
ANNUAL REPORT 2013123 SAFETY
Health and safety are the LATAM group’s
top priority and call for operations that are
safe and efficient for our customers and for
society as well as ensuring the wellbeing
of our employees. This involves five pillars:
safety, security, emergencies, auditing and
workplace safety.
The safety pillar refers to the guarantee
of the proper functioning and safety of
all our flights in all their different stages
from maintenance through to operation,
including the mapping of risks, technological
adjustments and efficiency and quality
controls. Operational safety involves the
prevention of illegal occurrences in flights
which affect passengers, crew, ground
equipment and airport installations.
Under the emergency and auditing pillars,
we act in line with the authorities that
regulate the sector and markets where we
operate. In this sense, it is important to
note our alliance with the International Air
Transport Association (IATA) with whose
support we carry out regular audits focusing
on operational safety.
In the case of workplace safety, initiatives
focus on the prevention of the risks inherent
to different posts such as measures relating
to the handling of spares,
inputs and
equipment and to maintenance operations
and initiatives to improve management of
the risks related to the work of flight crews.
As part of its commitment to achieving the
highest operational standards as regards
both its flights and administrative activities,
its Safety, Quality and
LAN
Environment Policy. As well as addressing the
launched
ANNUAL REPORT 2013124 issue of compliance with the corresponding
international
legislation, this reinforces
safety as a non-negotiable value of the
Company and its employees, highlighting the
communication of risks and unsafe actions
and conditions as mandatory for teams in
the event of any exposure.
Some units such as TAM MRO in San Carlos
(São Paulo) have their own health, workplace
safety and environmental policy to address
specific local situations and, in this case,
aspects relating to the maintenance, repair
and review of aircraft and components, with
an emphasis on environmental controls and
the prevention of incidents.
CUSTOMERS
LATAM Airlines Group views its relations with
its customers as a key factor for the success of
its business model. Our position of leadership
in Latin America implies the challenge of
offering services of excellence and ensuring
the loyalty of customers in different markets
as well as the need to optimize processes
and, in particular, those that intensify the
synergies of the integration of TAM with LAN.
Our efforts focus on gaining the trust of
our customers and offering them the best
experience from the planning of their
journey, flight alternatives and check-in
through to completion of the journey and
delivery of the goods transported.
Our mission is to transform the group into
the first choice in Latin America for our
passengers and the transport of cargo. In
ANNUAL REPORT 2013125 recent years, LAN and TAM have invested in
the modernization of attention of customers
in order to improve their experience. In the
case of passengers, important improvements
include self check-in (online or at the airport),
the availability of a virtual assistant to
answer queries through the companies’
websites and the launch of applications for
smartphones through which customers can
make, cancel or change bookings and obtain
information about flight times.
In the cargo business, there have also
been innovations such as the e-business
program and its initiatives, which arose from
LAN’s Customer Care project in 2011. This
focuses on providing information and on
managing events that qualify as continuous
It envisages a series of
improvement.
services such as the sending of messages,
online cargo tracking and the digitalization
of documents relating to the transport
of materials. The consolidation of LATAM
Cargo has brought with it new tasks such as
integration of the approach of attention for
our customers.
tools
Further strategic
for generating
customer loyalty are the LANPASS and TAM
Fidelidade programs, with the facilities and
convenience they offer to the frequent flyers
of the group’s companies.
ANNUAL REPORT 2013126 EMPLOYEES
maintenance
LATAM Airlines Group employs over 52,000
including
people across 23 countries,
administrative,
and
operational personnel, cabin and cockpit
crews and its sales force. For the group, its
employees are very important and efforts,
therefore, currently focus on developing the
new LATAM culture.
We want LATAM’s attributes to incorporate
the best of LAN and of TAM. These attributes
must be developed by our collaborators in
each of the markets where we operate. This
proposal is scheduled to be defined and
announced in the first half of 2014.
We aim to map the best practices already
applied by LAN and by TAM and to define
the attributes we want to develop in our
collaborators in the different markets. This
proposal is scheduled to be defined and
announced in the first half of 2014.
Our long-term objective is to achieve the
optimum performance of our employees,
accompanied by a good work climate and
efficiency in relations with our customers
and partners. In order to support this process
and develop our performance management,
and
including
integrated career plans, we are developing
a LATAM performance evaluation
tool
for all employees to replace the different
evaluation processes currently in place in
LAN and TAM.
succession
planning
ANNUAL REPORT 2013127 57
different
nationalities
Over
are
represented among our collaborators who,
therefore, constitute a particular and diverse
group. As a result, in order to guarantee
alignment of practices, all our employees’
actions are guided by the codes of ethics and
conduct of LAN and TAM. As from 2014, we
will have an integrated corporate code.
Another challenge of the integration has
to do with the cultural barriers created
by the different languages spoken by our
employees. This is currently being addressed
at some levels and in some areas through
Portuguese classes for Spanish speakers
and vice versa. Both companies offer regular
training for their employees, with a focus on
the update of knowledge and processes and
the aim of offering a better experience for
customers.
ANNUAL REPORT 2013128 SUSTAINABLE TOURISM
At present, the world’s airlines carry over
1,087 million international passengers each
year. South America receives around 15% of
this total, with an annual growth rate of 3%.
According to the World Tourism Organization
(UNWTO), the emerging economies will
receive more international visitors than the
industrialized economies by 2015 and, by
2030, are expected to reach a share of over
50%.
that
industry, we
As part of the tourism
understand
a
implies
responsibility which cannot be ignored and
calls for responsibility and respect towards
the places we visit.
tourism
We view sustainable
tourism, defined
as that which promotes socioeconomic
development whilst protecting intangible
heritage and local natural resources, as
a priority issue for LATAM Airlines Group.
This view was reinforced by the materiality
process in which those consulted mentioned
the importance of discussing the role of
airlines in promoting tourist destinations
whilst causing the least possible negative
impact.
South America stands out in the world for its
people, its history and geography, its history
and geography, as a land of opportunity and
more. We must respect and protect that,
harmonizing economic development with
the welfare of our people and respect for
the environment so as to pass on to future
generations a place that is the same as or
better than we received it.
ANNUAL REPORT 2013129 At LATAM, we are committed to responsible
tourism,
inculcating and deepening the
concept of tourism and environmental
awareness
in the communities of the
countries where we operate. We do this
through initiatives that seek to foster the
in
development of sustainable tourism
specific places through programs such as
Cuido mi destino (I look after my destination),
TAM’s Social
Investment Funds for the
Support of Socio-Environmental Projects
and the acquisition of reforestation bonds in
the Peruvian Amazon.
Following the merger, a business and tourism
area was created which is responsible for
planning investments in new routes and
destinations, taking into account all their
possible effects.
We want our next destination to be a better
world.
RELATIONS WITH GOVERNMENTS AND
REGULATORY ISSUES
Through the relations it maintains with
government bodies and sector entities in the
different markets where it operates, LATAM
Airlines Group has an active voice on matters
that directly or indirectly affect its business
strategy.
Over time, we have sought to strengthen
our participation in bodies that represent
the airline industry. At the global level, we
act through IATA, which is a key vehicle for
the exchange of information about new
ANNUAL REPORT 2013130 technologies, operational safety and the
sector’s current and future challenges. At
the regional level, we also participate in the
Latin American and Caribbean Air Transport
Association (ALTA).
Always defending transparent dialogue, we
seek joint solutions with a focus on efficiency
and profitability. The Company has teams
responsible for monitoring and participating
in such debates. Given LATAM’s process of
integration, we face the challenge of acting
in an integrated manner in our relations with
political and sector agents in different places
such as Chile, Peru, Argentina and Brazil,
taking into account the different situations
prevailing in these countries.
In Chile and other markets, we also work
with governments to study routes and flights
that can generate tourism, employment
and earnings for places where we did not
previously operate.
to ensure proper
relations
In order
with government
representatives and
associations, we use LATAM’s codes of
In addition, as
conduct as reference.
part of our compliance program, we are
implementing a calendar of training on
governance and ethics.
ANNUAL REPORT 2013131 CONSOLIDATED FINANCIAL STATEMENTS
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
DECEMBER 31. 2013
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$
-
VEF
CHILEAN PESO
ARGENTINE PESO
UNITED STATES DOLLAR
THOUSANDS OF UNITED STATES DOLLARS
COLOMBIAN PESO
BRAZILIAN REAL
THOUSANDS OF BRAZILIAN REAL
STRONG BOLIVAR
ANNUAL REPORT 2013132
INDEPENDENT AUDITOR’S REPORT
(Free translation from the original in Spanish)
Santiago, March 17, 2014
To the Board of Directors and Shareholders
Latam Airlines Group S.A.
We have audited the accompanying consolidated financial statements of Latam Airlines Group
S.A. and its subsidiaries, which comprise the consolidated statements of financial position as
at December 31, 2013 and 2012 and the consolidated statements of income, comprehensive
income, changes in equity and cash flows for the years then ended, and the related notes to the
consolidated financial statements.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards. This
responsibility includes the design, implementation and maintenance of a relevant internal
control for the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
is
responsibility
to express an opinion on
financial
Our
in accordance with
statements based on our audit. We conducted our audit
that
require
Chilean generally accepted auditing
we plan and perform the audit to obtain reasonable assurance about whether
from material misstatement.
the
consolidated financial
these consolidated
standards. Those
statements
standards
free
are
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Consequently, we do not express such an opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Santiago, March 17, 2014
Latam Airlines Group S.A.
2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Latam Airlines Group S.A. and its subsidiaries as at December 31, 2013 and
2012, and the results of operations and cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Jonathan Yeomans Gibbons
RUT: 13.473.972-K
CONTENTS OF THE NOTES TO THE CONSOLIDATED STATEMENTS OF LATAM AIRLINES GROUP S.A.
AND SUBSIDIARIES.
1.General information
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
3. Financial risk management
3.1. Financial risk factors
3.2. Capital risk management
3.3. Estimates of fair value
4. Accounting estimates and judgments
5. Segmental information
6. Cash and cash equivalents
7. Financial instruments
7.1. Financial instruments by category
7.2. Financial instruments by currency
8. Trade. other accounts receivable and non.current accounts receivable
9. Accounts receivable from/payable to related entities
10. Inventories
11. Tax assets
12. Other financial assets
13
21
21
28
29
30
31
31
31
32
32
33
34
34
35
35
35
35
35
36
36
37
37
38
38
38
39
39
56
57
61
62
66
68
68
70
72
76
77
78
79
ANNUAL REPORT 2013135 13. Other non.financial assets
14. Non -current assets (or disposal groups) classified as held for sale
15. Investments in subsidiaries
16. Equity accounted investments
17. Intangible assets other than goodwill
18. Goodwill and Bussines combination
18.1. Goodwill
18.2. Business combination
19. Property. plant and equipment
20. Taxes and deferred tax
21. Other financial liabilities
22. Trade and other accounts payables
23. Other provisions
24. Tax liabilities
25. Other non.financial liabilities
26. Employee benefits
27. Accounts payable, non-current
28. Equity
29. Revenue
30. Costs and expenses by nature
31. Gains (losses) on the sale of non-current assets not classified as held for sale
32. Other income, by function
33. Foreign currency and exchange rate differences
34. Earnings per share
35. Contingencies
36. Commitments
37. Transactions with related parties
38. Share based payments
39. The environment
40. Events subsequent to the date of the financial statements
82
85
86
88
92
94
94
96
106
117
123
137
140
144
145
146
148
149
159
160
162
163
164
172
173
187
194
197
201
203
ANNUAL REPORT 2013136 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
Note
As of
December 31,
2013
As of
December 31
2012 (*)
6 - 7
7 - 12
13
7 - 8
7 - 9
10
11
ThUS$
ThUS$
1,984,903
709,944
335,617
650,263
636,543
284,404
1,633,094
1,417,531
628
231,028
81,890
15,187
176,818
95,785
4,977,104
3,276,531
Non-current assets (or disposal groups) classified as held for sale or as
held for distribution to owners
14
2,445
47,655
Total current assets
4,979,549
3,324,186
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
Deferred tax assets
Total non-current assets
Total assets
(*) See Note 18.2
7 - 12
13
7 - 8
16
17
18
19
20
65,289
272,276
100,775
6,596
74,095
307,987
50,612
3,757
2,093,308
2,382,399
3,727,605
4,213,160
10,982,786
11,807,076
402,962
163,067
17,651,597
19,002,153
22,631,146
22,326,339
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
ANNUAL REPORT 2013137
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
LIABILITIES AND EQUITY
LIABILITIES
Current 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
Note
As of
December 31,
2013
As of
December 31,
2012 (*)
ThUS$
ThUS$
7 - 21
7 - 22
7 - 9
23
24
25
7 - 21
7 - 27
23
20
26
25
2,039,787
1,557,736
505
27,856
11,583
2,047,330
1,689,990
274
59,574
14,512
2,871,640
2,485,887
6,509,107
6,297,567
7,859,985
922,887
1,122,247
767,228
45,666
77,567
7,698,857
1,085,601
1,306,872
579,339
38,095
99,323
Total non-current liabilities
10,795,580
10,808,087
Total liabilities
17,304,687
17,105,654
EQUITY
Share capital
Retained earnings
Treasury Shares
Other reserves
Parent's ownership interest
Non-controlling interest
Total equity
28
28
28
28
2,389,384
795,303
(178)
2,054,312
5,238,821
87,638
1,501,018
1,076,136
(203)
2,535,100
5,112,051
108,634
5,326,459
5,220,685
Total liabilities and equity
22,631,146
22,326,339
(*) See Note 18.2
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
ANNUAL REPORT 2013138 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 (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to owners of the parent
Income (loss) attributable to non-controlling interest
Net income (loss) for the period
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)
Diluted earnings (losses) per share (US$)
Note
For the period, ended
December 31.
2013
ThUS$
2012(*)
ThUS$
29
12,924,537
9,710,372
(10,054,164)
(7,634,453)
2,870,373
2,075,919
32
30
16
33
20
34
34
341,565
(1,025,896)
(1,136,115)
(408,703)
(55,410)
585,814
72,828
(462,524)
1,954
(482,174)
214
(283,888)
20,069
(263,819)
(281,114)
17,295
(263,819)
(0,57613)
(0,57613)
220,156
(803,619)
(888,654)
(311,753)
(45,831)
246,218
77,489
(294,598)
972
66,685
(22)
96,744
(102,386)
(5,642)
(19,076)
13,434
(5,642)
(0,04627)
(0,04627)
(*) The balances at December 31, 2012, include TAM S.A. and Subsidiaries from June 22, 2012, date
of the business combination materialized.
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
ANNUAL REPORT 2013139 For the period, ended
December 31,
Note
2013
2012(*)
ThUS$
(263,819)
ThUS$
(5,642)
NET INCOME (LOSS)
Components of other comprehensive income that will be reclassified to
income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax
33
(629,858)
19,170
Other comprehensive income, before taxes,
currency translation differences
Cash flow hedges
(629,858)
19,170
Gains (losses) on cash flow hedges before taxes
21
128,166
(2,510)
Other comprehensive income (losses), before taxes,
cash flow hedges
Other components of other comprehensive income (loss),
before taxes
Income tax relating to other comprehensive income that will be
reclassified to income
128,166
(2,510)
(501,692)
16,660
Income tax related to currency translation differences in other compre-
hensive income
20
-
(2,734)
Income tax related to cash flow hedges in other comprehensive income
20
(19,345)
(2,623)
Income taxes related to components of other comprehensive
income that will be reclassified to income
Other comprehensive income (loss)
Total comprehensive income (loss)
(19,345)
(5,357)
(521,037)
(784,856)
11,303
5,661
Comprehensive income (loss) attributable to owners of the
parent
(768,457)
(2,359)
Comprehensive income (loss) attributable to
non-controlling interests
TOTAL COMPREHENSIVE INCOME (LOSS)
(16,399)
(784,856)
8,020
5,661
(*) The balances at December 31, 2012, include information of TAM S.A. and Subsidiaries from
June 22, 2012, date of the business combination materialized.
The accompanying Notes 1 to 40 form an integral part of these consolidated financial statements.
ANNUAL REPORT 2013140CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMELATAM AIRLINES GROUP S.A AND SUBSIDIARIES 5
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ANNUAL REPORT 2013142
CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
For the periods ended December 31
Note
2013
ThUS$
2012
ThUS$
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 used for acquisition of subsidiaries
Cash flows used in the purchase of non-controlling interest
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
Purchases of intangible assets
Payment from other long-term assets
Dividends received
Other cash inflows (outflows)
Net cash flow used in investing activities
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)
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
6
6
6
6
6
13,406,275
10,258,473
4,638
57,763
(9,570,723)
(2,405,315)
(31,215)
11,310
(83,033)
76,761
(7,153,865)
(1,938,769)
(19,325)
52,986
(3,018)
(50,433)
1,408,698
1,203,812
(5,517)
(497)
270,485
(440,801)
225,196
(3,223)
-
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(1,381,786)
(2,389,364)
(43,484)
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(59,166)
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1,101,159
(1,952,013)
(423,105)
(29,694)
(361,006)
(62,013)
1,205,795
1,335,681
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1,334,640
650,263
1,984,903
83,512
(203)
2,185,663
152,000
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(292,931)
(124,827)
(227,607)
(231,079)
1,005,196
282,592
(6,736)
275,856
374,407
650,263
The accompanying Notes 1 to 40 form an integral part of these interim consolidated financial
statements.
ANNUAL REPORT 2013143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2013
LATAM AIRLINES GROUP S.A AND SUBSIDIARIES
NOTE 1. GENERAL INFORMATION
LATAM Airlines Group S.A. (the “Company”) 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”).
regional and
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
international
series of
routes in America, Europe and Oceania.
These businesses are performed directly
or through
in different
its subsidiaries
countries. In addition, the Company has
subsidiaries operating
freight
business in Mexico, Brazil and Colombia.
the
in
On August 13, 2010, the Company reported
to the Superintendency of Securities and
Insurance, as an Essential Matter, that at this
date the Company Costa Verde Aeronáutica
S.A. and Inversiones Mineras del Cantábrico
S.A. (the latter two, "Cueto Subsidiaries"),
TAM S.A. (“TAM”), and TAM Empreendimentos
(“TEP”) signed a non-
e Participações
binding Memorandum of Understanding
(“MOU”) in which the companies agreed to
proceed with their intention of carrying
jointly under one
out their operations
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
in 23 countries,
than 115 destinations
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 called (a) Implementation Agreement
and
Agreement
Exchange Offer
("Contracts Signed") containing the final
terms and conditions of the proposed
partnership between the Company and TAM.
(b)
On September 21, 2011, the Court of Defense
of Free Competition ("TDLC") approved the
merger between the Company and TAM,
establishing 14 mitigation 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.
ANNUAL REPORT 2013144 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
the Company and TAM;
between
(b) The change of Company name and the
rest of the transactions contemplated
contracts.
subscribed
in
the
(c) The
in
increase
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 (Note 38 (a.1)).
The effectiveness of these agreements
was subject
the
conditions established in the extraordinary
shareholders' meeting.
to compliance with
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 S.A. and Holdco II S.A.,
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.
ANNUAL REPORT 2013145
(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.
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. At the end of the period
of first refusal, that is, as of January 19,
2013, there were 6,857,190 shares remaining
subscribed and paid, leaving a balance of
579,626 shares to be subscribed. This balance
was auctioned on the Santiago Stock
Exchange - Stock Exchange dated January 23,
2013 at a value of CLP$ 11,921 per share.
On June 11, 2013, the Company held an
extraordinary shareholders’ meeting, which
had been called by the board on April 30, 2013,
at this meeting the shareholders adopted
the following resolutions:
1) To increase the company’s capital by
the sum of ThUS$ 1,000,000 through the
issuance of 63,500,000 shares, that is,
from the sum of US$ 1,652,896,812.43,
represented by 488,347,819 shares, all of
one single series and with no par value,
to the sum of US$ 2,652,896,812.43,
represented by 551,847,819 shares, all of
one single series and with no par value.
2) To set aside 1,500,000 new shares
from
issuance.
the aforementioned
to be used for a compensation plan
for executives at LATAM and
its
subsidiaries, as provided in Article 24
of the Corporations Law (Note 38 (a.2)).
3) To empower the Board, acting freely
and within the broadest faculties, to
determine, fix, and agree the price,
manner, time, procedure, and conditions
for placing the aforementioned shares.
4) To empower the Board to proceed
to issue the shares related with the
capital increase; to enact all formal
procedures necessary for said shares
to be inscribed and floated; to act on
behalf of the Company against all types
of authorities, bodies, or persons related
to the securities market; to determine
all matters relating to the options that
may form part of the compensation
plans; to grant whatsoever powers may
be necessary or desirable in order to
implement all or part of the above; and,
ANNUAL REPORT 2013146
in general, to resolve all related matters
approved at this Meeting.
5) To amend the articles of the Corporate
Statutes that refer to equity in order
to adjust them to the aforementioned
modifications.
6)
To delegate on the Board, for a five year
period starting on December 21, 2011, the
power to fix the new price of placement
of the 4,800,000 shares destined for
in
compensation plans, as provided
Article 24 of the Corporations Law, in
the Extraordinary
conformity with
Shareholders’ Meeting
on
December 21, 2011, as modified at the
Extraordinary Shareholders’ Meeting
held on September 4, 2012, and to amend
and resolve the terms and conditions
applicable thereto.
held
7) To empower the Board to adopt such
further agreements as may be necessary
in order to carry out the aforementioned
matters.
On June 20, 2013, was presented to the
Superintendency of Securities and Insurance
a request for the inscription of 63,500,000
mentioned above. On July 22, 2013 the
Superintendency of Securities and Insurance
remitted the Company providing comments
for said presentation by Deed No. 16141
The Company replied to these submissions
on October 16, 2013. Finally. on November
11, 2013, the Superintendency of Securities
and Insurance issued the certificate that
approved the inscription of that issuance
under the number 987. On November 20,
2013, began the preferential subscription
period of the 62,000,000 shares not destined
for the above compensation plans, settling
the price that these shares would be offered
to shareholders in US$ 15,17. On December
19, 2013, ended the preferential subscription
period, have been subscribed and paid the
total of 51,685,128 shares and collected the
equivalent of US$ 784 million (Note 40 (a)).
The Company is located in Santiago, Chile,
at Avenida Américo Vespucio Sur No. 901,
commune of Renca.
Corporate Governance practices of the
in accordance with
Company are set
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 Mobiliarios
(“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., Inversiones Nueva Costa
Verde Aeronáutica Limitada, Costa Verde
Aeronáutica SpA, Inversiones Priesca Dos
y Cía. Ltda., Inversiones Caravia Dos y Cía.
ANNUAL REPORT 2013147
Ltda., Inversiones El Fano Dos y Cía. Ltda.,
Inversiones La Espada Dos S.A., Inversiones
Puerto Claro Dos Limitada e Inversiones
Mineras del Cantábrico S.A. owns 25.50%
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, 2013, the Company had a
total of 1,588 registered shareholders. At that
date approximately 7.91% of the Company’s
share capital was in the form of ADRs and
approximately 0.73% in the form of BDRs.
For the year ended December 31, 2013, the
Company had an average of 52,919 employees,
ending this period with a total of 52,997
employees, spread over 9,908 Administrative
employees, 6,925 in Maintenance, 17,054 in
Operations, 9,339 in Cabin Crew, 4,091 in
Controls Crew, and 5,680 in Sales.
ANNUAL REPORT 2013148
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(
ANNUAL REPORT 2013150
-
On October 11, 2013, TAM S.A., under each
contracts of sale of shares with Lan Cargo
Overseas Limited, TADEF, Participação e
Consultoria Empresarial Ltda. y Jochman
Participações Ltda. acquired the 99.98%
of the shares of Aerolinhas Brasileiras
S.A. (ABSA).
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, 2012 and December 31,
2013, are detailed below:
(1) Incorporation
companies
or
acquisition
of
-
-
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.(a)).
Lantours Division II Land Services S.A.
On November 22, 2012, by public deed
in the Notary of Santiago of Mr. Patricio
incorporated
Raby Benavente, was
LANTOURS Division II Land Services S.A.,
which is owned by 99.99% to LANTOURS
Division Land Services S.A. and 0.01% Lan
Investment S.A., motionless.
ANNUAL REPORT 2013151 originated before the date of acquisition
within TAM S.A. (Note 18.2.(c)). Additionally,
in order to facilitate comparison, there
have been some minor reclassifications
to the consolidated financial statements
corresponding to the previous year.
NOTE 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
following describes
the principal
The
accounting policies
the
in
preparation of these consolidated financial
statements.
adopted
2.1.
Preparation
The consolidated financial statements of
LATAM Airlines Group S.A. are for the period
ended December 31, 2013, 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 financial instruments.
The preparation of the consolidated financial
statements 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 financial statements.
The comparative consolidated financial
statements have been revised as a result
of modifications made to the fair values
in the business combination
calculated
with TAM S.A. and Subsidiaries, during the
measurement period in accordance with IFRS
3, and correction of non- significant errors
ANNUAL REPORT 2013152 (a) Accounting pronouncements with implementation effective from January 1, 2013:
Standards and amendments
Mandatory application: Annual
periods beginning on or after
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.
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.
Amendment IFRS 7: Financial instruments: Disclosures
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.
IFRS 10: Consolidated financial statements
Issued in May 2011, replaces SIC 12 "Consolidation of special purpose
entities" and orientation on control and consolidation in IAS 27 "Consolidated
Financial Statements". Sets clarifications and new parameters for the
definition of control, and the principles for the preparation of consolidated
financial statements.
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 arrangements by focusing on rights and obligations arising from the
agreements 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.
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, whether
they are classified as subsidiaries, associates or joint ventures. Applicable for
entities that hold investments in subsidiaries, joint ventures, and associates.
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. Essentially, this amendment eliminates the fluctuation
band or “corridor” method, and stipulates that actuarial fluctuations over the
period are recognized against Other Comprehensive Income. Additionally, it
includes modifications to disclosures for all employee benefits.
07/01/2012
01/01/2013
01/01/2013
01/01/2013
01/01/2013
01/01/2013
01/01/2013
01/01/2013
ANNUAL REPORT 2013153 Standards and amendments
Improvements issued in May 2012
Mandatory application: Annual
periods beginning on or after
01/01/2013
IAS 1: Presentation of financial statements – Clarifies requirements for
comparative information when an entity has a 3rd Statement of Financial
Position column.
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.
01/01/2013
The application of standards, amendments and interpretations had no material impact on the
annual consolidated financial statements of the Company.
ANNUAL REPORT 2013154 (b) Accounting pronouncements effective implementation starting on January 1, 2014 and
following:
Standards and amendments
Amendment to IAS 32: Financial instruments: Presentation
Issued in December 2011. Clarifies the requirements for off-setting financial
assets and liabilities in the Statement of Financial Position. Specifically, 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 legally 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, this amendment modifies the classification and
measurement of financial assets. It establishes two measurement categories:
amortized cost and fair value. All equity instruments are measured at fair
value. A debt instrument is measured at amortized cost only if the entity
maintains it in order to obtain contractual cash flows and these cash flows
represent capital and interest.
This standard was subsequently modified in November 2010 to include the
treatment and classification of financial liabilities. For liabilities, the standard
carries forward the majority of the requirements established in IAS 39.
These include accounting at amortized cost for most financial liabilities, with
splitting of embedded derivatives. The principal change is that, where the fair
value option is selected for financial liabilities, the part of the change in the
fair value attributable to changes in own credit risk for the entity is recognized
under other comprehensive income rather than profit or loss, unless this
creates an accounting mismatch.
Early adoption is permitted.
IAS 27: Separate financial statements and
Amendment to
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.
Amendment to IAS 36: Impairment of assets
Issued in May 2013 Modifies recoverable amount disclosures for non-financial
assets in line with the requirements stipulated under IFRS 13. This amendment
requires the disclosure of additional information on the recoverable amount
of assets that show impairment if this amount is based on fair value minus
costs of disposal. It also requests disclosure of items that include the discount
rates used in measuring the recoverable amount determined using present
value approaches. Early adoption is permitted.
Amendment to IAS 39: Financial instruments: Recognition and measurement
Issued in June 2013. This standard outlines requirements for the novation of
derivatives, permitting continuation of hedge accounting, so as to prevent
novations arising as a result of laws and regulations from affecting financial
statements. For these purposes, it indicates that hedging instruments shall
not be voided or terminated in the event of changes: (a) arising as a result
of laws or regulations, if the parties to the hedging instrument agree that a
central counterparty or an entity (or entities) act as a counterparty to provide
central compensation replacing the original counterparty; (b) otherwise, as
applicable, affecting the hedging instruments, limited to such changes as are
necessary to conduct such a replacement of the counterparty. These changes
include changes in contractual guarantee requirements, accounts receivable
and accounts payable compensation rights, taxes, and encumbrances. Early
adoption is permitted.
Mandatory application: Annual
periods beginning on or after
01/01/2014
Undetermined
01/01/2014
01/01/2014
The Company has adopted early this amend-
ment at December 31, 2013.
01/01/2014
ANNUAL REPORT 2013155 Standards and amendments
IFRS 9 “Financial instruments”
Issued in November 2013, the modifications include a substantial overhaul of
hedge accounting that will allow entities to better reflect their risk management
activities in the financial statements. Additionally, and unrelated to hedge
accounting, this modification allows entities to opt for early adoption of the
requirement to recognize changes in reasonable value attributable to changes
in the credit risk of the entity itself in other comprehensive income (for financial
liabilities designated under the fair value option). This modification may be
applied without any requirement to adopt the rest of IFRS 9.
Mandatory application: Annual
periods beginning on or after
Undetermined
Amendment to IAS 19 “Employee Benefits”
Issued in November 2013, this amendment applies to contributions by
employees or third parties to defined benefits plans. The modifications seek to
simplify accounting procedures for contributions that are independent of the
number of years of service of the employees, such as employee contributions
calculated as a fixed percentage of their salaries.
01/07/2014
Improvements to the International Financial Reporting Standards (2012)
Issued in December 2013.
01/07/2014
IFRS 2 “Share-based Payment” – The amendment clarifies the definitions of
“vesting condition” and “market condition” and adds separate definitions of
“performance condition” and “service condition”. This amendment must be
applied prospectively for all transaction with share-based payments to vest on
or after July 1, 2014. Early adoption is permitted.
IFRS 3 “Business Combinations” - The standard is amended to clarify that
contingent consideration that is classified as financial instrument under the
test described in IAS 32 “Financial instruments” shall be classed as a financial
liability or equity. The standard is also amended to clarify that all non-equity
contingent consideration, both financial and non-financial, shall be measured at
fair value at each reporting date, with changes in value imputed to profit or loss.
Therefore, IFRS 9, IAS 37, and IAS 39 are also modified. The amendment is
prospectively applicable for business combinations with an acquisition date on
or after July 1, 2014. Early adoption is permitted so long as the amendments to
IFRS 9 and IAS 37, also issued as part of the 2012 improvement plan, are also
early adopted.
IFRS 8 “Operating Segments” - The standard is amended to include to disclose
the judgments made by management in applying the aggregation criteria to
operating segments. This includes a description of the segments that have been
aggregated and the economic indicators that have been assessed in determining
that the segments aggregated share similar economic characteristics.
The standard is also amended to require a reconciliation of the total of the
reportable segments’ assets with the assets of the entity, when assets are
reported by segment. Early adoption is permitted.
ANNUAL REPORT 2013156 Standards and amendments
Mandatory application: Annual
periods beginning on or after
Improvements to the International Financial Reporting Standards (2012)
Issued in December 2013.
01/07/2014
IFRS 13 “Fair Value Measurement” - When IFRS 13 was published, paragraphs
B5.4.12 of IFRS 9 and GA79 of IAS 39 were consequently eliminated. This led to
a doubt as to whether entities were no longer permitted to measure short term
receivables and payables at invoice amounts if the effect of not discounting
is immaterial. The IASB has modified the basis of conclusions of IFRS 13 to
clarify that it had no intention of removing the capacity to measure short term
receivables and payables at the invoice amount under such circumstances.
IAS 16, “Property, Plant and Equipment”, and IAS 38, “Intangible Assets”
- Both of these standards are amended to clarify the treatment of the gross
carrying amount and accumulated depreciation when for entities that apply
the revaluation model. In these cases, the carrying amount of the asset is
updated to the revalued amount, and this revaluation is split between carrying
amount and accumulated depreciation in one of the following ways: 1) either
the carrying amount is updated in a manner consistent with the revaluation
of the carrying amount and accumulated depreciation is adjusted to equal the
difference between the gross carrying amount and the carrying amount after
accounting for losses through accumulated impairment; 2) or accumulated
depreciation is eliminated, against a charge to the gross carrying amount of the
asset. Early adoption is permitted.
IAS 24, “Related Party Disclosures” - The standard is amended to include an
entity providing key management personnel services to the reporting entity
or the parent of the reporting entity as a related party of the reporting entity.
The reporting entity is not obligated to disclose the compensation paid to the
workers or administrators of the entity providing key management services,
but is obligated to disclose the sums imputed to the reporting entity by the
service provider entity for the key management personnel services provided.
Early adoption is permitted.
ANNUAL REPORT 2013157 Standards and amendments
Improvements to the International Financial Reporting Standards (2012)
Issued in December 2013.
IFRS 1 “First-time Adoption of International Financial Reporting Standards” - The
amendment clarifies that an entity, in its first IFRS financial statements, has the
choice between applying an existing and currently effective IFRS or applying
early a new or revised IFRS that is not yet mandatorily effective, provided that
the new IFRS permits early application for all applicable periods.
IFRS 3 “Business Combinations” - The standard is amended to clarify that
IFRS 3 is not applicable to accounting procedures for the formation of a joint
arrangement under IFRS 11. The amendment also clarifies that the exemption
to inclusion only applies in the financial statements of the joint arrangement
itself.
IFRS 13 “Fair Value Measurement” - The amendment clarifies that the scope of
the portfolio exception defined in IFRS 13 includes all contracts accounted for
within the scope of IAS 39 or IFRS 9, permitting the reporting entity to measure
the fair value of a group of financial assets and liabilities at net value.
The amendment is mandatory for financial reporting periods starting on or
after July 1, 2014. An entity must apply the amendments prospectively from the
start of the first annual period in which IFRS 13 is applied.
IAS 40 “Investment Property” - The standard is amended to clarify that IAS 40
and IFRS 3 are not mutually exclusive. IAS 40 provides guidelines to distinguish
between investment properties and properties occupied by their owners. When
financial information is prepared, the application guidelines for IFRS 3 must
also be applied in order to determine whether or not an investment property
is a business combination. The amendment is applicable for financial reporting
periods starting on or after July 1, 2014, but may be applied to individual
property acquisitions before that date, so long as the information necessary to
apply the amendment is available.
Interpretations
IFRIC 21: Levies
Issued in May 2013. A levy is defined as a disbursement of resources that
include economic benefits imposed on an entity by a government in accordance
with legislation in force. The interpretation indicates accounting procedures for
the payment of a levy if it the liability falls within the scope of IAS 37. The issue
relates to when a liability should be recognized for levies imposed by a public
authority to operate in a specific market. The interpretation indicates that
the liability should be recognized at the time of the event that generated the
obligation, at which point payment was unavoidable. The obligating event may
occur on a specific date or progressively over the course of time. Early adoption
is permitted.
Mandatory application: Annual
periods beginning on or after
01/07/2014
Mandatory application: Annual
periods beginning on or after
01/01/2014
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.
ANNUAL REPORT 2013158 2.2. Consolidation
(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.
to
To account for and identify the financial
revealed when
be
information
carrying out a business combination,
such as the acquisition of an entity by
the Company, shall apply the acquisition
method provided for in IFRS 3 (or IFRS 3
for its acronym in Spanish - http://www.
normasinternacionalesdecontabilidad.es/
nic/pdf/niif3.pdf). According to IFRS 3, the
cost of acquisition is the fair value of the
assets acquired, the equity instruments
issued and the liabilities incurred or assumed
on the date of the business combination.
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
is
shown as Goodwill. If the cost is less than the
fair value of the net assets of the acquired
recorded
the difference
subsidiary,
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. Additionally, IFRS 3 allows
adjustments to the initial accounting for a
business combination within the period of
twelve months from the acquisition date. In
connection with the business combination
process with TAM S.A. and Subsidiaries, this
period of 12 months from the day June 22,
2012.
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.
(b) Transactions with
non-controlling
interests
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
is not
When a subsidiary is sold and a percentage
of participation
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
retained,
ANNUAL REPORT 2013159 the loss of control is recognized in the
consolidated income statement in Other
gains (losses).
is
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
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.
is adjusted
Post-acquisition movement
against 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 state-
ments of each of the entities of LATAM Airli-
nes Group S.A. and Subsidiaries are valued
using the currency of the main economic en-
vironment in which the entity operates (the
functional currency). The functional curren-
cy of LATAM Airlines Group S.A. is the United
States dollar which is also the presentation
currency of the consolidated financial state-
ments of LATAM Airlines Group S.A. and Sub-
sidiaries.
(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 by function except when deferred in
Other comprehensive income as qualifying
cash flow hedges.
ANNUAL REPORT 2013160 (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:
(i) Assets
and
liabilities of
each
consolidated statement of financial
position presented are translated
at the closing exchange rate on the
consolidated statement of financial
position date;
(ii) The revenues and expenses of each
income
are
translated at the exchange rates
prevailing on the transaction dates,
statement
account
(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, plant and equipment
The land of LATAM Airlines Group S.A. and
Subsidiaries is recognized at cost less any
accumulated impairment loss. The rest of the
Property, plant and equipment are registered,
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.
(replacement
costs
of
Subsequent
components,
improvements, extensions,
etc.) are included in 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.
ANNUAL REPORT 2013161
The residual value and useful life of assets
are reviewed, and adjusted if necessary,
once per year.
in acquiring them and preparing them for
using the specific software. These costs are
amortized over their estimated useful lives.
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 compensation with the book
value and are included in the consolidated
statement of income.
Expenses related to 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.
2.5. Intangible assets other than goodwill
Brands, airport Slots and Loyalty program
The direct costs include the expenses of
the personnel who develop the computer
software and other costs directly associated.
Brands, airport Slots and coalition and
loyalty program are intangible assets of
indefinite useful life and are subject to
impairment tests annually.
Development costs of computer software
shown as assets are amortized over their
estimated useful lives.
slots
correspond
The airport
to an
administrative authorization to carry out an
operation of arrival and departure of aircraft
at a specific airport, within a specified period.
The Loyalty program corresponds to the
system of accumulation and redemption of
points that has developed Multiplus.
The Brands, airport Slots and Loyalty program
were recognized in fair values determined in
accordance with IFRS 3, as a consequence of
the business combination explained in Note
18.2.(b).
Computer software
Licenses for computer software acquired are
capitalized on the basis of the costs incurred
2.6. Goodwill
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 recognized in the consolidated
income statement when they are incurred.
ANNUAL REPORT 2013162 2.8. Losses for impairment of non-financial
assets
in circumstances
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. Assets
subject to amortization are subjected to
impairment tests whenever any event or
indicates that
change
the book value of the assets may not be
recoverable. An impairment loss is recorded
when the book value is greater than the
recoverable
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 at each reporting date.
amount.
The
2.9. Financial assets
The Company
its financial
classifies
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
acquired.
instruments were
Management determines the classification
of its financial 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
ANNUAL REPORT 2013163 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
investments have
cash flows from the
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
interest rate.
cost using the effective
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
interest rate.
at the original effective
2.10 Derivative financial instruments and
hedging activities
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 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.
ANNUAL REPORT 2013164 (a) Fair value hedges
Changes in the fair value of designated deri-
vatives that qualify as fair value hedges are
shown in the consolidated statement of in-
come, together with any change in the fair
value of the asset or liability hedged that is
attributable to the risk being hedged.
(b) Cash flow hedges
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
income until that
Other comprehensive
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
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)”.
it
(c) Derivatives 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)”.
2.11. Inventories
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.
ANNUAL REPORT 2013165 The existence of
significant financial
difficulties on the part of the debtor, the
is entering
probability that the debtor
bankruptcy or financial reorganization and
the default or delay in making payments are
considered indicators that the receivable has
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.
2.16. 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.
2.13. Cash and cash equivalents
2.17. Deferred taxes
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 from the placement of
shares.
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.
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
tax earnings with which to compensate the
temporary differences.
ANNUAL REPORT 2013166
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
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 is
made on the basis of the amount estimated
for distribution.
The Company recognizes the expense for
personnel vacations on an accrual basis.
Provisions are recognised when:
2.19.
Provisions
(b) Share-based compensation
consolidated financial
The compensation plans implemented by
the granting of options for the subscription
and payment of shares are shown
in
statements
the
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
(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.
ANNUAL REPORT 2013167 2.20. Revenue recognition
(iii) Other revenues
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.
Consistent with the foregoing, the Company
presents the deferred revenues in heading
Other financial liabilities in the Statement of
Financial Position.
(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 kilometers or points earned can be
exchanged for flight tickets or other services
of associated entities.
The consolidated financial
statements
include liabilities for this concept (deferred
income), 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.
The Company records revenues for other
services when these have been provided.
(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
ANNUAL REPORT 2013168 These deposits, often called maintenance
reserves,
a major
accumulate until
maintenance is performed, once made, is
request the recovery to the lessor. At the end
of the contract period, the balance between
paid reservations and conditions agreed
with levels of maintain in delivering, be
offset the parties if applicable.
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.
included in Property, plant and equipment.
(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.
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. Maintenance
The costs incurred for scheduled heavy
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 the use of the aircraft expressed
in terms of cycles and flight hours.
In case of on balance sheet aircraft, these
maintenance cost are capitalized as Property,
plant and equipment, while in the case of
off balance sheet aircraft maintenance cost
are periodically provided for and recognized
through profit and loss as “Cost of sales”.
Additionally, some
leases establish the
obligation of the lessee to make deposits
to the lessor as a guarantee of compliance
with the maintenance and return conditions.
ANNUAL REPORT 2013169
(“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.
During the period of 2013, the Company
recognized gains of US$ 19.03 million on
fuel hedging. During the same period 2012,
the Company recognized losses of US$ 1.80
million for the same reason.
At December 31, 2013, the market value of its
fuel positions amounted to US$ 15.9 million
(positive). At December 31, 2012, this market
value was US$ 9.9 million (negative).
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
(“WTI”) crude, Brent
Texas Intermediate
(“BRENT”) crude and distillate Heating Oil
ANNUAL REPORT 2013170 The Following tables show the notional value of the purchase positions together with the
derivatives contracted for the different periods:
Positions as of December 31, 2013 (*)
Volume (thousands of barrels)
Contracted future price (US$ per barrel)(**)
Q114
4,093
110
Q214
1,851
109
Total
5,944
110
Total (ThUS$)
450,230
201,759
653,840
Percentage of the hedge of expected consumption value
56%
26%
41%
(*) The volume shown in the table considers
all the hedging instruments (swaps and
options) in Brent, WTI and JET.
(**) Weighted average between collars and
options when activated. Correspond to
equivalent in Brent.
Positions as of December 31, 2012 (*)
Maturities
Volume (thousands of barrels)
Contracted future price (US$ per barrel)(**)
Q113
Q213
Q313
Q413
Q114
Q214
4,824
122
600
132
525
132
525
131
525
111
75
104
Total
7,074
123
Total (ThUS$)
588,528 79,200
69,300
68,775
58,275
7,800 870,102
Percentage of the hedge of expected
consumption value
61%
7%
6%
6%
6%
1%
19%
(*) The volume shown in the table considers
all the hedging instruments (swaps and
options) in WTI and Brent.
(**) Weighted average between collars and
options, when activated. Correspond to
equivalent in Brent.
Given that current derivatives portfolio
comprises mainly contracts based on Brent,
a decision has been made to change the
equivalence applied to this underlying index
in order to calculate the agreed future value
for different periods.
ANNUAL REPORT 2013171 Sensitivity analysis
A drop in fuel price positively affects the
Company through a reduction in costs.
However, this drop also negatively affects
contracted positions as these are acquired
to protect the Company against the risk
of a rise in price. The policy therefore is to
maintain a hedge-free percentage in order to
be competitive in the event of a drop in price.
The following table shows the sensitivity
analysis of
instruments
the financial
according to reasonable changes in the fuel
price and their effect on equity. The term of
the projection was defined until the end of
the last current fuel hedge contract, being
the last business day of the second quarter
of 2014.
Due to the fact that current positions do
not represent changes in cash flows, but
a variation in the exposure to the market
value, the current hedge positions have no
impact on income (they are booked as cash
flow hedge contracts, so a variation in the
fuel price has an impact on the Company’s
net equity).
The calculations were made considering a
parallel movement of US$ 5 per barrel in the
curve of the WTI, BRENT and JET crude futures
benchmark price at the end of December,
2013 and the end of December, 2012.
Benchmark price
(US$ per barrel)
Positions as of December 31. 2013
effect on equity
(millions of US$)
Positions as of December 31. 2012
effect on equity
(millions of US$)
+ 5
-5
+24.57
-19.13
+12.60
-11.30
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 by consume.
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 2013,
which considers a hedge-free portion, a
vertical fall by 5 dollars in the WTI, BRENT
and JET benchmark price (the monthly daily
average), would have meant an impact of
approximately US$ 127.6 million in the cost of
total fuel consumption for the same period.
For 2013, a vertical rise by 5 dollars in the
WTI, BRENT and JET benchmark price (the
monthly daily average) would have meant an
ANNUAL REPORT 2013172
impact of approximately US$ 118.5 million of
increased fuel costs.
(ii) Cash flow interest-rate risk:
in
improvement
The fluctuation in interest rates depends
heavily on the state of the global economy.
An
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 (in the same way interest rates
are raised in periods of economic expansion).
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 70% 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. Other interest rates of less relevance
are Brazilian Interbank Deposit Certificate
("ILC"), and the Interest Rate Term of Brazil
("TJLP").
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.
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.
Cash flow interest rate risk equates to the
risk of future cash flows of the financial
instruments due to the fluctuation in interest
Increase (decrease) futures
curve
in libor 3 months
Positions as of December 31. 2013
effect on equity
(millions of US$)
Positions as of December 31. 2012
effect on equity
(millions of US$)
+100 basis points
-100 basis points
-29.70
+29.70
-33.69
+33.69
ANNUAL REPORT 2013173 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.
increasing
The calculations were made
(decreasing) vertically 100 basis points of the
three-month Libor futures curve.
Increase (decrease)
futures curve
in libor 3 months
+100 basis points
-100 basis points
Positions as of December 31. 2013
effect on equity
(millions of US$)
Positions as of December 31. 2012
effect on equity
(millions of US$)
+23.35
-24.46
+33.60
-35.50
In the case of the subsidiary TAM S.A, which
operates with the Brazilian Real as its
functional currency, a large proportion of
the company’s liabilities are expressed in
dollars. Therefore, this subsidiary’s profit
and loss varies when its financial assets and
liabilities, an its accounts receivable listed in
dollars are converted to Brazilian Reals. This
impact on profit and loss is consolidated,
directly affecting the Company.
In order to reduce the impacts on the
Company’s profit and loss caused by rises and
falls in the R$/US$ exchange rate, during the
last quarter of 2013 the Company conducted
transactions to reduce the net US$ liabilities
held by TAM S.A.
There are limitations in the method used
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
ineffectiveness in the consolidated income
statement.
(iii) Foreign exchange rate risk:
The
the
functional currency used by
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 risk arises when items listed on the
balance sheet are exposed to exchange
rate variations, due to their being listed in a
currency other than the functional currency.
ANNUAL REPORT 2013174 The following table shows the variation of financial performance to appreciate or depreciate
10% exchange rate R$/US$:
Appreciation (depreciation)
of R$/US$
Effect at December 31. 2013
Millons of US$
-10%
+10%
+197.76
-197.76
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 international 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
domestic markets of Brazil, Chile, Argentina
and Colombia the tariffs are in local currency
without any kind of indexation. In the case
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, among which are:
Brazilian real, Chilean peso, Argentine peso,
Paraguayan guaraní, Mexican peso, Euro,
Pound Sterling, Peruvian sol, Colombian
peso, Australian dollar and New Zealand
dollar. Of these currencies, the
largest
exposure is presented by Brazilian real and
Chilean peso.
On the other hand, one of the sources of
financing of the Company is the receipt
of future flows relating to dividends and
distributions of capital that the subsidiaries
project distribute. These futures flows vary
depending on the evolution of currency
in compared to the US$. Most exposure to
future flows is presented in subsidiary TAM
S.A. and the volatility in the exchange rate
R$/US$. In the case of the subsidiary TAM S.A.
the incomes are expressed a large proportion
in R$ and a large proportion of their costs are
expressed in US$.
For cover the inversion in the subsidiaries
and reduce the volatility in the cash flow, the
Company may acquire derivatives contracts
to hedge variations in other currencies
against the Company’s functional currency,
hedging exchange rate risk through currency
forwards.
With the object of reduce the exposition to
the futures monthly operating flows of all
2014, caused by eventual depreciation of the
BRL and assure an economic margins, LATAM
done the hedge by derivatives FX Forwards.
At December 31, 2013, the market value of its
FX positions amounted to US$ 32.06 million
(positive), these derivatives were contracted
during 2013 so at December 31, 2012, there
was no this type of derivatives.
ANNUAL REPORT 2013175 The following table presents the notional amount of the contracted positions with the average
prices agreed:
Positions at December 31. 2013
Volume (millon of US$)
Forward average price agreed (US$/R$)
Total (millon of R$)
Q114
Q214
Q314
Q414
Total
125
2.24
280
125
2.28
285
125
2.33
291
125
2.39
500
2.31
299
1.155
Sensitivity exchange rate LATAM
A depreciation of exchange rate R$/US$
affects negatively the Company for a rise
of its costs in US$, however, it also affects
positively the value of contracted derivate
positions.
Because the changes in the value of current
positions not represented changes in cash
flows, but a variation in the exposure of
market value, the current hedge positions
have not impact on result (are registered
as cash flow hedges according to IFRS,
therefore, a variation in the exposure has an
impact on the Company’s net equity).
The following table presents the sensitivity
of financial
instruments agrees with
reasonable changes to exchange rate and
its effect on equity. The projection term
was defined until the end of the last current
contract hedge, being the last business day
of the fourth quarter of 2014:
Appreciation (depreciation)
of R$/US$
Effect at December 31. 2014
Millions of US$
-10%
+10%
-49.46
+49.46
Operations hedging of exchange rate
Multiplus
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.
ANNUAL REPORT 2013176 The following table presents the notional
amount and market value of derivatives
exchange rate for each maturity date.
The expiration date of the derivatives
the probable date of
coincide with
collection points. The highly probable
sale of
to
income after being
be
exchanged, on average, six months later.
the points are expected
recognized
in
Foreign currency
derivative
Multiplus
Notional Value (Millions of US$)
Market Value (Millions of US$)
Position at December 31. 2013
Maturity
2014
+ 18.00
-1.65
Total
+ 18.00
-1.65
of cash flow hedge and is recognized in the
financial results of the Company (Note 21).
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 derivatives hedges of Multiplus expire in
March 2014. Have not yet been executed new
hedge contracts by the subsidiary Multiplus,
because exposure to exchange rate R$/US$ has
been managed by a change in the indexation of
Multiplus costs, increase the cost base in US$,
which creates a natural hedge to reduce the
exposure of cash flows to exchange rate R$/US$.
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 US$3.3 million/
US$ 4.2 million, mainly as the effect of gains or
losses from exchange rate in the time value of
derivatives, which are recognized immediately
through profit and loss.
Effects of exchange rate derivatives in the
Financial Statements
The profit or losses 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
ANNUAL REPORT 2013177
The following table shows the change in
Other comprehensive income recognized in
Total equity to appreciate or depreciate 10%
exchange rate R$/US$:
Appreciation (depreciation)
of R$/US$
Effect at December 31. 2013
Millions of US$
Effect at December 31. 2012
Millions of US$
-10%
+10%
+466.45
-381.63
+407.00
-332.98
(b) Credit risk
(i) Financial activities
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 in other kinds of
instruments, exchange-rate transactions and
the contracting of derivative instruments or
options.
the
activities,
To reduce the credit risk associated with
Company
operational
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
investment
activities
grade by major Risk Assessment Agencies.
Additionally the company has established
maximum limits for investments which are
monitored regularly.
remain at
least
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.
In order to reduce counterparty risk and
to ensure that the risk assumed is known
and managed by the Company, investments
are diversified among different banking
institutions (both local and 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
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.
level of
ANNUAL REPORT 2013178 The Company has no guarantees to mitigate
this exposure.
related with travel agents and cargo agents
for domestic transportation in Brazil is done
directly by TAM Linhas Aéreas S.A.
(ii) Operational activities
Association,
The Company has four large sales “clusters”:
travel agencies, cargo agents, airlines
and credit-card administrators. The first
three are governed by International Air
international
Transport
(“IATA”) organization comprising 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 (“CASS”), IATA
Clearing House (“ICH”) and banks (credit
cards). These institutions fulfill the role of
collectors and distributors between airlines
and travel and cargo agencies. In the case 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.
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.
the
activities,
To reduce the credit risk associated with
operational
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.
its
Because of the cyclical nature of the business,
the operation, and
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.
ANNUAL REPORT 2013179 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
first-class
financial entities.
instruments
through
leases, operating
The Company has future obligations related
leases,
to financial
maturities of other bank borrowings,
derivative contracts and aircraft purchase
contracts.
ANNUAL REPORT 2013180 i
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(
ANNUAL REPORT 2013181
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ANNUAL REPORT 2013184
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A
ANNUAL REPORT 2013186
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, the rating agency Fitch
has issued on May 3, 2013 a new long-term
rating for the Company of BB + with stable
perspective (which is not an investment
grade rating).Additionally, on June 10, 2013,
S&P issued a long term rating of BB, with a
positive outlook.
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.
At the end of 2012, the Company provided
US$ 189.9 million
in derivative margin
guarantees, for cash and stand-by letters of
credit. At December 31, 2013, the Company
had provided US$ 94.3 million in guarantees
for Cash and cash equivalent and stand-
by letters of credit. The fall was due at i)
maturity of hedge contracts, ii) acquire of
new fuel purchase contracts and exchange
rate R$/US$, and iii) changes in fuel prices,
exchange rate R$/US$ 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
to
shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
the dividends payable
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
ANNUAL REPORT 2013187 The leverage ratios as of December 31, 2013, and December 31, 2012, were as follows:
Total financial loans
Last twelve months Operating lease payment x 8
Less:
Cash and marketable securities
Total net adjusted debt
Net Equity
Cash flow hedging reserve
Adjusted equity
As of
December 31.
2013
ThUS$
9,830,866
3,528,616
(2,561,574)
10,797,908
5,238,821
34,508
5,273,329
As of
December 31.
2012
ThUS$
9,759,507
3,390,664
(1,120,335)
12,029,836
5,112,051
140,730
5,252,781
Total adjusted debt and equity
16,071,237
17,282,617
Adjusted average
67.2%
69.6%
See information related to financial covenants in Note 36 (a).
3.3. Estimates of fair value.
the Company
At December 31, 2013,
maintained financial
that
should be recorded at fair value. These are
grouped into two categories:
instruments
(a) Hedge Instruments:
category
This
instruments:
includes
the
following
•
•
•
Interest rate derivative contracts,
Fuel derivative contracts,
Currency derivative contracts
(b) Financial Investments:
category
This
instruments:
includes
the
following
•
•
•
•
Investments in short-term Mutual Funds
(cash equivalent),
Bank certificate of deposit – CBD,
Private investment funds and
Financial letters
The Company has classified the fair value
that
measurement using a hierarchy
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.
ANNUAL REPORT 2013188 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.
The following table shows the classification of financial instruments at fair value, depending on
the level of information used in the assessment:
As of December 31, 2013
Fair value measurements using
values considered as
Fair value
Level I
Level II
Level III
ThUS$
ThUS$
ThUS$
ThUS$
Assets
Cash and cash equivalents
Short-term mutual funds
579,349
579,349
579,349
579,349
-
-
Other financial assets, current
625,086
546,116
78,970
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
Interest accrued since the last payment date
of Currency Swap
6
15,868
32,058
483
-
-
-
-
544,182
544,182
Private investment funds
Certificate of deposit CDB
Financial letter
Domestic and foreign bonds
Other investments
Liabilities
Other financial liabilities, current
Fair value of interest rate derivatives
Fair value of foreign currency derivatives
Interest accrued since the last payment date of
Currency Swap
Interest rate derivatives not recognized as a hedge
Other financial liabilities, non current
Fair value of interest rate derivatives
2,374
351
28,181
1,583
70,506
32,070
28,621
5,775
4,040
56,397
54,906
Interest rate derivatives not recognized as a hedge
1,491
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
15,868
32,058
483
-
2,374
-
-
351
-
28,181
1,583
-
-
-
-
-
-
-
-
-
70,506
32,070
28,621
5,775
4,040
56,397
54,906
1,491
ANNUAL REPORT 2013189 As of December 31, 2013
Fair value measurements using values
considered as
Fair value
Level I
Level II
Level III
ThUS$
ThUS$
ThUS$
ThUS$
Assets
Cash and cash equivalents
Short-term mutual funds
311,675
311,675
311,675
311,675
-
-
Other financial assets, current
474,176
319,145
155,031
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
6
4,098
-
-
317,598
317,598
77,316
73,611
748
799
1,118
1,023
95
Other financial liabilities, current
70,075
Interest accrued since the last payment date of
Currency Swap
Fair value of interest rate derivatives
Fair value of fuel derivatives
Fair value of foreign currency derivatives
4,660
37,076
10,502
13,360
Interest rate derivatives not recognized as a hedges
4,477
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 hedges
116,555
104,547
4,530
1,963
5,515
6
4,098
-
77,316
73,611
-
-
1,118
1,023
95
70,075
4,660
37,076
10,502
13,360
4,477
116,555
104,547
4,530
1,963
5,515
-
-
748
799
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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-
-
-
-
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-
ANNUAL REPORT 2013190 Additionally, at December 31, 2013, 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,
2013
As of
december 31,
2012
Book value
Fair value
Book value
Fair value
ThUS$
ThUS$
ThUS$
ThUS$
Cash and cash equivalents
1,405,554
1,405,554
338,588
338,588
Cash on hand
Bank balance
Overnight
Time deposits
Other financial assets
Other financial assets
6,017
229,935
508,781
660,821
84,858
84,858
6,017
229,935
508,781
660,821
84,858
84,858
6,835
147,373
119,713
64,667
162,367
162,367
Trade and other accounts receivable current
1,633,094
1,633,094
1,417,531
Accounts receivable from related entities
Other financial assets, non current
Accounts receivable
628
65,289
100,775
628
65,289
100,775
15,187
72,977
50,612
Other financial liabilities, current
1,969,281
2,128,096
1,977,255
Trade and other accounts payables
1,557,736
1,557,736
1,689,990
Accounts payable to related entities
505
505
Other financial liabilities, non current
7,803,588
7,910,446
Accounts payable, non-current
922,887
922,887
274
7,582,302
1,085,601
6,835
147,373
119,713
64,667
162,367
162,367
1,417,531
15,187
72,977
50,612
2,090,726
1,689,990
274
7,806,643
1,085,601
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.
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.
The fair value of Other financial liabilities
ANNUAL REPORT 2013191 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
loyalty
credited to holders of the
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
issued their ordinary shares
LATAM
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
in Note 18.2.a),
squeeze-out described
entitling 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.
ANNUAL REPORT 2013192 NOTE 5. SEGMENTAL INFORMATION
The Company
information by
reports
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.
is defined as a
An operating segment
component of an entity on which financial
information is held separately and which
the senior
regularly by
is evaluated
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
business and the coalition and
loyalty
program Multiplus.
The Air transport segment corresponds to
the route network for air transport and it is
based on the way that the business is run
and managed, according to the centralized
nature of its operations, the ability to open
and close routes and reallocate resources
(aircraft, crew, staff, etc..) within the network,
which is a functional relationship between
all of them, making them inseparable. This
segment definition is the most common level
used by the global airline industry.
The segment of loyalty coalition called
Multiplus, unlike Lan Pass and TAM Fidelidade,
is a frequent flyer programs which operate
as a unilateral system of loyalty that offers
a flexible coalition system,
interrelated
among its members, with eleven millions of
members, along with being a government
entity with a separately business and not
directly related to air transport.
ANNUAL REPORT 2013193 d
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ANNUAL REPORT 2013195
The Company’s revenues by geographic area are as follows:
Peru
Argentina
USA
Europa
Colombia
Brasil
Ecuador
Chile
For the period ended
At december 31.
2013
ThUS$
646,217
950,595
2012
ThUS$
620,263
890,167
1,290,493
1,268,573
937,539
387,999
738,803
366,664
5,572,884
3,322,431
273,712
266,271
1,698,476
1,525,009
Asia Pacific and rest of Latin America
1,166,622
712,191
Income from ordinary activities
12,924,537
9,710,372
Other operating income
341,565
220,156
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.
ANNUAL REPORT 2013196 NOTE 6. CASH AND CASH EQUIVALENTS
Cash on hand
Bank balances
Overnight
Total Cash
Cash equivalents
Time deposits
Mutual funds
Total cash equivalents
Total cash and cash equivalents
As of
December 31,
2013
As of
December 31,
2012
ThUS$
6,017
229,935
508,781
744,733
660,821
579,349
1,240,170
1,984,903
ThUS$
6,835
147,373
119,713
273,921
64,667
311,675
376,342
650,263
Cash and cash equivalents are denominated in the following currencies at December 31, 2013,
and December 31, 2012:
Currency
Argentine peso
Brazilian real
Chilean peso (*)
Colombian peso
Euro
US Dollar
Strong bolivar (**)
Other currencies
Total
As of
December 31,
2013
As of
December 31,
2012
ThUS$
59,018
253,392
229,918
28,132
16,571
1,200,828
162,809
34,235
1,984,903
ThUS$
70,381
149,723
40,212
28,758
15,502
230,776
51,346
63,565
650,263
(*) The Company entered into currency derivative contracts (forward) ThUS$174,020 at
December 31, 2013 (as of December 31, 2012, there were no forward currency derivatives), for
conversion into dollars of investments in pesos.
(**) In Venezuela, effective 2003, the authorities decreed that all remittances abroad should be
approved by the Currency Management Commission (CADIVI). Despite having free availability
of bolivars in Venezuela, the Company has certain restrictions for freely remitting these funds
outside Venezuela. At December 31, 2013, the restricted amount, expressed in dollars at the
exchange rate of 6.30 VEF/US$ is ThUS$ 162,809 (ThUS$ 51,346 at December 31, 2012).
ANNUAL REPORT 2013197 The Company has no significant non-cash transactions that must be disclosed.
Other inflows (outflows) of cash at December 31, 2013 and December 31, 2012 are detailed as
follow:
Fuel hedge
Hedging Margin Guarantees
Guarantees
Commodities fuel derivatives
Bank commissions, taxes paid and other
Total Other inflows (outflows) Operation flow
Opening balance Cash and cash equivalents acquired companies
Amount paid by Squeeze Out TAM S.A. (*)
Certificate of bank deposits
Total Other inflows (outflows) Investment flow
Aircraft Financing advances
Credit card loan manager
Settlement of derivative contracts
Breakage
Other
For the periods ended
December 31,
2013
ThUS$
11,413
88,925
(5,001)
(4,041)
(14,535)
76,761
-
-
75,448
75,448
24,650
(8,965)
(61,897)
(16,280)
479
2012
ThUS$
14,237
12,057
(13,974)
(20,479)
(42,274)
(50,433)
263,986
(167,589)
(69,254)
27,143
(242,804)
76,280
(50,827)
(7,405)
(6,323)
Total Other inflows (outflows) Financing flow
(62,013)
(231,079)
(*) See note 18.2 Business combination
ANNUAL REPORT 2013198 NOTE 7. FINANCIAL INSTRUMENTS
7.1. Financial instruments by category
As of December 31, 2013
Assets
Loans
and
receivables
Hedge
derivatives
Held
for
trading
Initial
designation as
fair value
through
profit and loss
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Cash and cash equivalents
1,405,554
-
Other financial assets, current (*)
83,136
48,415
Trade and others accounts
receivable, current
Accounts receivable from related
entities, current
1,633,094
628
Other financial assets, non current (*)
64,783
Accounts receivable, non current
100,775
-
-
-
-
-
2,073
-
-
506
-
579,349
576,320
-
-
-
-
1,984,903
709,944
1,633,094
628
65,289
100,775
Total
3,287,970
48,415
2,579
1,155,669
4,494,633
Liabilities
Other
financial
liabilities
Hedge
derivatives
ThUS$
ThUS$
Held
for
trading
ThUS$
Total
ThUS$
Other liabilities, current
1,969,281
66,466
4,040
2,039,787
Trade and others accounts payable,
current
Accounts payable to related entities,
current
1,557,736
505
-
-
-
-
1,557,736
505
Other financial liabilities, non current
7,803,588
54,906
1,491
7,859,985
Accounts payable, non current
922,887
-
-
922,887
Total
12,253,997
121,372
5,531
12,380,900
(*) The value presented as initial designation as fair value through profit and loss, corresponds to
private investment funds; and loans and receivables corresponds to guarantees given.
ANNUAL REPORT 2013199 At December 31, 2012
Assets
Loans
and
receivables
Hedge
derivatives
Held
for
trading
Initial
designation as
fair value
through
profit and loss
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Cash and cash equivalents
Other financial assets, current (*)
Trade and others accounts receivable,
current
Accounts receivable from related
entities, current
338,588
162,367
1,417,531
15,187
Other financial assets, non current (*)
72,470
1,118
Accounts receivable, non current
50,612
-
-
-
4,104
74,359
311,675
395,713
-
-
-
-
507
-
-
-
-
-
650,263
636,543
1,417,531
15,187
74,095
50,612
Total
2,056,755
5,222
74,866
707,388
2,844,231
Liabilities
Other
financial
liabilities
Hedge
derivatives
ThUS$
ThUS$
Held
for
trading
ThUS$
Total
ThUS$
Other liabilities, current
1,977,255
65,598
4,477
2,047,330
Trade and others accounts payable,
current
Accounts payable to related
entities, current
Other financial liabilities, non current
Accounts payable, non current
1,689,990
274
-
-
7,582,302
111,040
1,085,601
-
-
-
5,515
-
1,689,990
274
7,698,857
1,085,601
Total
12,335,422
176,638
9,992
12,522,052
(*) The value presented as initial designation as fair value through profit and loss, corresponds to
private investment funds; and loans and receivables corresponds to guarantees given.
ANNUAL REPORT 2013200 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,
2013
As of
December 31,
2012
ThUS$
1,984,903
59,018
253,392
229,918
28,132
16,571
1,200,828
162,809
34,235
775,233
1,007
610,242
27,555
2,550
5,494
127,294
14
1,077
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
Trade and other accounts receivable, current
1,633,094
1,417,531
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
27,343
802,789
82,880
9,762
21,479
520,991
2,353
165,497
100,775
1,194
8,624
90,755
202
628
162
466
-
4,494,633
87,368
1,667,779
349,443
40,444
43,544
1,939,868
165,176
201,011
33,049
552,947
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
2,844,231
103,561
1,255,384
197,858
39,672
90,614
937,544
54,706
164,892
ANNUAL REPORT 2013201 As of
December 31,
2013
ThUS$
165,497
26,198
22,887
6,899
15,256
5,343
10,332
14,970
6,645
16,929
9,670
30,368
As of
December 31,
2012
ThUS$
90,154
15,944
4,173
10,477
10,159
3,296
5,271
666
1,394
3,362
478
34,934
(*) Other currencies
Australian Dollar
Chinese Yuan
Danish krone
Pound Sterling
Indian rupee
Japanese Yen
Norwegian kroner
Swiss Franc
Korean Won
New Taiwanese Dollar
Other currencies
b) Liabilities
Liabilities information is detailed in the table within Note 3 Financial risk management.
ANNUAL REPORT 2013202 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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
1,552,489
251,982
1,804,471
(70,602)
1,733,869
(100,775)
1,633,094
1,360,666
182,980
1,543,646
(75,503)
1,468,143
(50,612)
1,417,531
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
Debtor under pre-judicial collection process and portfolio
sensitization
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
1,378,226
1,231,937
72,417
11,547
19,697
19,630
50,972
33,160
10,705
9,361
29,556
45,947
Total
1,552,489
1,360,666
(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in
their ability to recover, therefore not requiring a provision.
ANNUAL REPORT 2013203
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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
72,417
11,547
19,697
33,160
10,705
9,361
103,661
53,226
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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
19,630
50,972
70,602
ThUS$
29,556
45,947
75,503
ANNUAL REPORT 2013204 Currency balances that make up the Trade and other accounts receivable and Accounts receivable,
at December 31, 2013 and December 31, 2012, are as follows:
Currency
Argentine Peso
Brazilian Real
Chilean Peso
Colombian peso
Euro
US Dollar
Strong bolivar
Other currency (*)
Total
(*) Other currencies
Australian Dollar
Chinese Yuan
Danish krone
Pound Sterling
Indian rupee
Japanese Yen
Norwegian kroner
Swiss Franc
Korean Won
New Taiwanese Dollar
Other currencies
Total
As of
December 31,
2013
As of
December 31,
2012
ThUS$
27,343
803,983
91,504
9,762
21,479
611,746
2,353
165,699
ThUS$
33,049
559,624
142,433
8,086
67,287
564,503
2,759
90,402
1,733,869
1,468,143
26,198
22,887
6,899
15,256
5,343
10,332
14,970
6,645
16,929
9,670
30,570
165,699
15,944
4,173
10,477
10,159
3,296
5,271
666
1,394
3,362
478
35,182
90,402
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
Judicial and pre-judicial collection assets
Over 1 year
Between 6 and 12 months
Impairment
100%
100%
50%
ANNUAL REPORT 2013205 The movement in the allowance for impairment loss of Trade and other accounts receivables
between January 1, 2012 and December 31, 2013 is as follows:
As of January 1, 2012
Write-offs
(Increase) decrease in allowance
Addition for business combination
Conversion difference affiliates
Closing balance as of December 31, 2012
As of January 1, 2013
Write-offs
(Increase) decrease in allowance
Closing balance as of December 31, 2013
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.
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
ThUS$
(20,525)
3,312
(2,857)
(54,511)
(922)
(75,503)
(75,503)
9,928
(5,027)
(70,602)
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, 2013
As of December 31, 2012
Gross
exposure
according to
balance
Gross
impaired
exposure
Exposure net
of risk
concentrations
Gross
exposure
according
to balance
Gross
Impaired
exposure
Exposure net
of risk
concentrations
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Trade accounts receivable
1,552,489
(70,602)
1,481,887
1,360,666
(75,503)
1,285,163
Other accounts receivable
251,982
-
251,982
182,980
-
182,980
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.
ANNUAL REPORT 2013206 NOTE 9. ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
The Accounts receivable from and payable to related entities as of December 31, 2013 and
December 31, 2012, respectively, are as follows:
(a) Accounts Receivable
Tax No.
Related party
Relationship
Country of
origin
As of
December 31,
2013
As of
December 31,
2012
Currency
Transaction
deadlines
Nature of
transaction
ThUS$
ThUS$
96.810.370-9
Inversiones Costa Verde Ltda. y CPA.
Controlling shareholder
78.591.370-1
Bethia S.A. y Filiales
Others related parties
79.773.440-1
Transportes San Felipe S.A.
Others related parties
87.752.000-5
Granja Marina Tornagaleones S.A.
Others related parties
Foreign
Made In Everywhere Repr. Com. Distr. Ltda. Others related parties
Foreign
TAM Aviação Executiva e Taxi Aéreo S.A.
Others related parties
Foreign
Prismah Fidelidade S.A.
Others related parties
Chile
Chile
Chile
Chile
Brazil
Brazil
Brazil
Foreign
Inversora Aeronáutica Argentina
Others related parties
Argentina
Total current assets
-
441
1
24
2
14
146
-
628
1
14,534
-
30
-
14
597
11
15,187
CLP
CLP
CLP
CLP
BRL
BRL
BRL
US$
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
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. On December
31, 2013, this balance is paid.
(b) Accounts payable
Tax No.
Related party
Relationship
Country
of origin
As of
December 31,
2013
As of
December 31,
2012
Currency
Transaction
deadlines
Nature of
transaction
96.847.880-K
Lufthansa Lan Technical Training S.A
Associate
Chile
78.591.370-1
Bethia S.A. y Filiales
Others related parties
Chile
Foreign
Made In Everywhere Repr. Com. Distr. Ltda. Others related parties
Brazil
Foreign
Inversora Aeronáutica Argentina
Others related parties
Argentina
Total current liabilities
ThUS$
ThUS$
187
14
-
304
505
237
14
23
-
274
US$
CLP
BRL
US$
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
30 to 45 days
Monetary
Transactions between related parties have been carried out on free-trade conditions between
interested and duly-informed parties.
ANNUAL REPORT 2013207 NOTE 10. INVENTORIES
The Inventories December 31, 2013 and December 31, 2012 respectively, are detailed below:
As of
December 31,
2013
As of
December 31,
2012
ThUS$
190,202
40,826
231,028
ThUS$
145,665
31,153
176,818
As of December 31, 2013, the Company
(ThUS$ 127,989
recorded ThUS$ 160,068
as of December 31, 2012) within the
income statement, mainly due to in-flight
consumption and maintenance, which forms
part of Cost of sales.
Technical stock
Non-technical stock
Total production suppliers
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, 2013 amounts to ThUS$1 ,757
(ThUS$ 1,174 as of December 31, 2012).
The resulting amounts do not exceed the
respective net realizable values.
ANNUAL REPORT 2013208 NOTE 11. TAX ASSETS
The composition of Tax assets is as follows:
Current
Provisional monthly payments (advance)
Other credits recovery
Total current
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
61,570
20,320
81,890
76,163
19,612
95,785
ANNUAL REPORT 2013209 NOTE 12. OTHER FINANCIAL ASSETS
The composition of Other financial assets is as follows:
Current
(a) Other financial assets
(b) Hedging asset
Total current
Non-current
(a) Other financial assets
(b) Hedging asset
Total non-current
As of
December 31,
2013
As of
December 31,
2013
ThUS$
ThUS$
661,529
48,415
709,944
65,289
-
65,289
632,439
4,104
636,543
72,977
1,118
74,095
ANNUAL REPORT 2013210 (a) Other financial assets
Other financial assets as of December 31, 2013 and December 31, 2012, respectively, are as follows:
Current
Private investment funds
Deposits in guarantee (aircraft)
Time deposits
Guarantees for margins of derivatives
Certificate of deposit (CBD)
Other investments
Domestic and foreign bonds
Financial letters
Other guarantees given
Total current
Non-current
Deposits in guarantee (aircraft)
Deposits in guarantee (loan)
Other investments
Other guarantees given
Total non-current
Total other financial assets
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
544,182
51,879
28,181
28,157
2,374
1,583
351
-
4,822
661,529
49,893
11,753
506
3,137
65,289
726,818
317,598
33,012
-
121,889
77,316
799
748
73,611
7,466
632,439
37,247
29,344
507
5,879
72,977
705,416
ANNUAL REPORT 2013211 (b) Hedging assets
Hedging assets as of December 31, 2013 and December 31, 2012, are as follows:
Current
Interest accrued since the last payment date
of currency Swap
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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
483
6
32,058
15,868
48,415
-
-
-
48,415
-
6
-
4,098
4,104
95
1,023
1,118
5,222
The foreign currency derivatives exchange is collars and cross currency swap.
The types of derivative hedging contracts maintained by the Company at the end of each period
are presented in Note 21.
ANNUAL REPORT 2013212 NOTE 13. OTHER NON-FINANCIAL ASSETS
The composition of Other non-financial assets is as follows:
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
56,392
279,225
335,617
55,889
216,387
272,276
45,826
238,578
284,404
39,707
268,280
307,987
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, 2013 as of December 31, 2012 are as follows:
Current
Aircraft leases
Aircraft insurance and other
Handling and ground handling services
Others
Total current
Non-Current
Aircraft leases
Others
Total non-current
Total advance payments
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
28,555
13,180
286
14,371
56,392
17,332
38,557
55,889
112,281
18,703
12,643
158
14,322
45,826
20,732
18,975
39,707
85,533
ANNUAL REPORT 2013213 (b) Other assets
Other assets as of December 31, 2013, and December 31, 2012 are as follows:
Current
Aircraft maintenance reserve (*)
Sales tax
Others taxes
Contributions to Société Internationale
de Télécommunications Aéronautiques ("SITA")
Total current
Non-current
Aircraft maintenance reserve (*)
Judicial deposits
Sales tax
Contributions to Société Internationale
de Télécommunications Aéronautiques ("SITA")
Others
Total non-current
Total other assets
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
152,797
120,215
5,556
657
123,299
106,736
7,847
696
279,225
238,578
79,012
70,380
65,936
515
544
216,387
495,612
140,116
54,336
73,050
474
304
268,280
506,858
(*) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of
certain aircraft under operating lease agreements in order to ensure that funds are available to
support the scheduled heavy maintenance of the aircraft.
ANNUAL REPORT 2013214 in maintenance
As of December 31, 2013, LATAM had
ThUS$231,809
reserves
(ThUS$ 263,416 at December 31, 2012),
corresponding to 21 aircraft out of a total
fleet of 339 (24 aircraft out of a total fleet
of 327 at December 31, 2012). All of the
Company’s
containing
provisions for maintenance reserves will
expire fully by 2017.
aircraft
leases
Aircraft maintenance reserves are classified
as current or non-current depending on
the dates when the related maintenance is
expected to be performed (Note 2.23).
These amounts are calculated based on
performance measures, such as flight hours
or cycles, are payable periodically (usually
monthly) and are contractually required to
be repaid to the lessee upon the completion
of the required maintenance of the leased
aircraft. At the end of the lease term, any
unused maintenance reserves are either
returned to the Company in cash or used to
offset amounts that we may owe the lessor
as a maintenance adjustment.
reviews
In some cases (10 lease agreements), if the
maintenance cost incurred by LATAM is
less than the corresponding maintenance
reserves, the lessor is entitled to retain
those excess amounts at the time the heavy
maintenance is performed. The Company
periodically
its maintenance
reserves for each of its leased aircraft to
ensure that they will be recovered, and
recognizes an expense if any such amounts
are less than probable of being returned.
Since the acquisition of TAM in June 2012, the
cost of aircraft maintenance has been higher
than the related maintenance reserves for
all aircraft.
ANNUAL REPORT 2013215 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, 2013, and December 31,
2012 are as follows:
As of
December 31,
2013
ThUS$
438
1,362
8
272
365
2,445
As of
December 31,
2012
ThUS$
44,878
1,184
686
542
365
47,655
The figures shown in this item are presented
at book value or fair value minus sales cost,
whichever is lower.
The Company has no discontinued operations
as of December 31, 2013.
Aircraft
Rotables
Inventories on consignment
Engines
Scrapped aircraft
Total
During 2012, two A318-100 aircraft were
transferred from the heading of Property,
plant, and equipment to Non-current assets
or groups of assets for disposal classed as
held for sale. These two aircraft were sold
during the first quarter of 2013.
Moreover, during the fourth quarter of 2013,
a Boeing B737-200 and four ATR42-300 aircraft
were sold.
ANNUAL REPORT 2013216 NOTE 15 . INVESTMENTS IN SUBSIDIARIES
The Company has investments in companies
recognized as investments 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.
Significant subsidiaries detailed as of December 31, 2013
The detail of significant subsidiaries and
summarized financial
at
December 31, 2013 and December 31, 2012 is
presented below:
information
Name of significant subsidiary
Country of
incorporation
Funcional
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.
Perú
Chile
Argentina
Chile
Ecuador
Colombia
Brasil
US$
US$
ARS
US$
US$
COP
BRL
69.97858
Without significant restrictions
99.89803
Without significant restrictions
94.99055
Without significant restrictions
99.89804
Without significant restrictions
71.94990
Without significant restrictions
99.01646
Without significant restrictions
99.99938
Without significant restrictions
Significant subsidiaries detailed as of December 31, 2012
Name of significant subsidiary
Country of
incorporation
Funcional
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.
Perú
Chile
Argentina
Chile
Equador
Colombia
Brasil
US$
US$
ARS
US$
US$
COP
BRL
69.97858
Without significant restrictions
99.89803
Without significant restrictions
94.99055
Without significant restrictions
99.89804
Without significant restrictions
71.94990
Without significant restrictions
98.21089
Without significant restrictions
99.99938
Without significant restrictions
ANNUAL REPORT 2013217 Summary financial information of significant subsidiaries
Statement of financial position as of December 31, 2013
Result for the period
ended december 31, 2013
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.
263,516
237,577
25,939
252,109
250,699
1,410
1,173,391
Lan Cargo S.A.
772,640
360,733
411,907
413,527
233,363
180,164
304,060
3,755
3,685
Lan Argentina S.A.
214,426
192,590
21,836
205,672
203,567
2,105
500,128
(13,311)
Transporte Aéreo S.A.
359,693
69,459
290,234
120,399
37,049
83,350
400,518
(4,129)
Aerolane Líneas Aéreas
Nacionales del Ecuador S.A.
Aerovías de Integración
Regional. AIRES S.A.
94,160
58,867
35,293
93,535
89,802
3,733
299,138
(40,295)
188,518
69,591
118,927
36,009
24,936
11,073
335,854
(63,359)
TAM S.A. (*)
8,695,458
2,372,047
6,323,411
7,983,671
3,249,581
4,734,090
6,791,104
(458,475)
Summary financial information of significant subsidiaries
Statement of financial position as of December 31, 2012
Result for the period
ended december 31, 2012
Nombre de subsidiaria
significativa
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
133,448
25,913
150,319
149,263
1,056
1,047,106
2,513
727,091
172,856
554,235
371,663
169,501
202,162
292,066
(50,693)
165,961
144,463
21,498
141,454
139,653
1,801
538,328
9,152
357,725
249,174
108,551
114,302
26,731
87,571
373,157
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. (*)
8,821,298
2,003,122
6,818,176
9,198,899
3,556,778
5,642,121
3,633,592
(75,195)
(*) Corresponds to consolidated information of TAM S.A. and Subsidiaries.
ANNUAL REPORT 2013218 NOTE 16 . EQUITY ACCOUNTED INVESTMENTS
The composition of investments accounted for using the equity method is as follows:
As of
december 31,
2013
As of
december 31,
2012
ThUS$
ThUS$
3,572
3,024
6,596
1,619
2,138
3,757
(a) Related companies
(b) Joint Ventures
Equity accounted investments
(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, 2013 and
December 31, 2012, and the statements of income, for the periods ended at December 31, 2013,
and December 31, 2012.
As of December 31, 2013
current
Non- current
Total
As of December 31, 2012
current
Non- current
Total
Total operating revenues
Total expenses
Sum of net income
Assets
Liabilities
ThUS$
ThUS$
2,147
331
2,478
Assets
ThUS$
3,193
419
3,612
670
109
779
Liabilities
ThUS$
1,421
109
1,530
As of december 31,
2013
ThUS$
3,212
(2,533)
679
2012
ThUS$
3,704
(2,759)
945
ANNUAL REPORT 2013219 As an investment in associates, the Company has shown its holdings in the following compa-
nies: Austral Sociedad Concesionaria S.A. and Lufthansa Lan Technical Training S.A. The Company
made no investments in associates during 2013.
Percentage of ownership
Cost of investment
Company
Country of
incorporation
Funcional
currency
As of
december 31,
2013
As of
december 31,
2012
As of
december 31,
2013
As of
december 31,
2012
%
%
ThUS$
ThUS$
Austral Sociedad Concesionaria
S.A.
Lufthansa Lan Technical
Training S.A.
Chile
Chile
CLP
CLP
20.00
20.00
50.00
50.00
661
702
661
702
These companies do not have significant restrictions on the ability to transfer funds.
The movement of investments in associates between January 1, 2012 and December 31, 2013 is
as follows:
Opening balance as of January 1, 2012
Participation in profits
Adjustment to participation in previus years profits
Dividends received
Other increases, investments in associated entities
Total changes in investments in associated entities
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Participation in profits
Other increases, investments in associated entities
Total changes in investments in associated entities
Closing balance as of December 31, 2013
ThUS$
991
295
(178)
(352)
863
628
1,619
1,619
341
1,612
1,953
3,572
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.
ANNUAL REPORT 2013220 (b)
Joint Venture
Multiplus S.A., a subsidiary of TAM S.A. and
AIMIA Newco UK LLP ("Aimia") jointly control
the Companhia Brasileira de Serviços de
("CBSF"). The company
Fidelização S.A.
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
Movement investment at December 31, 2013
Capital aware - AAG Constituent (*)
Capital increase - AGE (**) 09/18/2012
Equity accounted earnings
Closing balance at December 31, 2012
Future advance capital increase
Equity accounted earnings
Conversion difference affiliates
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
ThUS$
500
1
6,571,500
-
6,572,000
-
-
-
3,215
(1,078)
2,138
4,977
(3,833)
(258)
3,024
Closing balance at December 31, 2013
6,572,000
(*) General Assembly Act
(**) Extraordinary General Assembly
ANNUAL REPORT 2013221 The company Prismah Fidelidade S.A. as of December 31, 2013, has the following items:
Social capital ThUS$
Number of ordinary shares
Ordinary shares owned by Multiplus S.A.
As of
December 31,
2013
As of
December 31,
2012
16,323
6,432
35,200,194
13,144,000
17,600,097
6,572,000
Participation %
50
50
Equity accounted investments
Current assets
Non-current assets
Current liabilities
Result of the period
Equity accounted earnings
Revenues in the period
Expense in the period
ThUS$
ThUS$
3,024
6,985
1,481
2,418
2,138
4,356
2,275
2,356
For the periods ended
December 31,
2013
ThUS$
(7,665)
(3,833)
1,091
(8,756)
2012
ThUS$
(1,065)
(533)
9
(1,075)
ANNUAL REPORT 2013222 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
Loyalty program
Trademarks
Other assets
Total
Classes of intangible assets (gross)
Computer software
Developing software
Airport slots
Loyalty program
Trademarks
Other assets
Total
As of
december 31,
2013
As of
december 31,
2012
ThUS$
ThUS$
143,124
46,075
1,361,807
453,907
88,314
81
144,244
54,635
1,561,130
520,344
101,240
806
2,093,308
2,382,399
As of
december 31,
2013
As of
december 31,
2012
ThUS$
ThUS$
278,721
46,075
1,361,807
453,907
88,314
808
223,586
54,635
1,561,130
520,344
101,240
1,372
2,229,632
2,462,307
ANNUAL REPORT 2013223 The movement in Intangible assets other than goodwill between January 1, 2012 and December 31, 2013 is
as follows:
Computer
software
net
Developing
software
Airport
slots
(*)
Trademarks
and loyalty
Program (*)
Others
assets
net
Total
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
25,124
18,769
(1,636)
55,618
78,106
(757)
(30,980)
39,395
43,632
-
(51,391)
-
-
-
-
-
24
(2)
-
404
64,923
-
-
-
62,425
(1,638)
4,227
22,864
1,552,016
617,934
561
2,271,481
135
-
9,114
3,628
3
12,123
-
-
(162)
(31,142)
144,244
54,635
1,561,130
621,584
806
2,382,399
Opening balance as of January1, 2012
Additions
Withdrawals
Transfer software
Adquisitions through
business combinations
Difference by subsidiaries conversion
Amortization
Closing balance as of
december 31, 2012
Opening balance as of January 1, 2013
144,244
54,635
1,561,130
621,584
806
2,382,399
Additions
Withdrawals
Transfer software
Subsidiaries conversion difference
Amortization
Closing balance as of
december 31, 2013
14,703
(467)
47,199
(1,975)
46,444
(48,890)
-
-
-
-
-
-
-
-
61,902
(2,442)
(492)
(2,938)
(5,542)
(56,258)
(4,894)
(199,323)
(79,363)
-
-
-
(72)
(161)
(289,194)
(56,419)
143,124
46,075
1,361,807
542,221
81
2,093,308
The airport slots correspond to an administrative
authorization for the arrival and departure of
aircraft, in a specific airport, within a period of
time.
Airport slots – Air transport CGU
Loyalty program – Coalition and loyalty program
Multiplus CGU
Brand – Air transport CGU
The coalition and loyalty program corresponds to
the system of accumulation and redemption of
points that has developed Multiplus.
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.
Intangible assets with undefined useful lives
are tested annually for
impairment as an
integral part of each CGU, in accordance with the
premises that are applicable, included as follows:
(See Note 18.1.)
income
The amortization of the period is shown in
in
the consolidated statement of
administrative expenses. The accumulated
amortization of computer programs as of
December 31, 2013 amounts to ThUS$ 135,597
(ThUS$ 79,342 as of December 31, 2012). The
accumulated amortization of other identifiable
intangible assets as of December 31, 2013
amounts to ThUS$ 727 (ThUS$ 566 as of December
31, 2012).
(*) See Note 2.5
ANNUAL REPORT 2013224 NOTE 18. GOODWILL AND BUSINESS COMBINATION
Coalition and loyalty program Multiplus
CGU(*)
•
•
Long-term growth rate: We used a growth
rate between 4.0% and 7.0% per year.
Exchange rate R$ / US$: we used a rate
between 2.40 and 3.50 R$ / US $, in line
with the expectations of the central
bank of Brazil.
• Discount rate: based on cost of equity
(CoE) we used a rate between 20.0% and
25.0%.
(*) For the Coalition and loyalty program
Multiplus CGU the flows, as in the growth
rate and discount, are denominated in real.
Given the expectation of growth and the
long investment cycles characteristic of the
industry, are used projections of ten years.
The result of the impairment test, which
includes a sensitivity analysis of the main
variables, showed
the estimated
recoverable amount is higher than carrying
value of the book value of net assets
allocated to the cash generating unit, and
therefore impairment was not detected.
that
18.1. Goodwill
The goodwill represents the excess of
cost of acquisition over the fair value of
the participation of the Company in the
identifiable net assets of the subsidiaries at
the acquisition date. Goodwill at December
31, 2013 amounted to ThUS$ 3,727,605 (ThUS$
4,213,160 as revised at December 31, 2012).
“Coalition and
The Company has two cash- generating units
(CGUs), confirming the existence of two
cash- generating units: “Air transportation”
and,
loyalty program
Multiplus”; consistent with this, performed
impairment tests based on value in use and
no impairment was identified, These tests
are done at least once per year.
The recoverable amounts of cash generating
units have been determined from estimated
cash flows by the Administration. The main
assumptions used are disclosed as follows:
Air transportation CGU
•
•
Long-term growth rate: We used a growth
rate between 2.0% and 4.0% per year.
Exchange rate R$ / US$: we used a rate
between 2.40 and 3.50 R$ / US $, in line
with the expectations of the central
bank of Brazil.
• Discount rate: based on the weighted
average cost of capital (WACC) we used a
rate between 10.0% and 12.0%.
Fuel Price: prices are used in a range
of 124.50 and 130.50 US$ / barrel, from
commodities
curves
futures price
markets.
•
ANNUAL REPORT 2013225 The sensitivity analysis included individual
impact of variations in the key assumptions
with impact on the determination of the
recoverable amounts, namely:
Coalition and loyalty program Multiplus CGU
• Using a discount rate up to 24.5%
• Using a minimum growth rate of 4.5%
Air transportation CGU
• Using a discount rate up to 12.0%
• Using a minimum growth rate of 2.0%
In none of the previous cases was presented
an impairment.
The movement of Goodwill from January 1,
2012 to December 31, 2013, is as follows:
Air
transportation
(* *)
Coalition and
loyalty program
Multiplus(**)
Total
ThUS$
ThUS$
ThUS$
Opening balance as of January 1, 2012
Additions by business combinations
Amendment initial recognition (*)
Increase (decrease) due to exchange rate differences
163,777
2,118,057
1,051,645
28,427
-
-
163,777
2,118,057
846,285
1,897,930
4,969
33,396
Closing balance as of December 31, 2012
3,361,906
851,254
4,213,160
Opening balance as of January 1, 2013
3,361,906
851,254
4,213,160
Others
44,860
-
44,860
Increase (decrease) due to exchange rate differences
(421,729)
(108,686)
(530,415)
Closing balance as of December 31, 2013
2,985,037
742,568
3,727,605
(*) The amendments to initial recognition includes: changes in fair values determined in accor-
dance with IFRS 3 during the measurement period, including Goodwill allocation to loyalty coali-
tion program of Multiplus and correction of non-significant errors originated before the date of
acquisition.
(**) The amounts presented in December 2012 have been revised in accordance with IFRS 3 du-
ring the measurement period.
ANNUAL REPORT 2013226 The capital increase in LATAM Airlines S.A
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 (Note 18.2.b),
amounting to ThUS$ 2,665,692 was included
in “Other reserves” during 2012.
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 ThUS$ 165,143.
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.
The costs incurred by LATAM Airlines Group
S.A. to make the Business Combination
amounts to ThUS$ 50,647 for the year ended
December 31, 2012, and were recorded in the
Income statement when they were incurred.
18.2. Business combination
The following information summarizes the
business combination process with TAM S.A.
and subsidiaries:
(a) Description of the business combination
process with TAM S.A. and Subsidiaries
(b) Business combination in accordance with
IFRS 3
(c) Revision of the consolidated financial
statements for the 2012 accounting period
(d) Other information
(a) Description of the Business Combination
process with TAM S.A. and Subsidiaries
June 22, 2012 the merger was
Dated
successfully
LAN
completed between
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.
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.
ANNUAL REPORT 2013227 The ownership structure of TAM, after the business combination, is as follows:
TAM S.A.
Class of shares
Shares
%
Shares
%
Shares
Holdco I S.A.
LATAM Airlines
Group S.A.
Total
ON (voting rights)
55,413,784
100.00
-
55,413,784
PN (non-votings rights)
-
94,718,931
100.00
94,718,931
Total
55,413,784
94,718,931
150,132,715
Holdco I S.A.
Class of shares
Shares
%
Shares
%
Shares
TEP Chile S.A. (owned
by the controlling
shareholders of TAM)
LATAM Airlines
Group S.A.
Total
Serie A (voting rights)
938
80.58
226
19.42
1,164
Serie B (economic rights)
Total
-
938
55,413,621
100.00
55,413,621
55,413,847
55,414,785
Under IFRS 3 this operation has been regis-
tered 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 re-
lating of the former shareholders of LAN and
TAM over the combined entity.
TAM is a leading airline in Brazil, with more
than 35 years in operation, and as of the
date of the business combination it boasted:
over 30,000 employees, a fleet of more
than 160 aircraft, annual sales surpassing
US$7.3 billion, and a 2011 Brazilian market
share of 41.2% domestically, and 88.1% of
international flights operated by Brazilian-
flagged airlines. It is appropriate to point out
that Multiplus S.A. , a company controlled by
TAM S.A. , is engaged in the development and
administration of client loyalty programs,
Multiplus S.A. has been registered in the
"Novo Mercado" section on the BMF&Bovespa
exchange since February 3, 2010.
ANNUAL REPORT 2013228 (b) Business combination in accordance with
IFRS 3 (*)
IFRS 3 establishes principles and require-
ments for how the acquirer:
i. Recognizes and measure the consideration
paid;
ii. Recognizes and measure fair value of iden-
tifiable net assets acquired; and
iii. Recognizes and measure the goodwill ac-
quired.
IFRS 3 provides the acquirer with a reaso-
nable time (measurement period) to obtain
the information necessary to identify and
(i) Consideration paid
measure the three points mentioned above
as of the acquisition date. During the mea-
surement period, the acquirer shall retros-
pectively adjust the provisional amounts
recognized at the acquisition date to reflect
new information obtained about facts and
circumstances that existed as of the acqui-
sition date and, if known, would have affec-
ted the measurement of the amounts re-
cognized as of that date. The measurement
period shall not exceed one year from the
acquisition date (June 22, 2012). Therefore,
some amounts reported in previous financial
statements as provisional amounts because
the accounting was incomplete have been re-
trospectively adjusted.
The following summarizes the consideration paid for TAM S.A. and subsidiaries:
Number of shares
LAN Exchange
(a)
Share price at fair
value at June 22
exchange rate at
June 22 US$
(b)
Total exchange
of shares ThUS$
(a) times (b)
Squeeze Out
At July 27
at t/c June 22
ThUS$
Total
purchase
price
ThUS$
135,119,066
26.76973
3,617,101
165,143
3,782,244
Value of the share at June 22, 2012 CLP$ 13,489
Exchange rate as of June 22, 2012 503.89 CLP$/US$
Consideration paid was calculated, in accordance with IFRS 3, as the sum of the fair value of the
LAN shares provided and the Squeeze-Out cash payment explained in Note 18.2.(a).
(*) See note 2.2
ANNUAL REPORT 2013229 (ii) Fair value of identifiable assets acquired and liabilities assumed.
The following table summarizes the fair value of recognized amounts of identifiable assets
acquired and liabilities assumed at the acquisition date.
Cash and cash equivalents
Other financial assets
Other non-financial assets
Trade and other accounts receivable
Inventories
Tax assets
Assets held for sale
Airport Slots
Loyalty program
Other intangible assets
Fleet
Other property, plant and equipment
Other financial liabilities
Other non-financial liabilities
Trade and other accounts payables
Other provisions
Employee benefits
Tax liabilities
Deferred tax
Accounts payable to related entities
Net assets at fair value
Fair
value
ThUS$
263,986
810,079
324,170
1,004,331
66,287
145,626
8,865
1,472,625
517,304
281,552
3,178,065
1,063,036
(4,802,902)
(1,445,463)
(1,473,579)
(1,429,012)
(18,580)
(65,185)
(31,940)
(82)
(130,817)
•
The airport slots (landing and take-offs)
have been measured at fair value at
the date of the combination, using the
net present value of projected Earing
Before Interest and Taxes (EBIT) of those
routes going through those airports
where slots were acquired as part of the
business combination (Congonhas, JFK
and Heathrow); and its useful lives are
classified as indefinite, which shall be
subject to impairment test annually.
•
Customer loyalty program “Multiplus”
fair value has been measured using
estimated discounted cash flows related
to the mentioned intangible as of the
acquisition date and its useful lives are
classified as indefinite, which shall be
subject to impairment test annually.
•
Fair value of fleet was measured using
market values and considering model,
age and actual maintenance conditions
of each airplane, Additionally, in relation
with those airplanes under operative
lease, maintenance cost and devolution
cost have been provided for.
ANNUAL REPORT 2013230
•
Fair value of Other provisions is related
with the recognition of contingent
in a business
liabilities assumed
combination even if it is not probable
that an outflow of resources embodying
economic benefits will be required to
settle the obligation, according to IFRS 3.
•
As part of the purchase price allocation
required under
IFRS 3 carried out
during the first half of 2013, errors
identified and corrected that
were
were not material
the LATAM
to
consolidated financial statement. These
errors originated from TAM S.A. and
Subsidiaries.
iii. Goodwill acquired
The financial statements of LATAM Airlines Group S.A. include goodwill recorded to the value of
ThUS$ 4,015,987 calculated and assigned to corresponding segments. The following table sum-
marizes the consideration paid, the fair value of assets acquired, liabilities assumed, non-contro-
lling interest and goodwill acquired at the acquisition date.
Purchase price
LESS:
Historic net assets
Fair value adjustment:
Airport Slots
Loyalty program
Fleet (included maintenance)
Other provisions
Error correction
Deferred tax
Other
Total adjustment
Total net assets at fair value
Non-controlling interest
Goodwill restated at June 22, 2012
ThUS$
ThUS$
3,782,244
578,559
(1,472,625)
(517,304)
723,364
1,157,419
584,126
104,342
130,054
709,376
(130,817)
(130,817)
102,926
4,015,987
ANNUAL REPORT 2013231 The following table summarizes Goodwill acquired by segments.
Goodwill
restated at
June 22,
2012
ThUS$
3,169,702
846,285
4,015,987
•
•
The errors correction mentioned above
at December 31, 2012 had an impact of
US$ 416 million in relation with Revenue
and deferred revenue, US$ 183 million in
relation with Taxes and Income taxes,
and US$ 11 million (loss) for the period
then ended.
The revised amounts of the statement of
financial position at June 22, 2012, date
of the business combination of TAM S.A.
and its subsidiaries are as follows:
Goodwill asignned Air transportation CGU
Goodwill asignned Coalition and loyalty program Multiplus CGU
Total Goodwill
Non-controlling interest have been measured
and recognized at fair value.
(c) Retrospective revision to LATAM 2012
consolidated financial statements.
As required by IFRS, during the first half of
2013, based on new information obtained
about facts and circumstances that existed
as of the acquisition date. Latam Airlines
Group S.A. has retrospectively adjusted
the amounts presented in the December
31, 2012 consolidated financial statements.
Adjustments are related to the fair value
of: fleet, customer loyalty programs and
provisions, and to non-material errors
identified related to Deferred income and Tax
liabilities that existed before the acquisition
date relating to TAM S.A. and Subsidiaries.
•
The impact of the fair value adjustments
mentioned above at December 31, 2012
increased total assets by US$ 485 million,
increased total liabilities by US$ 1,039
million and decreased net results by US$
19 million for the period then ended.
ANNUAL REPORT 2013232 -
-
-
-
-
18,330
-
-
-
-
-
-
-
-
-
The revised amounts of the statement of financial position at June 22, 2012, date of the business
combination of TAM S.A. and its subsidiaries are as follows:
Fair value at June 22, 2012
publicated at
June 30,
publicated at
December 31,
Variation
Fair value
modification
Errors on
Revenue and
deferred
revenue cycle
Errors on
tax and
deferred
taxes cycle
2013
ThUS$
Unaudited
2012
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Cash and cash equivalents
263,986
263,986
Other financial assets
810,079
810,079
-
-
-
-
Other non- financial assets
324,170
333,086
(8,916)
(8,916)
-
-
-
Trade and other
accounts receivable
Inventories
Tax assets
1,004,331
1,035,692
(31,361)
(15,686)
(15,675)
66,287
69,823
(3,536)
(3,434)
145,626
156,215
(10,589)
(28,897)
Assets held for sale
8,865
8,865
Airport slots
1,472,625
1,472,625
Loyalty programs
517,304
-
Other intangibles assets
281,552
268,190
Fleet
3,178,065
3,176,372
Other property, plant and
equipment
1,063,036
1,057,220
Other financial liabilities
(4,802,902)
(4,802,902)
-
-
517,304
13,362
1,693
5,816
-
-
-
517,304 (a)
13,385
1,693
5,816
-
(102)
(22)
-
-
-
(23)
-
-
-
Other non-financial liabilities
(1,445,463)
(1,064,782)
(380,681)
16,847
(397,528)
Trade and other accounts
payables
(1,473,579)
(1,077,784)
(395,795)
(406,153) (b)
10,358
Other provisions
(1,429,012)
(634,076)
(794,936)
(742,180) (c)
Employee benefits
(18,580)
-
(18,580)
(18,580)
Tax liabilities
(65,185)
(65,185)
-
-
Deferred taxes
(31,940)
(22,109)
(9,831)
136,877
Accounts payable to related
entities
(82)
(82)
-
-
-
-
-
-
-
(52,756)
-
-
(146,708)
-
Net assets at fair value
(130,817)
985,233
(1,116,050)
(531,924)
(402,992)
(181,134)
The main changes made to the fair value
correspond to:
(a) Loyalty program
Complementing the mentioned in Note 18.2
(b) ii. the company has recognized as an
intangible asset the loyalty program and
coalition of Multiplus. The program provides
a system of coalition flexible and interrelated
among its partners and members. which
allows a considerable increase in consumer
loyalty.
This program has been valued at fair value
using the income approach, through cash
from the margins attributed to
flows
intangible. His life has been regarded as
indefinite, based on the ability to maintain
and
relationship between
strategic partners among others aspects.
renew
the
ANNUAL REPORT 2013233 (b) Trade and other accounts payables
•
The main fair values reflected in this category
are:
• Maintenance
It has been
liability:
adjusted the initial valuation of major
maintenance of the leased fleet, taking
into consideration the detailed review
of all lease contracts and updates the
initial calculation (ThUS$ 303,377).
•
Aircraft return provision: There was
registered a provision to cover the
additional cost related with the return
of aircraft. This is for the portion accrued
at the date of the business combination
(ThUS$ 38,818).
Aircraft operating leasing adjustment:
There was registered a provision for
the difference between the fair value
and the real value of future rents under
operating leasing (ThUS$ 53,600).
(c) Other provision
•
The
fair value of other provision,
correspond to those contingencies with
a probability of loss under 50%, which are
not provided for the normal application
of IFRS enforcement and that only must
be registered in the context of a business
combination in accordance with IFRS 3.
The detailed fair values for other provision are as follows:
ThUS$ ThUS$
3,398
(5,524)
744,306
742,180
516,292
228,014
The litigation and tax criteria correspond to
approximately 500 cases involving to the tax
treatment applicable to direct and indirect
taxes, which are found in both administrative
and judicial stage, and whose probability of
loss is less than 50%.
Civil cases
Laboral disputes
Litigation and tax criteria
Direct taxes
Indirect taxes
Total
Civil cases correspond to approximately
7,000 cases involving different demands
of civil order, filed against of TAM S.A. and
Subsidiaries and whose loss probability is
less than 50%.
The
labor disputes are approximately
2,200 cases involving different demands
of labor order, filed against of TAM S.A. and
Subsidiaries and whose loss probability is
less than 50%.
ANNUAL REPORT 2013234 The adjustments to LATAM Airlines Group
SA and subsidiaries, for each type of error
between the acquisition date and December
31, 2012 were:
•
Revenue and deferred revenue cycle
During this period the adjustments are
complementary to the error correction
made at the acquisition date, and the
main modified items are: Trade and other
accounts receivables (increase of ThUS$
40,856) and Other financial liabilities non-
current (increase of ThUS$ 50,393) with effect
Revenue (loss of ThUS$ 10,236).
•
Tax and deferred taxes cycle
During this period the adjustments are com-
plementary to the error correction made at
the acquisition date, and the main modified
items are: Other provisions non-current (in-
crease of ThUS$ 1,581) and Deferred tax lia-
bilities (decrease of ThUS$ 1,139) with effect
on Revenue (loss of ThUS$ 1,581) and loss tax
expense (less expense of ThUS$ 1,139).
In the process of determining the fair
values of the net assets of TAM S.A. and its
Subsidiaries, at the date of the business
combination, non-significant errors were
detected within the LATAM’s consolidated
financial statement, in Deferred income and
Tax liabilities. These errors originated from
TAM S.A. and Subsidiaries and the nature of
these errors correspond to:
•
Revenue and deferred revenue cycle
Differences between the general ledger and
the sub-ledger, corresponding to deferred
revenue not recognized related with unused
tickets.
The correction of this difference resulted
in decreases in the following items of the
Statement of financial position of TAM S.A.
and its Subsidiaries at June 22, 2012: Trade and
other accounts receivable for ThUS$ 15,675,
other items of assets for ThUS$ 147 and Trade
payables and other accounts payable ThUS$
10,358, and increases in Other financial
liabilities non-current of ThUS$ 397,528.
•
Tax and deferred taxes cycle
Errors
in the determination of annual
taxable income used to calculate of deferred
tax and the re-calculation and correction
of statements, product of changes in the
method of determination of tax credits.
The corrections of this errors resulted in
the increase of the following items of the
Statement of financial position of TAM S.A.
and its Subsidiaries at June 22, 2012: Tax
assets for ThUS$ 18,330.Other long term
provision for ThUS$ 52,756 and Deferred tax
liabilities for ThUS$ 146,708.
ANNUAL REPORT 2013235 The effects resulting from the fair value adjustments and errors correction at December 31, 2012
were the following:
Revised amount
for the year
ended at
December 31,
2012
Historical
amount for
the year
ended
December 31,
2012
Variation
Fair value
modification
Errors on
devenue
and
deferred
revenue
cycle
Errors on tax
and deferred
taxes cycle
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Unaudited
9,710,372
9,722,189
(11,817)
-
(10,236)
(1,581)
(7,634,453)
(7,642,643)
8,190
8,190
(*)
-
-
2,075,919
2,079,546
(3,627)
8,190
(10,236)
(1,581)
Revenue
Cost of sale
Gross margin
Other income
Distribution cost
(803,619)
(803,619)
220,156
220,156
-
-
-
-
Administrative expenses
(888,654)
(869,504)
(19,150)
(19,150)
(**)
Other expenses
(311,753)
(311,753)
-
-
Other gains / (losses)
(45,831)
(38,750)
(7,081)
(7,081)
(*)
-
-
-
-
-
-
-
-
-
-
Gains (losses) from operating activities
246,218
276,076
(29,858)
(18,041)
(10,236)
(1,581)
Financial income
Financial cost
Equity accounted earning
Foreing exchange goins / (losses)
Result of indexation units
77,489
77,489
(294,598)
(294,598)
972
66,685
(22)
972
66,685
(22)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Income (loss) before taxes
96,744
126,602
(29,858)
(18,041)
(10,236)
(1,581)
Income (loss) tax expenses
(102,386)
(102,212)
(174)
(1,313)
-
NET INCOME (LOSS) FOR THE PERIOD
(5,642)
24,390
(30,032)
(19,354)
(10,236)
1,139
(442)
Income (loss) attributable to owners
of the parent
Income (loss) attributable to
non-controlling interest
Net income (loss) for the period
(19,076)
10,956
(30,032)
(19,354)
(10,236)
(442)
13,434
(5,642)
13,434
-
-
-
24,390
(30,032)
(19,354)
(10,236)
-
(442)
(*) Correspond mainly to the impact on
the results of operating leases’ fair value
adjustments.
(**) Correspond mainly to the impact on the
results of fair value credit card chargeback
adjustments.
(d)
Other information
The income contribution of TAM S.A. and
Subsidiaries during the period of 2012 was
ThUS$ 3,633,592 the net result considered in
the consolidated financial statements of the
group at December 31, 2012, was a loss of
ThUS$ 75,195.
ANNUAL REPORT 2013236 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,
2013
As of
December 31,
2012
As of
December 31,
2013
As of
December 31,
2012
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Construction in progress
858,650
1,153,003
59,352
65,307
-
-
-
-
858,650
1,153,003
59,352
65,307
Land
Buildings
247,263
245,939
(75,478)
(70,869)
171,785
175,070
Plant and equipment
8,461,456
7,942,957
(1,708,668)
(1,635,532)
6,752,788
6,307,425
Own aircraft
7,409,394
6,979,985
(1,347,671)
(1,278,739)
6,061,723
5,701,246
Other
Machinery
1,052,062
962,972
(360,997)
(356,793)
691,065
606,179
73,561
76,956
(41,509)
(41,799)
32,052
35,157
Information technology equipment
182,108
171,568
(135,889)
(131,105)
46,219
40,463
Fixed installations and accessories
97,212
81,252
(46,620)
(38,909)
50,592
42,343
Motor vehicles
75,150
70,706
(51,128)
(48,451)
24,022
22,255
Leasehold improvements
88,641
87,004
(71,872)
(65,276)
16,769
21,728
Other property, plants and equipment
4,791,236
5,814,689
(1,820,679)
(1,870,364)
2,970,557
3,944,325
Financial leasing aircraft
4,618,127
5,659,575
(1,777,980)
(1,830,273)
2,840,147
3,829,302
Other
Total
173,109
155,114
(42,699)
(40,091)
130,410
115,023
14,934,629
15,709,381
(3,951,843)
(3,902,305)
10,982,786
11,807,076
ANNUAL REPORT 2013237 The movement in the different categories of Property, plant and equipment from January 1, 2012
to December 31, 2013 is shown below:
(a) As of december 31, 2012
Construction
in progress
Land
Buildings
net
Plant and
equipment
net
Information
technology
equipment
net
Fixed
installations
& accessories
net
Motor
vehicles
net
Leasehold
improvements
net
Other
property,
plant and
equipment
net
Property,
plant and
equipment
net
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Opening balance as
of January 1, 2012
1,087,563
35,673
77,938
4,141,985
22,591
35,098
1,637
31,499
493,998
5,927,982
Additions
34,885
-
17,349
2,803,242
11,626
7,836
458
4,668
154,000
3,034,064
Acquisitions through
business combinations
553,781
46,373
87,338
469,650
16,990
1,696
4,099
Disposals
(27)
(5,116)
(4,821)
(73,654)
(15)
Transfers (to) from non-curent
assets (or disposal groups)
(2,256)
(11,895)
-
(49,910)
-
-
-
(28)
-
-
-
-
3,061,174
4,241,101
(5)
(83,666)
-
(64,061)
Retirements
Depreciation expenses
Conversion difference
subsidiaries
(281)
-
-
-
(1,100)
(136,879)
(951)
(261)
(62)
(82)
(18,799)
(158,415)
(3,311)
(319,578)
(14,982)
(6,526)
(1,316)
(16,432)
(250,329)
(612,474)
1,844
272
(2,370)
2,625
3,968
530
(101)
-
16,725
23,493
Other increases (decreases)
(522,506)
-
4,047
(477,366)
1,236
3,970
35
2,075
487,561
(500,948)
Changes, total
65,440
29,634
97,132
2,218,130
17,872
7,245
3,085
(9,771)
3,450,327
5,879,094
Closing balance as of
december 31, 2012
1,153,003
65,307
175,070
6,360,115
40,463
42,343
4,722
21,728
3,944,325
11,807,076
ANNUAL REPORT 2013238 (b) As of December 31, 2013
Construction
in progress
Land
Buildings
net
Plant and
equipment
net
Information
technology
equipment
net
Fixed
installations
& accessories
net
Motor
vehicles
net
Leasehold
improvements
net
Other
property,
plant and
equipment
net
Property,
plant and
equipment
net
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Opening balance as
of January 1, 2013
Additions
Disposals
Retirements
Depreciation expenses
Conversion difference
subsidiaries
1,153,003
65,307
175,070
6,360,115
40,463
42,343
4,722
21,728
3,944,325
11,807,076
17,731
-
(615)
-
-
-
-
-
11,798
1,555,667
22,146
7,663
303
-
(141,328)
(31)
-
(161)
-
-
69,703
1,685,011
(644,637)
(786,157)
(430)
(65,151)
(270)
(15)
(10)
(219)
(19,716)
(86,426)
(11,768)
(446,503)
(14,131)
(8,893)
(312)
(12,281)
(336,586)
(830,474)
(53,452)
(5,955)
(12,414)
(71,013)
(3,375)
(1,527)
(286)
(1)
(320,738)
(468,761)
Other increases (decreases)
(258,017)
-
9,529
(384,669)
1,417
11,021
(2,512)
7,542
278,206
(337,483)
Changes, total
(294,353)
(5,955)
(3,285)
447,003
5,756
8,249
(2,978)
(4,959)
(973,768)
(824,290)
Closing balance as
of December 31, 2013
858,650
59,352
171,785
6,807,118
46,219
50,592
1,744
16,769
2,970,557
10,982,786
ANNUAL REPORT 2013239 (c) Composition of the fleet
Aircraft included in the Company's Property, plant and equipment
Aircraft
Model
As of
December 31,
2013
As of
December 31,
2012
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
300
300ER
300F
300ER
Freighter
800
100
100
200
200
200
300
500
Operating leases:
Aircraft
Model
300ER
300F
300ER
Freighter
800
100
200
200
200
300
700
Dhc8-200
Dhc8-400
Boeing 767
Boeing 767
Boeing 777
Boeing 777
Boeing 787
Airbus A319
Airbus A320
Airbus A321
Airbus A330
Airbus A340
Boeing 737
Bombardier
Bombardier
Total
Total fleet
3
34
8
8
2
3
-
39
95
9
8
-
2
3
30
8
8
2
3
5
39
76
8
18
2
2
211
204
As of
December 31,
2013
As of
December 31,
2012
6
4
2
2
2
15
65
1
12
4
5
7
3
128
339
8
4
-
2
-
18
65
1
2
3
6
10
4
123
327
ANNUAL REPORT 2013240 (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 equip-
ment
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.
(**) Aircraft with remarketing clause are
those that are required to sell at the end of
the contract.
to
charged
The depreciation
income
in the period, which is included in the
income,
statement
consolidated
amounts to ThUS$ 830,474 (ThUS$ 612,474
at December
2012). Depreciation
charges for the year are recognized in Cost
of sales and administrative expenses in
income.
the consolidated statement of
31,
of
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.
for
same business
the
Additionally,
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.
ANNUAL REPORT 2013241 (e) Additional information regarding
Property, plant and equipment:
(i) Property, plant and equipment pledged as
guarantee:
In the period ended December 31, 2013, we
added direct guarantees for nine Boeing
767-300 aircraft, nineteen Airbus A320 and
one Airbus A321 aircraft. Moreover, the
Company sold its interest in the permanent
establishments Mirlo Leasing LLC, Osprey
Leasing Limited, and subsidiary Conure
Leasing Limited. Product of the above direct
guarantees associated with a Boeing 767-
300 aircraft, two aircraft Airbus A320-200s
and eight Airbus A319-100 aircraft were
eliminated. Additionally, guarantees
for
seven A318-100 aircraft and two Airbus A340-
300 aircraft were removed from their sale.
Description of Property, plant and equipment pledged as guarantee:
Creditor of guaranteed Assets committed Fleet
As of December 31,
2013
As of December 31,
2012
Existing
debt
Book
value
Existing
debt
Book
value
ThUS$
ThUS$
ThUS$
ThUS$
Wilmington Trust Company Aircraft and engines
Boeing 767
1,437,810
1,827,349
1,296,704
1,640,071
Banco Santander S.A.
Aircraft and engines
Airbus A319
74,042
105,353
81,698
Boeing 777 / 787
777,796
880,470
858,221
937,074
111,458
BNP Paribas
Aircraft and engines
Airbus A318
-
-
121,172
150,026
Airbus A319
209,993
281,846
360,100
501,836
Airbus A320
643,945
829,185
626,317
782,609
Airbus A321
43,071
49,208
-
-
Credit Agricole
Aircraft and engines
Airbus A319
Airbus A320
Airbus A340
32,251
96,774
153,531
68,096
156,355
-
-
19,531
105,349
Airbus A320
199,114
257,857
261,139
99,241
44,002
333,105
107,625
JP Morgan
Wells Fargo
Bank of Utah
DVB Bank SE
Aircraft and engines
Boeing 777
259,272
292,486
280,698
324,159
Aircraft and engines
Airbus A320
331,854
384,273
Aircraft and engines
Airbus A320
277,622
347,765
Aircraft and engines
Boeing 767
95,292
151,824
-
-
-
-
-
-
Total direct guarantee
4,478,836
5,660,388 4,017,678
5,149,667
The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying va-
lue 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, 2013 amounted to ThUS$ 2,167,470 (ThUS$ 2,888,753 at December 31, 2012).
The book value of assets with indirect guarantees as of December 31, 2013 amounts to ThUS$ 2,767,593
(ThUS$ 3,777,715 as of December 31, 2012).
ANNUAL REPORT 2013242 (ii) Commitments and others
Fully depreciated assets and commitments for future purchases are as follows:
Gross book value of fully depreciated property,
plant and equipment still in use
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
160,116
188,214
Commitments for the acquisition of aircraft (*)
23,900,000
24,500,000
Moreover, purchase contracts were signed
with the same manufacturer in February,
May and December 2011, 3, 5 and 2 aircraft
767-300, respectively.
As of December 31, 2013, and as a result
of different aircraft purchase contracts
signed with The Boeing Company, remain to
receive a total of 21 787 Dreamliner aircraft,
with delivery dates between 2014 and 2018.
The approximate amount, according to the
manufacturer's price list, is ThUS$ 4,300,000.
Additionally, the Company has valid purchase
options for 15 787 Dreamliner aircraft.
(*) Acording to the manufacturer’s price list.
In December 2009, the Company signed
commitment with Airbus
a purchase
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, 2013, and as a result of different aircraft
purchase contracts signed with Airbus S.A.S.,
there remain 64 Airbus aircraft of the A320
family to be delivered between 2014 and
2018. The approximate amount is ThUS$
5,600,000, according to the manufacturer’s
price list.
On October 2007, we signed a binding
purchase agreement with The Boeing
Company for the purchase of 26 Boeing 787
aircraft with deliveries starting in 2012.
ANNUAL REPORT 2013243 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. During 2011
the first 5 aircraft were sold, during 2012
another 3 were sold and during 2013 the last
7 aircraft were sold.
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 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, 2013, as
a result of the different aircraft purchase
agreements signed with Airbus S.A.S., remain
to receive 58 aircraft Airbus A320 family,
with deliveries between 2014 and 2018, and
27 Airbus aircraft A350 family with delivery
dates starting from 2015. Additionally, the
Company has valid purchase options for 5
Airbus A350.
In December 2008, a new commitment
purchase agreement was signed with The
Boeing Company for 2 777 aircraft with
deliveries in 2013, and in February 2011 an
agreement was signed for the purchase of
another 2 777 aircraft with deliveries in 2014.
With the above, at December 31, 2013, due to
the various purchase contracts signed with
The Boeing Company, remain to receive 2
777 aircraft, whose delivery was scheduled
for 2014, which has been rescheduled for
2017. Additionally, the Company has valid
purchase options for other 2 777 aircraft.
The approximate amount of
individual
purchase contracts incorporated for the
effect of the business combination with TAM
S.A. and Subsidiaries is ThUS$ 14,000,000,
according to the manufacturers price list.
(iii) Capitalized interest costs with respect to Property, plant and equipment:
Average rate of capitalization of capitalized interest costs
%
For the periods ended
December 31,
2013
3.63
2012
2.60
Costs of capitalized interest
ThUS$
25,625
45,069
ANNUAL REPORT 2013244
(iv) Financial leases
The detail of the main financial leases is as follows:
Lessor
Aircraft
Model
As of
December 31,
2013
As of
December 31,
2012
Agonandra Statutory Trust
Agonandra Statutory Trust
Air Canada
AWMS I (AWAS)
Bluebird Leasing LLC
Caiquen Leasing LLC
Cernicalo Leasing LLC
Chirihue Leasing Trust
Codorniz Leasing Limited
Conure 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
Mirlo Leasing LLC
Airbus A319
100
Airbus A320
200
Airbus A340
500
Boeing 767
300
Boeing 767
300F
Boeing 767
300F
Boeing 767
300F
Boeing 767
300F
Airbus A319
100
Airbus A320
200
Boeing 767
300ER
Boeing 777
300ER
Boeing 777
300ER
Boeing 777
300ER
Airbus A320
200
Boeing 767
300ER
Airbus A330
Airbus A320
200
200
Airbus A320
200
Airbus A320
200
Boeing 767
300ER
NBB Rio de Janeiro Lease CO. and Brasilia Lease LLC (BBAM)
Airbus A320
200
NBB São Paulo Lease CO. Limited (BBAM)
Osprey Leasing Limited
Petrel Leasing LLC
Pochard Leasing LLC
Quetro 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
200
Airbus A319
100
Boeing 767
300ER
Boeing 767
300ER
Boeing 767
300ER
Boeing 777
300ER
Airbus A320
200
Airbus A320
200
Airbus A330
200
Airbus A319
100
Airbus A320
200
Airbus A319
100
Airbus A320
200
Airbus A321
200
Airbus A330
200
Airbus A320
200
Wells Fargo Bank North National Association (ILFC)
Airbus A330
200
4
2
2
3
-
1
2
2
2
2
-
1
1
1
2
1
3
1
2
4
1
1
1
8
1
2
3
1
1
12
1
5
2
3
12
7
-
1
1
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
Total
99
102
ANNUAL REPORT 2013245 leasing contracts where
Financial
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, 2013 the
Company had ninety and nine aircraft (one
hundred and two aircraft as of December 31,
2012).
During the first quarter of 2013, due to the
sale of its participation in the permanent
establishments Mirlo Leasing LLC, Osprey
Leasing Limited, and subsidiary Conure
Leasing Limited, the Company increased its
number of aircraft on lease by one Boeing
767-300, two A320-200 and eight Airbus
A319-100. Therefore, these aircraft were
reclassified from the Plant and equipment
category to the category Other property
plant and equipment.
Additionally, during the second quarter of
2013 the contracts system applied to ten
A330-200 aircraft was changed from financial
leasing to operative leasing. As a result, the
mentioned aircraft are no longer included
under Property, plant, and equipment.
During to the third quarter of 2013, the
option was exercised to purchase 3 A330-200.
Therefore, these aircraft were reclassified
from
the Other property plant and
equipment category to the category Plant
and equipment.
During to the fourth quarter of 2013, the
option was exercised to purchase one B767-
300 aircraft belonging Eagle Leasing LLC, was
reclassified from the Other property plant
and equipment category to the category
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, 2013 amounts
to ThUS$ 2,835,840 (ThUS$ 3,863,193 as of
December 31, 2012).
ANNUAL REPORT 2013246 The minimum payments under financial leases are as follows:
As December 31, 2013
No later than one year
Between one and five years
Over five years
Total
As December 31, 2012
No later than one year
Between one and five years
Over five years
Total
Gross value
Interest
Present value
ThUS$
462,157
1,406,384
633,120
ThUS$
(53,925)
(118,702)
(19,562)
ThUS$
408,232
1,287,682
613,558
2,501,661
(192,189)
2,309,472
Gross value
Interest
Present value
ThUS$
523,033
1,687,596
1,135,262
ThUS$
(66,090)
(186,145)
(57,455)
ThUS$
456,943
1,501,451
1,077,807
3,345,891
(309,690)
3,036,201
ANNUAL REPORT 2013247 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 entity and tax authority.
The balances of deferred taxes are as follows:
Concepts
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial instruments
Tax losses
Revaluation property, plant and equipment
Intangibles
Others
Total
Assets
Liabilities
As of
December 31,
2013
As of
December 31,
2012
As of
December 31,
2013
As of
December 31,
2013
ThUS$
(17,152)
(147,074)
(10,778)
317,883
562
267,189
-
-
ThUS$
(662)
-
15,148
34,704
5,178
105,652
-
-
(7,668)
3,047
ThUS$
557,845
46,688
113,579
(207,358)
(15,508)
(284,339)
(18,544)
593,325
(18,460)
ThUS$
454,183
268,619
91,911
(520,719)
(31,741)
(314,926)
(22,892)
680,167
(25,263)
402,962
163,067
767,228
579,339
The balance of deferred tax assets and liabilities are composed principally of temporary
differences to reverse in the long term.
ANNUAL REPORT 2013248 )
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ANNUAL REPORT 2013249
(b) From January 1 to December 31, 2013
Beginning
balance asset
(liability)
Recognized in
consolidated
income
Recognized in
comprehensive
income
Exchange
rate
variation
Others
Ending
balance
asset
(liability)
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial
instruments
Tax losses
Revaluation propety, plant and
equipment
Intangibles
Others
Total
(268,619)
(76,763)
555,423
36,919
420,578
22,892
(680,167)
28,310
(454,845)
(124,584)
70,807
(49,985)
35,636
-
-
-
-
146
(19,345)
148,266
3,290
-
9,543
-
-
-
-
4,432
4,050
2,391
(65,818)
(1,650)
(17,316)
(7,638)
86,842
-
-
-
-
-
-
-
-
(574,997)
(193,762)
(124,357)
525,241
16,070
551,528
18,544
(593,325)
(28,070)
1,009
10,792
(416,272)
93,119
(19,345)
(22,777)
1,009
(364,266)
Deferred tax assets not recognized:
Tax losses
Total Deferred tax assets not recognized
As of
December 31,
2013
As of
December 31,
2012
ThUS$
6,538
6,538
ThUS$
1,439
1,439
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$ 6,538 (ThUS$ 1,439 at December 31, 2012) compared to a loss of ThUS$
28,855 (ThUS$ 5,265 at December 31, 2012) to offset against future years tax benefits.
ANNUAL REPORT 2013250 Expense (income) for deferred and current income taxes for the periods ended at December 31,
2013 and December 31, 2012, respectively, are as follows:
Expense for current income tax
Current tax expense
Adjustment to previous period’s current tax
Other current tax expense
Total current tax expense, net
Expense for deferred income taxes
Deferred expense for taxes related to the creation and
reversal of temporary differences
Reduction (increase) in value of deferred tax assets during
the evaluation of its usefulness
Total deferred tax expense, net
Income tax expense
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 periods ended
December 31,
2013
ThUS$
73,611
(561)
-
2012
ThUS$
34,563
(13,886)
12
73,050
20,689
(92,863)
80,293
(256)
1,404
(93,119)
81,697
(20,069)
102,386
For the periods ended
December 31,
2013
ThUS$
61,118
11,932
73,050
(112,047)
18,928
(93,119)
2012
ThUS$
30,827
(10,138)
20,689
(53,842)
135,539
81,697
(20,069)
102,386
ANNUAL REPORT 2013251 Reconciliation of tax expense using the legal rate to the tax expense using the effective rate:
Tax expense using the legal rate
Tax effect of legal rate change
Tax effect of rates in other jurisdictions
Tax effect of non-taxable operating revenues
Tax effect of disallowable expenses
Other increases (decreases) in legal tax charge
For the periods ended
December 31,
2013
ThUS$
(61,035)
2012
ThUS$
22,633
-
70,441
(*)
(34,287)
(24,004)
98,211
1,046
(10,512)
(7,029)
27,437
(584)
Total adjustments to tax expense using the legal rate
40,966
79,753
Tax expense using the effective rate
(20,069)
102,386
Reconciliation of legal tax rate to effective tax rate:
For the periods ended
December 31,
2013
%
20.00
-
11.24
7.87
(32.18)
(0.34)
(13.41)
6.59
(*)
2012
%
20.00
62.24
(9.28)
(6.21)
24.24
(0.52)
70.47
90.47
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.
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
Other increase (decrease) in legal tax rate
Total adjustment to the legal tax rate
Total effective tax rate
(*) 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.
ANNUAL REPORT 2013252 Deferred taxes related to items charged to net equity:
Aggregate deferred taxation of components of other comprehensive income
Aggregate deferred taxation related to items charged to net equity
For the periods ended
December 31,
2013
ThUS$
(19,345)
(3,440)
2012
ThUS$
(5,357)
(257)
Total deferred taxes related to items charged to net equity
(22,785)
(5,614)
Deferred tax effects of the components of other comprehensive income:
Cash-flow hedges
Translation adjustment
Cash-flow hedges
Translation adjustment
As of December 31, 2013
Amount before
taxes
Income tax
expense (income)
Amount after
taxes
ThUS$
(128,166)
629,858
ThUS$
19,345
-
19,345
ThUS$
(108,821)
629,858
As of December 31, 2012
Amount before
taxes
Income tax
expense (income)
Amount after
taxes
ThUS$
2,510
(19,170)
ThUS$
2,623
2,734
5,357
ThUS$
5,133
(16,436)
ANNUAL REPORT 2013253 NOTE 21 - OTHER FINANCIAL LIABILITIES
The composition of Other financial liabilities is as follows:
Current
(a) Interest bearing loans
(b) Derivatives not recognized as a hedge
(c) Hedge derivatives
Total current
Non-current
(a) Interest bearing loans
(b) Derivatives not recognized as a hedge
(c) Hedge derivatives
Total non-current
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
1,969,281
1,977,255
4,040
66,466
4,477
65,598
2,039,787
2,047,330
7,803,588
7,582,302
1,491
54,906
5,515
111,040
7,859,985
7,698,857
ANNUAL REPORT 2013254 (a) Interest bearing loans
Obligations with credit institutions and debt instruments:
Current
Loans to exporters
Bank loans
Guaranteed obligations
Other guaranteed obligations
Subtotal bank loans
Obligation with the public
Financial leases
Other loans
Total current
Non-current
Bank loans
Guaranteed obligations
Other guaranteed obligations
Subtotal bank loans
Obligation with the public
Financial leases
Other loans
Total non-current
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
401,263
602,618
455,512
31,109
242,955
519,762
411,313
-
1,490,502
1,174,030
21,761
273,682
423,537
471,896
33,481
57,647
1,969,281
1,977,255
322,207
219,319
3,776,910
3,432,919
64,247
-
4,163,364
3,652,238
1,116,671
1,123,840
1,902,715
2,615,924
620,838
190,300
7,803,588
7,582,302
Total obligations with financial institutions
9,772,869
9,559,557
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, 2013 and December 31,
2012, are as follows:
Currency
Argentine peso
Brazilian real
Chilean peso
Euro
US Dollar
Total
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
43,335
76,674
267,554
2,029
-
326,394
-
1,785
9,383,277
9,231,378
9,772,869
9,559,557
ANNUAL REPORT 2013255 i
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ANNUAL REPORT 2013257
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O
ANNUAL REPORT 2013259
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ANNUAL REPORT 2013263
Summary of other financial non-current loans (other than bank loans, obligations with the public
and financial leases)
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
33,481
4,040
66,466
103,987
620,838
1,491
54,906
677,235
57,647
4,477
65,598
127,722
190,300
5,515
111,040
306,855
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, 2013 and December 31, 2012, respectively,
is as follows:
Current
Interest rate derivative not recognized as a hedge
Total currents
Non-current
Interest rate derivative not recognized as a hedge
Total non-currents
Total other financial liabilities
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
4,040
4,040
1,491
1,491
5,531
4,477
4,477
5,515
5,515
9,992
ANNUAL REPORT 2013264 (c) Hedge derivatives
Hedge derivatives as of December 31, 2013 and December 31, 2012 are as follows:
Current
Accrued interest from the last date of interest rate swap
Fair value of 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
Total hedging liabilities
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
5,775
32,070
-
28,621
66,466
54,906
-
-
54,906
121,372
4,660
37,076
10,502
13,360
65,598
104,547
4,530
1,963
111,040
176,638
The foreign currency derivatives exchange are collars and cross currency swap.
ANNUAL REPORT 2013265 Hedging operation
The fair values of assets/(liabilities), by type of derivative, of the contracts held as hedging
instruments are presented below:
As of
December 31,
2013
ThUS$
(26,028)
6
(92,088)
1,878
13,990
32,058
(1,121)
(1,652)
As of
December 31,
2012
ThUS$
-
6
(146,283)
(911)
(9,000)
-
-
(15,228)
(5) Covers the significant variations
in
cash flows associated with market
risk
in the
purchases.
price
implicit
of
in the changes
future
fuel
(6) Covers
the
foreign exchange
risk
exposure of operating cash flows
fluctuations
caused
R$/US$.
in
mainly
exchange
rate
the
by
(7) Covers the investments denominated
in Chilean pesos to Dollar- Chilean
to
peso exchange
Dollars.
secure
in order
in
investment
rate,
(8) Covers
the
foreign exchange
risk
exposure of Multiplus income caused by
fluctuations in the exchange rate R$/US$.
Cross currency swaps (CCS) (1)
Interest rate options (2)
Interest rate swaps (3)
Fuel collars (4)
Fuel swap (5)
Currency forward R$/US$ (6)
Currency forward CLP/US$ (7)
Currency collars (8)
(1) Covers the significant variations
in
cash flows associated with market risk
implicit in the changes in the 3-month
LIBOR interest rate and the exchange rate
dollar-UF of bank loans. These contracts
are recorded as cash flow hedges.
(2) Covers the significant variations
implicit
in
cash flows associated with market
in the
risk
for
3-month
the
long-term
acquisition of aircraft. These contracts
are recorded as cash flow hedges.
in the changes
interest
incurred
LIBOR
loans
rate
in
(3) Covers the significant variations
in
cash flows associated with market
risk implicit in the increases in the 3
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.
ANNUAL REPORT 2013266 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 in the next 6
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:
For the periods ended
December 31,
2013
ThUS$
2012
ThUS$
Debit (credit) recognized in comprehensive income during the period
128,166
(2,510)
Debit (credit) transferred from net equity to income during the period
(18,688)
(26,470)
ANNUAL REPORT 2013267 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
As of
December 31,
2013
ThUS$
1,264,395
293,341
1,557,736
As of
December 31,
2012
ThUS$
1,403,546
286,444
1,689,990
(a) Trade and other accounts payable as of December 31, 2013 and December 31, 2012 are as
follows:
Trade creditors
Leasing obligation
Other accounts payable (*)
Total
As of
December 31,
2013
As of
December 31,
2012
ThUS$
969,260
44,756
250,379
ThUS$
1,069,345
30,818
303,383
1,264,395
1,403,546
(*) Includes agreement entitled "Plea Agreement" with the Department of Justice of the United
States of America. See detail in Note 23.
ANNUAL REPORT 2013268 The details of Trade and other accounts payables are as follows:
As of
December 31,
2013
As of
December 31,
2012
Aircraft Fuel
Boarding Fee
Other personnel expenses
Airport charges and overflight
Suppliers' technical purchases
Professional services and advisory
Marketing
Handling and ground handling
Land services
Leases, maintenance and IT services
Aircraft and engines leasing
Services on board
U.S.A. Department of Justice (**)
Maintenance
Taxrecovery program(*)
Crew
Aviation insurance
Achievement of goals
Airlines
Communications
Distrubution sistem
Fleet ( JOL)
Others
Total trade and other
accounts payables
ThUS$
302,419
217,389
117,418
98,560
67,995
63,082
50,009
48,797
47,046
46,163
44,756
29,940
18,290
15,793
14,569
14,040
10,665
9,806
5,054
4,578
3,103
-
34,923
ThUS$
360,618
182,185
134,357
125,402
64,981
46,934
51,360
49,738
38,436
34,903
84,729
26,674
18,387
5,305
19,668
16,233
7,465
5,024
9,362
4,948
1,389
59,181
56,267
1,264,395
1,403,546
(*)
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.
Includes agreement entitled "Plea Agreement" with the Department of Justice of the
(**)
United States of America. See detail in Note 23.
ANNUAL REPORT 2013269 (b) The liabilities accrued at December 31, 2013 and December 31, 2012, are as follows:
Accrued personnel expenses
Accounts payable to personnel (*)
Aircraft and engine maintenance
Others accrued liabilities
As of
December 31,
As of
December 31,
2013
ThUS$
151,586
110,147
3,741
27,867
2012
ThUS$
171,873
70,625
22,053
21,893
Total accrued liabilities
293,341
286,444
(*)
Profits and bonds participation (Note 26 letter b)
ANNUAL REPORT 2013270 NOTE 23 . OTHER PROVISIONS
The detail of Other provisions as of December 31, 2013 and December 31, 2012 is as follows:
As of
December 31,
2013
ThUS$
As of
December 31
2012
ThUS$
Current
Provision for contingencies (1)
Tax contingencies
Civil contingencies
Labor contingencies
Total other provisions, current
Non-current
Provisions for contingencies (1)
Tax contingencies
Civil contingencies
Labor contingencies
Other
Provisions for European Commision investigation (2)
Total other provisions, non-current
Total other provisions (3)
7,092
13,430
7,334
27,856
968,211
50,022
64,895
27,770
11,349
1,122,247
1,150,103
6,774
23,880
28,920
59,574
1,137,961
60,732
91,248
6,066
10,865
1,306,872
1,366,446
ANNUAL REPORT 2013271 (2) Provision made
for
proceedings
brought by the European Commission
free
of
for
freight market.
competition
breaches
possible
in the
the
from
those
(3) Total other provision at December
31, 2013, and at December 31, 2012,
fair value correspond
include
to
the
contingencies
business combination with TAM S.A and
subsidiaries, with a probability of loss
under 50%, which are not provided for the
normal application of IFRS enforcement
and that only must be recognized in the
context of a business combination in
accordance with IFRS 3.
(1) Provisions for contingencies:
(1)
The tax contingencies correspond to
litigation and tax criteria related to
the tax treatment applicable to direct
and indirect taxes, which are found in
both administrative and judicial stage.
The civil contingencies correspond
civil
of
different
to
the company.
order filed against
demands
The
to
order filed against
labor contingencies correspond
labor
demands
different
the company.
of
in
recognized
The Provisions are
income statement
the consolidated
in administrative expenses or
tax
expenses, as appropriate, except for
the fair value by application of IFRS 3
business combination, in which case the
recognition is in the State of Financial
Position in the heading of Goodwill.
ANNUAL REPORT 2013272
The movement of provisions between January 1, 2012 and December 31, 2013 is as follows:
Opening balance as of January 1, 2012
Increase is provisions
Provision used (*)
Additions due to business combination
Subsidiaries conversion difference
Reversal of provisions
Exchange difference
Legal
claims
ThUS$
19,073
30,399
(131,136)
1,429,012
8,391
(449)
291
European
Commission
Investigation(**)
ThUS$
10,675
-
-
-
-
-
190
Total
ThUS$
29,748
30,399
(131,136)
1,429,012
8,391
(449)
481
Closing balance as of December 31, 2012
1,355,581
10,865
1,366,446
Opening balance as of January 1, 2013
Increase in provisions
Provision used
Reversal of provision
Subsidiaries conversion difference
Exchange difference
1,355,581
65,107
(57,192)
(53,459)
(170,452)
(831)
10,865
1,366,446
-
-
-
-
484
65,107
(57,192)
(53,459)
(170,452)
(347)
Closing balance as of December 31, 2013
1,138,754
11,349
1,150,103
(*)
the Tribunal
judicial deposit
in guarantee,
The
related to the Fundo Aeroviário (FA),
in the amount of ThUS$ 102, was done
in order to suspend the enforceability
of the tax credit. The company is
discussing over
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.
ANNUAL REPORT 2013273 (c) Jointly, LATAM Airlines 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
Airlines 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.
investigation.
cooperated during the
(d) On January 24, 2011, LATAM Airlines
Group S.A. and Lan Cargo S.A. appealed
the decision before the Court of Justice
of the European Union. At December
31, 2013, the provision reached the
amount of ThUS$ 11,349 (ThUS$ 10,865 at
December 31, 2012).
(**) 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 (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 Airlines 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.
ANNUAL REPORT 2013274
NOTE 24. TAX LIABILITIES
The composition of Tax liabilities is as follow:
Current
Income tax provision
Additional tax provision
Total current
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
9,919
1,664
11,583
13,152
1,360
14,512
ANNUAL REPORT 2013275 NOTE 25. OTHER NON-FINANCIAL LIABILITIES
Other non-financial liabilities as of December 31, 2013 and December 31, 2012 are as follows:
Current
Deferred revenues (*)
Sales tax
Retentions
Others taxes
Dividends payable
Other sundry liabilities
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
2,739,125
2,360,151
52,576
49,355
12,294
275
18,015
47,122
45,413
8,434
4,023
20,744
Total other non-financial liabilities, current
2,871,640
2,485,887
Non-current
Deferred revenues (*)
Other sundy liabilities
Total other non-financial liabilities, non-current
77,513
54
77,567
99,261
62
99,323
Total other non-financial liabilities
2,949,207
2,585,210
(*)
Note 2.20.
The balance comprises, among other, programs such as: LANPASS, TAM Fidelidade y
Multiplus.
LANPASS is the frequent flyer program created by LAN to reward the preference and loyalty
its customers with many benefits and privileges, through the accumulation of kilometers
that can be exchanged for tickets to fly free or for a wide range of products and services.
Customers accumulate LANPASS kilometers every time they fly with LAN, TAM, in companies
oneworld ® members and other airlines associated with the program, as well as buy on the
stores or use the services of a vast network of companies that have an agreement with the
program around the world.
For its part, TAM, thinking people who travel constantly, created the program TAM Fidelidade,
in order to improve care and give recognition to those who choose the company. Through
the program, customers accumulate points in a variety of programs loyalty in a single
account and can redeem them at all TAM destinations and companies airline partners, and
even more, participate in the Red Multiplus Fidelidade.
Multiplus is a coalition of loyalty program, with the aim of operating activities accumulation
and redemption of points TAM Fidelidade. This program has an integrated network by
associates including hotels, financial institutions, retail companies, supermarkets, vehicle
rentals and magazines, among many other partners from different segments.
ANNUAL REPORT 2013276 NOTE 26. EMPLOYEE BENEFITS
Liability for employee benefits as of December 31, 2013 and December 31, 2012, respectively, are
as follows:
Pension payments
Termination payments
Other obligations
Total liability for employee benefits
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
9,639
493
35,534
45,666
32,323
240
5,532
38,095
(a) The movement in Pension and termination payments and other obligations between
January 1, 2012 and December 31, 2013 is as follows:
Opening balance as of January 1, 2012
Increase (decrease) current service provision
Benefits paid
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Increase (decrease) current service provision
Benefits paid
Closing balance as of December 31, 2013
ThUS$
13,132
25,003
(40)
38,095
38,095
9,866
(2,295)
45,666
ANNUAL REPORT 2013277 (b) The liability for short-term benefits as of December 31, 2013 and December 31, 2012 respectively,
is detailed below:
Profit-sharing and bonuses (*)
As of
December 31,
2013
ThUS$
110,147
As of
December 31,
2012
ThUS$
70,625
(*) Accounts payables to employees (Note 22 letter b)
The participation in profits and bonuses corresponds to an annual incentives plan for achievement
of objectives.
(c) Employment expenses are detailed below:
Salaries and wages
Short-term employee benefits
Termination benefits
Other personnel expenses
Total
For the periods ended
December 31,
2013
ThUS$
2012
ThUS$
1,720,513
1,296,101
452,158
67,508
252,590
397,824
32,864
182,126
2,492,769
1,908,915
ANNUAL REPORT 2013278 NOTE 27. ACCOUNTS PAYABLE, NON-CURRENT
Non-current accounts payable as of December 31, 2013 and December 31, 2012 are as follows:
Aircraft and enginee maintenance
Tax recovery program (*)
Fleet financing ( JOL)
Provisión for vacations and bonuses
Other accounts payable (**)
Other sundry liabilities
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
663,837
176,666
57,997
9,879
2,654
11,854
685,441
207,089
140,769
9,954
26,354
15,994
Total accounts payable, non-current
922,887
1,085,601
(*) 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.
ANNUAL REPORT 2013279 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,
2013 amounts to ThUS$ 2,389,384 divided into
535,243,229 common stock of a same series
(ThUS$ 1,501,018, divided into 479,098,052
shares as of December 31, 2012), 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
(b.1) At December 31, 2013:
The total number of ordinary shares
authorized stands at 551,847,819 shares with
no par value, in accordance with the increase
in equity approved at the Extraordinary
Shareholders’ Meeting held on June 11, 2013
issuing 63,500,000 ordinary shares with no
par value. As of the close of this period,
400,124,163 are fully paid up and 135,119,066
were subject to exchange for shares in the
companies Sister Holdco S.A. and Holdco II
S.A. Totaling 535,243,229 shares fully paid.
As reported by Essential Matter dated on April
30, 2013, on that date the Board approved
an Extraordinary Shareholders’ Meeting to
be held on June 11, 2013, to address matters
including the following:
1. To increase corporate equity by the
amount of US$ 1,000,000,000 (one billion
United States Dollars), with the objective
of financing part of the investment
plan for upcoming years, particularly
requirements for fleet renewal and
growth, and to strengthen the company’s
financial position, through the issuance
of a number of ordinary shares with no
par value, as determined at the meeting;
2. To destine a part of said new capital
to compensation plans, under the
in Article 24 of
terms
Law 18,046, the Corporations Law;
specified
3. To set the price, manner, time, and
procedure for the placement of the
shares issued relating to this increase
in equity; or to delegate to the Board
the faculty of determining the price,
manner, time, and procedure, and other
conditions for the placement of said
shares, including but not limited to
setting the terms and conditions of the
company’s compensation plans.
ANNUAL REPORT 2013280 the
aforementioned
On June 20, 2013, information was presented
to
the Superintendency of Securities
and Insurance in order to request the
registration of the share issuance approved
at
Extraordinary
Shareholders’ Meeting. On July 22, 2013 the
Superintendency of Securities and Insurance
remitted the Company providing comments
for said registration by Deed No. 16,141. The
Company replied to these submissions on
October 16, 2013.
the
Finally, on November 11, 2013,
Superintendency of Securities and Insurance
issued the certificate that approved the
registration of that issuance under the
number 987. On November 20, 2013, began
the preferential subscription period of
the 62,000,000 shares not destined for the
above compensation plans, settling the
price that these shares would be offered to
shareholders in US$ 15,17. On December
19, 2013, ended the preferential subscription
period, have been subscribed and paid the
total of 51,695,410 shares and collected
the equivalent of ThUS$ 784,219, the
unsubscribed remainder of 10,304,590 shares
shall be offered and placed on the general
market.
(b.2) At December 31, 2012:
The total number of ordinary shares
authorized stands at 488,355,791 shares with
no par value, in accordance with the increase
in equity approved at the Extraordinary
Shareholders’ Meeting held on December 21,
2011 issuing 147,355,882 ordinary shares with
no par value. Of this increase, 142,555,882
shares, were destined to the merge with
Sister Holdco S.A. and Holdco II S.A. 4,800,000
shares, were destined to compensation
plans for employees of the Company and
its subsidiaries. As of the close of this
period, 343,978,986 shares are fully paid and
135,119,066 were subject to exchange for
shares in the companies Sister Holdco S.A.
and Holdco II S.A., totaling 479,098,052 shares
fully paid.
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.
to
the
information
shareholders of
intended
to
According
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
to be offered
the
preferentially
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
ANNUAL REPORT 2013281 CLP$ 11,921 per share.
The following table shows the movement
of the authorized and fully paid shares
described above between January 1, 2012
and December 31, 2013.
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
the end of the period of first refusal, that
is, to January 19, 2013, were 6,857,190 shares
subscribed and paid the said remnant,
leaving a balance of 579,626 shares to be
subscribed. This balance was auctioned
on the Santiago Stock Exchange - Stock
Exchange dated January 23, 2013 at a value of
Movement of authorized shares
Nro. Of shares
Authorized shares as of January 1, 2012
Increase capital option closing year 2007
options over canceled shares
Authorized shares as of December 31, 2012
Authorized shares as of January 1, 2013
Increase capital approved at Extraordinary
Shareholders meeting dated June 11, 2013
Full right decrease of treasury stock
Authorized shares as of December 31, 2013
488,355,882
(91)
488,355,791
488,355,791
63,500,000
(7,972)
551,847,819
ANNUAL REPORT 2013282 Movement fully paid shares
Nº of
shares
Movement
value
of shares (*)
Cost of issuance
and placement
of shares (**)
Paid - in
Capital
ThUS$
ThUS$
ThUS$
Paid shares as of January 1, 2012
340,326,431
476,579
(2,672)
Exercise stock options increase capital 2007
673,478
10,226
Exchange of shares for merger Companies
Sister Holdco S.A and Holdco II S.A.
135,119,066
951,409
-
-
473,907
10,226
951,409
Capitalization of reserves
-
-
(3,510)
(3,510)
Placement of the remaining preferential shares
issued for merger Companies
Sister Holdco S.A. y Holdco II S.A.
2,979,077
68,986
-
68,986
Paid shares as of December 31, 2012
479,098,052
1,507,200
(6,182)
1,501,018
Paid shares as of January 1, 2013
479,098,052
1,507,200
(6,182)
1,501,018
Placement of the remaining preferred shares
issued for merger Companies
Sister Holdco S.A. y Holdco II S.A.
Full right decrease of treasury stock
Capitalization of reserves
Preferential placement capital increase
approved at Extraordinary Shareholders
meeting dated June 11, 2013
4,457,739
(7,972)
-
51,695,410
104,351
(25)
-
-
-
(179)
104,351
(25)
(179)
784,219
-
784,219
Paid shares as of December 31, 2013
535,243,229
2,395,745
(6,361)
2,389,384
(*) Amounts reported represent only those arising from the payment of the shares subscribed.
(**) Decrease of capital by capitalization of reserves for cost of issuance and placement of shares
established according to Extraordinary Shareholder´s Meetings, where such decreases were
authorized.
(c) Treasury stock
At December 31, 2013, as per minutes of the
Extraordinary Shareholder´s Meeting held on
June 11, 2013, the company relinquished all
right to 7,972 stocks of its portfolio, this date
the Company does not maintain treasury
stock.
At December 31, 2012, the total subscribed
and paid shares of the company acquired
7,972 shares, shareholders who exercised the
right to withdraw an amount of US$203.
ANNUAL REPORT 2013283 (d) Reserve of share- based payments
The movement of Reserves of share- based payments between January 1, 2012 and December 31,
2013, is as follows:
Opening balance as of January 1, 2012
Stock option plan
Deferred tax
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Stock option plan
Deferred tax
Closing balance as of December 31, 2013
Reserve of
share - based
payments
ThUS$
7,130
(1,299)
(257)
5,574
5,574
18,877
(3,440)
21,011
These reserves are related to the “Share-based payments” explained in Note 38.
ANNUAL REPORT 2013284 (e) Other sundry reserves
The movement of Other sundry reserves between January 1, 2012 and December 31, 2013, is as
follows:
Opening balance as of January 1, 2012
Transactions with non-controlling interest
Cost of issuance and placement of shares (1)
Capitalization share issuance and placement cost (1)
Higher value for TAM S.A. share exchange
Legal reserves
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Transactions with non-controlling interest
Cost of issuance and placement of shares (2)
Capitalization share issuance and placement cost (2)
Legal reserves
Closing balance as of December 31, 2013
Other
sundry reserves
ThUS$
1,362
(1,604)
(3,510)
3,510
2,665,692
1,232
2,666,682
2,666,682
(1,950)
(5,443)
179
(1,668)
2,657,800
(1) 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
the Extraordinary Meeting of Shareholders held on September 4, 2012.
to
(2) The costs incurred through the issuance and placement correspond to ThUS$ 5,264 and
ThUS$179 corresponding at increase of capital according to the Extraordinary Meeting
of Shareholders held on June 11, 2013 and at the remaining 7,436,816 shares, not used in
this exchange, reallocated as agreed at the Extraordinary Shareholders' Meeting held on
September 4, 2012, The cost of ThUS$ 179, were capitalized during June 2013, according to the
Extraordinary Shareholders' Meeting held on June 11, 2013.
ANNUAL REPORT 2013285 (e.1) Other sundry reserves
The balance of Other sundry reserves comprises the following:
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
Higher value for TAM S.A. share exchange (1)
2,665,692
2,665,692
Reserve for the adjustment to the value of fixed assets (2)
Transactions with non-controlling interest (3)
Cost of issuance and placement of shares
Others
Total
2,620
(5,355)
(5,264)
107
2,620
(3,405)
-
1,775
2,657,800
2,666,682
(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) The balance at December 31, 2013, correspond to the loss generated by the participation by
Lan Pax Group S.A. in the acquisition of shares of Aerovías de Integració n Regional Aires of
ThUS$ (1,065), the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras
S.A. of ThUS(885) and accumulated losses from transactions with minority shareholders of
ThUS$ (3,405) at December 31, 2012. The corresponding accumulated losses of ThUS$ (2,422) in
Lan Pax Group S.A. for increases of capital held by Aerovías de Integración Regional Aires S.A.
and the accumulated losses of ThUS$ (983) Lan Cargo Inversiones S.A. for the capital increase
made by Línea Aérea Carguera de Colombia S.A.
ANNUAL REPORT 2013286 (f) Reserves with effect in other comprehensive income.
The movement of Reserves with effect in other comprehensive income between January 1, 2012
and December 31, 2013 is as follows:
Opening balance as of January 1, 2012
Derivatives valuation gains (losses)
Deferred tax
Conversion difference subsidiaries
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Derivatives valuation gains (losses)
Deferred tax
Conversion difference subsidiaries
Closing balance as of December 31, 2013
Currency
translation
reserve
ThUS$
(13,317)
-
(2,727)
19,618
3,574
3,574
-
-
(593,565)
(589,991)
Cash flow
hedging
reserve
ThUS$
Total
ThUS$
(140,556)
(153,873)
5,003
(5,177)
-
5,003
(7,904)
19,618
(140,730)
(137,156)
(140,730)
124,227
(18,005)
-
(34,508)
(137,156)
124,227
(18,005)
(593,565)
(624,499)
(f.1) Currency translation reserve
(f.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.
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.
ANNUAL REPORT 2013287
(g) Retained earnings
The movement of Retained earnings between January 1, 2012 and December 31, 2013, is as follows:
Opening balance as of January 1, 2012
Result for the period
Other increase (decreases)
Dividends
Closing balance as of December 31, 2012
Opening balance as of January 1, 2013
Result for the period
Other increase (decreases)
Closing balance as of December 31, 2013
(h) Dividends per share
As of December 31, 2013
Description of dividend
Date of dividend
Amount of the dividend (ThUS$)
Number of shares among which the
dividend is distributed
Dividend per share (US$)
As of December 31, 2012
Description of dividend
Date of dividend
Amount of the dividend (ThUS$)
Number of shares among which the
dividend is distributed
Dividend per share (US$)
ThUS$
1,116,798
(19,076)
163
(21,749)
1,076,136
1,076,136
(281,114)
281
795,303
Final dividend
2012
04-29-2013
3,288
483,547,819
0,0068
Final dividend
2011
Minimum mandatory
dividend
2012
04-26-2012
18,462
340,999,909
0,05414
12-31-2012
3,287
479,098,052
0,00686
ANNUAL REPORT 2013288 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, 2013, mandatory minimum
dividend was not applicable; therefore no
provision was made for.
ANNUAL REPORT 2013289 NOTE 29. REVENUE
The detail of revenues is as follows:
Passengers
Cargo
Total
For the periods ended
December 31,
2013
ThUS$
11,061,557
1,862,980
2012
ThUS$
7,966,846
1,743,526
12,924,537
9,710,372
ANNUAL REPORT 2013290 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,
2013
ThUS$
1,373,061
4,414,249
408,671
1,644,827
441,077
477,086
331,405
2012
ThUS$
1,048,342
3,434,569
308,941
1,316,095
313,038
297,618
239,848
9,090,376
6,958,451
For the periods ended
December 31,
2013
ThUS$
985,317
56,416
1,041,733
2012
ThUS$
739,973
31,140
771,113
(*) Includes the depreciation of Property, plant and equipment and the maintenance cost
of aircraft held under operating leases. The amount of maintenance cost included within the
depreciation line item at December 31, 2013 is ThUS$396,974 (ThUS$315,206 at December 31, 2012).
ANNUAL REPORT 2013291 (c) Personnel expenses
The costs for personnel expenses are disclosed in Liability for employee benefits (See Note 26).
(d) Financial costs
The detail of financial costs is as follows:
Bank loan interest
Financial leases
Other financial instruments
Total
For the periods ended
December 31,
2013
ThUS$
382,969
76,343
3,212
462,524
2012
ThUS$
185,013
44,717
64,868
294,598
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.
ANNUAL REPORT 2013292 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,
2013, and 2012 are as follows:
Property, plant and equipment
Total
For the periods ended
December 31,
2013
ThUS$
2,545
2,545
2012
ThUS$
(2,836)
(2,836)
ANNUAL REPORT 2013293 NOTE 32 .OTHER INCOME, BY FUNCTION
Other income by function is as follows:
Duty free
Aircraft leasing
Customs and warehousing
Tours
Maintenance
Multiplus
Other miscellaneous income
Total
For the periods ended
December 31,
2013
ThUS$
14,748
36,614
24,281
105,449
12,392
68,925
79,156
2012
ThUS$
17,463
28,863
24,537
74,226
5,358
26,696
43,013
341,565
220,156
ANNUAL REPORT 2013294 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.
a) Foreign currency
The foreign currency detail of balances of
monetary items in current and non-current
assets is as follows:
Current assets
Cash and cash equivalents
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
As of
December 31,
2013
ThUS$
538,213
41,092
3,683
229,913
5,254
16,571
44,656
162,809
34,235
51,082
885
-
25,854
2,039
6
22,035
14
249
As of
December 31,
2012
ThUS$
337,223
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
ANNUAL REPORT 2013295 Current assets
Other non - financial assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
As of
December 31,
2013
As of
December 31,
2012
ThUS$
56,218
5,310
846
16,846
1,011
3,052
2,221
102
26,830
ThUS$
53,493
3,740
10,037
15,310
909
4,598
1,649
351
16,899
Trade and other accounts receivable
417,775
503,601
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S dollar
Strong bolivar
Other currency
Accounts receivable from related entities
Chilean peso
Tax assets
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Total assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
11,387
19,986
80,461
2,240
21,479
114,372
2,353
165,497
466
466
14,836
-
3,398
787
35
515
10,101
9,441
33,313
130,736
3,153
67,287
116,758
2,759
90,154
14,565
14,565
11,060
716
9,454
15
20
-
855
1,078,590
950,878
58,674
24,515
356,938
11,331
41,143
183,799
165,278
236,912
81,886
49,541
210,706
6,895
87,415
280,462
55,057
178,916
ANNUAL REPORT 2013296 Non-current assets
Other financial assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Other non - financial assets
Other currency
Accounts receivable
Chilean peso
U.S. dollar
Other currency
Deferred tax assets
U.S. dollar
Other currency
Total assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
As of
December 31,
2013
As of
December 31,
2012
ThUS$
17,517
24
597
1,701
254
5,488
8,625
828
18,006
18,006
13,429
8,227
5,000
202
4,460
2,056
2,404
53,412
24
597
9,928
254
5,488
15,681
21,440
ThUS$
31,329
8
3,505
98
524
7,817
15,895
3,482
22,063
22,063
14,812
9,564
5,000
248
4,203
-
4,203
72,407
8
3,505
9,662
524
7,817
20,895
29,996
ANNUAL REPORT 2013297 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,
2013
As of
December 31,
2012
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
ThUS$
ThUS$
Other financial liabilities
303,626
241,473
561,428
589,105
Chilean peso
Euro
U.S. dollar
53,619
824
249,183
-
602
240,871
46,772
1,205
513,451
-
35
589,070
Trade and other accounts
payables
679,769
899,536
20,676
19,850
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
Chilean peso
Colombian peso
Other currency
31,603
9,671
29,560
14,445
19,373
433,377
4,024
137,716
318
14
304
134
4
-
130
21,398
38,506
72,643
29,268
38,540
283,003
2,710
413,468
14
14
-
302
21
150
131
-
8
11,975
422
3,316
4,902
-
53
-
-
-
-
-
-
-
-
8
11,938
-
1,695
6,157
-
52
-
-
-
-
-
-
-
ANNUAL REPORT 2013298 Up to 90 days
91 days to 1 year
Current liabilities
As of
December 31,
2013
As of
December 31,
2012
As of
December 31,
2013
As of
December 31,
2012
Other non-financial
liabilities
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
ThUS$
76,040
10,710
3,746
37,227
6,069
8,382
1,272
637
7,997
ThUS$
14,337
2,125
3,023
3,478
50
3,261
325
1,211
864
ThUS$
ThUS$
72
-
52
19
-
-
-
-
1
13
-
10
2
-
-
-
-
1
Total liabilities
1,059,887
1,155,662
582,176
608,968
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
42,313
13,417
120,424
20,514
28,579
684,136
4,661
145,843
23,523
41,529
76,156
29,468
42,403
524,199
3,921
414,463
-
60
58,766
422
4,521
-
18
11,940
-
1,730
518,353
595,227
-
54
-
53
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,
4
6
7
0
8
2
1
,
0
1
4
6
4
1
7
6
9
9
2
1
,
9
4
3
1
1
,
9
8
4
1
,
7
7
4
,
5
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h
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a
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O
ANNUAL REPORT 2013300
General summary of foreign
currency:
Total assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
As of
December 31,
2013
ThUS$
1,132,002
As of
December 31,
2012
ThUS$
1,023,285
58,698
25,112
366,866
11,585
46,631
199,480
165,278
258,352
81,894
53,046
220,368
7,419
95,232
301,357
55,057
208,912
Total liabilities
5,002,669
5,743,637
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
42,723
13,623
390,337
20,936
44,449
4,338,554
4,661
147,386
15,975
11,489
(23,471)
(9,351)
2,182
(4,139,074)
160,617
110,996
24,187
42,355
96,556
29,468
56,146
5,071,376
3,921
419,628
57,707
10,691
123,812
(22,049)
39,086
(4,770,019)
51,136
(210,716)
ANNUAL REPORT 2013301 (b) Exchange differences
in the
Exchange differences recognized
income statement, except for financial
instruments measured at fair value through
profit or loss, for the period ended December
31, 2013 and 2012, generated a loss of
ThUS$ 482,174 and a gain of ThUS$ 66,685,
respectively.
Exchange differences recognized in equity as
reserves for currency translation differences
for the period ended December 31, 2013 and
2012, represented a loss of ThUS$ 629,858 and
a gain of ThUS$ 19,170, respectively.
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,
2013
As of
December 31,
2012
6,52
2,36
524,61
1,925,52
0,72
6,30
1,12
6,86
13,07
1,22
2,80
21,49
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
ANNUAL REPORT 2013302 NOTE 34. EARNINGS PER SHARE
Basic earnings
For the periods ended
December 31,
2013
2012
Earnings attributable to controlling company’s
equity holders (ThUS$)
(281,114)
(19,076)
Weighted average number of shares, basic
487,930,977
412,267,624
Basic earnings per share (US$)
(0.57613)
(0.04627)
Diluted earnings
For the periods ended
December 31,
2013
2012
Earnings attributable to controlling company’s
equity holders (ThUS$)
(281,114)
(19,076)
Weighted average number of shares, basic
487,930,977
412,267,624
Weighted average number of shares, diluted
487,930,977
412,267,624
Diluted earnings per share (US$)
(0.57613)
(0.04627)
ANNUAL REPORT 2013303 NOTE 35. CONTINGENCIES
Lawsuits
(i). Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries
Company
Court
Case Number
Origin
Stage of trial
07-6022920
Atlantic
Aviation
Investments
LLC (AAI)
S u p r e m e
C o u r t
the
of
State
of
New York
County of
New York.
602286-09
Atlantic
Aviation
Investments
LLC (AAI)
S u p r e m e
C o u r t
the
of
State
of
New York
County of
New York.
S.A.,
("Variglog")
("AAI"), an
Atlantic Aviation Investments
LLC.
indirect
subsidiary LATAM Airlines
Group
incorporated
under the laws of the State
of Delaware, sued in August
29th, 2007 Varig Logistics
S.A.
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.
Advisers
Atlantic Aviation Investments
July
(“AAI”) sued on
LLC.
24, 2009 Matlin Patterson
Global
LLC,
Patterson Global
Matlin
Opportunities Partners
II
LP, Matlin Patterson Global
Partners
Opportunities
(Cayman) II LP and Logistics
LLC Volo (a) as alter egos
of
non-
payment of the four loans
mentioned in the previous
note and (b) for breach of
its obligation to guarantee
other
and
obligations
the Memorandum
under
of Understanding
signed
between
the parties on
September 29, 2006.
Variglog
for
Amounts
Committed
ThUS$
17,100
Plus
and
interests
costs
and
costs
In implementation stage in
Switzerland, the conviction
stated
Variglog
that
should pay the principal,
interest
in
favor of AAI. It keeps the
embargo of Variglog funds
in Switzerland with AAI.
Variglog is in the process
of judicial recovery in Brazil
and has asked Switzerland
to recognize the judgment
the state
that declared
of
judicial recovery and
subsequent the bankruptcy.
17,100
interest
Plus
costs
and
c o m p e n s a t i o n
for damage.
was
"summary
AAI filed a
(abbreviated
judgment"
trial) which the court ruled
favorably. The defendants
decision
appealed
this
ultimately
which
dismissed by
the High
Court. The cause was turned
back to the
lower court
for determination of the
amount actually payable by
the applicants
(damages)
ongoing
proceedings
before the court.
ANNUAL REPORT 2013304 Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed
ThUS$
Aerotransportes
Mas de
Carga S.A.
Federal Court
of Fiscal and
Administrative
Justice.
31698/11-17-01-8
Nullity trial against the
tax authority's refusal
to restore balance in
favor of VAT.
Pleadings stage.
4,900
Aerolane
LineasAéreas
Nacionales
del Ecuador S.A.
2nd
District Court
Guayaquil.
09504-2010-0114
Order Determining the
Value Added Tax (VAT)
2006.
4,565
The Ruling was adverse to
the Company. On November
15, 2013,
the Company
extraordinary
proposed
appeal. Which has been
accepted for consideration
by
the Fourth Chamber
of the District Court No. 2
Contencios Tax Guayaquil.
Aerolane
LineasAéreas
Nacionales
del Ecuador S.A.
Tribunal Fiscal
de Guayaquil.
6319-4064-05
proceedings
Judicial
the Regional
against
the
Director
Internal
Revenue
Services Guayaquil, for
overpayment of taxes.
of
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.
I n t e r n a l
Revenue
Service.
17502-2012-0082
Aerolane,
Líneas Aéreas
Nacionales del
Ecuador S.A.
I n t e r n a l
Revenue
Service.
1720130100068
Determination Act for
2006 Income Tax, which
have unknown CEDT
requesting certification
of branch expenses,
ARC
commissions
without Withholding
Income Tax, etc.
of
Process
in
initiated
2012.
in
IR
Determination
Act of 2008. Glosses
are caused by lack of
supports
rebills,
audit certificates, no
withholdings
on
commissions, and lack
of means of payment.
exempt
Unaware
the
income because
federal return
is not
translated into Spanish.
Sentence pending. Appeal
for Review.
8,064
On October 9, 2013, the
IRS confirmed the contents
of Determination Act. On
November 11, 2013,
the
Company filed a motion
for review. Now awaiting
resolution.
6,047
(income tax
5,039; surcharge
20% 1,008)
ANNUAL REPORT 2013305 Company
Court
Case Number
Origin
Stage of trial
Lan Argentina S.A.
National
Administrative
Chamber
36337/13
ORSNA
Resolution
No. 123 which directs
Lan Argentina
to
the hangar
vacate
located
the
Metropolitan Airport.
in
rescind
appealed
the
ORSNA
that ordered
injunction
to
the eviction.
Lan Argentina filed suit
against Resolution No. 123
of ORSNA. On December
the
23,
Second
2013,
Division of
the National
Court of Appeals in Federal
Matters
Administrative
confirmed
injunction
the
decided in First Instance in
favor of Lan Argentina S.A.,
being suspended eviction
order formalized by ORSNA
respect Aeroparque
Jorge
Newbery hangar.
Amounts
Committed
ThUS$
Undetermined
Tam Linhas Aéreas S.A. Wollerau Court
-
Switzerland.
Claim
the amount
withheld by TOP AIR
AGENCY AG (GSA in
Switzerland, Austria,
Norway,
Denmark
and Eastern Europe)
after completion of
the GSA contract with
TAM in 2008.
1,747
Filed suit
in November
2013 in the Swiss court to
recover the amount that
arbitration
in Switzerland
in May 2011 recognized that
corresponds to TAM.
ANNUAL REPORT 2013306 (ii). Trials received by LATAM Airlines Group S.A. and Subsidiaries
Company
saCourt
Case Number
Origin
Stage of trial
Amounts
Committed
ThUS$
11,349
LATAM Airlines
Group S.A. y
Lan Cargo S.A.
E u r o p e a n
Commission .
-
Lan Cargo S.A. y
LATAM Airlines
Group S.A.
-
High
In
the
Court of
Justice
Chancery Division
(Inglaterra)
and
DirectieJuridische
ZakenAfdeling
CeveilRecht
(Netherlands).
On April 14, 2008,
the
notification of the European
Commission was answered.
The appeal was filed on
January 24, 2011.
of
Investigation for possible
airline
violations
competition
freighters,
especially fuel surcharge.
On December 26, 2007,
the Directorate General
the
for Competition of
Commission
European
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 competition
in the
European air cargo market,
especially
the alleged
fixing a fuel surc harge
and freight. On November
9, 2010, the Directorate
General for Competition of
the European Commission
notified Lan Cargo S.A.
and LATAM Airlines
Group S.A. the imposition
of a fine in the amount of
ThUS$ 11,349. This penalty
is being appealed by Lan
Cargo S.A. and LATAM
Airlines Group S.A. The
outcome of this appeal
cannot be predicted.
Case
is
discovery process.
in
evidence
Undetermined
filed
airline
airlines
against
Lawsuits
European
by
users of freight services in
private prosecutions as a
result of the investigation
violations
for possible
of
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.
ANNUAL REPORT 2013307
Amounts
Committed
ThUS$
51,020
Company
Court
Case Number
Origin
Stage of trial
Aerolinhas
Brasileiras S.A.
-
Administrative
Council
for
E c o n o m i c
D e f e n s e ,
Brazil.
Investigation
for
possible violations of
competition
airline
freighters,
especially
fuel surcharge.
of
decision
in
On September 3, 2013,
CADE's
was
the Diario
published
da Uniao confirming
the
sentencing
violation
imposition of fines
and
to ABSA for the amount
of ThUS$51,020. This fine
will be appealed by ABSA.
In turn CADE fined also a
current director of ABSA
and two former officials for
the respective amounts of
ThUS$ 971, ThUS$ 486 and
ThUS$ 486. On December
5 was filed application
for
administrative
reconsideration to the CADE.
There is also the possibility
of further appeal through
the judicial process in the
courts. We cannot predict
the outcome of
these
appeals process.
Aerolinhas
Brasileiras S.A.
F e d e r a l
R e v e n u e
Secretary
of
Brazil.
10831-005.704/2006-43
9,391
DRJ performed collection
of PIS and COFINS, keeping
only the debts related to II,
IPI and the 50% penalty in
the second. Awaiting trial by
CARF.
taxes
of
Collection
import
and
penalties owed to the
verification of declared
and
volumes
loss
transported
allegedly
The
the
Administrative
Court
of São Paulo started
collection of PIS and
COFINS, keeping only
the debts related to II,
IPI and the 50% penalty
in the second.
country.
Aerolinhas
Brasileiras S.A.
F e d e r a l
R e v e n u e
Secretary
of
Brazil.
10831-008.687/2006-04
Collection of
import
taxes and fines due
the determination
to
of
storage
when end of manifest
information.
charge
12/08/2010
CARF
On
the Voluntary
dismissed
Action.
an
extraordinary appeal, which
is pending trial.
Filed
5,122
ANNUAL REPORT 2013308 Company
Court
Case Number
Origin
Stage of trial
374-2012 LA
C i v i
Court
Pichincha.
l
20
2001.51.01.012530-0
LATAM
Airlines
Group S.A.
-
Tenth Civil
Court
of
Santiago.
Aerolane,
Líneas
Aéreas
Nacionales
del
Ecuador
S.A.
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
T r i b u n a l
R e g i o n a l
F e d e r a l
da
2 da
R e g i ã o t h e
(Court
of
the Second
Region).
S e c r e t a r y
of Federal
R e v e n u e s
Brazil
of
( I n t e r n a l
R e v e n u e
Service of
Brazil).
S e c r e t a r y
of Federal
R e v e n u e s
of
Brazil
( I n t e r n a l
R e v e n u e
Service of
Brazil).
The company Jara&Jara
Limited
LATAM
sues
Airlines Group S.A. based
on
they
the damage
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.
their
affected
prestige and business
continuity.
Passenger demand for
misuse by counter agent
of credit card.
Ordinary judicial action
declare
to
brought
legal
that there
is no
relationship
obligating
the Company to raise the
Air Fund.
Amounts
Committed
ThUS$
11,935
5,500
120,460
30,921
28,426
First instance.
discharge
In
step
test, hearing in New
appearance (for judicial
confession)of the legal
representative set for
February 13, 2014.
First instance sentence
not
favorable.
Currently awaiting the
decision of the appeal
filed by the company.
To suspend the tax
application
credit
to
the Court was
delivered by guarantee
ThUS$ 102 which
is
revealed in more detail
in Note 23.
.
Decisions of first and
second administrative
instance adverse
to
interests of the
the
Company.
Currently
awaiting the decision of
the new action brought
by the Company.
of
to
Court decision was
the
unfavorable
the
interests
company, so
it was
appealed. At present,
pending the trial of the
appeal, the Board of
Tax Appeals (CARF).
16643.000087/2009-36 Notice of Violation of the
requirement to pay the
social contribution on
net profit ("CSL").
10880.725950/2011-05
Compensation claims of
social contributions PIS
and COFINS.
ANNUAL REPORT 2013309 Amount
Committed
ThUS$
5,233
14,192
13,684
Company
Court
Case number
Origin
Stage of trial
Pantanal
Linhas
Aéreas
S.A.
R e g i o n a l
of
Court
the
Third
District.
1997.0002503-9
Tam Linhas
Aéreas
S.A.
6th
Public
rod of Sao
Paulo.
0012938-
14.2013.8.26.0053
collect
filed
Execution
tax
to
penalties
for
breach of special
regime
customs
temporary
of
admission.
J u d g m e n t
proposed to cancel
the collection of
incident
Service
Tax on amounts
paid to Infraero.
Tam Linhas
Aéreas
S.A.
S e c r e t a r y
of
Federal
R e v e n u e s
of
Brazil
( I n t e r n a l
R e v e n u e
of
Service
Brazil).
16643.000085/2009-47 Auto
compound
to demand and
collection
of
income
tax and
detail CSL derived
royalties and fees
the mark
using
TAM.
for
the second
Waiting
of
Favorable sentence.
the decision
instance.
ruling
overturned
The
injunction previously
the
granted, and granted
in
part the action proposed
by the company. Opposing
a motion for clarification,
which was rejected. Both
parties
filed motions,
both of which received the
double effect
(suspension
and forwarding). Currently
waiting for the referral to the
Court of Justice of the State
of São Paulo and therefore
appeals trial.
partially
instance
decision
First
unfavorable to the interests
of the company. On March
14, 2012, the application
of business and voluntary
action were judged by CARF,
so that was adduced the
resource trade to restore the
expenditure to the royalties,
and
provided
voluntary action of TAM to
(i) rescind the compensation
for tax losses and (ii) apart
calculating
default
interest Selic rate effect on
the government claim.
It,
currently expects the ruling
on the admissibility of the
special appeal filed by the
Special Attorney for Finance
and the notification of the
decision.
the
ANNUAL REPORT 2013310 Company
Court
Case Number
Origin
Stage of trial
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
S e c r e t a r y
of
Federal
R e v e n u e s
of
Brazil
( I n t e r n a l
R e v e n u e
Service
of
Brazil).
S e c r e t a r i a
da Fazenda
do
Estado
de São Paulo
( S e c r e t a r y
of Finance of
the State of
Sao Paulo).
10831.012344/2005-
55
II
Infraction
to
presented
payment
demand
social
and
of
contributions
COFINS
PIS
arising
the
loss of unidentified
international cargo.
from
and
3.123.785-0
of
to
payment
ICMS governing
importation of
Order
infringement
demand
of
the
aircraft.
Partially favorable decision
in the first administrative
and supportive in the second
instance. However, the upper
chamber of the Board of Tax
Appeals was to the special
appeal filed by the Union.
Currently pending resolution
of the motion for clarification
with the opposition of the
company.
Under the laws of the state of
São Paulo, the Administrative
Court was to declare the
agreement of
the matter
discussed in the infraction
and the related injunction,
so the case was referred
to the State Attorney and a
determination is expected on
that demand.
3.130.043-1
3.099.486-0
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
S e c r e t a r i a
da Fazenda
do
Estado
de São Paulo
( S e c r e t a r y
of Financeof
the State of
Sao Paulo).
S e c r e t a r i a
da Fazenda
do
Estado
de São Paulo
((S e c re t a r y
of Finance of
the State of
Sao Paulo).
of
to
payment
ICMS governing
importation of
Order
infringement
demand
of
the
aircraft.
On June 4, 2013, the decision
the
issued denying
was
special appeal filed by the
company. Currently, waiting
for the demarcation of the
court order regarding the
administrative process.
of
to
payment
ICMS governing
importation of
Order
infringement
demand
of
the
aircraft.
Under the laws of the state of
São Paulo, the Administrative
Court was to declare the
the matter
agreement of
discussed in the infraction
and the related injunction,
so the case was referred
to the State Attorney and a
determination is expected on
that demand.
Amounts
Committed
ThUS$
11,008
9,553
9,187
6,952
ANNUAL REPORT 2013311 Company
Court
Case Number
Origin
Stage of trial
11610.001360/2001-
56
3.117.001-8
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
S e c r e t a r y
Federal
of
Revenues
of
Brazil
(Internal
Revenue Service
of Brazil).
of
Secretary
the
Finance of
State
Sao
of
Paulo (Secretary
of
Finance of
the State of Sao
Paulo).
Application
for
r e i m b u r s e m e n t
of social security
contributions
of
PIS.
Notice
of
i n f r i n g e m e n t
d e m a n d i n g
payment of ICMS
on
of
imports
aircraft.
and
first
ruling
in
Unfavorable
second
the
administrative
instances.
Currently expecting fiscal
execution ruling.
the
the
Under
laws of
state of São Paulo,
the
Administrative Court was
to declare the agreement
of
the matter discussed
in the infraction and the
related
so
the case was referred to
the State Attorney and a
determination is expected
on that demand.
injunction,
Amounts
Committed
ThUS$
7,732
7,599
Tam Linhas
Aéreas
S.A.
T r i b u n a l
Regional Federal
da 3a Região
the
(Court of
Third Region).
2006.03.00.022504-6
3.120.286-0
990.172
3.123.000-3
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
Tam Linhas
Aéreas
S.A.
da
Secretaria
do
Fazenda
Estado de São
Paulo (Secretary
of
Finance of
the State of Sao
Paulo).
Governo
do
Estado de São
Paulo
(State
Government of
Sao Paulo).
da
Secretaria
Fazenda
do
Estado de São
Paulo (Secretary
of
Finance of
the State of Sao
Paulo).
Pending first instance ruling.
7,036
Trial suspended.
It now
expects the end of main
trial.
6,311
Trial suspended.
It now
expects the end of main
trial.
5,971
Trial suspended.
It now
expects the end of main
trial.
5,749
forcing
Penalty
in
IRPJ collection
the months
of
February, March
and August 1998.
of
Order
to
infringement
demand payment
of ICMS governing
the importation of
aircraft.
Fiscal Execution to
demand payment
of
that
ICMS
affects the import
of aircraft.
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
ANNUAL REPORT 2013312 Company
Court
Case Number
Origin
Stage of trial
004960-
83.2013.8.26.0053
Currently awaiting a ruling of
first instance.
Judgment proposed
to cancel the charge
to demand
and
payment of
ICMS
and fine affects
import of aircraft.
Amounts
Committed
ThUS$
5.797
2002.61.19.001123-1
Injunction filed to
prevent
recovery
of IPI on imports of
aircraft.
Currently awaiting a ruling
on the appeal filed by the
Company.
5.540
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.
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
I n t e r n a l
R e v e n u e
Service.
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
4.002.475-1
6th Public rod of
Sao Paulo
0013306-23.2013.8-
26.0053
3.019.886-0
93300008.09.0000088
3/2009-31
da
Secretaria
F a z e n d a d o
Estado
da
P a r a í b a
(Secretary
of
Finance of the
State of Sao
Paulo).
S e c r e t a r i a
Fazenda
da
Estado
do
Paraíba
da
of
(Secretary
Finance
of
the
State of
Paraiba).
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
Judgment proposed
the
to
cancel
of
collection
Service
incident
Tax on amounts
received
as
discount on the go
over the shipping
rates to Infraero.
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
of
Order
infringement
to
demand payment
of ICMS in particular
operations.
ruling on
the
Expected
impeachment filed by the
Company.
5.336
Currently
decision of first instance.
awaiting
the
4.907
suspended.
It now
Trial
expects the end of main trial.
4.892
Currently awaiting a ruling
on the appeal filed by the
Company.
4.835
ANNUAL REPORT 2013313 Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed
ThUS$
4,814
4,708
Under the laws of the state of
São Paulo, the Administrative
Court was to declare the
agreement of
the matter
discussed in the infraction
and the related injunction,
so the case was referred
to the State Attorney and a
determination is expected on
that demand.
Expected
ruling on
the
impeachment filed by the
Company.
suspended.
Trial
It now
expects the end of main trial.
4,562
3.123.770-8
3.154.701-1
3.146.575-4
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
Order
of
to
infringement
demand payment
of ICMS governing
the importation of
aircraft.
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
10880-676.339/2009-13
of
Order
infringement
to
demand payment
of IRPJ.
ruling on
the
Expected
impeachment filed by the
Company.
4,523
3.146.651-5
3032722060291
of
Order
infringement
to
demand payment
of ICMS governing
the importation of
aircraft.
Order
of
i n f r i n g e m e n t
to
demand
payment of ICMS
in
particular
operations.
suspended.
It now
Trial
expects the end of main trial.
4,445
Currently awaiting a ruling
on the appeal filed by the
Company.
4,218
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.
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
da
Secretaria
Receita Federal
( I n t e r n a l
R e v e n u e
Service).
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary
of
Finance of the
State of Sao
Paulo).
da
Secretaria
Fazenda
do
Estado de Goiás
( S e c r e t a r y
of
Finance
of Estado de
Goias).
ANNUAL REPORT 2013314 S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary of
Finance of the
State of Sao
Paulo).
S e c r e t a r i a
Fazenda
da
do
Estado
de São Paulo
(Secretary of
Finance of the
State of Sao
Paulo).
Public Rod of
Florianopolis-
SC.
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
Company
Court
Case Number
Origin
Stage of trial
Tam
Linhas
Aéreas
S.A.
S e c r e t a r i a
da
Receita
F e d e r a l
( I n t e r n a l
R e v e n u e
of
Service
Brazil).
16643.000088/2009-81 Order of infringement
to demand payment
of IRPJ and CSLL.
to assert
On November 26, 2013,
in order
the
benefits of art. 40 of Law
No. 12865/13, the company
applied for exemption and,
cumulatively, waived any
claim of right on which the
appeal is based. At present,
pending
the
exemption request.
review of
Amounts
Committed
ThUS$
4,167
3.117.801-7
3.129.987-8
Order of infringement
to demand payment
ICMS governing
of
the
importation of
aircraft.
Trial suspended.
It now
expects the end of main trial.
4,139
Order of infringement
to demand payment
ICMS governing
of
importation of
the
aircraft.
Procedure
suspended.
Presently waiting for an end
to the main proceedings.
3,899
4,269
3,986
023.12.036784-2
filed
Lawsuit
by
InstitutoLiberdade on
the product Espaço+.
Currently
awaiting
convocation of the other
companies, for us to answer.
1st Civil Court
of the District
of Navegantes
/ SC.
033.03.013110-6
(precautionary)
033.03.014870-0
(ordinary).
We are currently awaiting the
evaluation of our objection
to the expert report.
the
filed
former
by
Action
sales
a
of
representative
TAM
demanding
c o m p e n s a t i o n
and
moral
for
economic
damage
consequence
in
of
alleged
wrongful termination
and
of
contract
trade
unfounded
representative
land
freight
transport
other than agreeing
in
the
advance
e s t a b l i s h m e n t
protection
of
enforceable court.
ANNUAL REPORT 2013315 Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed
ThUS$
Tam
Linhas
Aéreas
S.A.
do
Tribunal
Trabalho
de
Porto Alegre -
Labor Court of
Porto Alegre.
0001611-
93.2012.5.04.0013
in
Civil Action
the
Ministry of Labour,
the
which
black
granting
shoes,
and
socks for employees
who wear uniforms.
requires
of
belts
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
Tam
Linhas
Aéreas
S.A.
0000504-
79.2010.5.04.0014
0000033-
78.2011.5.05.0021
do
Tribunal
Trabalho
de
Porto Alegre -
Labor Court of
Porto Alegre.
Justice
Labor
/
Salvador
BA
Labor
J u r i s d i c t i o n
Salvador / BA.
-
Labor
Brasilia.
Court
01683.2009.015.10.00.3
of
Secretary
Finance of Sao
Paulo.
4.023.832-5
Lawsuit filed by the
Union of Aviation
/ RS
Porto Alegre
demanding payment
for
additional
hazard.
the
Class action by the
National Union of
workers,
Aviation
which
requires
payment of risk bonus
for all employees of
the SSA base.
Action by the Union
Aerovias
Brasilia/
demanding
DF
payment of hazard
compensation
for
all
maintenance
employees.
Notice of infraction to
demand payment of
import tax that rules
aircraft.
Process in the first instance,
waiting
judgment of appeal.
10,375
Approximate
value
Judgment
Final instance.
in appeal stage.
6,098
Approximate
value
Process in the first instance.
Awaiting sentencing.
19,083
Approximate
value
Process in the last instance.
Awaiting the outcome of the
appeal.
5,559
Approximate
value
5,501
After the adverse decision
in the first
instance, the
company filed an ordinary
appeal. Currently, pending
the decision of the appeal
the Administrative
before
Tribunal.
ANNUAL REPORT 2013316 Company
Court
Case Number
Origin
Stage of trial
Florida USA.
2013-20319 CA 01
Aerovías de
Integración
Regional,
AIRES S.A.
initiated
July 30, 2012 LAN AIRLINES
In
legal
COLOMBIA
proceedings
in Colombia against
regional One Inc. and Volvo Aero
Services LLC, in order to declare that
these companies are civilly
liable
for moral and material damages
caused to LAN AIRLINES COLOMBIA
, arising from breach of contractual
obligations of the aircraft HK
In June 20, 2013 AIRES SA AND /
OR LAN AIRLINES COLOMBIA was
notified of the lawsuit filed in the
U.S. by INC and Dash regional One
224 LLC for damages caused by the
aircraft HK claiming COLOMBIA LAN
AIRLINES had the requirement to
obtain customs import declaration
in April 2010
when the aircraft
entered Colombia for maintenance
required by Regional One.
Tam Linhas
Aéreas S.A.
Tam Linhas
Aéreas S.A.
S e c r e t a r i a
da
Receita
F e d e r a l
( I n t e r n a l
R e v e n u e
of
Service
Brazil).
S e c r e t a r i a
da
Receita
F e d e r a l
( I n t e r n a l
R e v e n u e
Service
of
Brazil).
10880-926.383/2013
-66
Internal Revenue
Decision of the
Service
approve
does
compensation made by the company
in the application for refund of
income tax for 2009.
not
1720130100068
Notice of infraction to demand tax
credit is due, as the company would
have improperly excluded amounts
paid as interest on own capital for the
years 2010 and 2011.
Tam Linhas
Aéreas S.A.
Secretary
of
Finance of Rio
de Janeiro.
03.431129-0
It is an infraction, for which the State
of Rio de Janeiro requires the VAT tax
credit for purchasing fuel kerosene
(jet fuel). According to a report,
the auditor notes that there is no
legislation in Rio de Janeiro for the
appropriation of this credit, so the
credit has been rejected and required
tribute.
in
process
pending
Colombia
The
is
of
preliminary objections filed by
the defendant
resolution
is
As for the process in the U.S.
deciding
Federal Court
whether the process follows on
as a court with jurisdiction in
Colombia is resolving a parallel
demand in Colombia Although
continues pending the decision
to declare or not without case
in the U.S. by the judge, the
court has noted a date for trial
in August 2014 if the decision is
to grant the request to the case
in the U.S..
the
result of
Pending
the
dissatisfaction expressed by the
company.
Pending
objection filed by the company.
result of
the
the
Waiting
presented by the company.
the contestation
for
Amounts
Committed
ThUS$
12,443
6,826
5,234
97,179
In order to deal with any financial obligations
arising from legal proceedings outstanding
at December 31, 2013, whether civil, labor
or tax, LATAM Airlines Group S.A., has made
provisions, which are included in heading
Other provisions, non-current, 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.
ANNUAL REPORT 2013317 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.
The Company and its subsidiaries do not
maintain financial credit contracts with local
banks that indicate some limits on financial
indicators of the Company or its subsidiaries.
At December 31, 2013, the Company is in
compliance with all
indicators detailed
above.
ANNUAL REPORT 2013318 (b) Commitments under operating leases as lessee
Details of the main operating leases are as follows:
Lessor
Aircraft
ACS Aircraft Finance Bermuda Ltd. - Aircastle (WFBN)
Boeing 737
Air Canada (Sublessor)
Airbus Financial Services
Aircraft 76B-26261 Inc. (ILFC)
Aircraft 76B-26329 Inc. (ILFC)
Aircraft 76B-27613 Inc. (ILFC)
Aircraft 76B-27615 Inc. (ILFC)
Aircraft 76B-28206 Inc. (ILFC)
Airbus A340
Airbus A340
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
Avolon Aerospace AOE 62 Limited
Avolon Aerospace AOE 63 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
Boeing 777
Boeing 787
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,
2013
As of
December 31,
2012
1
-
3
-
1
1
1
1
-
-
3
1
1
1
3
1
1
1
1
1
-
1
1
1
1
2
1
-
1
1
4
1
7
1
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
10
ANNUAL REPORT 2013319 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 (*)
Aircraft
Airbus A330
Airbus A320
Boeing 737
Boeing 767
Airbus A320
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)
Orix Aviation Systems Limited
Pembroke B737-7006 Leasing Limited
RBS Aerospace Limited (*)
SKY HIGH V LEASING COMPANY LIMITED (*)
Sky High XXIV Leasing Company Limited
Sky High XXIV 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) (*)
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Boeing 737
Airbus A320
Boeing 737
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Wells Fargo Bank North National Association (BAKER & SPICE) (*) Airbus A320
Wells Fargo Bank North National Association (BOC) (*)
Wells Fargo Bank North National Association (BOC) (*)
Wells Fargo Bank Northwest N.A (AVOLON) (*)
Wells Fargo Bank North National Association (ACG) (*)
Airbus A319
Airbus A320
Airbus A320
Airbus A320
As of
December 31,
2013
As of
December 31,
2012
2
1
1
1
1
3
1
1
1
1
1
3
2
6
1
3
2
2
2
2
1
2
1
2
-
3
-
4
2
1
1
1
4
2
1
1
1
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
Wells Fargo Bank Northwest National Association (AerCap) (*)
Airbus A330
10
Wells Fargo Bank Northwest National Association (BBAM)
Boeing 777
Wells Fargo Bank Northwest National Association (BBAM)
Boeing 787
Wells Fargo Bank Northwest National Association (BOC) (*)
Airbus A320
Wells Fargo Bank Northwest, N.A. (GECAS)
Wells Fargo Bank Northwest, N.A. (GECAS)
Wilmington Trust Company (ILFC) (*)
Yamasa Singapore Pte. Ltd.
Zipdell Limited (BBAM) (*)
Total
Boeing 767
Boeing 777
Airbus A319
Airbus A340
Airbus A320
128
123
ANNUAL REPORT 2013320 The composition of the fleet as operating leases at December 31, 2013, 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.
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
As of
December 31,
2013
ThUS$
475,762
1,101,741
335,019
1,912,522
As of
December 31,
2012
ThUS$
380,713
852,659
235,658
1,469,030
The minimum lease payments charged to income are the following:
Minimum operating lease payments
Total
For the periods ended
December 31,
2013
ThUS$
441,077
441,077
2012
ThUS$
310,496
310,496
ANNUAL REPORT 2013321 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 six
and eight years. In addition, two Boeing
767-300 aircraft and two Airbus A320-200
were returned given the end of the lease
contract. During the fourth quarter of 2012,
were returned four Airbus A320-200 on lease
term.
In the first quarter of 2013, it returned an
Airbus A320-200, while during the second
quarter of 2013 two Airbus A319-100, one
Airbus A320-200 and one Bombardier Dhc8-200
were returned as their leasing contracts had
ended. During June 2013 the contracts system
applied to ten Airbus A330-200 aircraft was
changed from financial leasing to operative
leasing, with each aircraft being leased for
a period of forty months. During the third
quarter of 2013, two Airbus A320-200 aircraft
was leased for a period of 8 years each, one
Boeing 787 aircraft was leased for a period
of 12 years and two Boeing 777 aircraft were
leased for a period of 5 years each. Moreover,
one Airbus A320-200, two Boeing 767-300
aircraft and one Bombardier Dhc8-400
aircraft were returned. Additionally, during
July of 2013 two Dhc8-200 aircraft were
acquired on leasing. In the fourth quarter
of 2013, three Airbus A320-200 aircraft was
leased for a period of 8 years each, one
Boeing 787 aircraft was leased for a period of
12 years. Moreover, two Airbus A320-200, one
Airbus A319-100, one Airbus A340-300, one
Boeing 737-700 aircraft and one Bombardier
Dhc8-400 aircraft were returned.
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 unrestricted and may not be netted
against other accounts receivable or payable
between the lessor and lessee.
ANNUAL REPORT 2013322 At December 31, 2013 the Company has existing letters of credit related to operating leasing as
follows:
Creditor Guarantee
Debtor
Type
AFS Investments 48 LLC.
Lan Cargo S.A.
Two letter of credit
Air Canada
LATAM Airlines Group S.A. One letter of credit
CIT Aerospace International
LATAM Airlines Group S.A. Two letter of credit
GE Capital Aviation Services Limited
LATAM Airlines Group S.A. Three letter of credit
GE Capital Aviation Services Limited
Lan Cargo S.A.
Six letter of credit
International Lease Finance Corp
LATAM Airlines Group S.A. Five letter of credit
Orix Aviation System Limited
LATAM Airlines Group S.A. One letter of credit
PB Leasing Aircraft, No 28 (UK) Limited LATAM Airlines Group S.A. One letter of credit
LATAM Airlines Group S.A. One letter of credit
LATAM Airlines Group S.A. One letter of credit
TAF Mercury
TAF Venus
Wells Fargo Bank Nortwest,
National Association
Value
ThUS$
3,500
1,800
3,240
12,134
17,965
2,300
3,255
3,265
4,000
4,000
Release
date
Jan 25, 2014
Jun 30, 2014
May 13, 2014
Dec 04, 2014
Apr 25, 2014
Feb 24, 2014
Jul 31, 2014
May 5, 2014
Dec 04, 2014
Dec 04, 2014
Lan Cargo S.A.
One letter of credit
2,530
Jun 30, 2014
Baker & Spice Aviation Limited
Tam Linhas Aéreas S.A.
Two letter of credit
32,733
Apr 13, 2014
BOC Aviation (USA) Corporation
Tam Linhas Aéreas S.A.
One letter of credit
5,500
Nov 29, 2014
Cit Aerospace International
Tam Linhas Aéreas S.A.
Three letter of credit
15,281
Jan 31, 2014
DVB Group Merchant Bank (Asia) Ltd.
Tam Linhas Aéreas S.A.
One letter of credit
PK Airfinance US, Inc.
Tam Linhas Aéreas S.A.
One letter of credit
Royal Bank Of Scotland Aerospace
Tam Linhas Aéreas S.A.
Twelve letter of credit
SMBC Aviation Capital Ltd.
Tam Linhas Aéreas S.A.
One letter of credit
5,500
1,600
5,360
6,262
Dec 04, 2014
Dec 19, 2014
Feb 20, 2014
Feb 28, 2014
Wells Fargo Bank Northwest, National
Association
Tam Linhas Aéreas S.A.
Two letter of credit
6,000
Mar 28, 2014
Wilmington Trust SP Services Ltd.
Tam Linhas Aéreas S.A.
Two letter of credit
11,281
Jan 31, 2014
147,506
ANNUAL REPORT 2013323 (c) Other commitments
At December 31, 2013 the Company has existing letters of credit, certificates of deposits and
warranty insurance policies as follows:
Creditor Guarantee
Debtor
Type
Value
ThUS$
Release
date
American Alternative Insurance
Corporation
LATAM Airlines Group S.A.
Four letter of credit
2,910
Apr 05, 2014
Citibank N.A.
LATAM Airlines Group S.A. One letter of credit
Comisión Europea
LATAM Airlines Group S.A. One letter of credit
9,750
8,220
Dec 20, 2014
Feb 11, 2015
Deutsche Bank A.G.
LATAM Airlines Group S.A. Three letter of credit
40,000
Jun 01, 2014
Dirección General de Aviación
Civil de Chile
LATAM Airlines Group S.A. Sixty four ticket guarantee
16,917
Mar 31, 2014
Dirección Seccional de Aduanas
de Bogotá
Línea Aérea Carguera
de colombia S.A
Two insurance policies
guarantee
3,755
Apr 07, 2014
Empresa Pública de Hidrocarburos
del Ecuador EP Petroecuador
LATAM Airlines Group S.A. One letter of credit
5,500
Jun 21, 2014
Metropolitan Dade County
LATAM Airlines Group S.A.
Five letter of credit
Servicio Nacional de Aduanas
LATAM Airlines Group S.A. Three letter of credit
1,675
1,333
May 31, 2014
Jun 28, 2014
The Royal Bank of Scotland plc
LATAM Airlines Group S.A. Two letter of credit
18,000
May 20, 2014
Washington International Insurance
LATAM Airlines Group S.A. Two letter of credit
Westpac Banking Corporation
LATAM Airlines Group S.A. One letter of credit
6ª Vara de Execuções Fiscais Federal
de Campo Grande/MS
Tam Linhas Aéreas S.A.
(Pantanal)
Two insurance policies
guarantee
2,100
1,066
Apr 05, 2014
Apr 04, 2014
31,728
Jan 04, 2016
8 Vara da Fazenda Pública da Co
marca de São Paulo
Tam Linhas Aéreas S.A.
(Pantanal)
One insurance policies
guarantee
15,389
Apr 12, 2015
Fundação de Protação e Defesa do
Consumidor Procon
Tam Linhas Aéreas S.A.
Vara da Fazenda Pública da Comarca
de São Paulo
Tam Linhas Aéreas S.A.
Vara De Execuções Fiscais
Estaduais de São Paulo
Tam Linhas Aéreas S.A.
União Federal
Tam Linhas Aéreas S.A.
One insurance policies
guarantee
One insurance policies
guarantee
One insurance policies
guarantee
One insurance policies
guarantee
1,837
May 16, 2016
3,274
Mar 29, 2016
15,395
Apr 16, 2016
1,061
Jul 24, 2015
179,910
ANNUAL REPORT 2013324 NOTE 37. TRANSACTIONS WITH RELATED PARTIES
(a) Transactions with related parties for the period ended December 31, 2013
Tax No.
Related party
Nature of
relationship
with related
parties
Country
of origin
Explanation of other
information about
related parties
Nature of related parties
transactions
Currency
Transaction
amount with
related parties
96.810.370-9
Inversiones Costa
Verde Ltda. y CPA.
Controlling
shareholder
Chile
Investments
Revenue from services provided
96.847.880-K
Lufthansa Lan Technical
Training S.A.
Associate
Chile
Training center
Leases as lessor
Services received
Services received
65.216.000-K
Comunidad mujer
Other related
parties
Chile
Promotion and training
of women
Revenue from services provided
Services received
78.591.370-1
Bethia S.A. y Filiales
Other related
parties
Chile
Investments
Leases as lessor
Revenue from services provided
Services received
Sale of Property plant and equip-
ment (1)
79.773.440-3
Transportes San Felipe
S.A.
Other related
parties
Chile
Transport
Revenue from services provided
Services received
Commitments made on behalf of
the entity
87.752.000-5
Granja Marina
Tornagaleones S.A.
Other related
parties
Chile
Pisciculture
Revenue from services provided
Foreign
Foreign
Foreign
Inversora
Aeronáutica
Argentina
Other related
parties
Jochmann Participações
Ltda.
Other related
parties
TAM Aviação
Executiva e
Taxi Aéreo S.A.
Other related
parties
Argentina Investments
Revenue from services provided
Leases as lessor
Brazil
Transport
Services received
Brazil
Transport
Revenue from services provided
Commitments made on behalf of
the entity
CLP
CLP
CLP
US$
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
US$
US$
US$
BRL
BRL
ThUS$
17
253
(1,186)
(1,146)
10
(11)
(6)
2,726
(883)
14,217
17
(142)
(84)
231
9
(358)
(27)
485
(17)
Foreign
Prismah Fidelidade S.A.
Joint Venture
Brazil
Marketing
Liabilities settlement on behalf of
BRL
(499)
the entity for the related party
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. On December
31, 2013, this balance is paid.
ANNUAL REPORT 2013325 (b) Transactions with related parties for the period ended December 31, 2012
Tax No.
Related party
Nature of
relationship
with related
parties
Country
of origin
Explanation of other
information about
related parties
Nature of related
parties transactions
Currency
Transaction
amount with
related parties
96.810.370-9
Inversiones Costa
Verde Ltda. y CPA.
Controlling
shareholder
Chile
Investments
Revenue from services provided
96.847.880-K
Lufthansa Lan Technical
Training S.A.
Associate
Chile
Training center
Leases as lessor
Services received
Services received
65.216.000-K
Comunidad mujer
Other related
parties
Chile
Promotion and training
of women
Revenue from services provided
Services received
78.591.370-1
Bethia S.A. y Filiales
Other related
parties
Chile
Investments
Leases as lessor
Revenue from services provided
Commitments made on behalf of the
entity
Services received
Sale of Property plant and
equipment (1)
79.773.440-3
Transportes San Felipe
S.A.
Other related
parties
87.752.000-5
Granja Marina
Tornagaleones S.A.
Other related
parties
Chile
Transport
Services received
Chile
Pisiculture
Revenue from services provided
96.812.280-0
San Alberto S.A. y Filiales Other related
Chile
Investments
Services received
Foreing
Inversora Aeronáutica
Argentina
Other related
parties
parties
Foreing
Tadef-Transporte
Administração e
Participação Ltda.
Other related
parties
Foreing
TAM Aviação Executiva e
Taxi Aéreo S.A.
Other related
parties
Argentina
Investments
Leases as lessee
Liabilities settlement on behalf of the
entity for the related party
Brazil
Transport
Services received
Brazil
Transport
Revenue from services provided
Liabilities settlement on behalf of the
entity for the related party
Foreing
Made In Everywhere
Repr.Com.Distr.Ltda
Other related
parties
Brazil
Transport
Services received
Foreing
Prismah Fidelidade S.A.
Joint Venture
Brazil
Marketing
Liabilities settlement on behalf of
the entity for the related party
CLP
CLP
CLP
US$
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
US$
US$
US$
US$
BRL
BRL
BRL
BRL
ThUS$
11
411
(1,101)
(803)
13
(13)
741
897
3
(786)
14,217
(279)
243
(29)
(442)
11
(18)
306
3
(211)
419
(1) 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.
ANNUAL REPORT 2013326 Operations corresponding to holders of
common stock in TAM S.A. and subsidiaries
are included following the date of the
business combination, on June 22, 2012.
The balances of Accounts receivable and
accounts payable to related parties are
disclosed in Note 9.
Transactions between related parties have
been carried out on free-trade conditions
between
interested and duly-informed
parties.
(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.
Remuneration
Management fees
Non-monetary benefits
Short-term benefits
Share-based payments
Total
For the periods ended
December 31,
2013
ThUS$
15,148
368
565
4,056
17,709
2012
ThUS$
15,146
653
395
5,060
1,412
37,846
22,666
ANNUAL REPORT 2013327
NOTE 38. SHARE-BASED PAYMENTS
(a) Compensation plan for increase of capital
in LATAM Airlines Group S.A.
(a.1) Compensation plan 2011
implemented by
Compensation plans
providing options
for the subscription
and payment of shares that have been
granted from the first quarter of 2013 are
recognized in the financial statements in
accordance with the provisions of IFRS 2
"Share-based Payment”, showing the effect
of the fair value of the options granted under
compensation in linear between the date of
grant of such options and the date on which
these irrevocable.
21,
the
allocated
shares were
At a Special Shareholders Meeting held
Company’s
2011,
December
shareholders
among other
approved,
matters, an increase of capital of which
4,800,000
to
compensation plans for employees of the
Company and
its subsidiaries, pursuant
to Article 24 of the Companies Law. In this
compensation plan no member of the
controlling group would be benefited. The
granting of options for the subscription
and payment of shares has been formalized
through conclusion of contracts of options
to subscribe for shares, according to the
proportions shown in the following schedule
of accrual and is related to the permanence
condition of the executive as employee of
the Company at these dates for the exercise
of the options:
Percentage
30%
30%
40%
Period
From December 21, 2014 and until December 21, 2016.
From December 21, 2015 and until December 21, 2016.
From June 21, 2016 and until December 21, 2016.
Share options in agreements of share- based payments, as of January 1, 2013
Share options granted
Share options in agreements of share- based payments, as of December 31, 2013
Number of share
options
-
4,497,000
4,497,000
These options have been valued and recorded at fair value at the grant date, determined by the
"Black-Scholes-Merton”. The effect on income to December 2013 corresponds to ThUS$ 17,200.
ANNUAL REPORT 2013328 The input data of option pricing model used for share options granted are as follows:
Weighted average
share price
Exercise
price
Expected
volatility
Life of
option
Dividends
expected
Risk-free
interest
US$ 23.55
US$ 24.97
61.52%
3.6 years
0%
0.0055
(a.2) Compensation plan 2013
shares were
At the Extraordinary Shareholders’ Meeting
June 11, 2013, the Company’s
held on
shareholders approved motions including
increasing corporate equity, of which
1,500,000
to
compensation plans for employees of the
Company and its affiliates, in conformity
with the stipulations established in Article
24 of the Corporations Law. Regard to this
compensation plan, not exist yet a defined
date for implementation.
allocated
The granting of options for the subscription
and payment of shares has been formalized
through conclusion of contracts of options
to subscribe for shares, according to the
proportions shown in the following schedule
of accrual and is related to the permanence
condition of the executive at these dates for
the exercise of the options:
Percentage
100%
From November 15, 2017 and until June 11, 2018.
Period
ANNUAL REPORT 2013329 (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, 2013, which amounted to 837,733 shares and 1,082,463 shares, respecti-
vely.
TAM Linhas Aéreas S.A.
Description
1st Grant
2nd Grant
3rd Grant
4th Grant
1st Extraordinary
Grant
3nd Extraordinary
Grant
4th Extraordinary
Grant
Total
Date
12-28-2005
11-30-2006
12-14-2007
05-28-2010
09-27-2007
04-01-2010
04-01-2010
Outstanding
option number
Multiplus S.A.
-
119,401
259,857
228,475
230,000
-
-
837,733
Description
1st Grant
2nd Grant
3rd Grant
4th Grant
1st Extraordinary
Grant
2nd Extraordinary
Grant
3nd Extraordinary
Grant
4th Extraordinary
Grant
Total
Date
10-04-2010
11-08-2010
04-16-2012
10-04-2010
10-04-2010
10-04-2010
04-16-2012
11-20-2013
Outstanding
option number
11,289
2,245
166,236
334,207
362,911
-
-
205,575
1,082,463
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.
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.
ANNUAL REPORT 2013330 As of December 31, 2013 the acquisition of the share's rights, in both companies is as follows:
Company
i. Number of shares
accrued options
TAM Linhas Aéreas S.A.
Multiplus S.A.
609,258
161,294
Number of shares
Non accrued options
228,475
921,169
In accordance with IFRS 2 - Share-based payments, the fair value of the option must be
recalculated and recorded as a liability of the Company once payment is made in cash
(cash-settled). The fair value of these options was calculated using the Black-Scholes method,
where the cases were updated with information LATAM Airlines Group S.A. The fair value recorded
in liabilities at December 31, 2013 is ThUS$ 1,493 and in income ThUS$ 509.
ANNUAL REPORT 2013331 NOTE 39. THE ENVIRONMENT
S.A. manages
LATAM Airlines Group
environmental
issues at the corporate,
centralized in Environmental Management.
To monitor the company and minimize their
impact on the environment is a commitment
to the highest
level, where continuous
improvement and contribute to the solution
of the problem of global climate change,
generating added value to the company
and the region, are the pillars of his
administration.
One function of Environmental Management,
in conjunction with the various areas of
the Company, is to ensure environmental
compliance, implementing a management
system
programs
that meet the
increasingly demanding
requirements globally; well as continuous
improvement programs in their internal
processes that generate environmental
benefits and to join the currently completed.
environmental
and
The Environment Strategy LATAM Airlines
Group S.A., is based on the following
objectives:
-
-
-
of
the
impact
Minimize
its
operations by using a modern
operational
fleet,
management
continuous
and
incorporation of new technologies.
efficient
Promote
resources
of waste
the
efficient
and
in
all
use
of
minimization
processes.
Manage
carbon
responsibly our
footprint by measuring, monitoring
emissions.
and
reducing
-
-
Promote the development and use
of alternative energy more efficient
impact.
and
less environmental
Encourage sustainable tourism as a
pillar for the development of the region.
For 2013, we have established three priority
areas of work to develop:
1. Implementing an Environmental
Management System;
2. Management Carbon Footprint
by measuring, verification and
compensation of our emissions;
3. Promoting biofuels market
development in the region.
Similarly, during 2013, activities were
conducted in the following initiatives:
-
-
-
The
environmental management
of LATAM was an important part
again for maintain recognition as
industry
in the subgroup
Emerging Markets of Dow
of
Index.
Jones
Sustainability
leaders
The
environmental management
of LATAM was recognized by the
Carbon Disclosure Project obtaining a
classification B80, the highest in Chile
and one of the highest in the region.
Implementation of an Environmental
Management System for LAN Airlines
and LAN Cargo, and specific to the
offices of Miami, USA and Quito, Ecuador;
ANNUAL REPORT 2013332
-
-
-
-
-
-
-
-
The corporation’s carbon footprint
was externally measured and verified.
Review the environmental standards
suppliers.
demanded
ours
at
A biofuel study was conducted,
application
including
benefits.
potential,
costs,
and
Active
project
participation
Renewable
in
Bio
the
Chile.
The first commercial flight with
biofuel in Colombia was conducted.
Spearheaded global discussion on
how to regulate CO2 emissions from
the international aviation industry,
to achieve the commitment of IATA
and ICAO respect to advance in a
carbon-neutral growth from 2020.
on
Compliance was made with European
regulations
emissions,
providing compensation to offset
flights within the EU during 2012,
32,000.
to
corresponding
CO2
US$
Energy efficiency projects were
implemented in our operations.
The total amount of the Environmental
Division expenses for 2013 is US$ 427,704
(US$526,074 during 2012).
ANNUAL REPORT 2013333 NOTE 40. EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS
(a) Term capital increase placement 2013
On
January 10, 2014 were placed by
the procedure of Auction Orders Book,
according to the provisions of Section 2.4A
of the Operations Manual in Shares by Stock
Exchange Santiago, Stock Exchange, and
the 10,314,872 cash shares that were not
subscribed within the period of first refusal
ended December 19, 2013. The placement
price was US$ 15.17, the exchange rate
observed dollar published by the Central
Bank of Chile in force for Monday January 9,
2014 , equivalent to $8,072.60 , having raised
therefore the equivalent today US$ 156.5
million, approximately
. Thus concluded
the process of placing 100 % of 62,000,000
shares for payment of first issue (not include
the
Employee Compensation Plan
Company and its subsidiaries ) to be placed
by the Company under the capital increase
approved by the Extraordinary Shareholders'
Meeting held on LATAM June 11, 2013 , total
revenues of US$ 940.5 million having been
achieved.
for
LATAM Airlines Group S.A. and Subsidiaries’
consolidated financial statements as at
December 31, 2013, have been approved by
the Board of Director’s in an extraordinary
meeting held on March 17, 2014.
ANNUAL REPORT 2013334 Subsidiaries and Affiliated Companies
LATAM AIRLINES GROUP S.A. Y Subsidiaries
LATAM Airlines Group S.A.
Name: LATAM Airlines Group S.A.
Chilean Tax N° (RUT): 89.862.200-2
Incorporation: Established as a
limited
liability company by public deed of 30
December 1983, extended by Public Notary
Eduardo 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 Línea Aérea Nacional
de Chile S.A. (now LATAM Airlines Group
S.A.). As regards aeronautical 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 under the
name of Línea Aérea Nacional de Chile.
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. The change of
name came into force on 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 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.
information about
Note: The financial
subsidiaries presented below has been
summarized.
complete financial
statements are available to the public at
our corporate headquarters and at the
Superintendencia de Valores y Seguros (SVS).
Their
ANNUAL REPORT 2013336 TAM S.A. and Subsidiaries
Incorporation: Joint
established in Brazil in May 1997.
stock
company
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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairwoman:
Directors:
Subsidiaries of TAM S.A. and participation rate:
- TAM Linhas Aereas S.A. and Subsidiaries
- Aerolinhas Brasileiras S.A. and Subsidiary
- Multiplus S.A.
- Transportes Aereos del Mercosur S.A.
- Corsair Participações Ltda.
- TP Franchising Limited
ThUS$ 2,054,021
ThUS$ (428,491)
100.00%
3.15%
Maria Cláudia Oliveira Amaro
Maurício Rolim Amaro
Noemy Almeida Oliveira Amaro
Flávia Turci
Enrique Cueto Plaza
Ignacio Cueto Plaza
100.00%
100.00%
72.85%
94.98%
100.00%
100.00%
ANNUAL REPORT 2013337 TAM S.A. AND SUBSIDIARIES
Consolidated Statement 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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
2,370,275
1,994,205
1,772
2,372,047
6,323,411
8,917
2,003,122
6,818,176
8,695,458
8,821,298
3,249,581
4,734,090
3,556,778
5,642,121
7,983,671
9,198,899
617,039
94,748
(480,634)
103,033
711,787
(377,601)
TOTAL LIABILITIES AND EQUITY
8,695,458
8,821,298
Consolidated Statement of Income
by Function
For the period from
January 1 to
December 31, 2013
For the period from
January 1 to
December 31, 2012
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to:
Owners of the parent
Non-controlling interest
Net income (loss) of the period
ThUS$
6,791,104
1,302,493
(483,311)
54,820
(428,491)
(458,475)
29,984
(428,491)
ThUS$
3,633,592
611,848
(52,028)
(6,169)
(58,197)
(75,194)
16,997
(58,197)
ANNUAL REPORT 2013338 Consolidated Statement of
Comprehensive Income
For the period from
January 1 to
December 31, 2013
For the period from
June 22 to
December 31, 2012
NET INCOME (LOSS)
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME (LOSS)
Consolidated Statement of Changes
in Equity
Equity as of June 22, 2012
Total comprehensive income
Dividends
Other increases (decreases) in equity
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Equity issuance
Dividends
Other increases (decreases) in equity
Closing balance as of December 31, 2013
ThUS$
(428,491)
(23,006)
(451,497)
(468,760)
17,263
(451,497)
ThUS$
(58,197)
(8,867)
(67,064)
(85,388)
18,324
(67,064)
Parent’s
ownership
interest
Non-
Controlling
interest
Total
equity
ThUS$
ThUS$
ThUS$
(233,750)
(85,388)
-
(161,496)
(480,634)
(480,634)
(468,760)
1,650,000
-
(83,567)
617,039
102,927
18,324
(19,997)
1,779
103,033
103,033
17,263
(130,823)
(67,064)
(19,997)
(159,717)
(377,601)
(377,601)
(451,497)
-
1,650,000
(26,070)
522
94,748
(26,070)
(83,045)
711,787
Consolidated Statement of Cash Flow
Direct - Method
For the period from
January 1 to
December 31, 2013
For the period from
June 22 to
December 31, 2012
ThUS$
ThUS$
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
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
Cash and cash equivalents at end of period
127,832
(1,056,225)
977,123
48,730
(1,078)
368,368
405,880
195,418
(537,981)
63,317
(6,587)
320,716
ANNUAL REPORT 2013339 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
aeronautical 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 their forms whether
consisting of ground support, maintenance,
technical or any other type of consultancy,
within and outside Chile, and all types of
activities and services 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.
LAN Cargo S.A. and Subsidiaries
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 minutes of 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 minutes of 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.
ANNUAL REPORT 2013340 Subscribed and paid-in capital:
Net income:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 83,226
ThUS$ 106,378
99.8980%
2.56%
José Cox Donoso (until 1 October 2013)
Juan José Cueto Plaza
Ramón Eblen Kadis
Ignacio Cueto Plaza
Enrique Cueto Plaza
Subsidiaries of LAN Cargo S.A. and participation rate:
- 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. and Subsidiary
- Lan Cargo Overseas Limited and Subsidiaries
-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. and Subsidiary
- Connecta Corporation
99.99%
99.98%
99.00%
99.00%
99.89%
100.00%
100.00%
99.99%
100.00%
100.00%
100.00%
ANNUAL REPORT 2013341 LAN CARGO S.A. AND SUBSIDIARIES
(Closed joint stock company)
Consolidated Statement 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
As of
December 31,
2013
As of
December 31,
2012
ThUS$
ThUS$
315,616
484,594
85
2,291
315,701
757,942
486,885
716,666
1,073,643
1,203,551
214,272
279,531
296,223
455,291
493,803
751,514
577,948
1,892
579,840
447,028
5,009
452,037
TOTAL LIABILITIES AND EQUITY
1,073,643
1,203,551
Consolidated Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to:
Owners of the parent
Non-controlling interest
Net income (loss) of the period
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
1,328,571
1,333,780
24,462
40,465
112,075
(5,697)
(47,360)
(7,996)
106,378
(55,356)
108,611
(2,233)
(55,478)
122
106,378
(55,356)
ANNUAL REPORT 2013342 Consolidated Statement of Comprehensive Income
NET INCOME (LOSS)
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME (LOSS)
For the period ended
December 31,
2013
ThUS$
106,378
(837)
2012
ThUS$
(55,356)
1,055
105,541
(54,301)
107,775
(2,234)
105,541
(54,308)
7
(54,301)
Consolidated Statement of Changes in Equity
ThUS$
ThUS$
ThUS$
Parent’s
ownership
interest
Non-
Controlling
interest
Total
equity
Equity as of January 1, 2012
Total comprehensive income
Equity issuance
Dividends
Other increases (decreases) in equity
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Equity issuance
Other increases (decreases) in equity
Closing balance as of December 31, 2013
518,600
(54,308)
2
(15,901)
(1,365)
447,028
447,028
107,775
(1)
23,146
577,948
3,543
7
-
-
1,459
5,009
5,009
(2,234)
-
(883)
1,892
522,143
(54,301)
2
(15,901)
94
452,037
452,037
105,541
(1)
22,263
579,840
ANNUAL REPORT 2013343 Consolidated Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows used in investing activities
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
Cash and cash equivalents at end of period
For the period ended
December 31,
2013
ThUS$
(101,453)
181,521
(72,667)
2012
ThUS$
125,990
(11,677)
(118,848)
7,401
(4,535)
149
20,238
(2)
12,688
ANNUAL REPORT 2013344 Lan Perú S.A.
Incorporation: Established as a joint stock
company in Peru on 14 February 1997.
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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 4,341
ThUS$ 3,877
70.00%
0.13%
Emilio Rodríguez Larraín Salinas
Enrique Cueto Plaza
Ignacio Cueto Plaza
Armando Valdivieso Montes
Jorge Harten Costa
Alejandro García Vargas
Luis Enrique Gálvez de la Puente
ANNUAL REPORT 2013345 LAN PERÚ S.A.
(Closed joint stock company)
Statement of Financial Position
Assets
Liabilities
Equity
Liabilities and equity
Income Statement
Operating revenues
Operating income
Non-operating income
Income tax
Net income
As of
December 31,
As of
December 31,
2013
ThUS$
281,800
252,735
29,065
281,800
2012
ThUS$
166,676
146,610
20,066
166,676
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
1,268,567
1,119,644
11,081
(5,900)
(1,304)
3,877
4,336
78
(1,731)
2,683
Statement of Changes in Equity
Share
capital
ThUS$
Other
sundry
reserve
ThUS$
Legal
reserve
Retained
earnings
Total
equility
ThUS$
ThUS$
ThUS$
Equity as of January 1, 2012
4,341
Land revaluation
Distribution of dividends
Deferred tax on revaluation
Net income of the period
Closing balance as of
December 31, 2012
Equity as of January 1, 2013
Land revaluation
Distribution of dividends
Deferred tax on revaluation
Net income of the period
Closing balance as of
December 31, 2013
-
-
-
-
4,960
7,760
-
(2,328)
-
4,341
10,392
4,341
-
-
-
10,392
9,302
-
(2,790)
-
4,341
16,904
868
-
-
-
-
868
868
-
-
-
-
868
6,162
-
(4,380)
-
2,683
16,331
7,760
(4,380)
(2,328)
2,683
4,465
20,066
4,465
-
(1,390)
-
3,877
20,066
9,302
(1,390)
(2,790)
3,877
6,952
29,065
ANNUAL REPORT 2013346 Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
For the period ended
December 31,
2013
ThUS$
131,456
(1,387)
(1,390)
128,679
170,661
2012
ThUS$
(3,134)
(6,636)
(4,380)
(14,150)
41,982
ANNUAL REPORT 2013347 Inversiones Lan S.A. and Subsidiaries
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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 458
ThUS$ 526
99.71%
0.03%
Enrique Cueto Plaza
Ignacio Cueto Plaza
Andrés Osorio Hermansen
Roberto Alvo Milosawlewitsch
Enrique Elsaca Hirmas
Subsidiaries of Inversiones Lan S.A. and participation rate:
Transport Aviation Leasing Limited
Aviation Administration Services Ltd
Passenger Aircraft Leasing Limited
Andes Airport Services S.A.
100.00%
100.00%
100.00%
98.00%
ANNUAL REPORT 2013348 INVERSIONES LAN S.A. AND SUBSIDIARIES
(Closed joint stock company)
Consolidated Statement 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 LIABILITIES AND EQUITY
Consolidated Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
income (loss) attributable to:
Owners of the parent
Non - Controlling Interest
Net income (loss) of the period
As of
December 31,
As of
December 31,
2013
ThUS$
2012
ThUS$
2,536
5,001
572
3,108
12,254
15,362
7,718
1,215
8,933
6,429
-
6,429
15,362
573
5,574
10,607
16,181
9,158
556
9,714
6,466
1
6,467
16,181
For the period ended
December 31,
2013
ThUS$
31,735
8,649
633
(107)
526
517
9
526
2012
ThUS$
24,667
4,854
(201)
90
(111)
(112)
1
(111)
ANNUAL REPORT 2013349
Consolidated Statement of Comprehensive Income
NET INCOME (LOSS)
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME (LOSS)
Consolidated Statement of Change in Equity
Equity as of January 1, 2012
Total comprehensive income
Other increases (decreases) in equity
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Other increases (decreases) in equity
Closing balance as of Decemeber 31, 2013
Consolidated Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
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
Cash and cash equivalents at end of period
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
526
(109)
417
410
7
417
Parent’s
ownership
interest
Non-
controlling
Interest
ThUS$
ThUS$
6,476
37
(47)
6,466
6,466
410
(455)
6,421
2
4
(5)
1
1
7
-
8
(111)
152
41
37
4
41
Total
Equity
ThUS$
6,478
41
(52)
6,467
6,467
417
(455)
6,429
For the period ended
December 31,
2013
ThUS$
1,419
(1,480)
-
(61)
(22)
207
2012
ThUS$
4,677
(4,547)
96
226
(2)
290
ANNUAL REPORT 2013350 Inmobiliaria Aeronáutica S.A.
Incorporation: Established as a closed joint
stock company by public deed of 1 August
1995, extended by Public Notary Gonzalo de
la Cuadra Fabres, 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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
ThUS$ 1,147
ThUS$ 1,231
100.00%
0.12%
Enrique Cueto Plaza
Andrés Osorio Hermansen
Armando Valdivieso Montes
ANNUAL REPORT 2013351 INMOBILIARIA AERONÁUTICA S.A.
(Closed joint stock company)
Statement 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 LIABILITIES AND EQUITY
Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expensive
NET INCOME (LOSS) FOR THE PERIOD
Statement of Comprehensive Income
NET INCOME (LOSS)
Total comprehensive income (loss)
As of
December 31,
As of
December 31,
2013
ThUS$
2012
ThUS$
1,028
37,525
38,553
15,620
41,607
57,227
4,808
7,316
12,124
17,226
5,803
23,029
26,429
38,553
34,198
57,227
For the period ended
December 31,
2013
ThUS$
4,797
3,352
3,050
(1,819)
1,231
2012
ThUS$
50,256
24,671
23,514
(5,795)
17,719
For the period ended
December 31,
2013
ThUS$
1,231
1,231
2012
ThUS$
17,719
17,719
ANNUAL REPORT 2013352 Statement of Changes in Equity
Equity as of January 1, 2012
Total comprehensive income
Dividends
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Dividends
Closing balance as of December 31, 2013
Share
capital
ThUS$
1,147
-
-
1,147
1,147
-
-
1,147
Retained
earning
ThUS$
30,332
17,719
(15,000)
33,051
33,051
1,231
(9,000)
25,282
Total
equity
ThUS$
31,479
17,719
(15,000)
34,198
34,198
1,231
(9,000)
26,429
Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
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
Cash and cash equivalents at end of period
For the period ended
December 31,
2013
ThUS$
(14,163)
14,073
-
(90)
(23)
29
2012
ThUS$
(22,860)
22,986
1
127
1
142
ANNUAL REPORT 2013353 Lantours División Servicios Terrestres S.A.
and Subsidiary
Incorporation: Established as a closed joint
stock company by public deed of 22 June
1987, extended by Santiago Public Notary
Raúl Undurraga Laso, 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 24
August 1999, extended by Santiago Public
Notary Eduardo Pinto Peralta, recorded at
Folio 21,042 N° 16,759 of 1999 of the Santiago
Business Register and published in the
Official Gazette of 8 September 1999.
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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 225
ThUS$ 787
100.00%
0.00%
Damián Scokin Rimolo
Armando Valdivieso Montes
Andrés del Valle Eitel
Subsidiary of Lantours División Servicios Terrestres S.A. and participation rate:
Lantours División Servicios Terrestres II S.A.
100.00%
ANNUAL REPORT 2013354
LANTOURS DIVISIÓN SERVICIOS TERRESTRES S.A. AND SUBSIDIARY
(Closed joint stock company)
Statement 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 LIABILITIES AND EQUITY
Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Statement of Comprehensive Income
NET INCOME (LOSS)
Total comprehensive income (loss)
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
2,478
244
2,722
2,203
7
2,210
512
2,722
2,411
267
2,678
2,121
32
2,153
525
2,678
For the period ended
December 31,
2013
ThUS$
10,365
5,781
1,017
(230)
787
2012
ThUS$
9,399
5,600
1,598
(298)
1,300
For the period ended
December 31,
2013
ThUS$
787
787
2012
ThUS$
1,300
1,300
ANNUAL REPORT 2013355 Statement of Changes in Equity
Equity as of January 1, 2012
Total comprehensive income
Dividends
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Dividends
Closing balance as of December 31, 2013
Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
Share
capital
ThUS$
Retained
earning
ThUS$
225
-
-
225
225
-
-
225
560
1,300
(1,560)
300
300
787
(800)
287
Total
equity
ThUS$
785
1,300
(1,560)
525
525
787
(800)
512
For the period ended
December 31,
2013
ThUS$
18
15
(800)
(3)
8
2012
ThUS$
1,604
(41)
(1,560)
3
11
ANNUAL REPORT 2013356 Lan Pax Group S.A. and Subsidiaries
27
Incorporation: Established as a closed
joint stock company by public deed
of
September 2001, extended by
Santiago Public Notary Patricio Zaldivar
Mackenna, 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;
its area
in addition, within
of activity, 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 purpose. 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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 424
ThUS$ (116,657)
100.00%
0.00%
Ignacio Cueto Plaza
Andrés del Valle
Enrique Elsaca Hirmas
Subsidiaries of LanPax Group S.A. and participation rate:
- Inversora Cordillera S.A.and Subsidiary
- 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%
ANNUAL REPORT 2013357
LAN PAX GROUP S.A. AND SUBSIDIARIES
(Closed joint stock company)
Consolidated Statement 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
Non-controlling interest
Total equity
TOTAL LIABILITIES AND EQUITY
Consolidated Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to:
Owners of the parent
Non-controlling interest
Net income (loss) of the period
As of
December 31,
2013
ThUS$
As of
December 31,
2012
ThUS$
326,373
315,216
641,589
228,849
293,559
522,408
378,370
523,481
901,851
582,742
55,109
637,851
(246,521)
(112,385)
(13,741)
(3,048)
(260,262)
(115,443)
(641,589)
522,408
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
1,140,255
1,130,295
95,188
128,389
(143,800)
(114,478)
27,143
32,201
(116,657)
(82,777)
(104,966)
11,691
(77,269)
(5,008)
(116,657)
(82,277)
ANNUAL REPORT 2013358 Consolidated Statement of Comprehensive Income
NET INCOME (LOSS)
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME (LOSS)
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
(116,657)
(82,277)
(27,036)
6,087
(143,693)
(76,190)
(131,495)
(70,823)
(12,198)
(5,367)
(143,693)
(76,190)
Parent’s
ownership
Interest
Non-
controlling
interest
Total
equity
Consolidated Statement of Changes in Equity
Equity as of January 1, 2012
Total comprehensive income
Other increases (decreases) in equity
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Other increases (decreases) in equity
Closing balance as of December 31, 2013
ThUS$
(41,935)
(70,823)
363
(112,395)
(112,395)
(131,495)
(2,631)
(246,521)
Consolidated Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents before
effect of exchanges rate change
ThUS$
ThUS$
4,440
(5,367)
(2,121)
(3,048)
(3,048)
(12,198)
1,505
(13,741)
(37,495)
(76,190)
(1,758)
(115,443)
(115,443)
(143,693)
(1,126)
(260,262)
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
(110,576)
(134,249)
(75,586)
200,403
4,310
116,611
14,241
(13,328)
Effects of variation in the exchange rate on cash and cash equivalents
(66)
(144)
Cash and cash equivalents at end of period
TOTAL RESULTADO INTEGRAL
56,510
(143.693)
42,335
(76.190)
ANNUAL REPORT 2013359
Lan Chile Investments Limited and
Subsidiary
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:
Participation rate:
% of consolidated assets:
Board of Directors
Chairman:
Directors:
ThUS$ 10
ThUS$ (1)
100.00%
0.00%
Enrique Cueto Plaza
Andrés Osorio Hermansen
Andrea Williams
Subsidiary of Lan Chile Investments Limited and participation rate:
-
Inversiones La Burguería S.A.
99.90%
ANNUAL REPORT 2013360
LAN CHILE INVESTMENTS LIMITED AND SUBSIDIARY
(Limited liability company)
Consolidated Statement 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 LIABILITIES AND EQUITY
Consolidated Statement of Income by Function
Revenue
Gross margin
Income (loss) before taxes
Income (loss) tax expense
NET INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to:
Owners of the parent
Non-controlling interest
Net income (loss) of the period
As of
December 31
2013
ThUS$
As of
December 31
2012
ThUS$
2,015
2,404
4,419
12
5,236
5,248
(829)
(829)
4,419
4,419
-
4,419
11
5,236
5,247
(828)
(828)
4,419
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
-
-
(1)
-
(1)
(1)
-
(1)
-
-
(10)
-
(10)
(10)
-
(10)
ANNUAL REPORT 2013361 Consolidated Statement of Comprehensive Income
NET INCOME (LOSS)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
TOTAL COMPREHENSIVE INCOME (LOSS)
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
(1)
(1)
(1)
-
(1)
(10)
(10)
(10)
-
(10)
Parent’s
ownership
Interest
Non-
controlling
Interest
Total
equity
Consolidated Statement of Changes in Equity
ThUS$
ThUS$
ThUS$
Equity as of January 1, 2012
Total comprehensive income
Closing balance as of December 31, 2012
Equity as of January 1, 2013
Total comprehensive income
Closing balance as of December 31, 2013
(818)
(10)
(828)
(818)
(1)
(829)
-
-
-
-
-
-
(818)
(10)
(828)
(818)
(1)
(829)
Consolidated Statement of Cash Flow Direct - Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investing activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
TOTAL RESULTADO INTEGRAL
For the period ended
December 31,
2013
ThUS$
2012
ThUS$
(1)
-
-
(1)
-
-
-
-
-
1
(143.693)
(76.190)
ANNUAL REPORT 2013362
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.
ANNUAL REPORT 2013363 ANNUAL REPORT 2013364