LATAM Airlines Group Annual Report 2014

Plain-text annual report

A N N U A L R E P O R T 2 0 1 4 Index OUR COMPANY Message from the Chairman of the Board Message from the CEO of LATAM Airlines Grouo Business Strategy Our History Fleet Destinations Our People Company Information CORPORATE GOVERNANCE Board of Directors Senior Management Corporate Governance Practices Ownership Structure and Principal Shareholders Financial Policy 3 4 6 8 10 15 21 30 32 33 34 37 44 51 55 OPERATIONS 59 SUSTAINABILITY 105 Financial Statement Subsidiaries and Affiliated Companies Sworn Statement International Passenger Operations Argentina Brazil Chile Colombia Ecuador Peru Cargo operation Customer Loyalty Programs Property, Plant and Equipment RESULTS 2014 Industry Overview Regulatory Framework Financial Results Awards and Recognitions Stock Market information Additional information Material Facts Risk factors 60 63 64 66 67 69 70 72 74 76 78 79 81 87 92 93 99 100 102 2 ANNUAL REPORT 2014W E L C O M E M E S S A G E FL E Et DE St i nAt iOnS O u r H iStOr y CO M P An y inF OrM At iOn O u r PE O P L E B uSi nE S S S t rAtE Gy S uB SiDiAr iE S AnD AF FiLiAtE D CO M P An iE S 3 ANNUAL REPORT 2014 / OUR COmPANy Message from the Chairman of the Board For LATAM Airlines Group, DEAR ShAREhOLDERS, 2014 was a year of renovation during which we took important steps towards achieving our mission of becoming one of the world’s three most important airline groups in the world. For LATAM Airlines Group, 2014 was a year of renovation during which we took important steps towards achieving our mission of becoming one of the world’s three most important airline groups in the world. Despite macroeconomic and other external factors that had an adverse effect on our business, LATAM Airlines Group made progress on numerous fronts of its renovation plan, including fleet renewal, the continuous improvement of our product and the renovation of the airport infrastructure we use for our operations. Our achievements during the year reinforce our belief that the decision which LAN and TAM took over two years ago to combine their businesses was the right one. Getting where we are today has certainly been difficult but, if we were to go back in time, we would do it all again. We continue to make progress towards the objectives we established for the association. Although aware that the challenge we have set ourselves will require further efforts in the years to come, we have confidence in the sound foundations we have laid down. In 2014, the company moved forward with its fleet renewal plan to reduce the number of models it operates, gradually taking less efficient models out of service and allocating aircraft according to which are most appropriate for each of its markets. The fleet renewal plan forms part of our long-term strategy which we believe is essential in order to achieve a cost-efficient operation and enhance the competitiveness of our airlines in the long term. In line with this, ten modern latest-technology Boeing 787 Dreamliners were incorporated into LAN’s fleet while, in TAM’s long-haul fleet, Airbus A330s were replaced with Boeing 767s, which will allow it to make important savings on fuel as well as offering a better product to passengers. As regards the renewal and continuous improvement of our product, TAM also began to remodel the cabins of its Boeing 777s, eliminating first class and reconfiguring business class in order to significantly improve passengers’ travel experience. TAM also joined oneworld which became the global alliance of LATAM Airlines Group. For our customers, this will mean more comfortable travel, increased connectivity and greater opportunities to redeem their points/miles. Another important 4 ANNUAL REPORT 2014 / OUR COmPANyMessage from the Chairman of the Board Having achieved important and tangible progress on numerous fronts during such a challenging year allows us to look to the future with great confidence since we have systematically overcome obstacles and taken important steps towards our companies’ integration, fulfilling our goal of not only becoming one of the world’s leading airlines but also a company to which our employees are happy to belong. Mauricio Amaro Chairman of the Board LATAM Airlines Group milestone was the opening of our new VIP lounges in Sao Paulo and Santiago in October 2014 and March 2015, respectively. This took the number of new lounges we have opened in the past 18 months to four, including Bogotá and Buenos Aires. The significant investments that Brazil made in infrastructure and, particularly, airports prior to the Football World Cup have had a positive long-term impact for that country’s airline industry. Thanks to these investments, we were able to move our operations to Terminal 3 at the Guarulhos Airport and Terminal 2 at the Brasilia Airport. These very important milestones will enable us to continue developing connectivity through our hubs, reducing connection times and offering our passengers greater comfort. Finally, I would like to point out that LAN and TAM were once again recognized by their passengers, taking first and second place, respectively, in the Best South American Airlines prize in the Skytrax World Airline Awards. This prize is regarded as a global barometer of customer satisfaction since it is awarded exclusively on the basis of passengers’ opinions. 5 ANNUAL REPORT 2014 / OUR COmPANyMessage from the Ceo Latam Airlines Group Although the integration DEAR ShAREhOLDERS, of LAN and TAM has taken time, we are convinced that the association of these two companies has meant gains for all of us - LAN, TAM and LATAM Airlines Group The consolidation of LATAM Airlines Group as Latin America’s best airline group has been our paramount focus in recent years and, to this end, we have worked consistently and with discipline. Along the way, we have achieved great progress and, although results have been slower in coming than we anticipated, we also know that, looking to the long term, the association between LAN and TAM is the most strategic decision we have made. We also firmly believe that LATAM Airlines Group is the group of airlines best prepared to address adverse scenarios because we have a position in the region that is unique in the world. All this is the fruit of many years of work and shows us that we are on the right road to achieve our objective of positioning LATAM Airlines Group as one of the world’s three most important airline groups by 2018. In order to achieve this goal, we have designed a strategic plan based on critical factors for success that seek to take advantage of our strengths and our great potential. all stages of their journey, seeking always to differentiate ourselves as regards service. In this context, we have approved investments for over US$100 million to boost the use of technology in all our passenger contact points. Our aim is for passengers to be able to manage their travel in a simple, transparent and totally independent manner. Similarly, we are working to migrate to a new single brand as well as to develop a unified culture, product and value proposition, all of which will enable LATAM Airlines Group to be fully perceived as a single airline company. We believe that, in order to achieve these objectives, the most important element that sets us apart is our people. We have the best human team, a team of people who are passionate about their work and focused on the construction of a common culture, which is the basis of all we do and to which safety, the customer, collaboration as a team and excellence in every sphere are central. This is the way in which we have harnessed our organization to the goal of offering our customers distinctive value, consistently surpassing our competitors. Our strategy focuses primarily on constantly enhancing our customers’ experience during As an organization, we have always worked to be the best option for any one traveling 6 ANNUAL REPORT 2014 / OUR COmPANyMessage from the Ceo Latam Airlines Group countries where we operate. They have given the best of themselves in contributing to the consolidation of this historic project for Latin America’s airline industry. And, above all, I would like to invite them to continue working with the same passion and commitment to make LATAM Airlines Group one of the world’s three most important airline groups. Enrique Cueto CEO LATAM Airlines Group within, to or from South America, constantly striving to expand our connectivity and strengthen our network. There is no other airline group in the world that is present in seven domestic markets in a single continent as is the case of LATAM Airlines Group which, in addition, has regional, international and cargo operations. In order to take advantage of this potential, we have set ourselves the goal of increasing connectivity within South America and strengthening our hubs in the region, particularly Sao Paulo’s Guarulhos Airport - the principal gate of entry into South America - as well as Brasilia and Lima. We have, in addition, redefined our cost structure in a bid to increase our competitiveness and simplify the organization, increasing the flexibility and speed with which we are able to take decisions. The aim is to achieve a reduction of some US$800 million in total costs by 2018 or, in other words, approximately 5% of LATAM Airlines Group’s annual expenditure, a saving that is in addition to the efficiency gains achieved through the incorporation of new-technology aircraft. In brief, we aim to work in a simpler manner with a culture of greater austerity. We are aware that, in our region, the coming years will be complex and challenging, due to slower growth of its economies and important depreciations of its currencies. We are, however, convinced that the strategic plan we have drawn up and are implementing will allow us to successfully achieve our long-term goals, overcoming the difficulties that currently affect our markets and the volatility inherent to the context in which we operate. We know that we cannot be oblivious to the realities of our industry and the region in which we operate. We have, therefore, given priority to proactive risk management, taking into account all our stakeholders, in line with our belief that a broad and integral view of risk and its proper management are key for our long-term success. Although the integration of LAN and TAM has taken time, we are convinced that the association of these two companies has meant gains for all of us - LAN, TAM and LATAM Airlines Group. As well as thanking our shareholders for the trust they have placed in this administration, I would, therefore, also particularly like to pay tribute to the more than 53,000 people who work in the different 7 ANNUAL REPORT 2014 / OUR COmPANyBusiness Strategy LATAM Airlines Group S.A. (from now on “LATAM Airlines Group” or “LATAM”) is a South American airline group that is the result of the association between Chile’s LAN Airlines and Brazil’s TAM. It has business units in seven countries in the region: Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay and Peru. LATAM Airlines Group S.A. (from now on “LATAM Airlines Group” or “LATAM”) is a South American airline group that is the result of the association between Chile’s LAN Airlines and Brazil’s TAM. It has business units in seven countries in the region: Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay and Peru. Two years after the association and following an important restructuring and consolidation process, LATAM Airlines Group is now an integrated airline that has fully implemented all its initiatives to capture synergies and has a consolidated position as Latin America’s largest air transport company, with capacity to carry over 67 million passengers and more than 1 million tons of cargo annually. One of LATAM’s key strengths of the group airlines that make up LATAM Airlines Group is the large network of destinations it has developed, thanks to its unique position of leadership in South America. This is the result of its presence in seven of the region’s domestic markets, which together account for over 90% of regional traffic, where LATAM has the competitive advantage of acting as a local operator. Intra-regionally, LATAM has a market share of close to 50%, implying that one in two people who travel within South America do so with the group airlines that make up LATAM Airlines Group. It is also important to note that, in recent years, South America has been one of the world’s fastest-growing regions as regards passenger traffic, a situation that is expected to persist over the next two decades, representing a great opportunity for LATAM. Outside South America, LATAM and its related companies fly to the main points of entry to other regions and also provides additional connectivity through its membership of the oneworld global alliance (which TAM also joined in March 2014) as well as its numerous commercial agreements with the industry’s main airlines. With its focus on providing the best connectivity, LATAM has established a key position in the principal hubs that connect the region with the rest of the world, with special 8 ANNUAL REPORT 2014 / OUR COmPANyBusiness Strategy emphasis on Sao Paulo’s Guarulhos airport. In late 2014, LATAM took a further important step in this direction when it transferred its international operations to the new Terminal 3 at Guarulhos, enabling it to reduce connection times significantly. In addition to its network, another differentiating characteristic of LATAM Airlines Group is a business model which successfully combines the transport of passengers and cargo, a strategy that enables it to maximize load factors on passenger planes through 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 LATAM to increase returns on its routes, reduce the impact of seasonal factors and increase load factors. As of December 2014, 83% of its revenues were contributed by its passenger business and 14% by its cargo operation among other activities. For its operations, LATAM Airlines Group has a fleet of 327 aircraft (as of December 2014) with an average age of less than 7 years that stands out as one of the most modern and youngest in the world. Its growth strategy envisages constant fleet renewal in order to operate with more efficient aircraft, with lesser environmental impact, and to offer passengers the highest standards of punctuality, reliability and safety. In this context, LATAM Airlines Group continued with its fleet restructuring process in 2014, gradually phasing out older aircraft and focusing on having only those with the best technology offered by the industry, including Boeing B787 Dreamliners and Airbus A321s. In the third pillar it has defined, the Company will, in addition, seek to be much more cost competitive, applying a culture of austerity, aligned with the reality of the industry, through which it aims to reduce its operating costs by US$650 million by 2018. Through this plan, LATAM will be seeking to become one of the world’s three largest airline groups and the preferred airline of two-thirds of passengers flying within South America. Looking into the future, LATAM drew up a new four-year (2015-2018) strategic plan in 2014, with three key pillars for its success. The first of these seeks to strengthen product and service differentiation in order to offer passengers the best travel experience and, in this way, be the preferred airline for the region’s customers. In addition, in a bid to be passengers’ best option, it will continue to develop its network of flights and connections in South America, building the most important network of places of origin and destination within the region and, through its hubs, between it and the rest of the world. 9 ANNUAL REPORT 2014 / OUR COmPANy history 1975 1976 1983 Foundation of TAM- Transportes Aéreos Regionais by Capitan Rolim Adolfo Amaro. Launch of TAM services in Brazilian cities, especially Mato Grosso and São Paulo. Constitution of Linea Aerea Nacional – Chile Limitada, through CORFO. 1985 LAN becomes a joint stock company. 1986 1989 Acquisition by TAM of VOTEC-Brasil Central Linhas Aéreas, another regional airline operating in the north and center of the country. Start of privatization of LAN: the Chilean government sells a 51% stake to local investors and Scandinavian Airlines System (SAS). 1 0 ANNUAL REPORT 2014 / OUR COmPANyhistory 1990 Brasil Central renamed TAM-Transportes Aéreos Meridonais. 1993 Launch by TAM of TAM Fidelidade, Brazil’s first frequent flyer program. 1994 Privatization of LAN completed with the acquisition of a 98.7% stake by its current controllers and other shareholders. 1996 1997 Acquisition by TAM of Lapsa airline from the Paraguayan government and creation of TAM Mercosur; start of São Paulo-Asunción flights. 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. 1 1 ANNUAL REPORT 2014 / OUR COmPANy history 1999 LAN’s expansion begins: start of operations of LAN Perú. Start of TAM services to Europe through a code sharing agreement with Air France to Paris Charles de Gaulle. 2000 LAN joins the oneworld® alliance. 2001 2002 2003 2004 LAN Alliance with Iberia and inauguration of Miami cargo terminal / Creation of TAM Technology Center and Service Academy in São Paulo. Creation of TAM Technology Center and Service Academy in São Paulo. LAN Alliance with Qantas and Lufthansa Cargo LAN continues its expansion plan: start of operations of LAN Ecuador. Launch of new corporate image as LAN Airlines S.A. Start of TAM flights to Santiago. 1 2 ANNUAL REPORT 2014 / OUR COmPANy history 2005 2006 2007 2008 200 199 Further step in LAN’s regional expansion plan: start of operations of LAN Argentina. Launch of new LAN Premium Business Class. Implementation of low-cost model in domestic markets; capital increase of US$320 million; purchase orders for 32 Boeing 787 Dreamliners. Completion of renewal of LAN’s short-haul fleet with aircraft from the Airbus A320 family. Start of cargo operations in Colombia and domestic passenger operations in Ecuador. TAM S.A. lists on the NYSE / Start of flights to London and, through agreement with Air France, to Zurich and Geneva. TAM S.A. lists on the BOVESPA stock market; start of flights to New York and Buenos Aires. Start of TAM flights to Milan and Córdoba; authorization from Brazil’s National Civil Aviation Agency (ANAC) to start flights to Madrid and Frankfurt. TAM receives its first Boeing 777-300ER. Launch of Multiplus Fidelidade; Acquisition of Pantanal Linhas Aéreas 1 3 ANNUAL REPORT 2014 / OUR COmPANy history 20 11 LAN and TAM sign binding agreements related to the business combination of the two airlines. 20 14 TAM joins oneworld alliance, which becomes LATAM Airlines Group global alliance. LATAM launches its 2015- 2018 Strategic Plan aiming to become one of the 3 most important ailrine groups in the world. 20 12 LATAM Airlines Group is born as a result of the business combination between LAN and TAM. 20 13 Capital increase for US$ 940.5 million 200200 199 Acquisition of Colombia’s Aires airline. TAM officially joins Star Alliance. 1 4 ANNUAL REPORT 2014 / OUR COmPANy Fleet In 2014, LATAM Airlines Group’s member airlines operated a fleet comprised by 327 aircraft with an average age of 6.9 years, being one of the youngest in the industry. During the year, further progress was achieved on the fleet restructuring plan launched in 2013 to reduce the number of aircraft models operated. This plan, which is the result of a profound analysis of the LATAM’s fleet needs after the association between LAN Airlines and TAM and the structural changes that have occurred in the competitive environment, implies that, over the next few years, 39 less efficient planes will be phased out of the fleet and aircraft models will be allocated to the most appropriate markets. In 2014, LATAM phased out all of its Dash Q400s and Boeing 737s (inherited from the Aires airline in Colombia) as well as seven A330s and three A340s and expects to conclude the phase out of these older models by 2016. As a result, its fleet will comprise the most efficient aircraft available in the market. In the first quarter of the year, LATAM recognized a provision of US$112 million for estimated penalties related to the anticipated redeliveries and other redelivery expenses expected to be incurred as a result of this fleet restructuring process. For its short-haul passenger operations - flights on domestic routes and regional routes within South America – the airlines that make up LATAM Airlines Group utilized a fleet of 238 aircraft in 2014, mainly from the Airbus A320 family, positioning it as one of the world’s three largest operators of Airbus planes in the world. In 2014, LATAM incorporated 11 Airbus A321s, the largest model in this family, which is used on the busiest regional routes. This left LATAM with a total of 21 aircraft of this model as of December 2014. LATAM’s medium-term plan on short haul routes is to have a fleet formed exclusively by aircraft from the A320 family, with a focus on A321s and A320neos, whose use represents significant savings in comparison to A320s. The A320neo is a new option within the A320 family with a more efficient engine and new sharklets implying savings of up to 15% on fuel and a reduction in annual CO2 emissions of 3,600 tons. LATAM has placed orders for 36 A320neos which will be delivered between 2016 and 2018. For its long-haul passenger operations, the airlines that make up LATAM Airlines Group utilized a fleet of 74 aircraft in 2014, including ten Boeing 787-8 Dreamliners, five of which were incorporated during the year, as part of an order for a total of 32 aircraft of this model for delivery over the next four years. Considered “ecological” and the most efficient of its type, this model is now operated by the Company on almost all its main long-haul routes. In addition to the Company’s daily operations from Santiago to Madrid-Frankfurt, New York and Buenos Aires, the Dreamliner began to be utilized on five other routes starting in August: Miami, Punta Cana, Cancun, Mexico City and Sao Paulo. LATAM Airlines Group is the first group of airlines in the region to operate this aircraft model which stands out for characteristics that include its unrivalled performance in regard to fuel consumption, presenting a 12% reduction in costs per ASK as compared to the Boeing 767. In 2014, LATAM also began retrofitting TAM’s Boeing 777s in order to include an improved business class and offer a better product on long-haul routes, mainly to the United States. As of December2014, four of these aircraft had been already retrofitted and full retrofit of this 1 5 ANNUAL REPORT 2014 / OUR COmPANy Fleet four Boeing 777Fs, the most modern freighters of their type in the industry. The latter have a significant advantage as compared to the B767 freighters since they may transport double capacity but only consume 50% extra fuel. LATAM’s cargo business strategy aims to optimize the use of the bellies of its passenger aicraft and, as a result, implies a gradual reduction in its freighter fleet. LATAM’s global fleet plan envisages commitments for US$1,689 million in 2015 and US$2,343 million in 2016. These will be financed using a combination of financial lease and sale and leaseback (acquisition with subsequent rental). fleet is expected to be completed by mid-2015. This process seeks to enhance passengers’ travel experience for the next years, while TAM waits to receive a larger critical mass of Airbus A350s. The incorporation of this aircraft model will imply a very important increase in efficiency as compared to existing aircraft in this category, thanks to operating costs that are around 25% lower than those of other aircraft, such as TAM’s Airbus A330s, and a significant reduction in CO2 emissions. In 2015, LATAM Airlines Group expects to take delivery of the first Airbus A350 aircraft out of a total order of 27 A350s, which will be a milestone in the step towards a new generation of long-haul aircraft in TAM’s fleet. Overall, the LATAM’s constant renewal of its fleet seeks to incorporate the best technology and position it as a leader on efficiency and an increase in capacity through the incorporation of larger models. As of December 2014, LATAM had a fleet of 15 full dedicated cargo, comprising eleven Boeing 767Fs - two of which have been leased to a cargo operator outside the region since the last quarter of 2014 and one of which was also leased to the same operator in 2015 - and MAINTENANCE In 2014, LATAM Airlines Group continued to consolidate the integration of LAN’s and TAM’s Maintenance, Repair and Overhaul (MRO) installations, a process that began in 2013. With facilities in Brazil and Chile, the MRO is the unit responsible for heavy maintenance of the LATAM’s aircraft and occasionally also provides services to third parties. In Brazil, the facility, located in the São Carlos (SP/Brazil) Technological Center, has an area of 100,000 m² and its own 1,720-meter runway while the Chilean facility, at Santiago’s International Airport, has an area of 10,000 m². Services not provided by this unit are outsourced to some of MRO’s partners around the world. LATAM’s MRO unit is audited and certified by major international aviation authorities from the United States, Europe, Brazil, Chile, Argentina, Ecuador, Paraguay and Canada as well as other countries for Heavy Maintenance and Components Repair and Overhaul for the Airbus A320 and A330 families, Boeing 767s and 787s, ATR-42/72s and Embraer E-Jet 170/190s. LATAM also has minor capabilities for the 1 6 ANNUAL REPORT 2014 / OUR COmPANy Fleet repair and overhaul of Airbus A340 and Boeing 777 components. this process, it completed a year without any type of accident at MRO Sao Paulo while MRO Santiago reduced its accident rate by 40%. In June 2014, LATAM Airlines Group started construction of a modern new maintenance hangar at Miami’s international airport. Representing an investment of over US$15.7 million, this will have an area of 9,150 m² and will be its first such facility in the United States. Located in the airport’s cargo area, it will provide maintenance services such as daily controls, A checks, engine changes and major repairs for both the passenger and cargo planes of LAN, TAM and the subsidiaries that operate to and from Miami. Changes of components will also take place at the facility since it will serve to store spares, components and aircraft engines to support maintenance services of this type. The facilities located in São Carlos also provide engineering services and have a complete technical training center for the development of LATAM MRO’s capabilities as regards human skills. In 2014, the MRO unit carried out 2.5 million man-hours of work (a 39% increase on 2013), serviced 274 aircraft for LATAM and third parties, provided approximately 60,000 components and performed 15 landing- gear overhauls. In addition, it carried out heavy maintenance for almost 100% of the Company’s aircraft from the Airbus A320 and A330 families and covered 75% of its demand for General Component Repair and Overhaul. TAM’s external maintenance and repair clients include Azul, Trip, Avianca, the Brazilian Air Force, Embraer, Goodrich and Hamilton Sundstrand. It is important to note that, in 2011, LATAM embarked on a process of transformation of its MRO area in order to align it with international standards as regards cost, quality, reliability and time. In 2014, in the context of 1 7 ANNUAL REPORT 2014 / OUR COmPANyFleet Passengers Aircraft Dash 8-200 Airbus A319-100 Airbus A320-200 Airbus A321-200 Airbus A330-200 Boeing 767-300 Airbus A340-300/500 Boeing 777-300 ER Boeing 787-8 TOTAL Cargo Fleet Boeing 777-200F Boeing 767-300F TOTAL TOTAL FLEET rented Owned Total 5 12 63 3 5 4 - 6 4 2 40 95 18 8 34 3 4 6 102 210 2 3 5 107 2 8* 10 220 7 52 158 21 13 38 3 10 10 312 4 11 15 327 (*)Note: 2 of the B767-300F aircraft are being leased by a cargo operator outside the region strating in the fourth quarter of the year. 1 8 ANNUAL REPORT 2014 / OUR COmPANyFleet FAMILY AIRBUS A320 FAMILY AIRBUS A340 A319-100 Length: 33,8 mts Width: 34,1 mts Seats: 144 Cruising Speed: 850 km/h Maximun weigth at taken-off: 70.000 kg A320-200 Length: 37,6 mts Width: 34,1 mts Seats: 168 – 174 Cruising Speed: 850 km/h Maximun weigth at taken-off: 77.000 kg A321-200 Length: 44,51 mts Width: 34,1 mts Seats: 220 Cruising Speed: 850 km/h Maximun weigth at taken-off: 89.000 kg 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 1 9 ANNUAL REPORT 2014 / OUR COmPANyFleet FAMILY BOEING Boeing 767-300 Length: 54,2 mts Width: 47,6 mts Seats: 221 – 238 – 205 Cruising Speed: 869 km/h Maximun weight: 184.611 kg Boeing 777-300 Er Longitud: 73,9 mts Envergadura: 64,8 mts Asientos: 362 Velocidad crucero: 896 km/h Peso máximo de despegue: 347.800 kg Boeing 787-8 Length: 56,69 mts Width: 60,0 mts Seats: 247 Cruising Speed: 913 km/h Maximun weight: 227.930 kg FAMILY DASh Dash 8-200 Length: 22,25 mts Width: 25,89 mts Seats: 37 Cruising Speed: 500 km/h Maximun weight: 16,470 kg FAMILY BOEING FREIGhTER Boeing Freighter 767 Length: 54,2 mts Width: 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 Width: 64,8 mts Load time: 652,7 Cruising Speed: 896 km/h Maximun weight: 347,450 kg 2 0 ANNUAL REPORT 2014 / OUR COmPANyDestinations londres paris madrid frankfurt milan los angeles ciudad de méxico nueva york orlando miami cancún la habana punta cana aruba cararcas papetee la paz santa cruz asunción ciudad del este montevideo mount pleasant 24 international destinations sidney auckland 2 1 ANNUAL REPORT 2014 / OUR COmPANyDestinations calama arica iquique antofagasta copiapó la serena isla de pascua santiago concepción temuco valdivia osorno puerto montt castro 16 domestics destinations CHILE punta arenas balmaceda 2 2 ANNUAL REPORT 2014 / OUR COmPANyDestinations salta tucumán san juan mendoza córdoba iguazú buenos aires neuquén bahia blanca bariloche comodoro rivadavia 14 domestics destinations ARGENTINA el calafate rio gallegos ushuaia 2 3 ANNUAL REPORT 2014 / OUR COmPANyDestinations san andrés isla santa marta barranquilla cartagena valledupar monteria apartado cúcuta bucaramanga quibdo medellin pereira ibague neiva cali puerto asis el yopal villavicencio bogota 20 domestics destinations COLOMBIA leticia 2 4 ANNUAL REPORT 2014 / OUR COmPANyDestinations tumbes talara iquitos piura tarapoto chiclayo cajamarca trujillo pucalpa puerto maldonado lima cuzco ayacucho juliaca arequipa tacna 16 domestics destinations PERÚ 2 5 ANNUAL REPORT 2014 / OUR COmPANyDestinations boa vista macapá belem manaus santarém imperatriz rio branco porto velho são luiz marabá fortaleza teresina palmas natal joão pessoa recife maceió aracaju salvador bahía ilheus porto seguro cuiabá brasilia goiânia uberlândia campo grande belo horizonte ribeirão preto são josé do rio preto campinas são paulo vitoria rio de janeiro foz do iguaçu londrina joinville curitiba navegantes florianópolis porto alegre 40 domestics destinations BRASIL 2 6 ANNUAL REPORT 2014 / OUR COmPANyDestinations galápagos san cristóbal quito guayaquil cuenca 05 domestics destinations ECUADOR 2 7 ANNUAL REPORT 2014 / OUR COmPANyDestinations valentia amsterdam san josé guadalajara ciudad de guatemala ciudad de panamá santo domingo porto spain cabo frio 09 cargo only (international) 2 8 ANNUAL REPORT 2014 / OUR COmPANyDestinations 42 destinos norteamérica 19 destinos europa 05 destinos africa 10 destinos asia destinos09 australia 85 CODESHARE 2 9 ANNUAL REPORT 2014 / OUR COmPANyOur People As of December 2014, LATAM Airlines Group had 53,072 employees of 61 different nationalities across 26 countries. It is, as a result, a multicultural as well as multinational company, giving it important advantages in terms of understanding its different markets and their people. The multiculturalism that characterizes LATAM Airlines Group’s human teams also implied important challenges for the association between LAN Airlines and TAM, a context in which the Human Resources area has played a decisive role over the past two years in terms of mitigating the impact that any organizational change has on people’s lives. In 2014, further progress was achieved in this field in standardizing policies and cultures so as to embed and consolidate a single LATAM Airlines Group corporate identity. In addition, LATAM showed its commitment to the organizational strength as one of the main success factors included in its 2015- 2018 Strategic Plan, where the focus will be to transform LATAM Airlines Group in a group of passionate people working in a simple, unified way, with inspiring leaders, in order to provide a distinctive value proposition to our customers and to have a healthy and sustainable company in time. The first LATAM corporate induction was designed in 2014, addressing not only the Group’s shared characteristics but also the new LATAM culture and its strategic pillars. This training product standardized the integration process for all LATAM’s collaborators in the different geographical areas where it has operations, contributing to the success of the new growth strategy it has defined. The training area also provided support for the SAB Service Procedures Standardization project in Brazil, implemented to ensure that all passengers enjoy the same travel experience. Training was designed in line with the changes this project implied at the level of roles and products, covering all of LATAM’s 5,500 cabin crew in Brazil. Ad hoc courses were also designed to equip TAM Mercosur crew in Paraguay for the challenge of interchange flights and LAN’s operational standards. One of the most important training initiatives of 2014 was the “Celebrating Service” course which, with an attitudinal focus, provided tools to help all employees in contact with passengers (sales, contact centers, airports and in-flight personnel) to provide a more assertive service and relate better to customers. The transversal design of this course permitted development of these skills in an efficient and consistent manner whilst maintaining excellence. With the support of LATAM’s Legal area, a Code of Conduct course was also implemented to familiarize its over 53,000 collaborators with the framework within which they must carry out their tasks, avoiding potentially illegal actions or situations that would compromise LATAM Airlines Group as a whole. In 2014, a Corporate Selection area was created, based in Santiago, Chile, to coordinate the selection areas of the different countries where the company has operations. This area led different projects with a LATAM scope to align policies, design improvements and introduce practices which make for simpler management of processes and whose results 3 0 ANNUAL REPORT 2014 / OUR COmPANyOur People will begin to be seen as from 2015. In addition, a tool for interviewing candidates to fill vacancies was designed in order to identify whether they possess a behavioral profile consistent with the four LATAM cultural skills (Safety and Risk Management, Care for the Customer, Excellence, and Teamwork and Collaboration). Among other innovations, LATAM will also have a new platform hosted within the internal Peoplemanager system to manage internal job applications (job posting) more securely and efficiently as well as standardizing and automating the different stages of selection processes at the holding level. ecuador 3% 1.636 EMPLOYEES colombia 4% 1.927 EMPLOYEES peru 8% 4.022 EMPLOYEES chile 23% 12.458 EMPLOYEES other 4% 1.886 EMPLOYEES brazil 54% 28.428 EMPLOYEES argentina 5% 2.715 EMPLOYEES 5.246 sales 17.517 operations 9.237 cabin crew 10.077 administrative 6.986 maintenance 4.009 cockpit crew 26 total countries 61 total nationalities distribution of people according to country, highlighting quantity by home market and “other” for employees in the rest of the world. total employees by function 3 1 ANNUAL REPORT 2014 / OUR COmPANyLatam Airlines Group Information LATAM AIRLINES GROUP 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 ShAREhOLDER ENQUIRIES Depósito Central de Valores Huérfanos 770, 22nd Floor Santiago, Chile Tel: (56) (2) 2393 9003 Email: atencionaccionistas@dcv.cl MAINTENANCE CENTER Arturo Merino Benítez Airport Santiago, Chile Tel: (56) (2) 25652525 TICKER SYMBOL LAN – Santiago Stock Exchange LFL – New York Stock Exchange LATM33 – Sao Paulo Stock Exchange 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 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 CUSTODIAN BANK ADRS Banco Santander Chile Bandera 140, Santiago Custody Department Tel: (56) (2) 2320 3320 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 Email: dr.itau@itau-unibanco.com.br EXTERNAL AUDITORS Pricewaterhouse Coopers Avenida Andrés Bello 2711, Piso 5 Santiago, Chile Tel: (56) (2) 2940 0000 WEBSITES Complete information about LATAM Airlines: www.latamairlinesgroup.net www.lan.com www.tam.com.br 3 2 ANNUAL REPORT 2014 / OUR COmPANy A N N U A L R E P O R T 2 0 1 4 / CO R P O R A T E GOvE R N A N C E B o a r d of di r e c t o r s se n i o r M a n a g eMe n t co r p o r a t e go v e r n a n c e pr a c t i c e s ow n e r s h i p st r u c t u r e a n d pr i n c i p a l sh a r e h o l d e r s fi n a n c i a l po l i c y Board of Directors Mauricio Rolim Amaro Chairman of the Board RUT: 48.143.165-4 Henri Philippe Reichstul Director RUT: 48.175.668-5 Juan José Cueto Plaza Director RUT: 6.694.240-6 Mr. Mauricio Rolim Amaro has served as member of LATAM Airlines Mr. Henri Philippe Reichstul joined LATAM´s board of directors in April Mr. Juan José Cueto Plaza has served on LAN’s board of directors since Group’s board of directors since June 2012. He was reelected to the 2014. Mr. Reichstul´s term as a director ends in April 2015. Mr. Reichstul 1994 and was reelected to the board of directors of LATAM in April 2014. board of directors of LATAM in April 2014 and has served as Chairman has served as President of Petrobras and the IPEA-Institute for Economic Mr. Cueto’s term as a director ends in April 2015. Mr. Cueto currently since September 2012. Mr. Amaro’s current term as chairman ends in and Social Planning and Executive Vice President of Banco Inter American serves as Executive Vice President of Inversiones Costa Verde S.A., a April 2015. Mr. Amaro has previously held various positions in the TAM Express S.A. Currently, in addition to Administrative Board member of position he has held since 1990, and serves on the boards of directors of Group and served as a professional pilot at TAM Linhas Aéreas S.A. and TAM and LATAM group, he is also a member of the Board of Directors Consorcio Maderero S.A., Minera Michilla S.A., Inversiones del Buen Retiro TAM Aviação Executiva S.A. Mr. Amaro has been a member of the Board of Repsol YPF, Peugeot Citroen and SEMCO Partners, among others. S.A., Inmobiliaria e Inversiones Asturias S.A., Inversiones Mineras del of TAM S.A. since 2004, and vice-chairman of the Board since April 2007. Mr. Reichstul is an economist with an undergraduate degree from the Cantábrico S.A., Costa Verde Aeronáutica S.A., Sinergia Inmobiliaria S.A. He is also an executive officer at TAM Empreendimentos e Participações Faculty of Economics and Administration, University of São Paulo, and and Valle Escondido S.A. Mr. Cueto is the brother of Messrs. Enrique and S.A. and chairman of the boards of Multiplus S.A. (subsidiary of TAM S.A.) postgraduate work degrees in the same discipline - Hertford College - Ignacio Cueto Plaza, LATAM Airlines Group Executive Vice-President and and of TAM AviaçãoExecutiva e Taxi Aéreo S.A. Oxford University. LAN CEO, respectively. Mr. Cueto is a member of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). 3 4 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEBoard of Directors Georges de Bourguignon Arndt Director RUT: 7.269.147-4 Ramón Eblen Kadis Director RUT: 4.346.062-5 Ricardo J. Caballero Director RUT: 7.758.557-5 Mr. Georges de Bourguignon, has served on LATAM Airlines Group’s Mr. Ramón Eblen Kadis has served on LAN’s board of directors since June Mr. Ricardo J. Caballero joined LATAM’s board of directors in April board of directors since September 2012. Mr. de Bourguignon’s term as 1994 and was reelected to the board of directors of LATAM in April 2014. 2014. Mr. Caballero is the Ford International Professor of Economics a director ends in April 2015. Mr. de Bourguignon has been a partner and Mr. Eblen’s term as a director ends in April 2015. Mr. Eblen has served and Director of the World Economic Laboratory at the Massachusetts executive director of Asset Chile S.A., a Chilean investment bank, since as President of Comercial Los Lagos Ltda., Inversiones Santa Blanca S.A., Institute of Technology, an NBER Research Associate, and an advisor of 1994. He is currently member of the board of directors of Asset Chile S.A. Inversiones Andes SpA, Granja Marina Tornagaleones S.A. and TJC Chile QFR Capital Management LP. Mr. Caballero was the Chairman of MIT’s and several of its affiliates, is also an independent board member of Sal S.A. Mr. Eblen is a member of the Eblen Group (a major shareholder of Economics Department (2008-2011) and has been a visiting scholar Lobos S.A., Chilean subsidiary of the German group K+S, and Salmones LATAM Airlines Group). Austral Spa, a Chilean salmon farming company. In the past he has served in several other boards of public and private companies, as well as of boards of non profit organisations. Before co-founding Asset Chile, he was manager of the Financial Institutions Group at Citibank S.A. in Chile, and was a professor of economics at the Catholic University of Chile. He is an economist from Catholic University of Chile and a graduate of Harvard Business School. and consultant at many major central banks and international financial institutions. His teaching and research fields are macroeconomics, international economics, and finance. His current research looks at global capital markets, speculative episodes and financial bubbles, systemic crises prevention mechanisms, and dynamic restructuring. His policy work focuses on aggregate risk management and insurance arrangements for emerging markets and developed economies. He has also written about aggregate consumption and investment, exchange rates, externalities, growth, price rigidity, dynamic aggregation, networks and complexity. Mr.Caballero has served on the editorial board of several academic journals and has a very extensive list of publications in all major academic journals. In April 1998 Caballero was elected a Fellow of the Econometric Society and subsequently of the American Academy of Arts and Sciences in April 2010. 3 5 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEBoard of Directors Carlos Heller Solari Director RUT: 8.717.000-4 Gerardo Jofré Miranda Director RUT: 5.672.444-3 Francisco Luzón López Director RUT: 48.171.119-3 Mr. Carlos Heller Solari joined the board of LAN in May 2010 and was Mr. Gerardo Jofré Miranda, joined LATAM Airlines’s Board of directors Mr. Francisco Luzón López has served on LATAM Airlines Group’s board re-elected to the Board of Directors of LATAM in April 2014. The mandate on May 2010 and was reelected to the board of directors of LATAM in of directors since September 2012 and was reelected to the board of of Mr. Heller as a director ends in April 2015. The Mr. Heller has vast April 2014. Mr. Jofré’s term as a director ends in April 2015. Mr. Jofré is directors of LATAM in April 2014. Mr. Luzón’s term as a director ends experience in retail (retail) through SACI Falabella in transport and member of the board of directors of Codelco. Mr. Jofré is member of the in April 2015. He has served as a consultant of the Inter-American logistics, agriculture, wine, Horse Riding and communications category. Real Estate Investment Council of Santander Real Estate Funds. From Development Bank (BID) and he has been Teacher “Visiting Leader” of the Mr. Heller is president of Bethia SA (“Bethia”) (parent company of Axxion 2005 to 2010 he served as member of the boards of directors of Endesa School of Business China-Europe (CEIBS) in Shanghai (2012-2013). He SA and Betlan Dos SA), Chairman of Axxion SA, Betlan Dos SA, Equestrian Chile S.A., Viña San Pedro Tarapacá S.A., D&S S.A., Inmobiliaria Titanium is currently a member of the board of La Haya Real Estate (September Club of Santiago, Sotraser SA and Agricultural Ancali Ltda .. also serves on S.A. Construmart S.A.,Inmobiliaria Playa Amarilla S.A. and Inmobiliaria 2014) and an Independent Director at Willis Group (June 2013). Between the boards of SACI Falabella Falabella Retail SA, Sodimac SA, Titanium SA, Parque del Sendero S.A. and was President of Saber Más Foundation. 1999 and 2012, Mr. Luzon served as Executive Vice President for Latin Betfam SA Viña Indómita SA, Viña Santa Alicia SA, Viña Dos Andes SA Blue Mr. Jofré was Director of Insurance for America for Santander Group of America of Banco Santander. In this period, he was also Worldwide Vice Express SA and Aero Andina SA In addition he is the principal shareholder Spain between the years 2004 and 2005. From 1989 to 2004 he served President of Universia SA. Between 1991 and 1996 he was Chairman and and president of “Azul Azul” through Inversiones Limitada Alpes (first on Santander Group in Chile, as Vice Chairman of the Group and as CEO, CEO of Argentaria Bank Group. Previously, in 1987, he was appointed division team manager football at the University of Chile). member of the boards of directors and Chairman of many of the Group’s Director and General Manager of Banco de Vizcaya and in 1988 companies. Counselor and General Director of Banking Group at BBV. During his career Mr. Luzon has held positions on the boards of several companies, most recently participating in the council of the global textile company Inditex-Zara from 1997 until 2012. 3 6 ANNUAL REPORT 2014 / CORPORATE GOvERNANCESenior Management Enrique Cueto Plaza CEO LATAM Airlines Group RUT: 6.694.239-2 Ignacio Cueto Plaza LAn CEO RUT: 7.040.324-2 Marco Antonio Bologna TAM CEO Extranjero Mr. Enrique Cueto Plaza, is LATAM Airlines Group’s Chief Executive Officer Mr. Ignacio Cueto Plaza, is LAN’s CEO. Mr. Cueto served as President Mr. Marco Bologna, is TAM’s CEO since May, 2010. He is also board (“CEO”). From 1994 to 2012, Mr. Cueto was the CEO of LAN. From 1983 of LAN Cargo from 1995 to 1998, as Chief Executive Officer-Passenger member of Suzano Papel e Celulose S/A. He joined TAM in March 2001, to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo Business from 1999 to 2005, and as President and Chief Operating when he was appointed Vice President for Finance and Management, and airline. Mr. Cueto also served on the LAN board of directors from 1993 to Officer of LAN since 2005 until the merger with TAM in 2012. Mr. Cueto Market Relations Director. From 2004 to 2007 he served as President 1994. Mr. Cueto has in-depth knowledge of passenger and cargo airline has previously served on the board of directors of LAN (from 1995 to of TAM Linhas Aéreas, and in March 2009 he took over as President of management, both in commercial and operational aspects, gained during 1997) and Ladeco (from 1994 to 1997). In addition, Mr. Cueto served TAM Aviação Executiva and Táxi Aéreo S.A. Since April 30, 2010 he has his 24 years in the airline industry. Mr. Cueto is an active member of the as Chief Executive Officer of Fast Air from 1993 to 1995. Between 1985 chaired the holding company TAM S.A., which brings together TAM Linhas oneworld® Alliance Governing Board, the IATA (International Air Transport and 1993, Mr. Cueto held several positions at Fast Air, including Service Aéreas, TAM Airlines (formerly TAM Mercosur), Multiplus Fidelidade, and Association) Board of Governors. He is also member of the Board of the Manager for the Miami sales office, Director of Sales for Chile and Vice the maintenance unit TAM MRO. In February 2012, he was also appointed Federation of Chilean Industry (SOFOFA) and of the Board of the Endeavor President of Sales and Marketing. Mr. Cueto is the brother of Messrs. Juan President of TAM Linhas Aéreas. Mr. Bologna has extensive experience in foundation, an organization dedicated to the promotion of entrepreneurship José and Enrique Cueto Plaza, Director and LATAM’s CEO, respectively. the aviation industry, and has worked in the financial markets for over 20 in Chile. Mr. Cueto is the brother of Mers. Juan José and Ignacio Cueto Plaza, Mr. Cueto is also a member of the Cueto Group (which is a controlling years. Mr. Bologna will cease to be CEO of TAM on April 1ST, 2015. member of the board and LAN CEO, respectively. Mr. Cueto is also a member shareholder of LATAM). of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). 3 7 ANNUAL REPORT 2014 / CORPORATE GOvERNANCESenior Management Claudia Sender Ramírez TAM Airlines CEO Extranjero Armando valdivieso Montes LAn President RUT: 8.321.934-3 Cristian Ureta Larraín Cargo Executive Vice-President RUT: 9.488.819-0 Mrs. Claudia Sender Ramirez, has served as TAM Airlines’ CEO since Mr. Armando Valdivieso Montes, is President of LAN. Between 1997 Mr. Cristian Ureta Larrain, is LATAM’s Cargo Executive Vice-President. May 2013. Mrs. Sender joined the company in December 2011, as and 2005 he served as Chief Executive Officer-Cargo Business of LAN From 1998 and 2002, Mr. Ureta was LAN Cargo’s Planning and Commercial and Marketing Vice-President. After June 2012, with the and from 2006 until 2012 he served as the General Manager-Passenger. Development Vice-President and in 2002 he was promoted to conclusion of TAM-LAN merger and the creation of LATAM Airlines After the merger with TAM in 2012, Mr. Valdivieso served as LATAM’s Production Vice President. In 2005, Mr. Ureta assumed the position Group, she became the head of Brazil Domestic Business Unit, and her Spanish Speaking Countries Executive Vice-President, before being of General Manager-Cargo. Mr. Ureta has an Engineering degree from functions were expanded in order to include TAM’s entire Customer named to his current position. From 1994 to 1997, Mr. Valdivieso was Pontificia Universidad Católica and a Special Executive Program from Service structure. Mrs. Sender dedicated most of her career in President of Fast Air. From 1991 to 1994, Mr. Valdivieso served as Vice Stanford University. Prior to that, Mr. Ureta served as General Director consumer goods industry, focused in Marketing and Strategic Planning. President, North America of Fast Air Miami. and Commercial Director at Mas Air, and as Service Manager for Fast Air. Prior to joining TAM, she was Marketing Vice-President at Whirlpool Latin America for seven years. She also worked as a consultant at Bain&Company, developing projects for large companies in various industries, including TAM Airlines and other players of the global aviation sector. She has a bachelor degree in Chemical Engineering from the Polytechnic School at the University of São Paulo (USP) and a MBA from Harvard Business School. 3 8 ANNUAL REPORT 2014 / CORPORATE GOvERNANCESenior Management Roberto Alvo Milosawlewitsch Senior VP Planning And network RUT: 8.823.367-0 Jerome Cadier Chief Marketing Officer RUT: 24.363.805-4 Juan Carlos Menció Senior Vicepresident Of Legal Affairs And Compliance RUT: 24.725.433-1 Mr. Roberto Alvo Milosawlewitsch, is LATAM’s Senior VP Planning and Mr. Jerome Cadier, is Chief Marketing Officer, a position he assumed Mr. Juan Carlos Mencio is Senior Vice President of Legal Affairs and Network. Mr. Alvo has served in various roles within LAN since 2001, in March 1st, 2013. Mr. Cadier has a Masters degree from the Kellogg Compliance for LATAM Airlines Group since June 1, 2014. Mr. Mencio including as CFO of LAN Argentina from 2005 until 2008, as Vice-president Graduate School of Business, USA and a Industrial Engineer degree from had previously held the position of General Counsel for North America of Development of LATAM Airlines Group from 2003 until 2005 and Escola Politecnica da Universidade de Sao Paulo, Brasil. Between 1994 for LATAM Airlines Group and its related companies, as well as General Vice-President of Treasury of LATAM Airlines Group from 2001 until 2003. and 2002, Mr. Cadier worked as a management consultant for McKinsey Counsel for its worldwide Cargo Operations, both since 1998. Prior He assumed the position of Senior Vice-President Strategic Planning and and Co. in Sao Paulo, Brasil. In 2003 he joined Whirlpool Home Appliances to joining LAN, he was in private practice in New York and Florida Development in 2008. Before 2001 Mr. Alvo held various positions at where he held several positions among which are head of sales and representing various international airlines. Mr. Mencio obtained his Sociedad Química y Minera de Chile S.A., a leading non-metallic Chilean marketing for Brazil and CEO for Whirlpool Oceania. Bachelor’s Degree in International Finance and Marketing from the School mining company. Mr. Alvo is a civil engineer and obtained an MBA from of Business at the University of Miami and his Juris Doctor Degree from IMD in Lausanne, Switzerland. Loyola University. 3 9 ANNUAL REPORT 2014 / CORPORATE GOvERNANCESenior Management Emilio del Real Sota Hr Executive Vice-President RUT: 9.908.112-0 Andrés Osorio Hermansen Chief Financial Officer RUT: 7.035.559-0 Mr. Emilio del Real Sota, is LATAM’s HR Executive Vice-President, a Mr. Andrés Osorio, is LATAM’s Chief Financial Officer (“CFO”), and has held position he assumed (with LAN) in August 2005. Mr. del Real has a this position since August, 2013.. He holds a Business degree from the Psychology degree from Universidad Gabriela Mistral. Between 2003 and Catholic University of Chile and has over 20 years of experience leading 2005, Mr. del Real was the Human Resource Manager of D&S, a Chilean financial areas in companies such as Cencosud, where he was CFO for 7 retail company. Between 1997 and 2003 Mr. del Real served in various years, and Metrogas, among others. He has also been CEO of Empresas positions in Unilever, including Human Resource Manager for Chile, Indumotora, a Chilean automobile conglomerate, and was a partner at and Training and Recruitment Manager and Management Development PricewaterhouseCoopers in Chile. Manager for Latin America. 4 0 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEYear 2014 Board Members Position Mauricio Rolim Amaro President Maria Claudia Amaro Henri Philippe Reichstul Ricardo J. Caballero Juan José Cueto Plaza Ramón Eblen Kadis Georges de Bourguignon José María Eyzaguirre Baeza Carlos Heller Solari Juan Gerardo Jofré Miranda Francisco Luzón López Director Director Director Director Director Director Director Director Director Director Director’s remuneration (US$) Comitte of Directors’ fee (US$) Sub-Comitte fee (US$) Total (US$) 44.096 8.221 6.157 16.147 22.065 22.072 21.523 4.694 16.592 22.053 9.992 9.621 3.289 1.642 11.303 14.443 14.447 12.523 1.252 1.475 14.435 9.593 53.717 11.510 7.799 27.450 36.508 63.406 62.887 5.946 18.067 66.039 19.585 26.887 28.841 29.551 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 different executives who comprise its administration as well as their respective salary levels. 1. Senior Vice-President. Term indicating the Company’s principal executives. 4. Director. Term indicating executives who report to a Senior Vice-President or a Vice- President. 2. Vice-President. Term indicating senior executives who report to the Executive Vice- President, a Senior Vice-President or a General Manager. 5. Senior Manager. Term indicating executives who report to a VicePresident, a Senior Director or a Director. 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: 3. Senior Director. Term indicating executives who report to a Senior VicePresident or a Vice- President. 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. 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 2014, the Company paid its principal executives (considering the levels of VicePresidents, General Managers, Senior Directors and Directors as defined above) a total of US$44,133,566, with no incentive payments. As a result, the Company paid its principal executives total gross remunerations of US$44,133,566. 4 1 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECompensation Plans At the Extraordinary Shareholders’ Meeting held on 21 December 2011, the Company’s shareholders approved the issue of 4,800,000 shares for compensation plans for the employees of the Company and its subsidiaries (the “2011Compensation Plan”). The principal conditions of the 2011 Compensation Plan are as follows: 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. 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 2014, a total of 4,202,000 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 598,000 shares that had not been allocated. To date, none of the options has accrued or been exercised in line with point 1 above. 3. The period in which employees may exercise the options, once accrued, will expire on 21 December 2016. 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 4 2 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECompensation Plans 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 them totally or partially in which 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 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. 4 3 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECorporate Governance Practices LATAM Airlines Group S.A. is a listed joint stock company registered with the Superintendencia de Valores y Seguros (SVS), Chile’s stock market regulator, under Inscription N°306. Its shares trade on the Santiago Stock Exchange, Chile’s Electronic Stock Exchange and the Valparaíso Stock Exchange as well as on the New York Stock Exchange (NYSE) as American Depositary Receipts (ADRs) and on Brazil’s Stock, Commodity and Futures Exchange (BM&FBOVESPA S.A.) in the form of Brazilian Depositary Receipts (BDRs). LATAM Airlines Group’s corporate governance practices are regulated by Chile’s Securities Market Law (Nº 18.045) and its Corporations Law (Nº 18.046), including 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 LATAM’s values. LATAM Airlines Group’s decisions and commercial activities are underpinned by the ethical principles established in LATAM’s Code of Conduct. STRUCTURE As of 31 de December 2014, LATAM Airlines Group had a total of 1,626 registered shareholders. LATAM Airlines Group 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 y Cia. Limitada, Inversiones Puerto Claro Dos y Cia. 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 25.49% stake while the remainder corresponded to different institutional investors, companies and individuals. As of 31 December 2014, 7.69% of LATAM was held in the form of ADRs and 0.53% 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 Committees created after the association between LAN Airlines and TAM. The main functions of these bodies are set out below. BOARD OF DIRECTORS OF LATAM AIRLINES GROUP LATAM Airlines Group’s Board of Directors has nine members and is the body responsible for analyzing and defining LATAM’s strategic vision, thereby playing a fundamental role in its corporate governance. All the Board seats come up for election every two years and, under LATAM Airlines Group’s statutes, directors are elected through cumulative voting. Each shareholder has one vote per share and can use all his or her votes to support 4 4 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECorporate Governance Practices 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 Ordinary Shareholders’ Meeting which took place on April 29th, 2014. LATAM Airlines Group’s Board holds ordinary monthly meetings and extraordinary meetings whenever the Company’s affairs so require. Directors’ fees must be approved by vote at the Ordinary Shareholders’ Meeting. The Directors’ Committee usually meets monthly and its functions and powers are those established by the applicable legislation and regulation. DIRECTORS’ COMMITTEE OF LATAM AIRLINES GROUP Under Chilean law, listed joint stock companies must appoint at least one independent director and a Directors’ Committee when they have a market capitalization of at least 1,500,000 unidades de fomento (an inflation-indexed currency unit) and at least 12.5% of the voting shares are held by shareholders who individually control or possess less than 10% of these shares. Three of the nine Board members form a Directors’ Committee, which fulfills both the functions required under Chile’s Corporations Law and those of the Audit Committee required under the Sarbanes- Oxley Act of the United States and the corresponding SEC norms. 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 LATAM’s senior management. The requirements for directors’ independence are set out in Chile’s Corporations Law (Nº 18.046) and its subsequent modifications under Law Nº 19.705 on the relationship between directors and LATAM’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 2014, all the members 4 5 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECorporate Governance Practices 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. DIRECTORS’ COMMITTEE ANNUAL REPORT As required under Article 50 bis of Law Nº 18.046, the matters examined by the Directors’ Committee in 2014 are set out below: 1) Extraordinary Session N°25 30/1/2014 • Review of calculation of impairment of certain assets included in financial statements already issued. of certain assets included in financial statements at 31 December 2013 • Approval of fees of PwC. 4) Extraordinary Session N°27 17/3/14 • Review of financial statements at 31 December 2013. • Closure of 2013 audit plan and 2014 plan. 9) Ordinary Session N°145 4/7/14 • Closure of 2013 audit plan and 2014 plan • Fees for proposed services of external auditors PwC and letter of independence • Evaluation of CEO and senior executives. 5) Ordinary Session N°142 4/4/14 • Proposal for external auditors and private 10) Ordinary Session N°146 4/8/14 • Situation in Venezuela as regards foreign credit rating agencies for 2014 currency remittances • Other business • Annual report of Directors’ Committee. • Government investigations • Follow-up of list of issues raised by the 6) Ordinary Session N°143 5/5/14 • Accounting effect of fleet restructuring/ redelivery • Identification of issues pending analysis Committee • LATAM risk matrix project. 11) Extraordinary Session N°29 12/8/14 • Review of financial statements at 30 June that were raised in requests presented by the Committee in 2013 and 2014 to date 2014. • Fees for proposed services of external auditors PwC. 12) Ordinary Session N°147 1/9/14 Closure of 2013 audit plan and 2014 plan. 2) Ordinary Session N°141 31/1/14 • System of remunerations and 7) Extraordinary Session N°28 13/5/14 • Review of financial statements at 31 March compensation plan for executives 2014. • Analysis of Multiplus business. 3) Extraordinary Session N°26 7/3/14 • Review of calculation of impairment 8) Ordinary Session N°144 9/6/14 • Evaluation of CEO and senior executives 13) Ordinary Session N°148 9/10/14 2014 audit plan Tax reform Situation in Venezuela External auditors’ fees. 4 6 ANNUAL REPORT 2014 / CORPORATE GOvERNANCE Corporate Governance Practices 14) Extraordinary Session N°30 24/10/14 • Tax contingencies • Tax reform in Chile – implementation plan. COMMITTEES OF THE BOARD OF DIRECTORS OF LATAM AIRLINES GROUP 15) Ordinary Session N°149 3/11/14 • Related-party transactions Tax reform Compliance plan. Compliance training for Directors made by the Chief Compliance Officer, in charge of crime prevention at LATAM. External auditors’ fees. 16) Extraordinary Session N°31 12/11/14 • Review of financial statements at 30 September 2014 Situation in Venezuela External auditors’ fees Letter received from external auditors. 17) Ordinary Session N°150 9/12/14 2014 external audit plan Corporate governance Law 20.393 crime prevention model External auditors’ fees. In accordance with the shareholders’ agreement of 25 January 2012 between LATAM Airlines Group S.A. (previously LAN Airlines S.A.) and TEP Chile S.A., the Ordinary Board Session of 3 August 2012 established the following four committees to review, discuss and make recommendations to the Board about the issues related to their respective areas of responsibility: (i) Strategy Committee, (ii) Leadership Committee, (iii) Finance Committee, and (iv) Brand, Product and Frequent Flyer Program Committee. 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 Committee 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 Committee will focus on areas that include group culture, high-level organizational structure, appointment of the executive vice-president of LATAM Airlines Group (henceforth, “CEO of LATAM”) and those who report to this person, the philosophy of corporate remunerations, structures and levels of remunerations and objectives for the CEO of LATAM and other key staff, the succession or contingency plan for the CEO of LATAM and evaluation of the performance of the CEO of LATAM. The Finance Committee will focus on financial policies and strategy, capital structure, control of compliance policies, tax 4 7 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECorporate Governance Practices optimization strategy and the quality and reliability of financial information. Finally, the Brand, Product and Frequent Flyer Program Committee 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. In addition, by agreement of the Board of LATAM Airlines Group S.A., during the board of directors’ meeting No. 389 on 10 June 2014, a Risk Committee was formed with the purpose of supervising the implementation of the Risk management success factor, included in LATAM’s Strategic Plan, and particularly to oversee LATAM Airlines Group’s risk management of risks of LATAM Airlines Group and ensure a corporate risk matrix structuring. RELATED-PARTY TRANSACTIONS as those which could be obtained from a third party under market conditions. 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 LATAM’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 LATAM and the price and other terms are at least as favorable for the LATAM These transactions are summarized in the audited consolidated financial statements for the year ending on 31 December 2014. Finally, and along with the rules laid down in the Code of Conduct of LATAM Airlines Group on this matter, 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 4 8 ANNUAL REPORT 2014 / CORPORATE GOvERNANCE Corporate Governance Practices 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. 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. Publication of the new Code of Conduct for LATAM, unique for all of the Company’s employees, which seeks 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 legislation. LATAM Airlines Group, however, seeks to go further than these norms and regulates the criteria for disclosure of operations, periods of voluntary abstinence from the purchase and sale of LATAM’s shares, mechanisms for continuous disclosure of market-sensitive 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. 4 9 ANNUAL REPORT 2014 / CORPORATE GOvERNANCECorporate Governance Practices CORPORATE GOvERNANCE PRACTICES On March 31, 2014, the Report on LATAM’s Corporate Practices which was approved by LATAM Airlines Group’s Board of Directors and prepared in accordance with General Norm N° 341 issued by the Superintendencia de Valores y Seguros (SVS) on 29 November 2012., was dispatched to this same organism.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. The information filed annually with the SVS must refer to the following matters: The functioning of the Board of Directors. The relation between LATAM, its shareholders and the general public. The replacement and remuneration of LATAM’s principal executives. The definition, implementation and supervision of LATAM’s internal control policies and procedures and risk management. 5 0 ANNUAL REPORT 2014 / CORPORATE GOvERNANCE Ownership Structure and Principal Shareholders DECEMBER 31 OF 2014 Shareholder COSTA VERDE AERONAUTICA SA TEP CHILE SA J P MORGAN CHASE BANK INVERSIONES NUEVA COSTA VERDE AERONAUTICA LTDA BANCO DE CHILE POR CUENTA DE TERCEROS NO RESIDENTES COSTA VERDE AERONAUTICA SPA BANCO ITAU POR CUENTA DE INVERSIONISTAS AXXION S A INVERSIONES ANDES SPA INVERSIONES HS SPA LARRAIN VIAL S A CORREDORA DE BOLSA BANCO SANTANDER POR CUENTA DE INV EXTRANJEROS 1 2 3 4 5 6 7 8 9 10 11 12 Nº Offshares 2014/12/31 85.772.914 65.554.075 41.936.775 22.928.277 21.904.156 20.000.000 19.744.217 18.473.333 17.146.529 14.894.024 12.361.609 11.174.043 % 15,7% 12,0% 7,7% 4,2% 4,0% 3,7% 3,6% 3,4% 3,1% 2,7% 2,3% 2,0% 5 1 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEOwnership Structure and Principal Shareholders DECEMBER 31 OF 2013 Shareholder COSTA VERDE AERONAUTICA SA TEP CHILE SA J P MORGAN CHASE BANK INVERSIONES NUEVA COSTA VERDE AERONAUTICA LTDA BANCO DE CHILE POR CUENTA DE TERCEROS NO RESIDENTES COSTA VERDE AERONAUTICA SPA AXXION S A INVERSIONES ANDES SPA INVERSIONES HS SPA BANCO ITAU POR CUENTA DE INVERSIONISTAS BANCO SANTANDER POR CUENTA DE INV EXTRANJEROS AFP PROVIDA S.A. FONDO TIPO C 1 2 3 4 5 6 7 8 9 10 11 12 Nº Offshares 2013/12/31 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% 5 2 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEOwnership Structure and Principal Shareholders 2014 2013 15,9% Others 17,6% Others 25,5% Cueto Group 26,0% Cueto Group 9,8% Foreign Investors 0,5% BDRs 7,7% ADRs 8,5% Foreign Investors 0,7% BDRs 7,9% ADRs 12,0% Amaro Group 12,2% Amaro Group 17,4% AFPs Eblen Group 6,1% Bethia Group 15,8% AFPs Eblen Group 6,3% Bethia Group 5 3 ANNUAL REPORT 2014 / CORPORATE GOvERNANCE5,1%5,0%Ownership Structure and Principal Shareholders LATAM Airlines Group’s DIvIDENDS policy is to pay the minimum dividends required by law or, in other words, 30% of profits in accordance with the regulation in force. LATAM Airlines Group’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 2012 corresponded to 30% of that year’s distributable profits in accordance with international financial reporting standards. No dividends were distributed in years 2013 and 2014 since LATAM reported net losses. The table below shows the dividend per share paid during the past three years. Year of profits of dividend payment Payment date Type Total dividend payed Dividendos number of shares Dividend per share Dividend per ADr 2012 2013 2014 17 May 2013 No dividends distributed No dividends distributed Definitive 3,288,127 483,547,819 0,00680 0,00680 5 4 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEFinancial Policy The Directorate of Corporate Finances is responsible for managing LATAM’s Financial Policy. This Policy enables LATAM Airlines Group 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 make recommendations to the Board about 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 proportionate to the growth of operations and take into account the objective of minimizing financing costs. Achieve a return on cash surpluses through financial investments which guarantee a level of risk and liquidity consistent with the Financial Investment Policy. Reduce the impact on LATAM’s net margin of market risks such as variations in the price of fuel, exchange rates and interest rates. Reduce counterparty risk through diversification of and caps on investments and operations with counterparties. Maintain visibility of LATAM’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. LATAM Airlines Group’s Financial Policy establishes guidelines and restrictions for managing operations related to Liquidity and Financial Investment, Financing Activities and Management of Market Risk. LIQUIDITY AND FINANCIAL INvESTMENT POLICY In 2014, LATAM Airlines Group carried out capital market operations in order to maintain adequate levels of liquidity, closing in December 2014 with a liquidity ratio of approximately 12% of total sales. In this context, LATAM successfully implemented a plan to reduce its short-term debt from approximately US$840 million at end-2013 to approximately US$327 million in December 2014. Together with this reduction of its short-term debt, LATAM also signed a line of credit in 2014 to finance pre-delivery payment of its undertaking to acquire 31 A321s with CFM56-5B3 engines and five A350s with Roll Royce engines. This line of credit was for US$366 million of which it had used approximately US$283 million by 31 December 2014 LATAM maintained an adequate level of liquidity for protection against potential external shocks and the industry’s inherent volatility and cyclical nature. Our long term objective is to have a leverage ratio of between 3.5x to 4.0x and maintain a liquidity level of approximately 15%. In addition, it maintained lines of credit for a total of US$210 million with local and overseas financial institutions which, as of end-2014, 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 5 5 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEFinancial Policy 31 December 2014, LATAM Airlines Group held US$1,533.8 million in cash and easily convertible securities and US$336.1 million in advances on aircraft financed out of its own resources. The aim of LATAM’s Financial Investment Policy is to centralize investment decisions so as to optimize return adjusted for exchange-rate risk, subject to maintaining an adequate level of security and liquidity. In addition, it seeks to manage risk through diversification of counterparties, maturities, currencies and instruments. FINANCING POLICY LATAM Airlines Group’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, LATAM 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 LATAM’s fleet acquisition undertakings take the form of operational leasing arrangements. In the case of short-term financing, LATAM held around 4% of its total debt as of 31 December 2014 in the form of exporter/ importer loans 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, which is consistent with the LATAM Airlines Group’s operating cash flows. 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) exchange-rate risk. In order to hedge completely or partially against these risks, LATAM 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, LATAM 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 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 5 6 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEFinancial Policy 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. LATAM’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, the Policy permits the use of swaps, collars, options, swaptions or combinations of these instruments. (ii) Interest-rate risk of cash flow Variations in interest rates bear a strong relation to the international economic situation, with an improvement 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 LATAM Airlines Group’s floating-rate debt and 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. LATAM’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. (iii) Local exchange-rate risk The US dollar is the functional currency used by the LATAM for the prices of its services, the composition of its classified financial situation and the 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. LATAM sells most of its services in US dollars, in prices equivalent to the US dollar or in Brazilian reais. Approximately 58% of its revenues are denominated in US dollars and approximately 29% 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 65% of LATAM’s total costs are denominated in US dollars and approximately 23% in Brazilian reais. The tariffs of LATAM Airlines Group’s cargo and international passenger businesses are mostly set in US dollars while, in its domestic businesses, a mix exists. In Peru, sales are in local currency but prices are indexed to 5 7 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEFinancial Policy In 2014, in order to reduce the impact of appreciations or depreciations of the real against the US dollar on its results, LATAM carried out transactions that reduced the net dollar-denominated liabilities of TAM S.A. These operations included the reduction of its short-term debt in US dollars, a reduction in debt related to the fleet in line with the original repayment plan and an accelerated reduction in debt related to the fleet as a result of the transfer of the fleet and the corresponding debt from TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A. LATAM’s aim is to continue with these transactions in 2015 in order to achieve the maximum possible reduction in balance sheet exposure which, as of end-2014, reached less than US$1,0 billion. 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, LATAM is exposed to fluctuations in different currencies including, principally, the Brazilian real, the Chilean peso and the euro. LATAM Airlines Group has hedged against exchange-rate risk by acquiring currency forwards. As of 31 December 2014, hedging for the Brazilian real for the period January- December 2015 reached US$100 million. LATAM’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. Balance sheet risk occurs when items included there are exposed to variations in exchange rates because they are expressed 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. 5 8 ANNUAL REPORT 2014 / CORPORATE GOvERNANCEA N N U A L R E P O R T 2 0 1 4 / O P E R A T I O N S I n t e r n a tIo n a l P a s s e n g e r o Pe r a tIo n s ca r g o o Pe r a tIo n P r oPe r t y , P l a n t a n d eq uI Pm e n t lo y a l t y P r o g r a m s a r g e n tIn a b r a ZIl c hIl e c o l o m bIa e c u a d o r Pe ru International Passenger Operations LATAM Airlines Group’s international passenger operations include both regional flights within South America and the Caribbean and long-haul flights connecting the region with the rest of the world. In October, following the expansion of Sao Paulo’s Guarulhos airport, where LATAM Airlines Group is building its principal international hub, LATAM moved all of its international operations to the new modern Terminal 3, with significant reductions in connection times. Also, in November, LATAM opened its first VIP lounge at Guarulhos. With an area of over 1,800 m2 and a capacity for up to 450 people, this is the largest lounge in South America and represents another important contribution to improving passengers’ travel experience. At the regional level, the airlines that make up LATAM served 27 destinations in 2014, using a fleet that mainly comprises aircraft LATAM Airlines Group’s international passenger operations include both regional flights within South America and the Caribbean and long-haul flights connecting the region with the rest of the world. In 2014, the airlines that make up LATAM served a total of 24 international destinations (in addition to its domestic network) using a total fleet of 106 aircraft. During the year, they carried 13.6 million passengers, an increase of 0.8% as compared to the previous year, of which 7.9 million corresponded to regional routes and 5.7 million to long-haul routes. In 2014, the international operation of LATAM occurred in a complex environment, resulting from the weaker global macroeconomic scenario; the increase in competition from operators to and within South America (where we highlight capacity redirections from Venezuela), with the resulting pressure on yields; and the decrease in demand for air travel due to the depreciation of some local currencies, principally the Argentine peso. In addition, the Soccer World Cup, which took place in Brazil, affected business and tourist demand not only domestically but also on routes to and from Brazil in June and July. In order to address this situation, LATAM continued to focus on capacity discipline and deepened its revenue management strategy. As a result, consolidated passenger traffic on international flights increased by 1.2% in 2014 while capacity measured in ASK was reduced by 2.4%, resulting in a healthy load factor of 85.4%, up by 3.1 percentage points as compared to the previous year. In 2014, important initiatives were implemented to improve the travel experience for international passengers. These included the beginning of the process of retrofitting TAM’s Boeing 777 fleet to include an improved business cabin and the increase in utilization of the Boeing 767s aircraft with a full-flat business cabin in order to offer corporate customers a better comfort on their long-haul flights. In addition, there was also a significant increase in the number of long-haul routes served by the new Boeing 787s, the largest and most modern aircraft in the category. 6 0 ANNUAL REPORT 2014 / OPERATIONS International Passenger Operations from the Airbus A320 family and Boeing 767s. LATAM’s broad network of coverage allowed it to achieve a 44.0% market share measured in terms of capacity (ASK) on the regional routes it operates (according to Miio Di), consolidating its position as the leading airline in South America where its main competitors are Avianca, Aerolíneas Argentinas and GOL, with market shares of 22.6%, 11.4% and 9.8%, respectively. In 2014, new regional routes were launched including Rosario-Sao Paulo, Córdoba- Sao Paulo and Montevideo-Rio de Janeiro, essentially with a feeder role but also in a bid to achieve leadership in secondary cities. In December, LATAM also increased its presence in the Caribbean with the launch of the Sao Paulo-Cancún-Rosario and Bogotá- Cancún routes. In addition, it stimulated routes such as LAN Colombia’s Bogotá-Lima route, where the number of flights increased from two to three per day, as well as the Santiago-Lima route, with an increase to nine flights per day, and the Santiago-Rio de Janeiro route, with one flight per day. In September, LATAM Airlines Group launched a direct service from Lima to Asunción, Paraguay, with three flights per week, in order to stimulate the low air traffic between the two countries. LAN’s and TAM’s differentiated value proposition as regard to service was once again recognized in the World Airline Awards where, in 2014, they won the first two places, respectively, in the Best South American Airline category. This award is based on the World Airline Survey, carried out annually by the prestigious British market research company Skytrax, and reflects the opinion of more than 18 million passengers of over 160 different nationalities. This was the third consecutive year in which LAN was recognized as the Best South American Airline. In regard to long-haul routes, the airlines that make up LATAM Airlines Group served 12 destinations in 2014, using a fleet consisting mainly of Boeing B767s, B787s and B777s. On routes between the United States and Latin America, LATAM reached a 6 1 ANNUAL REPORT 2014 / OPERATIONSInternational Passenger Operations market share of 22.8% measured in terms of capacity (ASK) according to Miio Di. On these routes, its main competitors are American Airlines, United Continental and Delta with market shares of 36.3%, 11.5% and 11.4%, respectively. On flights to Europe, LATAM had a 10.8% market share, also measured by Miio Di in terms of capacity (ASK). In this case, it mainly competeswith AirFrance- KLM and Iberia-British Airways, with market shares of 23.0% and 20.1%, respectively. On routes to Oceania, LATAM had a market share of 39% measured in terms of traffic where calculation of the competition’s market shares includes indirect routes such as via Dubai in the Arab Emirates. TAM’s entry into the oneworld alliance on31 March 2014 represented an important milestone for the LATAM’s international passenger operations. As a result, all LATAM Airlines Group’s passenger transport companies are now members of this global alliance, which brings together the world’s most prestigious airlines and is currently experiencing the largest expansion of its history. Other important milestones for LATAM’s international passenger operations in 2014 included new code-sharing agreements between LAN Colombia and Iberia and between LAN Perú and Korean Air on the Lima-Los Angeles-Seoul route, and the reinforcement of the existing code-share agreement between LAN and Qantas to boost flights between Australia and South America. LATAM Airlines Group has announced that -in line with its strategic plan and its network pillar- it will be opening other new international routes from Latin America to North America and Europe in 2015 such as the Brasilia-Orlando, Sao Paulo-Toronto via New York, Sao Paulo-Barcelona and Santiago- Milan via Sao Paulo. 6 2 ANNUAL REPORT 2014 / OPERATIONSArgentina LAN Argentina, which has now been in operation for nine years, has established a position as the second largest player in the country’s domestic passenger market, which is dominated by the state-owned flagship Aerolíneas Argentinas with over a 70% market share. It has achieved this position thanks to its unfailing commitment to providing the highest safety, quality and service standards in the framework of a corporate strategy that focuses on offering customers the best travel experience. passenger-kilometers (RPK) was up by 2.8% while capacity (ASK) was down by 0.6%. This gave a load factor of 75.5% which represented an increase of 2.5 percentage points on 2013. use by the Company was ratified by Argentina’s Supreme Court on 30 December 2014 when it rejected a request from the National Airport System Regulator (ORSNA) which had sought to oblige it to vacate the premises. For its domestic flights, LAN Argentina uses a fleet of ten Airbus A320s which are considered the most efficient in the local industry for operations of this type and have the widest and most comfortable passenger cabin in the category. In 2014, LAN Argentina served 14 domestic destinations, connecting Buenos Aires with the country’s principal provincial capitals: Bahía Blanca, Bariloche, Calafate, Comodoro Rivadavia, Córdoba, Iguazú, Mendoza, Neuquén, Río Gallegos, Salta, San Juan, Tucumán and Ushuaia. In the second half of the year, operational rescheduling meant the temporary suspension of flights on the Buenos Aires-Bahía Blanca route until January 2015. At the end of 2014, Argentina’s National Civil Aviation Administration (ANAC) authorized the incorporation into LAN Argentina’s fleet of a new aircraft from this family to replace an older aircraft. This represented an important milestone for the LATAM’s domestic operation because, since 2011, it had not been allowed to incorporate aircraft to modernize its fleet nor to bring in aircraft provisionally for maintenance purposes. The 2.3 million domestic passengers that LAN Argentina carried in 2014 represented an increase of 0.5% on the previous year and were equivalent to a market share of close to 27% according to MIDT, down by 3.2 percentage points. Consolidated traffic measured in LAN Argentina is based in Buenos Aires at the Ministro Pistarini (Ezeiza) and Jorge Newbery airports. The latter, more commonly referred to as Aeroparque, is the country’s most important domestic passenger terminal. At this airport, LAN Argentina has a hangar whose ongoing 2,3 million passangers 10 aircraft market share lan argentina 14 domestic destinations 27% 6 3 ANNUAL REPORT 2014 / OPERATIONSBrazil With 93 million passengers flying within the country in 2014, Brazil is by far South America’s largest domestic market and the fourth largest in the world after the United States, China and Japan, according to the International Air Transport Association (IATA). In 2014, TAM carried 33.3 million passengers on domestic routes, up by 0.4% on the previous year, and maintained its leading position with a 38.1% market share measured in RPK according to ANAC. In addition, TAM maintained its leadership in the corporate passenger segment, with a share of 32.7% of total sales in this segment. Its principal competitors are GOL and Azul with 36.1% and 16.7%, respectively. In order to serve its 42 destinations within Brazil, TAM used a fleet of 115 aircraft from the Airbus A320 family, including 16 A321s which allow it to cover the busiest routes with greater efficiency. In 2014, six new aircraft of this model, the most modern and efficient in the family, were incorporated as well as TAM’s first A320 Space-Flex whose configuration significantly improves the pitch of the first four rows, maximizing space and offering passengers greater comfort. Domestic passenger operations In Brazil faced complex macroeconomic conditions in 2014, due principally to the economy’s deceleration (GDP grew just 0.14%), inflationary pressures (6.4% annual inflation) and depreciation of the real (9.1%), all of which had a negative impact on demand for air travel, particularly in the business segment. However, the single most important impact was that of the Soccer World Cup, which took place in Brazil in June and July. It meant an important reduction in business and tourist demand within Brazil during these two months to which TAM responded by reducing its capacity by 5% and 7%, respectively. In annual terms, TAM reduced its capacity measured in ASK by 1.4% (which followed a reduction of 8.4% in 2013) in line with its plan of capacity discipline, improved market segmentation and revenue management practices launched in 2012. On the other hand, demand measured in RPK grew by 1.1%, giving a load factor of 81.7%, up by 2.0 percentage points on the already high level achieved by TAM in 2013 and above the industry average of 79.8%. In 2014, TAM launched flights on three new routes: Joao Pessoa-Salvador, Brasilia-Macapá and Porto Seguro-Brasilia. Taking advantage of the modernization and expansion of the airport in Brasilia, which implied an increase in its capacity from 16 million to 21 million passengers per year, TAM also advanced with the development of its hub there, mainly for domestic operations. Following the opening 33,3 million passangers 115 aircraft market share tam gol azul trip 42 domestic destinations 38,1% 36,1% 16,7% 6 4 ANNUAL REPORT 2014 / OPERATIONS Brazil of the new Terminal 2 (Pier Sul) exclusively for domestic flights, TAM moved its operations to that terminal in the second half of the year. This has allowed the reduction of stop-over times for passengers with connecting flights and, in this way, the development of connectivity in the domestic market. Today, TAM serves over 30 destinations from Brasilia, connecting it with more than 180 destinations around the country. On the other hand, at the end of the year TAM announced its decision to operate in the regional market in Brazil, as part of the Group’s strategy, independent of any regulatory changes that may be implemented by the Brazilian government through the Regional Aviation Development Program (PDAR). TAM plans to add service to between 4 and 6 new regional destinations every year, starting in 2015. For this purpose, the airline is currently in advanced stages of negotiations with aircraft manufacturers for orders of new generation smaller aircraft to be delivered starting in 2018. In addition, TAM and Passaredo signed a codeshare agreement, which will provide TAM with an even higher capillarity, continuing its strategy of widening its regional network. In all, LATAM Airlines Group’s operation in the domestic Brazilian market in 2014 was successful and profitable, with TAM maintaining its leadership and improving its punctuality indicators. This was reflected in increased customer satisfaction and, for the second consecutive year, TAM won the Top of Mind airline prize. 6 5 ANNUAL REPORT 2014 / OPERATIONS Chile During 2014, and after 85 years of operation in Chile, LAN Airlines serves 16 destinations throughout Chile, LAN Airlines maintained its leading position in the using a modern fleet of 28 aircraft from the Airbus domestic market. In 2014, LAN carried 7.2 million A320 family to which, in December, it incorporated its passengers within Chile, up by 4% compared to first Airbus A321, the largest and most modern aircraft 2013, and reported a 1.0 percentage point increase in this family. This will enhance the efficiency of the in its market share, reaching 77.9% according to the company’s domestic operations as well as significantly Junta Aeronáutica Civil. On domestic routes, its main reduce CO2 emissions. competitor is Sky Airline, with a 20.2% market share. Over the past five years, the number of passengers punctuality rate of over 90% on domestic flights in carried by LAN Airlines within Chile has shown a 2014, measured in accordance with the standards of significant increase, with an average annual growth the International Air Transport Association (IATA). This rate of 14%. was its best performance in five years. In regard to service standards, LAN achieved a Although LAN showed a healthy performance in terms Among other initiatives implemented during 2014, of traffic, it had to adjust its growth to reflect the LAN Airlines launched a new electronic boarding card reduced dynamism of the domestic market in 2014, system for smartphones in May, simplifying the check- which was a result of the deceleration of the Chilean in process. In addition, since November, passengers economy and the suspension or postponement of flying on domestic flights are authorized to keep their investment projects which mainly affected routes mobile phones and tablets switched on in flight mode serving the mining industry in northern Chile. throughout the entire flight, positioning Chile as the first country in South America to adopt this measure Consolidated passenger traffic (RPK) increased and improving passengers’ travel experience. by 4.7% and capacity (ASK) increased by 1.5% as compared to the previous year. As a result, the average load factor increased by 2.5 percentage points to 82.5%, its highest level in ten years. 7,2 million passangers 28 aircraft market share lan sky 16 domestic destinations 77,9% 20,2% 6 6 ANNUAL REPORT 2014 / OPERATIONSColombia Since it started its operations as LAN Colombia in 2012, the company has gradually established a position as one of the leading players in a domestic market that is considered among the most competitive in Latin America. Thanks to different measures designed to achieve brand recognition and customer loyalty, LAN Colombia has achieved over 10% annual growth on the routes it operates and today carries around 43% more passengers than three years ago. In its third year of operations as LAN Colombia, the company carried 4.4 million domestic passengers. This represented an increase of 10% as compared to the previous year and positioned it as the country’s second largest operator with a 19.1% market share measured in passengers carried according to Aerocivil, after Avianca with 60.1%. Other competitors include VivaColombia (9.6%), Satena (4.0%) and EasyFly (3.5%). Consolidated passenger traffic (RPK) increased by 20.1% in 2014 while capacity increased by 21.4%, resulting in a load factor of 78.7%, 0.9 percentage points below 2013. Colombia was the country where LATAM Airlines Group increased its capacity the most in 2014, in a context of GDP growth of 4.8%, which positioned Colombia as one of the region’s fastest-growing economies. LAN Colombia currently operates 24 routes within Colombia, serving 20 cities and offering a high level of connectivity from Bogotá and Medellín. The routes from Bogotá to Medellín, Cali, Cartagena, Bucaramanga and Barranquilla, in that order, account for over half of LAN Colombia’s passenger volume. Starting in July, the company expanded its domestic services, increasing its services to five cities including Cartagena, Cali, Santa Marta, San Andrés and Cúcuta as part of a strategy of penetrating cities where Copa Airlines had cut flights. This strategy aims to increase LAN Colombia’s share in the Colombian market by between 2% and 4% and, for this purpose, it incorporated an additional Airbus A320 aircraft. In November, LAN Colombia also began to offer two direct flights a week (three as from February 2015) between Medellín and San Andrés, a route previously served by only one operator. This represents a further step in the decentralization of the company’s domestic operations and serves to boost one of the 4,4 million passangers 19 aircraft market share avianca lan colombia viva colombia satena easy fly 20 domestic destinations 60,1% 19,1% 9,6% 4% 3,5% 6 7 ANNUAL REPORT 2014 / OPERATIONSColombia country’s most popular tourist destinations. In this way, LAN Colombia reached 24 flights per week to San Andrés from Bogotá, Cali or Medellín. In regard to fleet, LAN Colombia ended 2014 with a fleet of 14 Airbus A320s, each with a capacity for 174 passengers. This followed the completion of its fleet renewal process with the incorporation of six aircraft from this family for its domestic operations and the withdrawal from service of its last Boeing 737s (inherited from Aires) during the first half of the year. The incorporation of this new Airbus aircraft represented an increase of 9.5% in seat availability and reduced the age of the fleet, with the consequent reduction in maintenance times and improvement in the punctuality of the company’s operations. LAN Colombia’s fleet renewal plan will finish in 2015 with the expiry of the lease contracts for the seven Dash 8-200s, with a capacity for 37 passengers, that it inherited from Aires and currently uses on the so-called regional routes within Colombia. As part of the process of returning these planes, LAN Colombia plans to start operations with Airbus A320s in Neiva and Villavicencio while operations on routes where it is not possible to operate Airbus aircraft will be gradually suspended during 2015. In regard to service standards, LAN Colombia consolidated its position as the country’s most punctual airline in 2014. This was a result of the investments and efforts deployed by the company since its arrival in the country in the framework of a strategy that focuses on offering passengers the best value proposition. According to the latest Airline Compliance Report of Colombia’s Civil Aviation Administration, LAN Colombia won the first place in punctuality in January-September 2014, with an average 94% of compliance, 11 points ahead of the airline in second place. 6 8 ANNUAL REPORT 2014 / OPERATIONSEcuador Since it launched its domestic passenger operations in Ecuador in 2009, LAN Ecuador has gradually established itself as an important operator on routes within the country. This has been possible thanks to its constant efforts to offer passengers the best product in terms of safety, reliability and service. It currently serves five destinations through the Quito-Guayaquil and Quito-Cuenca routes and the Quito/Guayaquil route to the San Cristóbal and Baltra Islands in the Galápagos, offering connectivity that seeks to promote tourism and the country’s economic development. In the first half of the year, domestic flights were restructured in order to reinforce the corporate route between Guayaquil and Quito, and also to increase and improve services between Cuenca and Quito. This allowed LAN Ecuador to leverage its results and achieve its target in terms of margin. In 2014, LAN Ecuador transported 1.1 million domestic passengers, a decrease of 15.6% as compared to the previous year. This occurred in a market in which domestic commercial flights showed a drop of over 8%. In this context, however, the company positioned itself as the leading airline, with a market share of 36.5%, ahead of the flagship Tame airline, with 34.58%, and Avianca, with close to 29%. LAN Ecuador’s consolidated passenger traffic was down by 9.5% in 2014. However, a 21.5% reduction in capacity meant that average load factor reached 81.2%, up by 10.8 percentage points as compared to 2013. In line with this capacity adjustment, the Airbus fleet used for domestic and regional flights was gradually modified, replacing its five Airbus A320s with five A319s with fewer seats. Three of the A319s are used exclusively for domestic services. In a sign of its commitment to the country, during 2014 LAN Ecuador signed a collaboration agreement with the Cuenca Municipal Tourism Foundation for the second consecutive year. This agreement seeks to promote tourism in one of the country’s most popular destinations. At the beginning of the year, it also launched a strategic operation with Silversea, a luxury cruise operator, in the Galápagos. 1,1 million passangers 5 aircraft market share lan tame avianca 5 domestic destinations 36,5% 34% 29% 6 9 ANNUAL REPORT 2014 / OPERATIONS Peru Over the past six years, Peru has been South America’s fastest-growing economy, achieving an average annual growth rate of 5.2% as compared to a regional average of 3.8%. In 2014, Peru’s growth was 2.4%. the total number of domestic destinations it serves, which totalled 16 as of December 2014. The opening of these routes reinforces LAN Perú’s commitment to increasing connectivity and mobility within the country. The combination of economic modernization, a healthy level of inflation, a positive trade balance, an abundance of natural resources, ongoing improvements in economic management and political stability are helping Peru to emerge as one of Latin America’s most stable economies. In this context, the domestic airline industry grew by 8% in 2014 in terms of domestic passengers transported in Peru. LAN Perú carried around 5.7 million people, with consolidated passenger traffic (RPK) increasing by 7.3% and capacity (ASK) increasing by 6.8% as compared to 2013. The load factor also increased in the year reaching 81.3%, up by 0.4 percentage points as compared to 2013 and ahead of the industry average. In 2014, LAN Perú completed 15 years of operations and, to celebrate its anniversary, launched internal and external corporate branding campaigns in both the written press and on television. After six years in which it had not opened new routes, the company also started operations in Ayacucho and Talara, increasing LAN Perú continues to be the leading airline in the Peruvian market, with a 63,2% market share according to the DGAC. On domestic routes, its main competitors are Avianca (13,0%), Peruvian Airlines (12,2%) and Star Perú (7,0%). However, LAN Perú stands out for its greater variety of destinations, frequencies and services, as well as its high level of punctuality. In 2014, it achieved the highest punctuality of the last five years, thanks to the incorporation of “Operational Rules”. In addition, during 2014 the company began to sell “Favorite Seats” on all domestic routes to and from Lima and continued to offer an extended schedule of flights to Cusco, one of the region’s most important destinations. This extended schedule is one of the competitive advantages of the LAN Perú’s services for both local and international travelers and is in line with the objective of stimulating passenger traffic to this tourist destination. In 2014, LAN Perú operated a fleet of 18 aircraft, 5,7 million passangers 18 aircraft market share lan perú avianca peruvian star perú 14 domestic destinations 63,2% 13% 12,2% 7% 7 0 ANNUAL REPORT 2014 / OPERATIONSPeru comprising 11 Airbus A319s and seven Airbus A320s. In line with efficient management of the business, important fuel consumption efficiency projects were implemented and are expected to deliver annual savings of 3.2 million gallons on the domestic operation. In order to maintain close ties with clients, one of LAN Perú’s objectives is to increase its face-to- face points of sale around the country. In line with this, the company efficiently expanded its infrastructure and reach in the domestic market during 2014, increasing the capacity of modules and sales offices by 10%. Like the other airlines that constitute LATAM Airlines Group, LAN Perú has a focus on providing its customers with the best service. In this context, it continued to implement changes related to the LEAN work philosophy in 2014, seeking to improve and simplify airport processes and achieve operational efficiency gains, strengthening the value proposition for its offers customers. In 2014, LAN Perú also continued to make progress in its objective of being a socially responsible company by compensating its carbon footprint and conscientiously managing its CO2 emissions, which it has reduced by 25% since 2012. 7 1 ANNUAL REPORT 2014 / OPERATIONSCargo Operation LATAM Airlines Group and its subsidiaries are the largest air cargo operator in Latin America and, especially in Brazil. LATAM offers its clients the most extensive connectivity within the region and the rest of the world, with 144 destinations in 26 countries. LATAM Airlines Group and its subsidiaries are the largest air cargo operator in Latin America and, especially in Brazil. LATAM offers its clients the most extensive connectivity within the region and the rest of the world, with 144 destinations in 26 countries. LATAM transports cargo in the bellies of 307 passenger aircraft as well as in 13 freighters as of December 2014 (four B777-200Fs and nine B767-300Fs, one of which will be leased to another cargo operator in 2015). LATAM’s cargo business model is based on the optimization of the belly capacity of its passenger planes which, combined with the efficient operation of freighters, allows it to operate routes profitably, adjusting its operations to the economic cycle and increasing load factors. The scope and connectivity of its network, the flexibility of being able to transport cargo in passenger aircraft as well as freighters, and LATAM’s modern infrastructure are advantages that enable it to offer services tailored to market needs. measured in ATK dropped by 5.6%. As a result, the load factor rose by 1.4 percentage points, reaching 59.8%. the cargo fleet in the face of aggressive global and regional competition. This was a result of excess capacity on both passenger and cargo flights in the region. The reduction in tons transported was mainly a result of the challenging context faced in the region’s air cargo markets. In 2014, demand for imports on routes from the United States to Latin America decreased by 3% as compared to the previous year, with Brazil being the most affected country due to the impact of the SoccerWorld Cup, the uncertainty related to the presidential election and the country’s low economic growth. In addition, export markets from Latin America showed a contraction of 2%, explained mainly by a weak seed season in Chile that, where tons transported decreased by approximately 75% as compared to 2013. Apart from this specific case, other commodities showed healthy growth as in the case of asparagus from Peru, fish from Chile, flowers from Colombia and Ecuador and fruit from Argentina and Chile which, in the latter case, had an excellent season with very important traffic growth to Asia. In response to this situation, LATAM’s strategy in 2014 focused on the integrated optimization of the belly and freighter network, combined with a constant quest for efficiency in its operating costs and support areas, and the development and improvement of the processes, systems and infrastructure of its cargo business. In regard to its international cargo operations, the network was optimized by enhancing connecting cargo, mainly at Sao Paulo’s Guarulhos airport (where connecting tons increased by 13%) and expanding the network’s coverage. For example in Asia, LATAM expanded its coverage through agreements with Asian airlines and also opened a new office in Hong Kong. In addition, the good season for exports of fruit meant a 21% increase in the volume transported of this product as compared to the previous year. In 2014, LATAM, at a consolidated level, transported 1.1 million tons of cargo, down by 3% compared to 2013, while its capacity The ATK reduction was explained by structural changes in the itinerary of passenger planes used to transport cargo and by discipline in These efforts were reflected in the constant use of the bellies of passenger aircraft on 7 2 ANNUAL REPORT 2014 / OPERATIONSCargo Operation integrated network of freighters and passenger aircraft, increasing the agility and efficiency of connectivity, improving the value proposition for itsclients, optimizing its product portfolio and striving for excellence and operational efficiency. international routes where the load factor increased by 7 percentage points in two years, reaching 67.4% in 2014. The freighter fleet was also resized in line with the objectives of supporting belly and maximizing profitability. Four Boeing 767- 300Fs with a low utilization level were taken out of service, including one whose lease contract expired and three that were sub- leased to another operator outside Latin America starting in the end of the year. With the remaining fleet, priority was given to those operations that generate direct and indirect revenue synergies (for example, regional cargo operations between Brazil, Argentina and Chile or the Tucumán-Guarulhos route for connecting fruit cargo to North America and Europe). As a result, the contribution of cargo to belly profitability showed an increase of 67% on 2013. position, TAM Cargo invested around US$18 million in Brazil in infrastructure, service and security, including the construction of a new freight terminal at Guarulhos airport and the acquisition of state-of-the-art technology to minimize delivery times and have greater security at key freight terminals. In an intent to increase competitiveness throughout its network, synergies were also achieved with LATAM Airlines Group’s cargo subsidiaries (LAN Cargo, Mas Air and TAM Cargo), taking advantage of each subsidiary’s key strengths and finding synergies in LATAM’s operational and corporate support areas. This resulted in annual efficiency gains of US$5 million. In addition, processes were simplified using the LEAN methodology to obtain important operational efficiency gains and, similarly, organizational structures were simplified taking into account the long-term challenges. In the case of domestic cargo operations, Brazil is particularly important. TAM Cargo continues to be the leading player in that market with a market share of around 50%, despite increased competition. In order to maintain its leading In all, 2014 was a year of value construction for the LATAM Airlines Group’s cargo business, which is in line with its long-term strategy of strengthening competitiveness, optimizing the 7 3 ANNUAL REPORT 2014 / OPERATIONSLoyalty Programs In 2014, LAN and TAM continued to operate their respective loyalty programs - LANPASS and TAM Fidelidade - independently. However, passengers registered with the two programs were able to earn and redeem kilometers/ points on any flight in the network administrated by the two airlines and their associated airlines. At the same time, LATAM Airlines Group continued working in order to standardize the two programs in line with the process of homogenization to which LATAM is committed across all areas of its operations. At a service level, top tier members in each program are already recognized by the other program so, for example, LANPASS members can obtain upgrades on TAM flights and members of TAM Fidelidade on LAN flights. In addition, both may have access to the same airport services. LANPASS is the frequent flyer program created by LAN in 1984 to reward the preference and loyalty of its passengers through different benefits. Members of the program can exchange LANPASS kilometers for free tickets as well as different products from the program’s catalogue or other options such as gift cards from certain retail stores. The program includes four “elite” categories - Comodoro Black (“Black” as from March 2015), Comodoro, Premium Silver and Premium, which offer exclusive benefits to reward the loyalty of those members who are frequent flyers of the oneworld alliance. These categories have their equivalents in this alliance where Ruby corresponds to the Premium loyalty programs upgrade and service access category, Sapphire to Premium Silver and Esmerald to Comodoro and Black. 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 2014, Santander and LANPASS renewed their exclusive cobranding contract in Chile for five more years (2016-2020). Over the past 20 years, this agreement has allowed thousands of LANPASS members to earn kilometers that may be used for flights within Chile and around the world. As of December 2014, LANPASS had 9.8 million members, an increase of 15% compared to 2013, principally in Chile, Peru, Argentina, Colombia, Ecuador and the United States. TAM established TAM Fidelidade, Brazil’s first frequent flyer program, in 1993. The program is also designed to reward those passengers who 7 4 ANNUAL REPORT 2014 / OPERATIONS Loyalty Programs fly regularly with the airline, through different benefits and exclusive offers. Members earn points each time they fly with TAM, LAN or any of the airlines that form part of the oneworld alliance which TAM joined on 31 March 2014 (after previously belonging to Star Alliance). Points can also be exchanged for an upgrade if there’s seat availability. As of December 2014, TAM Fidelidade had 11.7 million members, which represented an increase of 8% as compared to 2013. The program includes four elite categories - Azul, Vermelho, Vermelho Plus and Black - which now have their equivalent categories in the oneworld alliance - Ruby for Azul, Sapphire for Vermelho and Emerald for Vermelho Plus and Black - giving members access to more benefits, including that of priority on the waiting list of any airline in the oneworld alliance. TAM Fidelidade is administrated by Multiplus, a company listed on the Sao Paulo stock exchange in which LATAM Airlines Group is the main shareholder with a 73% stake. Multiplus is Brazil’s largest and best loyalty network and allows members to accumulate Multiplus points in a single account, directly or indirectly (by transferring from an affiliated program) at more than 13,000 stores. Points can be exchanged for over 550,000 different products and services. As of December 2014, the Multiplus network comprised over 400 partners and had around 13.8 million members. Among the innovations done in 2014, TAM Fidelidade and TAM Viajens launched a new product, known as Points + Money, which allows members to redeem tickets as from 1,000 Multiplus points as well as increasing the number of redemption alternatives and providing access to better experiences and offers at TAM. 9.8 15% million members than 2013 11.7 million members 8% than 2013 7 5 ANNUAL REPORT 2014 / OPERATIONSProperty, Plant and Equipment HEADQUARTES Our main facilities are 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. from totally equipped offices. In addition, during 2014, LATAM began the construction of its first maintenance hangar in Miami, with an estimated surface of 6,200m2; 1,600m2 of wharehouses and workshops; and 1,350m2 for administrative purposes. 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 Our corporate offices are located in a more central location in Santiago, Chile. OTHER FACILITIES 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 up to 30 short- haul aircraft or 10 long-haul aircraft. 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 of around 4,450m2, a cargo warehouse (including meter cooling area) of around 35,000m2 and aircraft- parking platform of around 72,000m2, apart 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: LAN ECUADOR’S PROPERTY, PLANT AND EQUIPMENT 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 LAN ARGENTINA’S PROPERTY, PLANT AND EQUIPMENT LAN Argentina has approximately 18,000 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 Administrative Offices: 6,600 m2 Sales Offices: 2,600 m2 Concessions airports: 8,700 m2 7 6 ANNUAL REPORT 2014 / OPERATIONSProperty, 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. 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. BASE MAINTENANCE 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. 7 7 ANNUAL REPORT 2014 / OPERATIONSA N N U A L R E P O R T 2 0 1 4 / R EsU L Ts in d u s tRy ov eRv i e w R e g u l a t oRy FRaMe w oRk F i n a n c i a l R e s u l t s aw aRd s a n d R e c o g n i t i o n s Ma t eRi a l Fa c t s st o c k M aRk e t inFoR Ma t i o n ad d i t i o n a l inFoR Ma t i o n R i s k F a c t oRs Industry Overview This improvement in airlines’ results was possible thanks to the consolidation and capacity discipline seen in most regions which have been key for the success of operations. In 2014, the global airline industry was impacted by both positive and negative factors. The former included a drop in fuel prices to an average of US$113/barrel (jet fuel) and a slight expansion of the eurozone after its crisis of previous years, while the negative factors included the important depreciation of many local currencies against the dollar and the deceleration of some major economies, particularly China and Brazil. Despite these opposing forces, 2014 was a good year for the industry as a whole. This was reflected in a 5.9% increase in passenger traffic - above the average for the last ten years and with increases in demand in all the world’s different regions - and a significant improvement in the industry’s operating results and profits which are estimated to have reached US$19.9 billion (as compared to US$10.6 billion in 2013). This improvement in airlines’ results was possible thanks to the consolidation and capacity discipline seen in most regions which have been key for the success of operations. cost model, which has shown a significant expansion, and greater segmentation of passengers according to their travel needs. There also continues to be a trend towards the strengthening of alliances and cooperation agreements among the world’s airlines which has improved connectivity for passengers. North American airlines performed well in 2014 and, with their strengthened position and focus on profitability, once again achieved the best results globally, in a much less fragmented and more disciplined industry, with better labor relations and supported by the creation of increased ancillary revenues. In Europe, growth of traffic was driven by low-cost airlines while the major airlines showed greater capacity discipline, focusing on implementation of their cost restructuring programs. Although the economic context was a little more favorable than in previous years, difficulties persisted, principally due to the crisis between Russia and the Ukraine. At a domestic and regional level, there continues to be a trend towards the low- Traffic growth was highest in the Asia-Pacific region, where it was also driven by low-cost airlines and increased domestic demand, principally in China, despite the deceleration of this country’s economy. Currencies depreciated strongly against the dollar and competition intensified, principally with Middle Eastern operators on routes to Europe. The deceleration of Latin American economies, with the resulting strong depreciation of local currencies, and increased competition due to the arrival of new operators to the region, exerted pressure on operators’ unit revenues in 2014. The crisis in Venezuela also meant that some operators diverted capacity to other countries in the region with the resulting pressure on tariffs. Despite this challenging 7 9 ANNUAL REPORT 2014 / REsULTsIndustry Overview context - which also included the Football World Cup in Brazil in June and July - Latin American operators reported positive results in which capacity discipline, principally in Brazil, was a key factor. In the case of the cargo business, traffic showed a significant improvement, accelerating from 1.4% growth in 2013 to 4.5% in 2014, driven by stronger international trade in the second half of the year. However, this improvement occurred principally in Asia- Pacific and the Middle East while cargo traffic in Latin America remained weak, due mainly to lower imports in Brazil. One of the key events of 2014 was the drop in the price of jet fuel in the latter part of the year, which meant an annual average of US$113/ barrel, down by more than 8% on the previous year. The impact of this drop, although positive for the airline industry as a whole, differed by region depending on the strength/weakness of their economies and currencies and the level of competition. In some cases, hedging also meant that much of the benefit of lower fuel prices was not captured. In 2015, fuel prices are expected to remain low, benefiting airlines. Given the industry’s current structure and the fuel price outlook, the International Air Transport Association (IATA) anticipates an increase in global returns in 2015, with the industry’s profits reaching US$25 billion. It is important to note that global traffic growth would continue to be driven by emerging economies, principally in Asia-Pacific, the Middle East and Latin America. Due to their economic growth outlook and the still low penetration of air travel in these countries, this trend is expected to persist over the next 20 years. 8 0 ANNUAL REPORT 2014 / REsULTsRegulatory Framework 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. 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 international aviation industry, which Chilean authorities have incorporated 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. Chilean airlines are not required to obtain 8 1 ANNUAL REPORT 2014 / REsULTsRegulatory Framework permits in connection with 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 the unilateral opening of the Chilean domestic skies. This was confirmed in November 2013 and is valid as of today. International Routes. As an airline providing services on 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. 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 8 2 ANNUAL REPORT 2014 / REsULTsRegulatory Framework higher than those on competitive routes of similar distance. in compliance with the requirements for registration and, in particular, if: REGIsTRATION OF AIRCRAFT the ownership requirements are not met; or 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. 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 the aircraft does not comply with any applicable safety requirements specified by the DGAC. sECURITY 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. 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 developed by international commercial 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 for staff security 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. 8 3 ANNUAL REPORT 2014 / REsULTsRegulatory Framework 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 environmental laws and regulations of general applicability. There is no noise restriction regulation currently applicable to aircraft in Chile. However, Chilean authorities are planning to pass a noise-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. 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. 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. The Antitrust Court has the authority to impose a variety of sanctions for violations of the Antitrust Law, including termination of contracts 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. 8 4 ANNUAL REPORT 2014 / REsULTsRegulatory Framework 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: program in connection with the above- stated routes. 3. To enter into interline agreements covering the Santiago – São Paulo, Santiago – Río de Janeiro and/or Santiago – Asunción routes with interested airlines operating those routes which approach LATAM for that purpose. 4. To observe certain temporary capacity and offer restrictions on the Santiago – São Paulo route. 8. 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. 9. To express to the 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. 5. To implement certain amendments to 10. To commit, to the extent applicable, to LATAM’s Self-Regulatory Fare Plan applicable to its domestic business. promoting the growth and regular operation of the Guarulhos airport in São Paulo and the Arturo Merino Benítez airport in Santiago. 11. To comply with certain directives in granting incentives to travel agencies. 1. To exchange 4 pairs of daily slots at the Guarulhos Airport of São Paulo to be exclusively operated in non-stopflights servicing the SCL – GRU route 6. 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. 2. To extend its frequent flyer program for a 7. To comply with certain restrictions in 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 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. 12. 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 non-stop round-trip flights directly operated by LATAM and covering the 8 5 ANNUAL REPORT 2014 / REsULTsRegulatory Framework São Paulo and Santiago do Chile. These impositions are in line with the mitigation measures adopted by the TDLC, in Chile. Furthermore, the association was submitted to the antitrust authorities in Germany, Italy and Spain. All these jurisdictions granted unconditional clearances for this transaction. The merger was filed with the Argentinean antitrust authorities, which approval is still pending. routes between Chile and Europe. 13. 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. 14. To hire an independent consultant for a term of 3 years to provide advisory services to the Federal Economic Prosecutor’s Office in overseeing LATAM’s compliance with the Resolution. 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 flights between 8 6 ANNUAL REPORT 2014 / REsULTsFinancial Results LATAM Airlines Group reported an operating income of US$513.4 million in 2014 LATAM Airlines Group reported an operating income of US$513.4 million in 2014, representing a drop of 20.3% as compared to the previous year. Operating margin stood at 4.1%, down by 0.7 percentage points as compared to operating margin for 2013. These lower results reflected a weaker macroeconomic environment, with slower growth in South American countries and depreciation of local currencies; as well as a more challenging competitive environment for LATAM’s international operations, and the Football World Cup, which was held in Brazil in June and July, with a negative impact on results of some US$140 million to US$160 million. Total revenues in 2014 reached US$12,471.1 million as compared to US$13,266.1 million in 2013. This 6.0% drop was explained by reductions of 6.2% and 8.0% in passenger and cargo revenues, respectively, which was partly offset by a 10.6% increase in other revenues. These results include the negative impact on revenues denominated in Brazilian reais of this currency’s 9.1% average depreciation in 2014. As of 31 December 2014, passenger and cargo revenues accounted for 83% and 14% of total revenues, respectively. The 6.2% reduction in passenger revenues reflected a 1.9% increase in passenger traffic that was offset by a 7.9% drop in yields. In 2014, the load factor reached 83.4%, up by 2.5 percentage points on the previous year, with the increase driven by higher traffic accompanied by a 1.1% reduction in capacity. Consolidated revenues per ASK (RASK) were down by 5.1% on 2013, mainly due to lower yields which, in turn, were affected by intense competition in the international market, the depreciation of local currencies (principally the Brazilian real and the Chilean peso) and the impact of the Soccer World Cup on business demand in June and July. The reduction of capacity in 2014 as compared to 2013 was explained mainly by a 2.4% reduction in the LATAM’s international business as it continued to rationalize capacity on these routes, and ongoing discipline in the Brazilian domestic market where LATAM reduced its capacity for third consecutive year, in this case by 1.4%. Capacity in Spanish- speaking domestic markets continued to expand but at a slower pace, with an increase of only 3.7%, and in line with slower economic growth, mainly in Chile and Peru. The 8.0% drop in cargo revenues in 2014 reflected a drop of 3.3% in traffic and of 4.8% in yields. This was a result of the still weak global cargo markets, the weakness of imports from the region (mainly from Brazil) and greater competition in South America from other regional and international airlines. In response, LATAM reduced its cargo capacity by 5.6% in 2014, focusing on optimizing the utilization of the bellies of its passenger aircraft, while it gradually phases out of the fleet some of its cargo dedicated freighters, one of which was phased out in March 2014. The drop in yields also reflected the negative impact of the 9.1% depreciation of the Brazilian real on cargo revenues in that domestic market. Operating costs reached US$11,957.8 million in 2014, down by 5.3% as compared to 2013, resulting in a 2.4% reduction of the cost per ASK equivalent (including net financial costs). This decrease mainly reflected a reduction in expenditure on fuel and wages and the positive impact of the depreciation of local currencies on certain components of costs. At US$4,167.0 million, expenditure on fuel 8 7 ANNUAL REPORT 2014 / REsULTsFinancial Results points on its net margin in 2013. LATAM’s net loss in 2014 was affected by the fleet restructuring costs discussed above for US$112 million and an exchange-rate loss of US$130.2 million mainly due to the depreciation of the Brazilian real between 31 December 2013 and 31 December 2014. This compares to an exchange-rate loss of US$482.2 million recognized in 2013 when the imbalance of TAM’s assets and liabilities in Brazilian reais was higher. represented a drop of 5.6% from US$4,414.2 million in 2013. This was explained by both lower consumption and lower fuel prices. In 2014, fuel consumption measured in gallons was down by 3.7% in line with the Company’s strategy of rationalization of its passenger and cargo operations (as reflected in a 2.8% reduction in ASK-equivalents) and the initiatives it implemented during the year in order to achieve efficiency gains, principally related to the fleet. In the case of fuel prices, the reduction reflected a 4.9% drop in the fuel price (without hedging) in 2014. In addition, LATAM recognized a fuel hedging loss of US$108.7 million as compared to a fuel hedge gain of US$22.1 million in 2013. In the case of exchange-rate hedging, LATAM Airlines Group reported a gain of US$3.8 million on hedging for the Brazilian real in 2014, also recognized in the fuel cost line. Wages and benefits showed a drop of 5.7% in 2014, due principally to the decrease of 0.3% in the number of employees and the impact on wages of the depreciation of currencies, mainly the 9.1% depreciation of the Brazilian real and the 15.2% depreciation of the Chilean peso as compared to 2013. In the last quarter of 2014, LATAM also reported a recognized again of US$108 million related to the reversal of performance bonuses for the year. In 2014, LATAM Airlines Group reported one- time costs arising from the fleet restructuring plan it began to implement in the second half of 2013. This plan seeks to meet LATAM’s needs after the business combination and consists on reducing the number of aircraft models operated, gradually phasing out less efficient models and allocating the most appropriate planes to each of its markets. As a result, LATAM Airlines Group recognized a provision for fleet restructuring costs for US$112 million in the first quarter of 2014 as part of the process of gradually phasing out of its fleet all of its A330s, A340s, B737s, Dash 8-Q400s and Dash 8-200s. These one-time costs were mainly related to estimated fines resulting from the early delivery of aircraft and maintenance expenses for redelivery. Finally, LATAM Airlines Group reported a net loss of US$109.8 million in 2014 as compared to a net loss of US$281.1 million in 2013. This result implied a net margin of -0.9% which represented an improvement of 1.2 percentage 8 8 ANNUAL REPORT 2014 / REsULTsFinancial Results For the year ended December 31 2014 2013 Var. % REVENUE Passenger Cargo Other 10.380.122 11.061.557 1.713.379 1.862.980 377.645 341.565 TOTAL OPERATING REVENUE 12.471.146 13.266.102 EXPENSES Wages and Benefits Aircraft Fuel Comissions to Agents Depreciation and Amortization -2.350.102 -2.492.769 -4.167.030 -4.414.249 -365.508 -991.264 -408.671 -10,6% -1.041.733 Other Rental and Landing Fees -1.327.238 -1.373.061 Passenger Services Aircraft Rentals Aircraft Maintanence -300.325 -521.384 -452.731 -331.405 -441.077 -477.086 Other Operating Expenses -1.482.198 -1.642.146 TOTAL OPERATING EXPENSES -11.957.780 -12.622.197 -6,2% -8,0% 10,6% -6,0% -5,7% -5,6% -4,8% -3,3% -9,4% 18,2% -5,1% -9,7% -5,3% OPERATING INCOME Operating Margin NET INCOME Net Margin EBITDA EBITDA Margin EBITDAR EBITDAR Margin 513.366 4,1% -109.790 -0,9% 643.905 -20,3% 4,9% -0,7 pp -281.114 -2,1% -60,9% 1,2 pp 1.504.630 1.685.638 -10,7% 12,1% 12,7% -0,6 pp. 2.026.014 2.126.715 16,2% 16,0% -4,7% 0,2 pp. 8 9 ANNUAL REPORT 2014 / REsULTsFinancial Results For the year ended December 31 2014 2013 % Change SySTEM ASKs-equivalent (millions) RPKs-equivalent (millions) 206.198 212.237 153.978 153.485 Overall Load Factor (based on ASK-equivalent)% 74,7% 72,3% yield based on RPK-equiv (US Cent) Operating Revenues per ASK-equiv (US Cent) Costs per ASK-equivalent (US Cent) Fuel Gallons Consumed (millions) Average Trip Length (thousands km) 7,9 5,9 6,1 1.220 1,6 8,4 6,1 6,2 1.267 1,6 Total Number of Employees (End of Period) 53.072 52.997 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) 130.201 131.691 108.534 106.466 67.833 83,4% 9,6 8,0 7.220 4.317 1.102 59,8% 39,7 23,7 66.696 80,8% 10,4 8,4 7.652 4.467 1.171 58,4% 41,7 24,3 -2,8% 0,3% 2,4 pp -6,7% -3,7% -2,4% -3,7% 0,2% 0,1% -1,1% 1,9% 1,7% 2,5 pp -7,9% -5,1% -5,6% -3,3% -5,9% 1,4 pp -4,8% -2,5% 9 0 ANNUAL REPORT 2014 / REsULTsFinancial Results Passenger and cargo revenue breakdown by country For the year ended December 2014 2013 % Change SySTEM Peru Argentina EEUU Europa Colombia Brasil Ecuador Chile 660.057 646.217 813.472 950.595 1.224.264 1.290.493 935.893 937.539 391.678 387.999 5.361.594 5.572.884 248.585 273.712 1.589.202 1.698.476 Asia Pacific and rest Latin America 868.756 1.166.622 TOTAL 12.093.501 12.924.537 2,1% -14,4% -5,1% -0,2% 0,9% -3,8% -9,2% -6,4% -25,5% -6,4% 9 1 ANNUAL REPORT 2014 / REsULTsAwards and Recognitions Wines on the Wing / Global Traveler TAM: First place Best International Business Class Champagne: Drappier Carte d`Or, NV, Champagne, France - TAM Global Compart award: Program “I care for my destination” In 2014, the Airlines that make up LATAM Airlines Group received around 50 awards in various fields: Service on Board (excellence in wine and menu), Travel Experience (VIP Lounges, on board magazines) and Reputation, in addition to rankings that measure LATAM’s economic, social and environmental management. Below we highlight the most important recognitions that LATAM Airlines Group received during 2014: Best Investor Relations team, sustainability CEO Leader in Sustainability: Enrique Cueto Dow Jones sustainability Index 2014 LATAM joins the Global Dow Jones Sustainability Index, becoming the first airline in the Americas in having that recognition. skytrax 2014 Most recognized award in the industry. LAN: First place in category “Best Airline in South America”. LAN: First place in category “Best Service in South America”. TAM: Second place in category “Best Airline in South America”. Best of 2014 Awards Gala / Premier Traveler UsA First place in category “Best Airline to South America”. Corporate Transparency award Universidad del Desarrollo and Chile Transparente LAN 21° World Travel Awards (WTA) LAN: Best Airline in South America. Best of 2014 Awards Gala / Premier Traveler UsA LAN: First place category “Best Airline to South America”. Top of Mind Internet – DataFolha/UOL TAM: First Place in category airlines. The most beloved brands– Centro de Inteligência Padrão (CIP) TAM: First Place in category airlines. Award Empresa Alas20 (sustainable leaders) Award Best of Best Travelers’ Choice Favorites - TripAdvisor® TAM: First Place in category airlines. 9 2 ANNUAL REPORT 2014 / REsULTsstock Market Information During 2014, LATAM Airlines Group’s share price showed a loss of 14.4% while LAN’s ADR and BDR showed losses of 26.5% and 13.5%, respectively. As of 31 December 2014, LATAM had a market capitalization of US$ 6,536 million. In 2014, LATAM Airlines Group’s shares performed below Chile’s IPSA share price index, which showed an annual gain of 4.2%. Regarding the movements of the stock, this year LATAM Airlines Group stock had a 100% of market presence in the Santiago Stock Exchange. X E D N I A s P I 4100 3075 2050 1025 0 ) $ P L C I ( E C R P K C O T s 9.000 6.750 4.500 2.250 0 9 3 Ene 14 Mar 14 May 14 Jul 14 sep 14 Nov 14 IPsA INDEX LAN CI EQUITY ANNUAL REPORT 2014 / REsULTs stock Market Information ) $ s U I ( E C R P R D A 17 12,75 8,5 4,25 0 ) $ P L C I ( E C R P K C O T s 9.000 6.750 4.500 2.250 0 Ene 14 Mar 14 May 14 Jul 14 sep 14 Nov 14 LFL CI EQUITY LAN CI EQUITY 9 4 ANNUAL REPORT 2014 / REsULTs stock Market Information ) $ s U I ( E C R P R D A 38 28,5 19 9,5 0 ) $ P L C I ( E C R P K C O T s 9.000 6.750 4.500 2.250 0 Ene 14 Mar 14 May 14 Jul 14 sep 14 Nov 14 LAN CI EQUITY PX LAsT 9 5 ANNUAL REPORT 2014 / REsULTs stock Market Information Quarterly volume of share trading (santiago stock exchange) 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Nº of shares traded 64.710.000 107.445.492 57.157.847 38.877.169 Average price (CLP) Total value (CLP) 14.373 13.097 12.063 11.286 812.172.800.000 1.006.390.000.000 683.382.000.000 438.423.700.000 31.787.896 47.046.121 60.095.492 68.677.913 61.484.884 35.965.643 35.231.909 44.766.542 11.214 356.563.517.000 9.209 7.064 8.167 8.211 8.131 7.191 6.939 431.735.536.000 414.584.729.000 567.710.204.600 505.709.680.413 289.601.577.406 253.842.152.886 310.758.809.345 9 6 ANNUAL REPORT 2014 / REsULTsstock Market Information Quarterly volume of adR trading (nyse) 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Nº of ADRs traded 17.180.265 27.871.128 43.620.441 23.579.847 23.842.422 35.452.685 41.500.940 51.531.434 39.001.153 37.203.364 39.309.163 25.321.250 Average price (UsD) 29,20 25,97 25,37 23,48 23,62 19,05 13,91 15,93 14,88 14,67 12,39 11,58 Total value (UsD) 456.019.600 725.219.500 1.080.972.000 560.725.400 562.524.908 665.938.101 573.896.339 822.930.239 583.899.207 543.101.797 486.257.603 406.290.235 9 7 ANNUAL REPORT 2014 / REsULTsstock Market Information Quarterly volume of BdR trading (Bovespa) 2012 Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Nº of BDRs traded 35.857.854 5.982.600 1.118.000 1.581.895 1.027.918 1.214.565 93.816 223,6 90 147,6 105,6 Average price (BRL) Total value (BRL) 52,12 50,50 47,00 45,74 38,10 30,59 35,71 34,73 33,09 26,88 28,49 2.041.688.000 301.911.500 54.162.270 73.304.033 40.259.529 38.707.827 3.347.264 7.371.941 2.914.078 4.280.666 2.926.065 9 8 ANNUAL REPORT 2014 / REsULTsAdditional Information In 2014, as in previous sUPPLIERs INsURANCE years, the main suppliers of LATAM Airlines Group were the Airbus and Boeing aircraft manufacturers. In 2014, 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: MTU Maintenance Hannover, Celma Companhia Electromecanica, Rolls Royce PLC, International Aero Engines, General Electric Co. y CFM International Inc. (maintenance); Zodiac Seats US, Recaro, BE Aerospace and Zodiac seats UK (seats); Honeywell and Rockwell Collins (avionics); Air France, LUFTHANSA Technik and Fokker Services (MRO components); Panasonic, Thales and Zodiaz (in-flight entertainment); Messier Bugatti (landing gear and brakes); UTC Aerospace (Molding); and Heico Corp, AMG (repairs). In addition, the Company has a number of fuel suppliers such as Raizen Combustiveis S.A., Petrobras, Air BP, Shell, World Fuel Services, Repsol, among others. 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. 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, LATAM holds life and accident insurance on behalf of all its personnel including executives, staff in general and flight crews. TRADEMARKs AND PATENTs LATAM 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. 9 9 ANNUAL REPORT 2014 / REsULTsMaterial Facts On September 29, 2014 was published in the Diario Oficial the Law No. 20.780 which “Amends the system of income taxation and introduces various adjustments in the tax system”. Among the major tax reforms that such Law contains, the rate of First Category Tax which shall be declared and paid starting the tax year 2015, is gradually modified from 2014 to 2018. Such tax rate will reach 27% when opted for the partially integrated system, or will reach 25% if opted for the imputed rent system. The Law stipulates that in case of not exercising the option, the partially integrated system will be applied by default to stock corporations, which may be modified only after five years. On October 17, 2014, the Superintendency of Securities and Insurance issued the Oficio Circular No. 856 which establishes that the registration of the properties on assets and liabilities for deferred taxes, resulting from the amendments introduced by Law No. 20.780, as described above, as for September 30, 2014, shall be accounted against capital. LATAM Airlines Group S.A. has estimated an impact on its Financial Statements of approximately US$150 million when using the rate of the partially integrated system, considering that this system is applied by default to stock corporations. The estimated impact will be recognized as a net debit in Capital, as defined in the Oficio Circular No. 856. LATAM Airlines Group S.A. presents its Financial Statements to the Securities and Exchange Commission (SEC) of the United States of America and to the Comissão de Valores Mobiliários (CVM) in Brazil, under the International Financial Reporting Standards (IFRS), which establishes in the International Standard Accounting No. 12 - Income Taxes, that the effects of rate changes shall be recognized in the net results. Due to the before mentioned, the Company will recognize the impact noted in the preceding paragraph, in the Financial Statements that will be filed to the SEC and CVM, as a charge in Expense for Income Tax on the results for the period ended September 30, 2014. CHANGEs IN THE ADMINIsTRATION / sEPTEMBER 2, 2014 On this date Mrs. Maria Claudia Amaro has resigned as a member of the Board of Directors of the company, and in her place, the Board has elected Mr. Henri Philippe Reichstul. As a result, in the next annual general meeting of shareholders of LATAM Airlines Group S.A., its Board will be renewed and reelected. EXTRAORDINARY sHAREHOLDERs MEETING, CITATIONs, AGREEMENTs AND PROPOsITIONs / APRIL 29, 2014 CHANGEs IN THE ADMINIsTRATION / APRIL 29, 2014 An Ordinary Shareholders Meeting (Meeting) of LATAM Airlines Group S.A. (LATAM) held on April 29, 2014, LATAM’s shareholders elected the members of LATAM’s Board of Directors, who will hold office for two years. The following individuals were elected Directors at the Meeting: 1. Juan José Cueto Plaza. 2. Mauricio Rolim Amaro. 3. Maria Claudia Amaro. 4. Ramón Eblen Kadis. 5. Carlos Heller Solari. 6. Francisco Luzón López. 7. Ricardo J. Caballero. 8. Juan Gerardo Jofré Miranda. 9. Georges de Bourguignon Arndt. At a Regular Meeting held April 4, 2014, the Board of Directors of LATAM Airlines Group S.A. (hereinafter the “Company”) resolved to convene a Regular Shareholders Meeting at 10:00 a.m. on April 29, 2014 at Regal Pacifico Hotel, Salón Pacífico, Av. Apoquindo 5680, Las Condes, Santiago, Chile, to discuss the following matters: a) approval of the annual report, balance sheet and financial statements of the Company for the fiscal year ending December 31, 2013; b) election of the members of the Company’s Board of Directors; c) the compensation to be paid to the Company’s Board of Directors for the fiscal year ending December 31, 2014; The Directors named in numbers 7, 8 and 9 above were elected as independent directors, according to article 50-bis of Companies Law No. 18.046 of the Republic of Chile. d) the compensation to be paid to the Company’s Audit Committee and its budget for the fiscal year ending December 31, 2014; 1 0 0 ANNUAL REPORT 2014 / REsULTsshare, according to the Observed Dollar’s exchange rate published by the Central Bank of Chile and in force as of Thursday January 9, 2014, equivalent to ChP$8.072,60.- ; thus having raised an amount equivalent today to approximately US$156,5 million. Accordingly, the placement process of 100% of the 62,000,000 initially issued shares (which do not include the shares allocated to the Company and its subsidiaries’ worker compensation plans) placed by the Company and tied to aforementioned capital increase has concluded, having raised a total amount of US$ 940.5 million. Material Facts e) 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; f) information on the cost of processing, printing and sending the information indicated in Circular 1816 of the Securities and Insurance Commission; g) designation of the newspaper in which the Company will make publications; and h) other matters of corporate interest within the purview of a Regular Shareholders Meeting of the Company. OTHER / JANUARY 10, 2014 Regarding the capital increase authorized by the Extraordinary Shareholder’s Meeting held last June 11, 2013: On this date and through an Order Book Auction procedure carried out in accordance to the provisions of Section 2.4A of the Share Operations Manual of the Santiago Stock Exchange, have been placed a total of 10.314.872 shares that were not subscribed during the preemptive period concluded on December 19, 2013. The placement price was US$15,17.- per 1 0 1 ANNUAL REPORT 2014 / REsULTsRisk Factors LATAM does not control the voting shares or board of directors of TAM RIsK FACTORs RELATING TO OUR COMPANY alliances or commercial relationships terminates. • Any delays Airbus A350 aircraft could disrupt our fleet plan. • LATAM does not control the voting shares or • Our business and results of operation may board of directors of TAM • Our assets include a significant amount of goodwill. • A failure to successfully implement our strategy would harm our business and the market value of our ADSs and common shares. • A failure to successfully implement the new single brand may adversely affect our business and the market value of our ADSs and common shares. • It may take time to combine the frequent flyer programs of LAN and TAM • The financial results of LATAM are exposed to foreign currency fluctuations. • We depend on strategic alliances or commercial relationships in many of the countries in which we operate and our business may suffer if any of our strategic suffer if we fail to obtain and maintain routes, suitable airport access, slots and other operating permits. • A significant portion of our cargo revenues come from relatively few product types and may be impacted by events affecting their production or trade. • Our operations are subject to fluctuations in the supply and cost of jet fuel, which could negatively impact our business. • We rely on maintaining a high daily aircraft utilization rate to increase our revenues, which makes us especially vulnerable to delays. • We fly and depend upon Airbus and Boeing aircraft, and our business could suffer if we do not receive timely deliveries of aircraft, if aircraft from these companies becomes unavailable or if the public negatively perceives our aircraft. • If we are unable to incorporate leased aircraft into our fleet at acceptable rates and terms in the future, our business could be adversely affected. • Our business may be adversely affected if we are unable to meet our significant future financing requirements. • Our business may be adversely affected by our high degree of debt and aircraft lease obligations compared to our equity capital. • Variations in interest rates may have adverse effects on our interest payments business, financial condition, results of operations and prospects and the trading price of our ADRs and BDRs and preferred shares. • Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results of operations. 1 0 2 ANNUAL REPORT 2014 / REsULTs Risk Factors • Problems with air traffic control systems or other technical failures could interrupt our operations and have a material 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. • Our business relies extensively on third-party service providers. Failure of these parties to perform as expected, or interruptions in our relationships with these providers or their provision of services to us, could have an adverse effect on our financial position and results of operations. • Disruptions or security breaches of our information technology infrastructure could interfere with our operations, compromise passenger or employee information and expose us to liability, possibly causing our business and reputation to suffer. • Collective action by employees could cause operating disruptions and negatively impact our business. • High levels of competition in the airline industry may adversely affect our level of operations. • Increases in our labor costs, which constitute a substantial portion of our total operating expenses, could directly impact our earnings. • We may experience difficulty finding, training and retaining employees. • Chile has opened its domestic aviation industry to foreign airlines without restrictions, which may change the competitive landscape of the domestic Chilean aviation sector and affect our business and results of operations. RIsKs RELATED THE AIRLINE INDUsTRY • Our performance is heavily dependent on economic conditions in the countries in which we do business and negative economic conditions in those countries could have an adverse impact on our business. • Our business is highly regulated and changes in the regulatory envirorment in which we operate may adversely affect our business and results of operations. • A recent proposal by the Brazilian government would result in the reallocation of certain takeoff and landing slots at Brazilian airports; if this proposal is enacted in its current form, it would reduce our access to important airport infrastructure and adversely affect our results of operations. • Some of our competitors may receive external support which could negatively impact our competitive position. • The regulatory structure of Brazilian civil aviation is undergoing change and we have not yet been able to evaluate the results of this change on our business and results of operations. 1 0 3 • Our business may experience adverse • Losses and liabilities in the event of an consequences if we are unable to reach satisfactory collective bargaining agreements with our unionized employees. accident involving one or more of our aircraft could materially affect our business. ANNUAL REPORT 2014 / REsULTs Risk Factors • Our operations are subject to local, • Fluctuations in the value of the Brazilian real, national and international environmental regulations; costs of compliance with applicable regulations, or the consequences of noncompliance, could adversely affect our results, our business or our reputation. • Our business may be adversely affected by a downturn in the airline industry caused by exogenous events that affect travel behavior or increase costs, such as outbreak of disease, weather conditions and natural disasters, war or terrorist attacks. • Developments in Latin American countries and other emerging market countries may adversely affect the Chilean and Brazilian economies, negatively impact our business and results of operations and cause the market price of our common shares and ADSs to decrease. • Changes in the Chilean corporate tax rate or tax regime could adversely affect our financial results. Chilean peso and other currencies in the countries in which we operate may adversely affect our revenues and profitability. • The Brazilian government has exercised, and may continue to exercise, significant influence over the Brazilian economy, which may have an adverse impact on our business, financial condition and results of operations. • We are not required to disclose as much information to investors as a U.S. issuer is required to disclose and, as a result, you may receive less information about us than you would receive from a comparable U.S. company. RIsKs RELATED TO OUR COMMON sHAREs AND ADss • Our controlling shareholders may have interests that differ from those of our other shareholders. • Trading of our ADSs and common shares in the securities markets is limited and could experience further illiquidity and price volatility. • Holders of ADSs may be adversely affected by currency devaluations and foreign exchange fluctuations. • Future changes in Chilean foreign investment controls and withholding taxes could negatively affect non-Chilean residents that invest in our shares. • Our ADS holders may not be able to exercise preemptive rights in certain circumstances. 1 0 4 ANNUAL REPORT 2014 / REsULTsA N N U A L R E P O R T 2 0 1 4 / SU S T AiN Ab iLiTy CL I M A T E CH A N G E CO RpO R A T E CI T I Z E N S H Ip SU S T A I N AbI L I T Y GO V E R N A N C E SU S T A I N AbI L I T Y VI S I O N R E L A T I O N W I T H I N D U S T R I A L O R G A N I Z A T I O N S , G O V E R N M E N T S A N D R E G U L T A R O R Y I S S U E S Sustainability Vision In 2014, LATAM Airlines Group was able to report progress on sustainability management and compliance with the targets it had established. It is engaged in an ongoing process which is laying the foundations for the implementation of a new strategy that, as well as leveraging its business objectives, creates value for all its stakeholders. The materiality process carried out in 2013 to map and define the business’s most important economic, social and environmental issues and impacts played a crucial role in the design of the Corporate Sustainability Strategy 2015-2018. This strategy reflects LATAM’s quest to endure over time and represents a broader vision of the business under which the creation of value is not only a matter of the economic performance required by shareholders, investors and internal stakeholders but also incorporates suppliers, the community, customers and the environment. This integrated vision of how the business should be managed also incorporates the history and particular characteristics of LAN and TAM. 2015 will bring the challenge of launching and implementing the programs, activities and targets related to this strategy, laying the foundations for its continuity over the coming years and supporting LATAM’s objective of becoming one of the world’s three best airlines whilst always maintaining good relations and constant dialogue with all its stakeholders. The aim is not only to generate direct benefits for LATAM but also to benefit the stakeholders with which it has ties through management that seeks to mitigate its social and environmental risks, conserve the region’s tourism value, fulfill the expectations of customers and collaborators, facilitate access to the world’s most responsible investment funds and contribute to the Company’s aim of being the airline industry leader in the Dow Jones Sustainability Index. One of the principal achievements of 2014 was LATAM Airlines Group’s incorporation into the Dow Jones World Sustainability Index as the first airline group of the Americas to join this select group of companies. The most important of the different initiatives implemented in 2014 under LATAM’s Sustainability Strategy are set out below. The Strategy comprises three key dimensions designed to help ensure that LATAM Airlines Group becomes ever more sustainable: • Sustainability governance • Climate change • Corporate citizenship. Through its work on these three pillars, LATAM Airlines Group strives to improve the balance and interaction between economic, social and environmental dimensions in a quest to achieve economic growth, manage environmental impacts and contribute to social progress. This is the imperative that LATAM has established to define its success in the societies in which it operates. 1 0 6 ANNUAL REPORT 2014 / SUSTAiNAbiLiTy Sustainability Governance We define governance as the system that mobilizes and monitors sustainability and integrates it into the business, involving all our value chain. The most important dimension of managing a company is its decision-making structure and this is even more the case when seeking to move beyond the traditional business sphere and become an organization that makes a profound contribution to sustainable development. This is why, at LATAM Airlines Group, we are committed, starting with our leaders, to what was reflected in the recognition received by Enrique Cueto in 2014 as “General Manager Leader on Sustainability” from the Sustainable Leaders Agenda 2020 (ALAS20). In the framework of governance for sustainability, we have adopted the value chain vision and, as a result, management with our customers and suppliers is key. The provision of a service of excellence and an experience differentiated by client is a fundamental element for the success of LATAM Airlines Group’s businesses in both the passenger and cargo segments. We seek to optimize our processes based on a culture of continuous improvement, working to gain customer trust and loyalty, from the planning stage, flight options and check-in through to completion of the journey or delivery of the goods transported. In order to improve its services before and during flights, LATAM Airlines Group invested US$100 million in technology projects in 2014. We are working to transform the traditional travel experience into an experience that is agile and rapid, with shorter waiting times at the airport, less time between connecting flights, more in-flight entertainment options and greater information in the case of a contingency. The important advances achieved include the development of applications for smartphones through which customers can manage all the variables of their journey, including an electronic boarding card, from their phone. In the case of their flight experience, access to LAN and TAM Entertainment, a wireless entertainment system for personal devices, also offers passengers a greater range of options, allowing them to see films, TV series and videos on their own smartphones, tablets or laptops. In addition, they can access YouTube, with the best selection of content from its most popular channels. In the cargo business, an investment plan in systems for digital solutions for LAN and TAM clients was also implemented, representing an outlay of US$25 million. In 2014, progress was also achieved in client management and relations through customer services, with the implementation of a unified LAN and TAM system. All contacts are registered and analyzed so that customers receive a solution and personalized response. All these initiatives make a direct contribution to the sustainability of the business and to fulfillment of clients’ expectations. However, LATAM is committed to further deepening of measures for clients that boost the contribution to sustainable development. In the case of our suppliers, the definition in 2014 of LATAM Airlines Group’s Corporate Procurement Policy, aligning the policies of two institutions that were until recently independent and simplifying their processes, marked a milestone in relations with these 1 0 7 ANNUAL REPORT 2014 / SUSTAiNAbiLiTySustainability Governance stakeholders. This Policy, a copy of which was provided to all Procurement area employees, defines the sustainability principles which LATAM wants to see prevail throughout its value chain, highlighting aspects such as protection of human rights, anti-corruption practices, working conditions and socio- environmental responsibility. In addition, it establishes procedures for tenders and the standard price for different categories of suppliers. LATAM Airlines Group is also working on a pilot for the socio-environmental profiling and evaluation of suppliers and a plan of work has already been defined. The initial approach was based on identification of the risks inherent to the business and this will be developed using a risk matrix with four dimensions: restoration, mobilization, information technology (IT) services and safety. This initiative is an example of the work that LATAM undertakes through its Procurement and Supply Chain Vice-Presidency which constantly monitors aspects that can be considered critical such as equipment maintenance, back-up systems, overtime or health and safety at food suppliers. Finally, since local development is an important aspect of LATAM’s strategy, investment in companies in the countries where we operate is key. We, therefore, give priority to hiring local companies or the local subsidiaries of international companies in order to serve as an active partner in local economic development. 1 0 8 ANNUAL REPORT 2014 / SUSTAiNAbiLiTyClimate Change The United Nations Framework Convention on Climate Change (UNFCCC) defines this phenomenon as a change in the climate that alters the world’s atmosphere, causing significant harmful effects to the composition, resilience or productivity of natural ecosystems. The key objective in order to combat climate change is to stabilize and control greenhouse gas emissions. LATAM Airlines Group is aware of the impacts generated by the airline industry (which is responsible for 2% of the greenhouse gas emissions that can be attributed to human activity) and strives to be a world leader in this field, thereby also contributing to LATAM’s efficiency and competitiveness. LATAM’s principal environmental impacts take the form of the CO2 emissions, noise and waste generated by its flight and ground operations. It seeks to minimize these impacts through a range of specific programs and initiatives such as the implementation of an Environmental Management System, the reduction of its carbon footprint, increased use of alternative sustainable energies, the minimization of the waste generated and eco-efficiency. LATAM Airlines Group’s Environmental Management System, which is aligned with ISO 14001 requirements for ground operations and the Environmental Assessment (IEnvA) system developed jointly with IATA for flight operations, establishes controls on significant environmental aspects, efficiency programs, the optimization of processes and the management of risks related to the operation’s emissions. Most of our greenhouse gas emissions are a result of the burning of fuel, making efficiency gains, consumption reductions and good management key in this field. In this context, LATAM implements eco- efficiency measures and strives for continuous improvement through, for example, the acquisition of modern aircraft with latest- generation engines and the adoption of efficiency criteria that imply environmental improvements in decisions relating to the fleet, including the acquisition of aircraft and their operation and maintenance. The LEAN Fuel and Smart Fuel Programs have implemented at least 20 initiatives, including important investments in fleet renewal, efficiency gains in routes and flight times thanks to the use of new technologies such as the Required Navigation Performance (RNP) system, the use of platforms for partial disembarkation, control of air conditioning, optimization of the cargo capacity of passenger and cargo services through the development of innovations that reduce on-board weight and the update and washing of engines. The results speak for themselves in that, in 2014, LATAM Airlines Group was able to reduce its CO2 emissions by 298,184 tons. Another fundamental aspect of eco-efficiency has to do with the conditions in which the fleet operates. Constant maintenance and fleet renewal are, therefore, key. In line with this, LATAM updates, replaces and washes engines as a preventive strategy, allowing it to increase the efficiency of fuel consumption and reduce the impact on the environment. In addition, as part of its strategy of leadership, LATAM strives to have one of the industry’s youngest fleets and currently has 327 aircraft with an average age of less than seven years. Our efforts to control and minimize impacts were also reflected in LATAM’s flights in Brazil 1 0 9 ANNUAL REPORT 2014 / SUSTAiNAbiLiTyClimate Change for the Football World Cup. These flights to the 12 cities that hosted matches compensated for 100% of their greenhouse gas emissions, equivalent to a total of 100,000 tonnes corresponding to over 4,500 flights. The projects associated to Premium carbon credits offer important benefits for communitires involved, such as diodiversity preservations, social inclusion, cultural stimulation and health. As a way of reducing its carbon footprint, the air transport industry attaches great importance to the development of demand for and use of more efficient alternative energies with less impact on the environment. As a company, we adhere to these efforts and are involved in research to promote the use of second-generation biofuels by aircraft and were the first in South America to carry out flights using this technology. One of the key aims of LATAM Airlines Group and of the industry is to achieve carbon-neutral growth by 2020. In line with this, 2014 was the third consecutive year in which LAN Perú compensated for its ground operations by contributing to reforestation of the Peruvian Amazon in collaboration with the Bosques Amazónicos company (BAM). Similarly, LAN Colombia compensated for its ground emissions by acquiring carbon credits from an emblematic project to reduce emissions caused by deforestation and forest degradation (REDD) in the Chocó Darién conservation corridor. This project has obtained gold certification under the Climate, Community, and Biodiversity (CCB) standard and, moreover, uses 35% of the revenues obtained from the sale of credits in community development projects. The most important impacts of the airline industry’s operations also include noise and air quality. LATAM Airlines Group permanently controls these aspects and implements different measures to manage and reduce the noise it generates by, for example, investing in more modern and silent engines and the use of only one engine for hangar and airport operations (one-engine taxi). In the coming years, the strategic challenge for LATAM Airlines Group as regards environmental sustainability will be to achieve full implementation of its Environmental Management System in 100% of its operations. 1 1 0 ANNUAL REPORT 2014 / SUSTAiNAbiLiTyCorporate Citizenship Corporate citizenship is the framework in which we understand our performance vis-à-vis society and within which we contribute to social progress. This involves both communities in the places where we operate and our collaborators. In this area, 2014 was an important year due to the implementation of the LATAM culture and its communication to all our employees. Under this culture, LATAM Airlines Group seeks and brings together people who share the key value of Passion which is, in turn, reflected in the values that guide our behavior - Passion for safety, Passion for the customer, Passion for the team and Passion for excellence. Our aim is for LATAM Airlines Group’s 53,072 collaborators to achieve their best performance, be committed and, above all, geared to the customer and able to develop and grow in the organization. To this end, LATAM seeks to ensure that all its collaborators are familiar with and aligned with the company’s objectives, working in a way that is efficient and agile, with clear roles and in a coordinated manner. The benefits we offer collaborators include life insurance, health insurance, a pension fund, child care assistance and coverage for persons with disabilities. In the case of employee training, we have focused on achieving a complete learning experience. In 2014, we invested US$39,157 in internal training, offering 1,910,367 hours of training, and US$430,652 in the provision of 150 scholarships for our collaborators. Employee health and safety is a key issue for the aviation industry and LATAM Airlines Group, therefore, gives priority to maintaining the lowest accident rates. For this purpose, we use management tools that range from behavioral aspects to physical safety, eliminating potential risks through rules and procedures. Since LATAM operates in numerous countries in the region, its impacts are broad in scope. As part of our community relations, we have, therefore, defined a strategy that includes sustainable tourism and social investment. Our principal responsibility is to foster sustainable development together with our stakeholders in the different countries where we operate since our main impact in the region is the connectivity we provide. We seek to position ourselves as leaders in sustainability in the region and as promoters of sustainable tourism as one of the keys to its development. For our work in this area, we have defined four pillars whose transversal axis is the integration of stakeholders’ efforts. In the case of sustainable tourism, we once again implemented the Cuido mi destino (I look after my destination) program in Argentina, Chile, Colombia, Ecuador and Peru in 2014, completing five years since the launch of this initiative. Under this program, students and members of the community work together to restore public spaces with tourism value, such as the monuments and/or important buildings of each city. Students and local authorities are also able to attend talks about tourism awareness, the environment and local culture, helping to foster responsible tourism and promote Latin America’s historical and cultural heritage. Since its creation in 2009, this program has been implemented in 21 cities across Latin America, with the participation of over 2,600 students along with volunteers from LATAM Airlines Group. In the case of social investment, we have focused on the contribution that, as a company, we can make to non-government organizations that, through their work, seek to foster the region’s development, combating poverty and promoting conservation of the environment, citizen participation and protection of human rights. We support these organizations by transporting volunteers or making direct donations. The organizations we support include Un Techo para Mi País, América Solidaria, Coaniquem, María Ayuda, Corporación la Esperanza, UNICEF, Make-a-Wish, Childhood, Fundación Amazonia Sustentable and Central Nacional de Trasplantes. 1 1 1 ANNUAL REPORT 2014 / SUSTAiNAbiLiTyRelation With industrial Organizations, Governments and Regultarory 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 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. LATAM 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. In order to ensure proper relations with government representatives and associations, we use LATAM’s codes of conduct as reference. In addition, as part of our compliance program, we are implementing a calendar of training on governance and ethics. 1 1 2 ANNUAL REPORT 2014 / SUSTAiNAbiLiTyLATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 (FREE TRANSLATION) 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 Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries. Notes Page 1 - General information ....................................................................................................................... 1 2 - Summary of significant accounting policies .................................................................................. 5 2.1. Basis of Preparation ................................................................................................................. 5 2.2. Basis of Consolidation ............................................................................................................. 8 2.3. Foreign currency transactions .................................................................................................. 9 2.4. Property, plant and equipment ............................................................................................... 10 2.5. Intangible assets other than goodwill ..................................................................................... 11 2.6. Goodwill ................................................................................................................................. 11 2.7. Borrowing costs ..................................................................................................................... 12 2.8. Losses for impairment of non-financial assets ....................................................................... 12 2.9. Financial assets ....................................................................................................................... 12 2.10. Derivative financial instruments and hedging activities ...................................................... 13 2.11. Inventories ............................................................................................................................ 14 2.12. Trade and other accounts receivable .................................................................................... 14 2.13. Cash and cash equivalents .................................................................................................... 15 2.14. Capital .................................................................................................................................. 15 2.15. Trade and other accounts payables ....................................................................................... 15 2.16. Interest-bearing loans ........................................................................................................... 15 2.17. Current and deferred taxes ................................................................................................... 15 2.18. Employee benefits ................................................................................................................ 16 2.19. Provisions ............................................................................................................................. 16 2.20. Revenue recognition ............................................................................................................. 17 2.21. Leases ................................................................................................................................... 18 2.22. Non-current assets (or disposal groups) classified as held for sale ...................................... 18 2.23. Maintenance ......................................................................................................................... 18 2.24. Environmental costs ............................................................................................................. 19 3 - Financial risk management .......................................................................................................... 19 3.1. Financial risk factors .............................................................................................................. 19 3.2. Capital risk management ........................................................................................................ 33 3.3. Estimates of fair value ............................................................................................................ 34 4 - Accounting estimates and judgments ........................................................................................... 37 5 - Segmental information ................................................................................................................. 39 6 - Cash and cash equivalents ........................................................................................................... 42 7 - Financial instruments ................................................................................................................... 45 7.1. Financial instruments by category .......................................................................................... 45 7.2. Financial instruments by currency ......................................................................................... 47 8 - Trade, other accounts receivable and non-current accounts receivable ....................................... 48 9 - Accounts receivable from/payable to related entities .................................................................. 51 10 - Inventories ................................................................................................................................. 52 11 - Other financial assets ................................................................................................................. 53 12 - Other non-financial assets .......................................................................................................... 54 13 - Investments in subsidiaries ........................................................................................................ 55 14 - Intangible assets other than goodwill ......................................................................................... 58 15 - Goodwill .................................................................................................................................... 59 16 - Property, plant and equipment ................................................................................................... 61 17 - Current and deferred tax ............................................................................................................ 68 18 - Other financial liabilities ............................................................................................................ 73 19 - Trade and other accounts payables ............................................................................................ 81 20 - Other provisions ......................................................................................................................... 83 21 - Other non-financial liabilities .................................................................................................... 86 22 - Employee benefits ...................................................................................................................... 87 23 - Accounts payable, non-current .................................................................................................. 88 24 - Equity ......................................................................................................................................... 88 25 - Revenue ..................................................................................................................................... 94 26 - Costs and expenses by nature .................................................................................................... 94 27 - Other income, by function ......................................................................................................... 96 28 - Foreign currency and exchange rate differences ........................................................................ 96 29 - Earnings per share .................................................................................................................... 105 30 - Contingencies ........................................................................................................................... 106 31 - Commitments ........................................................................................................................... 115 32 - Transactions with related parties ............................................................................................. 120 33 - Share based payments .............................................................................................................. 121 34 - The environment ...................................................................................................................... 124 35 - Events subsequent to the date of the financial statements ....................................................... 125 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. 16,849,80620,484,43017Deferred tax assetsTotal non-current assetsGoodwillProperty, plant and equipment1516407,323Total assetsTax assets1717,663342,81330,465-1,880,0793,313,40110,773,076Tax assets17Other non-financial assetsAccounts receivableOther financial assetsEquity accounted investmentsIntangible assets other than goodwill14127 - 87 - 113,634,62484,986Non-current assetsTotal current assetsTotal current assets other than non-current assets (ordisposalgroups)classifiedasheldforsaleorasheldfordistribution to owners7 - 9Other financial assetsOther non-financial assetsTrade and other accounts receivableAccounts receivable from related entities107 - 8100,708Inventories1,378,837308266,039Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners4,977,1042,445December 31,2014As ofAs of989,396650,401247,871December 31,2013ThUS$3,633,5601,06481,890231,0286281,633,094ASSETS335,617709,9441,984,903ThUS$NoteCurrent assetsCash and cash equivalents7 - 11126 - 717,651,59722,631,1464,979,54965,289402,96210,982,7863,727,6052,093,3086,596100,775272,276- LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. Total liabilitiesTreasury SharesTotal equityTotal liabilities and equityOther reserves245,238,821(178)24536,190(178)1,320,1794,401,896795,3032,054,312Retained earnings24Other financial liabilities7 - 18Trade and other accounts payables7 - 19Accounts payable to related entities7 - 91,624,6152,039,7871,557,73650527,85611,583LIABILITIES AND EQUITYLIABILITIESNote20142013December 31,December 31,As ofAs ofThUS$ThUS$Other provisionsCurrent liabilitiesTotal current liabilities22Other non-financial liabilities21355,4017 - 181,489,3963512,41117,889Other provisions20703,1405,829,7322,685,38620Tax liabilities171,122,247Total non-current liabilities2,871,6406,509,1077,389,012577,4547,859,985922,887Other non-financial liabilities21Non-current liabilitiesAccounts payable7 - 23Other financial liabilities10,151,003767,22845,666Employee benefits77,567Deferred tax liabilities1710,795,5802,389,384Share capital242,545,705EQUITY1,051,89474,10215,980,73517,304,687101,7994,503,69520,484,4305,326,459Non-controlling interest1387,638Parent's ownership interest22,631,146 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME BY FUNCTION The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. Net income (loss) for the year(76,961)(263,819)Diluted earnings (losses) per share (US$)(0.20125)Basic earnings (losses) per share (US$)29(0.20125)29EARNINGS PER SHARE(0.57613)(0.57613)non-controlling interest1332,829Income (loss) attributable to(281,114)17,295(263,819)NET INCOME (LOSS) FOR THE PERIOD(76,961)of the parent(109,790)Income (loss) attributable to ownersIncome (loss) tax expense / benefit17(142,194)Income (loss) before taxes65,233(482,174)214(283,888)20,069for using the equity method(6,455)Financial costs26(430,034)1,954Share of profit of investments accountedResult of indexation units7Foreign exchange gains/(losses)28(130,201)Gross margin2,469,000Cost of salesFinancial income90,500Other gains/(losses)33,524Other expenses(401,021)Gains (losses) from operating activities541,416Administrative expenses(980,660)Distribution costs(957,072)Other income27377,645(9,624,501)For the period endedDecember 31,2013ThUS$12,924,537(10,054,164)Revenue2512,093,501ThUS$Note20142,870,373341,565(1,025,896)(1,136,115)(408,703)(55,410)585,81472,828(462,524) LATAM AIRLINES GROUP S.A AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. that will be reclassified to income before taxesNote2014For the periods endedDecember 31,(76,961)2013(263,819) ThUS$ before tax28Gains (losses) on currency translation,NET INCOME (LOSS)Components of other comprehensive income Currency translation differences ThUS$ currency translation differences Other comprehensive income, before taxes, (650,439) before taxes18Gains (losses) on cash flow hedges Cash flow hedges(163,993)Other comprehensive income (losses), (163,993)Other components of other comprehensive(814,432)(501,692)--47,979(19,345) Income tax related to cash flow hedges in other that will be reclassified to income of other comprehensive income47,979Income taxes related to components(19,345)Comprehensive income (loss) attributable to (766,453)(843,414)Other comprehensive income (loss)(521,037)(784,856)Comprehensive income (loss) attributable to owners of the parent(830,502)(768,457)TOTAL COMPREHENSIVE INCOME (LOSS)non-controlling interests(12,912)(843,414)(16,399)(784,856)(650,439)Total comprehensive income (loss)that will be reclassified to income income (loss), before taxesbefore taxes, cash flow hedges comprehensive incomeIncome tax relating to other comprehensive income (629,858)(629,858)128,166128,166 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. Change in other reserves(6,423)20,650(12,912)(22,052)-87,638(720,712)(109,790)Cash flowThUS$(830,502)(720,712)32,829795,303(109,790)-reserveThUS$2,657,8002,054,312--(109,790)-156,321--(45,741)(720,712)Attributable to owners of the parentNotecapitalreserveTreasurysharesinterestownershipParent'sTotalother reserveSharehedgingCurrencytransfers and other changes, equity2,389,384Total comprehensive income--Transactions with shareholdersGain (losses)24-24-33Equity issuanceThUS$24-33Equity as of January 1, 2014Shares basedThUS$reservepayments(589,991)(603,880)-21,011---translation(116,832)ThUS$----(34,508)--(603,880)156,321(178)December 31, 2014 Increase (decrease) throughComprehensive income Total increase (decrease) in equity-2,545,705(178)156,321--Closing balance as ofTotal transactions with shareholdersOther comprehensive income (1,193,871)(151,340)29,6428,6318,631--(116,832)(22,052)2,635,748---(13,421)27,073--27,073156,321(13,421)(162,744)(149,323)1,320,179ThUS$5,326,4595,238,821(149,323)536,1904,401,896101,7994,503,695(76,961)(766,453)(843,414)(135,671)- Non-controllinginterestTotalequityThUS$sundryreserveThUS$OtherThUS$earningsRetainedThUS$ThUS$ LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. (263,819)(521,037)(784,856)-ThUS$TotalequityThUS$sundryreserveThUS$---OtherThUS$earningsRetainedThUS$ThUS$5,220,6855,112,0512,666,6822,535,100281--5,326,45987,6386,6572,060(4,597)895,227(4,597)890,6306,5552815,238,82121,011795,303106,222(8,882)2,054,312transfers and other changes, equity24-33-888,366--(487,343)-(178)888,57025--106,222-5,574-(593,565)(203)----2,389,384(589,991)Closing balance as ofTotal transactions with shareholdersDecember 31, 2013(34,508)Dividends24(25)24-33Equity issuance25-2,657,800Shares basedThUS$reservepayments3,574ThUS$(140,730)----24-Equity as of January 1, 2013Increase (decrease) throughOther comprehensive income (593,565)ThUS$(179)reserveThUS$Transactions with shareholdersGain (losses)Comprehensive income Total increase (decrease) in equityTotal comprehensive income1,501,018---Attributable to owners of the parentNotecapitalreserveTreasurysharesinterestownershipParent'sTotalotherreserveSharehedgingCurrencyChange in other reserves17,295(33,694)(487,343)translation--1,076,136(281,114)-(281,114) Non-controllinginterest-(768,457)(16,399)6,555(8,882)108,634(487,343)(281,114)15,43715,437Cash flowThUS$---888,570888,570---- LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements. (1,440,445)13,367,838Payments for operating activitiesPayments to suppliers for goods and servicesPayments to and on behalf of employeesInterest receivedCash flows used to obtain control of subsidiaries or other businessesinstruments of other entitiesOther payments for operating activities2014For the periods endedDecember 31, ThUS$2013Proceeds from sales of goods and servicesOther cash inflows (outflows)Other payments to acquire equity Other cash receipts from operating activitiesCash flows from operating activitiesCash collection from operating activitiesNote ThUS$225,196(1,381,786)13,406,2754,638(9,570,723)(2,405,315)96,931(8,823,007)(31,215)11,310(83,033)76,761(474,656)564,266(2,433,652)11,589518 - 1,331,4391,408,698(5,517)270,485(440,801)(251,657)(108,389)(528,214)(497)(43,484)Cash flows used in investing activitiesNet cash flows from operating activitiesAmounts raised from issuance of shares6before effect of exchanges rate change Cash flows from (used in) financing activitiesPurchases of property, plant and equipmentNet cash flow from (used in) investing activities6Other cash inflows (outflows)Effects of variation in the exchange rate on cash and cash equivalentsOther cash inflows (outflows)Other cash receipts from sales of equity or debt 650,2631,984,903Income taxes refunded (paid)(995,507)(35,362)(368,789)(2,315,120)(394,131)(1,320,226)156,321(887,892)(899,105)Cash flows used in the purchase of non- controlling interest - CASH AND CASH EQUIVALENTS AT END OF PERIOD6989,3961,984,9036CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD6Payment from other long-term assets524,370(55,759)Amounts raised from sale of property, plant and equipmentNet cash flows from (used in) financing activitiesLoans repayments(17,399)or debt instruments of other entitiesNet increase (decrease) in cash and cash equivalents(107,615)Payments of finance lease liabilitiesInterest paid(13,777)1,101,159(1,952,013)(423,105)(29,694)(361,006)(62,013)1,335,681(1,041)1,334,640Purchases of intangible assets1,042,820603,1514,66122,14475,448(1,278,812)888,949 - 2,043,518Amounts raised from long-term loansNet increase (decrease) in cash and cash equivalentsAmounts raised from short-term loansPayments to acquire or redeem the shares of the entity1,205,795Dividends paid LATAM AIRLINES GROUP S.A AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014 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”). Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are performed directly or through its subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia. The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca. Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the SVS and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs, and the Federal Republic of Brazil and the Comissão de Valores 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., Costa Verde Aeronáutica SpA, Inversiones Nueva Costa Verde Aeronáutica Limitada, 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, Inversiones La Espasa Dos y Cía. Ltda., Inversiones Puerto Claro Dos y Cía. Limitada and Inversiones Mineras del Cantábrico S.A. owns 25.49% 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. 2 As of December 31, 2014, the Company had a total of 1,622 registered shareholders. At that date approximately 7.69 % of the Company’s share capital was in the form of ADRs and approximately 0.53% in the form of BDRs. For the period ended December 31, 2014, the Company had an average of 53,300 employees, ending this period with a total of 53,072 employees, spread over 10,077 Administrative employees, 6,986 in Maintenance, 17,517 in Operations, 9,237 in Cabin Crew, 4,009 in Controls Crew, and 5,246 in Sales. 3 The main subsidiaries included in these consolidated financial statements are as follows: a) As of December 31, 2014 (1) (2) The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest. The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a 99.9983% participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company. During 2014 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of ThUS$ 250,000. 96.575.810-0BahamasChileChileForeignForeign96.969.690-8100.00001,27241 60,634 45,589 16,035 Lan Cargo Inversiones S.A. and Subsidiary (1)Inversiones Lan S.A. and Subsidiaries (1)0.000099.7100(12,711)138 ArgentinaARS100.0000100.0000Chile100.000099.010096.969.680-0ForeignForeign93.383.000-4ForeignForeign96.951.280-7Cayman IslandsChilePeruChileU.S.A.0.0000U.S.A.96.634.020-7ChileChile100.0000U.S.A.Chile96.763.900-149.000099.8361575,979 27,431 18,120 (1,422)99.990022,897 3,229 39,920 640,020 239,470 2,015 0.0100Net Income% interestownershipDirectIndirectownershipinterest%Totalownership interest%AssetsLiabilitiesThUS$Participation rateStatement of financial positionGain(loss)ThUS$ForeignTax No.Lantours Division ServiciosTerrestres S.A. and SubsidiariesInmobiliaria Aeronáutica S.A.Lan Pax Group S.A. and Subsidiaries (1)Lan Perú S.A.Lan Chile Investments Limited and Subsidiaries (1)Lan Cargo S.A. Connecta CorporationPrime Airport Services Inc. and Subsidiary (1)Transporte Aéreo S.A.Ediciones Ladeco América S.A.Aircraft International Leasing LimitedFast Air Almacenes de Carga S.A.Ladeco Cargo S.A.Laser Cargo S.R.L.Lan Cargo Overseas Limited and Subsidiaries (1)Foreign96.631.520-2TAM S.A. and Subsidiaries (1) (2)Company96.518.860-696.631.410-9BrazilCountryof originUS$US$US$US$US$US$US$US$US$CLPCLPUS$CLPCLPBRLCLPUS$FunctionalChileChileCurrency100.00000.99000.1639100.0000100.0000100.0000100.000063.090199.71000.00000.00000.00000.00000.00000.00000.0000100.000099.893999.990021.00000.01000.00410.00000.00006,817,698 46,686 59,768 14,746 5,809,529 - 9,601 36.9099100.0000100.0000100.000070.0000100.000099.8980100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000- 367,570 2,289 16,854 1,065,157 228,395 - 234,772 28,853 1,058(114,511)1,9062,0747405,689 - (484)EquityThUS$94023,066(426,016)11,0752,015341,207(4,777)220,292ThUS$912,634(4,546)(4,276)(9,966)2,844333(97)12,218171,655(8,983)1269232,805 - (84,603)107346 147,278 484 - 3,912 13 b) As of December 31, 2013 4 (1) (2) The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest. The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a 99.9983% participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company. During 2013 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of ThUS$ 1,650,000. 239,294617,035517(1,246)3,685(1)368(149)96,817(458,475)(4,129)(34)(2)1,802(5) - 111,04378EquityThUS$51226,429(246,521)11,407(829)359,113(4,884)381 120,399 560 2,805 3,684 13 - 359,693 2,210 12,124 901,851 252,109 5,248 413,527 2,171 3,755(104,966)1,231787(356)6,991(2,805)(560)8,695,458 256,109 48,630 8,933 7,983,671 - 10,675 36.9099100.0000100.0000100.000070.0000100.000099.8980100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.0000100.00000.99000.1639100.0000100.0000100.0000100.000063.090199.71000.00000.00000.00000.00000.00000.00000.0000BrazilCountryof originUS$US$US$US$US$US$US$US$US$CLPCLPUS$CLPCLPBRLCLPUS$FunctionalChileChileCurrencyForeignTax No.Lantours Division ServiciosTerrestres S.A. and SubsidiariesInmobiliaria Aeronáutica S.A.Lan Pax Group S.A. and Subsidiaries (1)Lan Perú S.A.Lan Chile Investments Limited and Subsidiaries (1)Lan Cargo S.A. Connecta CorporationPrime Airport Services Inc. and Subsidiary (1)Transporte Aéreo S.A.Ediciones Ladeco América S.A.Aircraft International Leasing LimitedFast Air Almacenes de Carga S.A.Ladeco Cargo S.A.Laser Cargo S.R.L.Lan Cargo Overseas Limited and Subsidiaries (1)Foreign96.631.520-2TAM S.A. and Subsidiaries (1) (2)Company96.518.860-696.763.900-1Net Income% interestownershipDirectIndirectownership interest%Totalownership interest%AssetsLiabilitiesThUS$Participation rateStatement of financial positionGain(loss)ThUS$ThUS$99.893999.990021.00000.01000.00410.00000.000049.000099.8361772,640 9 13,528 (2,162)99.990018,412 2,722 38,553 641,589 263,516 4,419 0.010096.631.410-9Chile100.000099.010096.969.680-0ForeignForeign93.383.000-4ForeignForeign96.951.280-7Cayman IslandsChilePeruChileU.S.A.0.0000U.S.A.96.634.020-7ChileChile100.0000U.S.A.Chile96.575.810-0BahamasChileChileForeignForeign96.969.690-8100.00006,42152 354,250 39,419 15,362 Lan Cargo Inversiones S.A. and Subsidiary (1)Inversiones Lan S.A. and Subsidiaries (1)0.000099.7100(9,937)201 ArgentinaARS100.0000100.0000100.0000 5 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 and Guanay Finance Limited, destined to the issuance of securitized bond, as the Company has major risks and benefits associated to them according to standards issued by the International Financial Reporting Standards: Consolidated Financial Statement (IFRS 10) 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, 2013 and December 31, 2014, are detailed below: (1) Incorporation or acquisition of companies - On October 11, 2013, TAM S.A., under each contracts of sale of shares with Lan Cargo Overseas Limited (indirect subsidiary of LATAM Airlines Group S.A.) , TADEF, Participação e Consultoria Empresarial Ltda. y Jochman Participações Ltda. acquired the 100% of the shares of Aerolinhas Brasileiras S.A. (ABSA). The effect of this transaction on LATAM Airlines Group S.A. corresponds to the purchase of shares on ABSA that possessed the companies TADEF, Participação e Consultoria Empresarial Ltda. and Jochman Participações Ltda., which represented the non-controlling interest on the acquired company. - Lan Pax Group S.A. is the direct owner of 55% of Aerolane Líneas Aéreas Nacionales del Ecuador S.A., during 2014 obtains the 100% of the economic rights, through its participation in the company Holdco Ecuador S.A., who is owner of 45% remaining of Aerolane Líneas Aéreas Nacionales del Ecuador S.A. By this Lan Pax Group S.A. is owner of 20% of shares with voting rights and is owned of 100% with the economic rights. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements. 2.1. Basis of Preparation The consolidated financial statements of LATAM Airlines Group S.A. are for the period ended December 31, 2014, and have been prepared in accordance with Standards an Instructions by Chilean Superintendency of Securities and Insurance (“SVS”), which, except as provided by its Office Circular No. 856, as detailed in the following paragraph are in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC). On September 26, 2014 the law No. 20,780 was promulgated, and on September 29, 2014 was published in the Official Journal of the Republic of Chile, which introduces modifications to the tax system in Chile concerning income tax, among other matters. In relation to the Law, 6 on October 17, 2014 the SVS issued Office Circular No. 856, in which it decided that the restatement of assets and liabilities by deferred income taxes that occur as a direct effect of the First- Category Tax rate increase introduced by Law No. 20,780 (Tax reform) will be held in equity and not as indicates the IAS 12. In notes 2.17 and 17 the criteria and impacts related to the registration of the effects of the reform and the implementation of the Circular cited are detailed. 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 described above 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. In order to facilitate comparison, there have been some minor reclassifications to the consolidated financial statements corresponding to the previous year. (a) Accounting pronouncements with implementation effective from January 1, 2014: (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after Amendment to IAS 32: Financial instruments: Presentation December 2011 01/01/2014 to financial Amendments statements, IFRS 12: Disclosure of interests in other entities and IAS 27: Separate financial statements. IFRS 10: Consolidated October 2012 01/01/2014 Amendment to IAS 36: Impairment of assets May 2013 01/01/2014 The Company adopted in advance this amendment at December 31, 2013. Amendment to IAS 39: Financial instruments: Recognition and measurement June 2013 01/01/2014 Amendment to IAS 19: Employee Benefits November 2013 07/01/2014 (ii) Interpretations IFRIC 21: Levies May 2013 01/01/2014 7 (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after (ii) Improvements Improvements to the International Financial Reporting Standards (2012): IFRS 2: Share-based Payment; IFRS 3: Business Combinations Therefore, IFRS 9, IAS 37, and IAS 39 are also modified; IFRS 8: Operating Segments, IFRS 13: Fair Value Measurement, IFRS 9 and IAS 39 were consequently changed; IAS 16: Property, Plant and Equipment, and IAS 38: Intangible Assets; and IAS 24: Related Party Disclosures. Improvements to the International Financial Reporting Standards (2013): IFRS 1: First-time Adoption of International Financial Reporting Standards; IFRS 3: Business Combinations; Fair Value Measurement; and IAS 40: Investment Property. IFRS 13: December 2013 07/01/2014 December 2013 07/01/2014 The application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company. (b) following: Accounting pronouncements effective implementation starting on January 1, 2015 and (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after IFRS 9: Financial instruments. December 2009 01/01/2018 IFRS 15: Revenue from contracts with customers. June 2014 01/01/2017 Amendment to IFRS 9: Financial instruments. November 2013 01/01/2018 Amendment to IFRS 11: Joint arrangements. May 2014 01/01/2016 Amendment to IAS 16: Property, plant and equipment, and IAS 38: Intangible assets. May 2014 01/01/2016 Amendment to IAS 27: Separate financial statements. August 2014 01/01/2016 8 (ii) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures. September 2014 01/01/2016 Amendment IAS 1: Presentation of Financial Statements December 2014 01/01/2016 to IFRS 10: Consolidated Amendment financial statements, IFRS 12: Disclosure of Interests in other entities and IAS 28: Investments in associates and joint ventures. (iii) Improvements Improvements to International Financial Reporting Standards (2012-2014 cycle): IFRS 5 Non-current assets held for sale and discontinued operations; IFRS 7 Financial instruments: Disclosures; IAS 19 Employee benefits and IAS 34 Interim financial reporting. December 2014 01/01/2016 September 2014 01/01/2016 The Company’s management believes that the early adoption of the standards, amendments and interpretations described above but not yet effective would not have had a significant impact on the Company’s consolidated financial statements in the year of their first application. The Company only has early adopted the amendment to IAS 36. 2.2. Basis of 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. 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. 9 To account for and identify the financial information to be revealed when 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: Business combination. (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 When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the non-controlling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses). If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value are subsequently accounted using the equity method. (d) Investees or associates Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost. 2.3. Foreign currency transactions (a) Presentation and functional currencies The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries. (b) Transactions and balances Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges. 10 (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: Assets and liabilities of each consolidated statement of financial position presented are (i) translated at the closing exchange rate on the consolidated statement of financial position date; The revenues and expenses of each income statement account are translated at the exchange (ii) rates prevailing on the transaction dates, and All the resultant exchange differences by conversion are shown as a separate component in (iii) 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 or period informed. 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. Subsequent costs (replacement of 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. The residual value and useful life of assets are reviewed, and adjusted if necessary, once per year. 11 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. 2.5. Intangible assets other than goodwill (a) Brands, Airport slots and Loyalty program Brands, Airport slots and Coalition and loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows: Airport slots – Air transport CGU Loyalty program – Coalition and loyalty program Multiplus CGU Brand – Air transport CGU (See Note 15) The airport slots correspond to an administrative authorization to carry out operations 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 S.A., subsidiary of TAM S.A. 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 with TAM and Subsidiaries. (b) Computer software Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 7 years. Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others 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. 2.6. 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. 12 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 accrued. 2.8. Losses for impairment of non-financial assets Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The 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. 2.9. Financial assets The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired. 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 held for trading unless they are designated as hedges. The financial assets in this category and have been designated initial recognition through profit or loss, are classified as Cash and cash equivalents and Other current financial assets and those designated as instruments held for trading are classified as Other current and non-current financial assets. (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). The 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 losses are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when 13 the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. The financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method. 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. 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); Hedge of an identified risk associated with a recognized liability or an expected (b) 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. (a) Fair value hedges Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged. (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. 14 In case of variable interest-rate hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest. For fuel price hedges, the amounts shown in the statement of Other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used. For foreign currency hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income. When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as “Other gains (losses)”. (c) Derivatives not booked as a hedge 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. The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are 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. 15 2.13. Cash and cash equivalents Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments. 2.14. Capital The common shares are classified as net equity. Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received 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. 2.16. Interest-bearing loans Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method. Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal. 2.17. Current and deferred taxes The expense by current tax is comprised of income and deferred taxes. The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income. Deferred taxes are calculated using the liability method, 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 recognized when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences. 16 According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the effects on assets and liabilities by deferred tax as a result of the rate increase of the First Category Tax approved by Law No. 20,780 (tax reform) about deferred income tax, according to IAS 12 should be imputed to income (loss) of period, have been classified as Retained earnings, under Retained earnings. The subsequent amendments shall be recognized in income (loss) of period according to IAS 12. Except as mentioned in the previous subparagraph, the tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in Other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in Other comprehensive income, directly in income by function or goodwill, respectively. 2.18. Employee benefits (a) Personnel vacations The Company recognizes the expense for personnel vacations on an accrual basis. (b) Share-based compensation The compensation plans implemented by the granting of options for the subscription and payment of shares are shown in the consolidated financial statements in accordance with IFRS 2: Share based payments, showing the effect of the fair value of the options granted as a charge to remuneration on a straight-line basis between the date of granting such options and the date on which these become vested. (c) Post-employment and other long-term benefits Provisions are made for these obligations by applying the method of the actuarial value of the accrued cost, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income. (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. 2.19. Provisions Provisions are recognized when: (i) The Company has a present legal or implicit obligation as a result of past events; 17 (ii) It is probable that payment is going to be necessary to settle an obligation; and (iii) The amount has been reliably estimated. 2.20. Revenue recognition 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, generated by anticipated sale of flight tickets and freight services, in heading Other financial liabilities in the Statement of Financial Position. (ii) Frequent flyer program The Company currently has a frequent flyer programs, whose objective is customer loyalty through the delivery of kilometers or points fly whenever the programs 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. (iii) Other revenues 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. 18 2.21. Leases (a) When the Company is the lessee – financial lease The Company leases certain Property, plant and equipment in which it has substantially all the risk and benefits deriving from the ownership; they are therefore classified as financial leases. Financial leases are initially recorded at the lower of the fair value of the asset leased and the present value of the minimum lease payments. Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in Other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it produces a constant periodic rate of interest on the remaining balance of the liability for each year. The asset acquired under a financial lease is depreciated over its useful life and is included in 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 own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based on the use of the main components is recognized, since exists a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels. These are recognized 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. These deposits, often called maintenance reserves, accumulate until a major 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. 19 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. 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 derivative instruments 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 the possible impact that could generate the above mentioned risks. (i) Fuel-price risk: Fluctuations in fuel prices largely depend on the global supply and demand for oil, decisions taken by Organization of Petroleum Exporting Countries (“OPEC”), global refining capacity, stock levels maintained, and weather and geopolitical factors. The Company purchases an aircraft fuel called Jet Fuel grade 54. There is a benchmark price in the international market for this underlying asset, which is US Gulf Coast Jet 54. However, the futures market for this asset has a low liquidity index and as a result the Company hedges its exposure using West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and are highly liquid assets and therefore have advantages in comparison to the use of the U.S. Gulf Coast Jet 54 index. During the period ended December 31, 2014, the Company recognized losses of US$ 108.7 million on fuel derivative. During the period 2013, the Company recognized gains of US$ 19.0 million for the same reason. At December 31, 2014, the market value of its fuel positions amounted to US$ 157.2 million (negative). At December 31, 2013, this market value was US$ 15.9 million (positive). 20 The following tables show the level of hedge for different periods: Positions as of December 31, 2014 (*) Maturities Percentage of the hedge of expected consumption value Q115 30% Q215 15% Q315 Q415 30% 20% Total 24% (*) The volume shown in the table considers all the hedging instruments (swaps and options). Positions as of December 31, 2013 (*) Maturities Q114 Q214 Percentage of the hedge of expected consumption value 56% 26% Total 41% (*) The volume shown in the table considers all the hedging instruments (swaps and options). 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. 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 through the consolidated statement of comprehensive income). The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2015. The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December, 2014 and the end of December, 2013. Benchmark price (US$ per barrel) Positions as of December 31, 2014 effect on equity (millions of US$) Positions as of December 31, 2013 effect on equity (millions of US$) +5 -5 +24.90 -25.06 +24.57 -19.13 21 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. Given the fuel hedge structure during the year of 2014, which considers a hedge-free portion, a vertical fall by 5 dollars in the BRENT and JET benchmark price (the monthly daily average), would have meant an impact of approximately US$ 90.2 million in the cost of total fuel consumption for the same period. For the period of 2014, a vertical rise by 5 dollars in the BRENT and JET benchmark price (the monthly daily average) would have meant an impact of approximately US$ 88.07 million of increased fuel costs. (ii) Cash flow interest-rate risk: The fluctuation in interest rates depends heavily on the state of the global economy. An improvement in long-term economic prospects moves long-term rates upward while a drop causes a decline through market effects. However, if we consider government intervention in periods of economic recession, it is usual to reduce interest rates to stimulate aggregate demand by making credit more accessible and increasing production (in the same way interest rates are raised in periods of economic expansion). The present uncertainty about how the market and governments will react, and thus how interest rates will change, creates a risk related to the Company’s debt at floating interest rates and its investments. Cash flow interest rate risk equates to the risk of future cash flows of the financial instruments due to the fluctuation in interest rates on the market. The Company’s exposure to risks of changes in market interest rates is mainly related to long-term obligations with variable interest rates. In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 69% (70% at December 31, 2013) 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 following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible based on current market conditions. Increase (decrease) futures curve in libor 3 months Positions as of December 31, 2014 effect on profit or loss before tax (millions of US$) Positions as of December 31, 2013 effect on profit or loss before tax (millions of US$) +100 basis points -100 basis points -27.53 +27.53 -29.70 +29.70 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 22 conditions. The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve. Increase (decrease) futures curve in libor 3 months Positions as of December 31, 2014 effect on equity (millions of US$) Positions as of December 31, 2013 effect on equity (millions of US$) +100 basis points -100 basis points +15.33 -15.95 +23.35 -24.46 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 requirements 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 functional currency used by the Company is the US dollar in terms of setting prices for its services, the composition of its statement of financial position and effects on its operating income. The main 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. 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 United States Dollars. Therefore, this subsidiary’s profit and loss varies when its financial assets and liabilities, and its accounts receivable listed in dollars are converted to Brazilian Reals. This impact on profit and loss is consolidated in the Company. In order to reduce the volatility on the financial statements of the Company caused by rises and falls in the R$/US$ exchange rate, the Company has conducted transactions for to reduce the net US$ liabilities held by TAM S.A. 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, 2014 Millons of US$ -10% +10% +69.8 -69.8 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. 23 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$. For cover the inversion in the subsidiaries and reduce the volatility in the cash flow , the Company may acquire derivatives contracts to hedge variations in other currencies against the Company’s functional currency, hedging exchange rate risk through currency forward. With the object of reduce the exposition to the futures monthly operating flows of all 2014, caused by eventual depreciation of the BRL and assure an economic margins, LATAM done the hedge by derivatives FX Forward. the year ended at December 31, 2014 During of US$ 3.8 million on hedging FX. During the period of 2013 the Company had no current positions for this item, so no compensation is recognized. At December 31, 2014, the market value of its FX positions amounted to US$0.1 million (negative). At end of December 2013 the market value was of US$ 32.1 million (positive). the Company recognized losses At end of December 2014, the Company has contracted derivatives of FX for US$ 100 million (US$ 500 million at December 31, 2013) Sensitivity exchange rate LATAM A depreciation of exchange rate R$/ US$ affects negatively the Company for a rise of its costs in US$, however, it also affects positively the value of contracted derivate positions. Because the changes in the value of current positions not represented changes in cash flows, but a variation in the exposure of market value, the current hedge positions have not impact on result (are registered as cash flow hedges according to IAS 39, therefore, a variation in the exposure has an impact on the Company’s net equity). 24 The following table presents the sensitivity of derivative FX Forward instruments agrees with reasonable changes to exchange rate and its effect on equity. The projection term was defined until the end of the last current contract hedge, being the last business day of the first month of 2015: Appreciation (depreciation) of R$/US$ Effect at December 31, 2014 Millions of US$ -10% +10% -9.98 +9.98 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 temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 18). Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of 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, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in Other comprehensive income. The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$: Appreciation (depreciation) of R$/US$ Effect at December 31, 2014 Millions of US$ Effect at December 31, 2013 Millions of US$ -10% +10% (b) Credit risk +461.15 -377.31 +466.45 -381.63 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. 25 To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents). As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the company has established maximum limits for investments which are monitored regularly. (i) Financial activities Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and Other current financial assets. 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 level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty. The Company has no guarantees to mitigate this exposure. (ii) Operational activities The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“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. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A. 26 Credit quality of financial assets The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater. To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents).The bad-debt rate in the principal countries where the Company has a presence is insignificant. (c) Liquidity risk Liquidity risk represents the risk that the Company has no funds to meet its obligations. Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs related to market-risk hedges, the Company requires liquid funds to meet its payment obligations. The Company therefore manages its cash and cash equivalents and its financial assets, matching the term of investments with those of its obligations. The Company’s policy is that the average term of its investments may not exceed the average term of its obligations. This cash and cash equivalents position is invested in highly-liquid short-term instruments through first-class financial entities. The Company has future obligations related to financial leases, operating leases, maturities of other bank borrowings, derivative contracts and aircraft purchase contracts. 27 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Loans to exporters97.032.000-8BBVAChileUS$100,102 - - - - 100,102100,000At expiration0.40 0.40 97.036.000-KSANTANDERChileUS$45,044 - - - - 45,04445,000At expiration0.34 0.34 97.006.000-6ESTADOChileUS$55,076 - - - - 55,07655,000At expiration0.52 0.52 97.030.000-7BCIChileUS$100,157 - - - - 100,157100,000At expiration0.47 0.47 76.645.030-KITAUChileUS$15,025 - - - - 15,02515,000At expiration0.65 0.65 97.951.000-4HSBCChileUS$12,010 - - - - 12,01012,000At expiration0.50 0.50 - - Bank loans- - 97.023.000-9CORPBANCAChileUF16,57548,581121,94517,621 - 204,722188,268Quarterly4.85 4.85 0-ECITIBANKArgentinaARS1,29818,700 - - - 19,99817,542Monthly31.00 31.00 0-EBBVAArgentinaARS1,71323,403 - - - 25,11621,050Monthly33.00 33.00 97.036.000-KSANTANDERU.S.A.US$1,6103,476283,438 - - 288,524282,967Quarterly2.33 2.33 - - Guaranteed obligations- - 0-ECREDIT AGRICOLEFranceUS$18,67055,089109,53664,10136,625284,021273,599Quarterly1.68 1.43 0-EBNP PARIBASU.S.A.US$9,63429,25980,09783,020190,070392,080351,217Quarterly2.13 2.04 0-EWELLS FARGOU.S.A.US$35,533106,692285,218286,264698,0521,411,7591,302,968Quarterly2.26 1.57 0-ECITIBANKU.S.A.US$19,14957,915156,757160,323347,710741,854684,114Quarterly2.24 1.49 97.036.000-KSANTANDERChileUS$5,48216,57244,92546,04773,544186,570180,341Quarterly1.32 0.78 0-EBTMUU.S.A.US$2,9318,86324,09124,77852,541113,204107,645Quarterly1.64 1.04 0-EAPPLE BANKU.S.A.US$1,4374,35811,84912,20626,31856,16853,390Quarterly1.63 1.03 0-EUS BANKU.S.A.US$18,71356,052148,622147,357376,792747,536648,158Quarterly3.99 2.81 0-EDEUTSCHE BANKU.S.A.US$5,83417,62147,60030,30078,509179,864155,279Quarterly3.25 3.25 0-ENATIXISFranceUS$11,78335,80399,01298,632259,912505,142454,230Quarterly1.86 1.81 0-EHSBCU.S.A.US$1,5644,72512,73812,95631,70163,68459,005Quarterly2.29 1.48 0-EPK AirFinance US, Inc.U.S.A.US$2,0746,37818,09119,83628,76375,14269,721Monthly1.86 1.86 0-EKFW IPEX-BANKGermanyUS$6962,1246,0484,5873,77117,22616,088Quarterly2.10 2.10 - - Other guaranteed obligations- - 0-EDVB BANK SEU.S.A.US$8,19924,62332,904 - - 65,72664,246Quarterly2.00 2.00 0-ECREDIT AGRICOLEU.S.A.US$7,86423,39462,540 - - 93,79891,337Quarterly1.73 1.73 - - Financial leases- - 0-EINGU.S.A.US$9,13727,52058,82134,06712,134141,679126,528Quarterly4.84 4.33 0-ECREDIT AGRICOLEFranceUS$1,6435,03614,152 - - 20,83120,413Quarterly1.20 1.20 0-ECITIBANKU.S.A.US$6,08318,25048,66748,66714,262135,929115,449Quarterly6.40 5.67 0-EPEFCOU.S.A.US$17,55552,678138,38067,0953,899279,607252,205Quarterly5.35 4.76 0-EBNP PARIBASU.S.A.US$11,24033,91791,74360,83410,974208,708191,672Quarterly4.14 3.68 0-EWELLS FARGOU.S.A.US$5,60416,78444,70544,61546,394158,102139,325Quarterly3.98 3.53 0-EDVB BANK S EU.S.A.US$4,70114,14533,201 - - 52,04750,569Quarterly1.89 1.89 0-EUS BANKU.S.A.US$3266,2475,455 - - 12,02811,981Monthly - - 0-EBANC OF AMERICAU.S.A.US$7202,1182,912 - - 5,7505,462Monthly1.41 1.41 Other loans0-EBOEINGU.S.A.US$ - 4,994180,583 - - 185,577179,507At expiration1.74 1.74 0-ECITIBANK (*)U.S.A.US$6,82520,175209,730209,778104,852551,360450,000Quarterly6.00 6.00 - Hedging derivatives-OTHERS-US$11,70230,76148,6677,31124598,68693,513- - - Non - hedging derivatives-OTHERS-US$1,002628 - - - 1,630730- - - Total574,711776,8812,422,4271,480,3952,397,0687,651,4826,985,519(*) Securitized bond with the future flows from the sales with credit card in United States and Canada. 28 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Bank loans0-ENEDERLANDSCHECREDIETVERZEKERING MAATSCHAPPIJHollandUS$1844931,3151,3151,3694,6763,796Monthly6.01 6.01 Obligation with the public0-ETHE BANK OF NEW YORKU.S.A.US$14,63982,006481,920148,037880,6041,607,2061,100,000At Expiration7.99 7.19 Financial leases0-EAFS INVESTMENT IX LLCU.S.A.US$2,8087,70120,53120,5228,54860,11051,120Monthly1.25 1.25 0-EAIRBUS FINANCIALU.S.A.US$3,62310,70928,59315,9087,73666,56963,021Monthly1.42 1.42 0-ECREDIT AGRICOLE-CIBU.S.A.US$2,89732,805 - - - 35,70235,170Quarterly1.10 1.10 0-ECREDIT AGRICOLE -CIBFranceUS$1,6534,6834,514 - - 10,85010,500Quarterly/Semiannual3.25 3.25 0-EDVB BANK SEGermanyUS$3,2479,470 - - - 12,71712,500Quarterly2.50 2.50 0-EDVB BANK SEU.S.A.US$206554767 - - 1,5271,492Monthly1.68 1.68 0-EGENERAL ELECTRIC CAPITALCORPORATIONU.S.A.US$2,51211,22924,278 - - 38,01936,848Monthly1.25 1.25 0-EKFW IPEX-BANKGermanyUS$3,59611,20919,16714,0285,36553,36550,687Monthly/Quarterly1.72 1.72 0-ENATIXISFranceUS$5,1219,77827,87428,52087,769159,062139,693Quarterly/Semiannual3.87 3.87 0-EPK AIRFINANCE US, INC.U.S.A.US$1,3924,10320,694 - - 26,18925,293Monthly1.75 1.75 0-EWACAPOU LEASING S.A.LuxemburgUS$5731,5283,5592,85213,22621,73819,982Quarterly2.00 2.00 0-ESOCIÉTÉ GÉNÉRALE MILAN BRANCHItalyUS$9,77727,20775,06678,964170,509361,523344,106Quarterly3.06 3.58 0-EBANCO DE LAGE LANDEN BRASIL S.ABrazilBRL8 - - - - 8 - Monthly11.70 11.70 0-EBANCO IBM S.ABrazilBRL3561,1183,40540 - 4,9193,817Monthly10.58 10.58 0-EHP FINANCIAL SERVICEBrazilBRL2768291,381 - - 2,4862,229Monthly9.90 9.90 0-ESOCIETE AIR FRANCEFranceEUR547 - - - - 547114Monthly6.82 6.82 0-ESOCIÉTÉ GÉNÉRALE FranceBRL1554461,351206 - 2,1581,643Monthly11.60 11.60 Other loans0-ECOMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTOBrazilBRL30,28115,576 - - - 45,85745,857Monthly4.23 4.23 Total83,851231,444714,415310,3921,175,1262,515,2281,947,868 29 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014 Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Trade and other accounts payables-OTHERSOTHERSUS$529,04326,483 - - - 555,526555,526- - - USD1,10710,449 - - - 11,55611,431Quarterly2.112.11CLP23,878241 - - - 24,11924,119- - - BRL380,76613 - - - 380,779380,779- - - Others currencies224,040228 - - - 224,268224,268- - - Accounts payable to related parties currents65.216.000-1COMUNIDAD MUJERChileCLP2 - - - - 22- - - 78.591.370-1BETHIA S.A. AND SUBSIDIARIESChileCLP6 - - - - 66- - - 0-EINVERSORA AERONÁUTICA ARGENTINAArgentinaUS$27 - - - - 2727- - - Total1,158,86937,414 - - - 1,196,2831,196,158 Total consolidated1,817,4311,045,7393,136,8421,790,7873,572,19411,362,99310,129,545 30 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Loans to exporters97.032.000-8BBVAChileUS$ - 30,100 - - - 30,10030,000At expiration1.00 1.00 97.036.000-KSANTANDERChileUS$231,533 - - - - 231,533230,000At expiration1.63 1.63 97.030.000-7ESTADOChileUS$ - 40,188 - - - 40,18840,000At expiration1.06 1.06 76.100.458-1BLADEXChileUS$100,934 - - - - 100,934100,000At expiration1.87 1.87 Bank loans97.036.000-KSANTANDERChileUS$877789115,051 - - 116,717115,051At expiration3.19 3.19 97.023.000-9CORPBANCAChileUF19,00155,465139,60384,505 - 298,574268,460Quarterly4.85 4.85 0-ECITIBANKArgentinaARS78515,861 - - - 16,64615,335Monthly20.75 20.75 0-EBBVAArgentinaARS1,66830,029 - - - 31,69727,603Monthly23.78 23.78 Guaranteed obligations0-EINGU.S.A.US$4,03112,06532,21332,20328,234108,74691,543Quarterly5.69 5.01 0-ECREDIT AGRICOLEFranceUS$11,86235,88683,92010,139 - 141,807140,312Quarterly1.99 1.99 0-EPEFCOU.S.A.US$2,2806,839 - - - 9,1198,964Quarterly3.06 2.73 0-EBNP PARIBASU.S.A.US$11,32534,29693,36896,444237,865473,298418,254Quarterly2.45 2.31 0-EWELLS FARGOU.S.A.US$55,235165,469439,680437,3871,205,5772,303,3482,099,776Quarterly2.47 1.76 0-ECITIBANKU.S.A.US$11,54034,74893,68795,226168,917404,118372,191Quarterly2.64 2.04 97.036.000-KSANTANDERChileUS$5,42016,37444,35945,45996,694208,306200,599Quarterly1.32 0.78 0-EBTMUU.S.A.US$2,8918,74123,74224,41765,005124,796118,070Quarterly1.64 1.04 0-EAPPLE BANKU.S.A.US$1,4184,29211,67112,01732,46161,85958,502Quarterly1.63 1.04 0-EUS BANKU.S.A.US$18,69956,022148,643147,528449,705820,597703,992Quarterly2.81 2.81 0-EDEUTSCHE BANKU.S.A.US$5,76017,50047,17539,02193,773203,229173,036Quarterly3.27 3.27 Other guaranteed obligations0-EDVB BANK SEU.S.A.US$8,17824,56465,726 - - 98,46895,292Quarterly1.99 1.99 Financial leases0-EINGU.S.A.US$5,02815,20539,7039,324 - 69,26065,076Quarterly3.23 3.03 0-ECREDIT AGRICOLEFranceUS$5,08614,59931,43424,64717,41593,18189,514Quarterly1.21 1.21 0-ECITIBANKU.S.A.US$2,0096,02816,07516,0758,03848,22540,564Quarterly6.38 5.65 0-EPEFCOU.S.A.US$17,56652,678140,462115,93423,211349,851308,774Quarterly5.35 4.23 0-EBNP PARIBASU.S.A.US$7,98424,05664,89059,4757,139163,544147,334Quarterly4.65 4.15 0-EBANC OF AMERICAU.S.A.US$7032,0995,628 - - 8,4307,899Monthly1.43 1.43 Other loans0-EBOEINGU.S.A.US$ - 2,804172,128 - - 174,932170,838At expiration1.75 1.75 0-ECITIBANK (*)U.S.A.US$9,75020,100131,865209,810209,684581,209450,000Quarterly6.00 6.00 Hedging derivatives-OTHERS-US$11,00530,49559,82916,561614118,504112,819---Non - hedging derivatives-OTHERS-US$1,1203,2031,618 - - 5,9415,562--- Total553,688760,4952,002,4701,476,1722,644,3327,437,1576,705,360(*) Securitized bond with the future flows from the sales with credit card in United States and Canada. 31 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Bank loans0-ECITIBANKBrazilUS$2,41044,071 - - - 46,48143,885At Expiration3.76 3.20 0-EBANCO DO BRASIL S.A.BrazilUS$9,803135,450 - - - 145,253137,849At Expiration5.20 4.66 0-EBANCO ITAU BBABrazilUS$29,14250,737 - - - 79,87973,830At Expiration6.31 4.73 0-EBANCO SAFRABrazilUS$43,21122,986 - - - 66,19762,357At Expiration3.73 2.94 0-EBANCO SAFRABrazilBRL20044752 - - 699684Monthly7.42 7.42 0-EBANCO BRADESCOBrazilUS$79,99550,686 - - - 130,681122,341At Expiration3.87 3.29 0-EBANCO BRADESCOBrazilBRL - 44,986 - - - 44,98642,688At Expiration10.63 10.15 0-ENEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJHollandUS$1864951,3201,3202,0355,3564,215Monthly6.01 6.01 Obligation with the public0-ETHE BANK OF NEW YORKU.S.A.US$34,01080,251190,343457,367953,2121,715,1831,100,000At Expiration8.60 8.41 Financial leases0-EAFS INVESTMENT IX LLCU.S.A.US$2,8507,72820,60920,60918,89270,68858,321Monthly1.25 1.25 0-EAIR CANADA U.S.A.US$1,3251,645 - - - 2,9702,970Monthly--0-EAIRBUS FINANCIALU.S.A.US$3,54610,40528,94421,86715,75880,52075,352Monthly1.42 1.42 0-EAWASU.S.A.US$5,6514,432 - - - 10,0835,651Monthly--0-EBNP PARIBASU.S.A.US$7222,0085,7056,2838,64823,36622,082Quarterly1.00 1.00 0-EBNP PARIBASFranceUS$8722,3976,3876,39410,38526,43522,359Quarterly0.86 0.75 0-ECITIBANKEnglandUS$7,05920,02148,44250,209109,870235,601222,590Quarterly1.03 0.90 0-ECREDIT AGRICOLE-CIBU.S.A.US$4,97114,17757,59512,29714,308103,34897,945Quarterly1.40 1.40 0-ECREDIT AGRICOLE -CIBFranceUS$8,83426,77161,03751,62953,270201,541195,396Semiannual/Quarterly0.75 0.65 0-EDVB BANK SEGermanyUS$3,3869,81212,717 - - 25,91525,000Quarterly2.50 2.50 0-EDVB BANK SEU.S.A.US$2146211,243284 - 2,3622,279Monthly1.75 1.75 0-EGENERAL ELECTRIC CAPITAL CORPORATIONU.S.A.US$3,70948,803 - - - 52,51251,978Monthly1.25 1.25 0-EHSBCFranceUS$1,6114,48012,14812,46137,70568,40564,296Quarterly1.45 1.25 0-EKFW IPEX-BANKGermanyUS$4,46313,06730,88021,67218,23288,31482,718Monthly/Quarterly1.74 1.74 0-ENATIXISFranceUS$9,61920,11758,91762,444124,621275,718246,128Semiannual/Quarterly2.81 2.78 0-EPK AIRFINANCE US, INC.U.S.A.US$3,49110,13743,58319,00138,965115,177106,403Monthly1.71 1.71 0-EWACAPOU LEASING S.A.LuxemburgUS$6321,6793,9433,20914,58524,04821,737Quarterly2.00 2.00 0-EWELLS FARGO BANK NORTHWEST N.A.U.S.A.US$1,7811,427 - - - 3,2083,194Monthly1.25 1.25 0-ESOCIÉTÉ GÉNÉRALE MILAN BRANCHItalyUS$14,11339,55796,309102,366105,460357,805334,095Quarterly3.86 3.78 0-ETHE TORONTO-DOMINION BANKU.S.A.US$5801,6734,5344,6456,61918,05117,394Quarterly0.57 0.57 0-EBANCO DE LAGE LANDEN BRASIL S.ABrazilBRL224676 - - - 900963Monthly10.38 10.38 0-EBANCO IBM S.ABrazilBRL184205630306 - 1,3251,050Monthly10.58 10.58 0-EHP FINANCIAL SERVICEBrazilBRL3769602,507313 - 4,1563,559Monthly9.90 9.90 0-ESOCIETE AIR FRANCEFranceEUR8471,258 - - - 2,1051,379Monthly6.82 6.82 Other loans0-ECOMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTOBrazilBRL27,244537 - - - 27,78127,781Monthly2.38 2.38 -OTHERSBrazilUS$4961,156 - - - 1,6521,652--- Total307,757675,858687,845854,6761,532,5654,058,7013,282,121 32 Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.More thanMore thanMore thanUp to90 daysone tothree toMore thanCreditor90to onethreefivefiveNominalEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsTotalvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Trade and other accounts payables-OTHERSOTHERSUS$814,3547,245 - - - 821,599821,599---US$1,1043,318 - - - 4,4224,141Quarterly2.01 2.01 CLP16,3646 - - - 16,37016,370---BRL193,1898 - - - 193,197193,197---BRL5,22014,878 - - - 20,09814,569Monthly8.99 8.99 Others currencies213,904615 - - - 214,519214,519---Accounts payable, non-current-OTHERSOTHERSUS$ - - 11,557 - - 11,55711,400Quarterly2.01 2.01 BRL - - 42,74354,907199,200296,850124,481Monthly8.99 8.99 Accounts payable to related parties currents96.847.880-KLUFTHANSA LAN TECHNICAL TRAINING S.A.ChileUS$187 - - - - 187187---78.591.370-1BETHIA S.A. AND SUBSIDIARIESChileCLP14 - - - 1414---0-EINVERSORA AERONÁUTICA ARGENTINAArgentinaUS$304 - - - 304304--- Total1,244,64026,07054,30054,907199,2001,579,1171,400,781 Total consolidated2,106,0851,462,4232,744,6152,385,7554,376,09713,074,97511,388,262 33 The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives. At the end of 2013, the Company provided US$ 94.3 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2014, the Company had provided US$ 91.8 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 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 the dividends payable to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company monitors the adjusted leverage rate, in line with industry practice. This rate is calculated as net adjusted debt divided by the sum of adjusted equity and net adjusted debt. Net adjusted debt is total financial debt plus 8 times the operating lease payments of the last 12 months, less total cash (measured as the sum of cash and cash equivalents plus marketable securities). Adjusted capital is the amount of net equity without the impact of the market value of derivatives. The Company's strategy, which has not changed since 2007, has consisted of maintaining an adjusted leverage rate 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 2, 2014 a new long- term rating for the Company of BB with negative 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. 34 Adjusted leverage ratios: See information related to financial covenants in Note 31 (a). 3.3. Estimates of fair value. At December 31, 2014, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories: 1. Hedge Instruments: This category includes the following instruments: - - Interest rate derivative contracts, Fuel derivative contracts, - Currency derivative contracts 2. Financial Investments: This category includes the following instruments: - Investments in short-term Mutual Funds (cash equivalent), - Bank certificate of deposit – CBD, - Private investment funds 3,528,616(2,561,574)As of2013ThUS$December 31,9,830,866Total financial loansLast twelve months Operating lease payment x 8Less:Cash and marketable securitiesAs of2014ThUS$December 31,8,817,2154,171,072(1,533,770)Adjusted leverage 71.6%Total net adjusted debtNet EquityCash flow hedging reserveAdjusted equityTotal adjusted debt and equity11,454,5174,401,896151,3404,553,23616,007,75367.2%10,797,9085,238,82134,5085,273,32916,071,237 35 The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data. The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end. 36 The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment: 4,0404,040 1,190-1,190Interest accrued since the last payment date of Currency Swap5,173-5,173Fair value measurements using values Level IThUS$Level IIIThUS$-Fair value of fuel derivatives157,233-157,233 - 200,753Other financial assets, current526,08120,454Fair value ThUS$200,753200,753546,535AssetsShort-term mutual funds--26,395considered as- - - 200,753 - - - - - --377 - - --Level IIThUS$ - Fair value of interest rate derivativesFair value of foreign currency derivativesInterest accrued since the last payment Cash and cash equivalents1Certificate of deposit CDBdate of Cross Currency Swap-1Fair value of fuel derivatives3771,783-1,783 - 480,777- - - - Private investment funds480,777Domestic and foreign bonds41,111-18,29341,111-Other investments4,1934,193-18,293 - Time deposit---28,327 - ----28,327 - - 37,242Interest rate derivatives not recognized -28,32728,327Liabilitiesas a hedgeInterest rate derivatives not recognized Other financial liabilities, non currentFair value of interest rate derivativesas a hedge26,395227,233Other financial liabilities, currentFair value of interest rate derivativesFair value of foreign currency derivatives37,242-227,233 - 579,349579,349- - 579,349579,349- - 15,868-15,868 - 32,058-32,058 - 625,086546,11678,970 - 6Fair value measurements using values considered asFair value Level ILevel IILevel IIIThUS$ThUS$ThUS$ThUS$-6 - 2,374-2,374 - 351351- - 483-483 - 544,182544,182- - 70,506 - 32,070-32,070 - 28,181-28,181 - 1,5831,583- - As of December 31, 2014 As of December 31, 201354,906-54,906 - 1,491-1,491 - 56,397-56,397 - 28,621-28,621 - 5,775-5,775 - 70,506- 37 Additionally, at December 31, 2014, 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: 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, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values. The fair value of Other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments. In the case of Other financial assets, the valuation was performed according to market prices at period end. 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. 577,4541,378,83730884,98630,4651,397,382103,866382,8957,360,685154,666239,51411,568788,6436281,405,55484,858660,821508,781229,9356,01784,858577,454103,8661,378,83730884,986922,8877,803,5885051,557,7361,969,281BookFairThUS$valuevalueThUS$ThUS$382,8951,489,396351,446,100Fair788,643103,866103,866As of December 31, 2013value1,489,3961,405,5546,017229,935508,781660,821As of December 31, 2014ThUS$valueBook30,46511,568239,514154,6661,557,7365057,910,446Trade and other accounts payablesTrade and other accounts receivable current35100,77565,2898,319,0221,633,09484,85884,8581,633,094628Accounts payable, non-currentOther financial liabilities, non currentAccounts payable to related entitiesOther financial liabilities, currentAccounts receivable from related entitiesOther financial assets, non currentAccounts receivable922,88765,289100,7752,128,096Other financial assets, currentOther financial assetsCash and cash equivalentsCash on handBank balanceOvernightTime deposits 38 (c) The criteria employed in the valuation of certain assets. (d) Air tickets sold that are not actually used. (e) The calculation of deferred income at the end of the period, corresponding to the valuation of kilometers or points credited to holders of the loyalty programs which have not yet been used. (f) The need for provisions and where required, the determination of their values. (g) The recoverability of deferred tax assets. These estimates are made on the basis of the best information available on the matters analyzed. In any case, it is possible that events will require modification of the estimates in the future, in which case the effects would be accounted for prospectively. 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. This judgment is made on the basis that LATAM issued their ordinary shares in exchange for all of the outstanding common and preferred shares of TAM, except those shareholders of TAM who did not accept exchange and which were subject of the squeeze-out 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. Since the integration of LAN and TAM operations, most critical airline activities in Brazil have been managed under the TAM CEO and global activities have been managed by the LATAM CEO, who is in charge of the overall operation of the LATAM Group and who reports to the LATAM board. Further, the LATAM CEO evaluates performance of the LATAM Group executives and, together with the LATAM board, determines 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. 39 NOTE 5 - SEGMENTAL INFORMATION 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 LanPass 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 13.8 million of members, along with being a government entity with a separately business and not directly related to air transport. 40 (*) The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest. (a) For the periods endedLAN passengerTAM passengerFreight1,862,979 - 341,56572,828(462,524)(389,696)34,280(1,542)32,738 - - - - (690,360) - (11,189)11,189 - (339,534)MultiplustransportationTotal net interest expense(397,640)58,106 - Interest expense(430,030)(4) - (430,034)Interest income32,39012,328,6344,731,2965,734,3591,862,979595,903272,64049,737(472,171)(422,434)58,110 - 90,5001,713,3794,464,761Income from ordinary activities fromtransactions with other operating segments506,277106,030(612,307) - 1,713,379 - - Other operating income217,390160,255 - 377,645 - 595,903 - 94,45768,9252013ThUS$5,915,361Income from ordinary activities fromexternal customers (*)11,587,224506,277 - 12,093,5015,409,084506,277 - 4,464,761 - - 595,90312,924,5374,731,2966,330,2622014ThUS$ThUS$ThUS$ThUS$2014201420142013ThUS$2013ThUS$2013ThUS$At December 31,At December 31,At December 31,At December 31,Coalition andAirloyalty programEliminationsConsolidated 41 For the periods ended1,425,27077,89661,902Intangibles other than goodwill77,89661,902 - - - - 775,975 - (75,739) - of segment1,496,204 - - Purchase of non-monetary assets(1,041,733)(523,607)(34,110)(7,537)(482,174)214(281,114)17,304,6871,95420,06922,631,1466,5961,746,9131,685,011At December 31,At December 31,At December 31,At December 31,(109,790)1,746,9131,685,011 - - 20,484,430 - - - Coalition andAirloyalty program2014ThUS$ThUS$ThUS$ThUS$2014201420142013ThUS$2013ThUS$2013ThUS$ transportationMultiplusEliminationsConsolidated2013ThUS$Material non-cash items other thandepreciation and amortization(168,573)(2,350)Depreciation and amortization(983,847)(7,417) - (991,264) - (170,923)(1,037,734)(523,666) - - (3,999)59Disposal of fixed assets and inventory losses(28,756)(814) - (29,570)(33,987) - Doubtful accounts(9,637)(1,522) - (11,159)(7,754) - (123)217Exchange differences(130,187)(14) - (130,201)(482,139) - Result of indexation units7 - - 7214 - (35) - Participation of the entity inIncome (loss) atributable to owners of the parents(254,151)144,361 - (389,040) - 107,926 the income of associates(2,175)(4,280) - (6,455)1,954 - Expenses for income tax(68,293)(73,901) - (142,194)72,155 - - (52,086)Investments in associates - - - Assets of segment18,759,8481,773,584(49,002) - 21,520,5003,572(8,040) - 1,118,6863,024Segment profit / (loss)(182,077)(344,337)105,11680,518 - - (76,961)(263,819)1,444,402Amount of non-current asset additions 1,522,298 - - 1,522,298723,438(36,371)15,980,735Property, plant and equipment1,444,402 - Segment liabilities15,293,6681,496,20416,604,4511,425,270 42 The Company’s revenues by geographic area are as follows: 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. NOTE 6 - CASH AND CASH EQUIVALENTS PeruArgentinaU.S.A.EuropeColombiaBrazilEcuadorChileAsia Pacific and rest of Latin AmericaIncome from ordinary activitiesOther operating income For the periods ended660,057At December 31,2014ThUS$2013ThUS$1,224,264391,678935,893813,472646,217950,5951,290,493937,539868,75612,093,5015,361,594248,5851,589,202377,645387,9995,572,884273,7121,698,4761,166,62212,924,537341,565 Total Cash Overnight Bank balances Cash on handAs of As of December 31,December 31,6,01720142013ThUS$ThUS$Cash equivalents Total cash equivalents Mutual funds Total cash and cash equivalents Time deposits1,240,1701,984,90311,568154,666239,514405,748200,753382,895583,648989,396229,935508,781744,733660,821579,349 43 Cash and cash equivalents are denominated in the following currencies: (*) The Company no maintain currency derivative contracts (forward) at December 31, 2014 (ThUS$ 174,020 as of December 31, 2013), 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. During 2014, in accordance with the acceptance of the Company about the proposal Bolivarian Republic of Venezuela regarding the repatriation of foreign exchange through the so-called “request of acquisition of foreign exchange”, the Company has modified the exchange rate used in determining equivalence of United States Dollar in cash and cash equivalents held in Strong Bolivar, from 6.3 VEF/US$ to 12.0 VEF/US$, which represented a loss by foreign exchange, amounting to the sum of ThUS$ 61,021. The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 16 letter (d), additional information in numeral (iv) Financial leases. Currency33,073989,39617,1889,63928,13216,5711,200,828162,80934,2351,984,903745,21463,236As ofAs ofDecember 31,December 31,20142013ThUS$ThUS$44,69745,59130,75859,018253,392229,918Argentine pesoOther currenciesTotalColombian peso Strong bolivar (**)US DollarBrazilian realChilean peso (*)Euro 44 Other inflows (outflows) of cash: (3,348)(13,777)(45,365)(47,724)(7,075)(86,006)(64,334)(251,657)(17,399)(17,399)(42,962)23,8648,6692014 ThUS$2013 ThUS$(5,001)December 31,For the periods endedTotal Other inflows (outflows) Operation flowTotal Other inflows (outflows) Financing flowCredit card loan managerSettlement of derivative contractsAircraft Financing advancesTotal Other inflows (outflows) Investment flowCertificate of bank depositsOtherBreakageFuel hedgeGuaranteesFuel derivatives premiumsBank commissions, taxes paid and other-Currency hedge(1,153)Hedging margin guarantees-11,41388,925(4,041)(14,535)76,76175,44875,44824,650(8,965)(61,897)(16,280)479(62,013) 45 NOTE 7 - FINANCIAL INSTRUMENTS 7.1. Financial instruments by category As of December 31, 2014 (*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given. AssetsLiabilitiesOther liabilities, currentTrade and others accounts payable, currentAccounts payable torelated entities, currentOther financial liabilities, non-currentAccounts receivable, non currentnon current (*)Other financial assets,related entities, currentAccounts receivable fromaccounts receivable, currentTrade and others Cash and cash equivalentsOther financial assets, current (*)10,824,952254,370Accounts payable, non-currentTotal650,401Hedge2,386,614 derivativesliabilitiesThUS$1,378,8371,378,8373,134,393OtherTotalfinancialThUS$HeldfortradingThUS$788,643103,86630884,49530,465 - - TotalThUS$ as fair value through profit and loss989,396 - 2,161 - 41,111Initial designationHedge derivativesThUS$Loans and receivablesThUS$HeldfortradingThUS$ThUS$30,46584,986TotalThUS$308 - - 2,16141,602704,016 - - 491 - 200,753503,263 - - - - 1,397,3821,489,396357,360,685577,454226,043 - - 28,327 - 1,190 - - - - 1,1901,624,6151,489,396357,389,012577,45411,080,512 46 At December 31, 2013 (*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given. AssetsLiabilities5,5312,039,7871,557,7365057,859,985922,88712,380,90054,906 - 4,040 - - 1,491 - 579,349576,320 - - - - Initial designationHedge derivativesThUS$Loans and receivablesThUS$HeldfortradingThUS$ThUS$TotalThUS$ as fair value through profit and lossOtherfinancialThUS$HeldfortradingThUS$TotalThUS$ - - 48,4152,5791,155,669 - 2,073accounts receivable, currentAccounts receivable fromTotalHedgeOther financial assets,Accounts receivable, non current3,287,970 - - 1,633,094 - - 506 - accounts payable, currentAccounts payable torelated entities, currentOther financial liabilities, non-currentAccounts payable, non-currentTotal12,253,997121,372related entities, current derivativesliabilitiesThUS$1,969,2811,557,7365057,803,588922,88766,466 - - 1,984,903709,944100,77565,2896281,633,0944,494,633Other liabilities, currentTrade and others Trade and others - 48,415non current (*)Other financial assets, current (*)Cash and cash equivalents1,405,55483,13662864,783100,775 47 7.2. Financial instruments by currency See the composition of the others currencies in Note 8 Trade, other accounts receivable and (*) non-current accounts receivable. b) Liabilities Liabilities information is detailed in the table within Note 3 Financial risk management. 528,404131,1911,075,640194,94326,61552,6471,295,40968,174230,3015,81423,73415630892993,134,393190,6649,021500,87526,8814064,244156,687431,0821,378,837100,798201,011349,44340,44443,5441,972,137165,176520,9912,353165,497100,7751,1944,494,63321,479159,563141,0771,633,094577,97327,343802,7891,0079,762Other currencies (*)Accounts receivable from related entities, currentAccounts receivable, non-currentBrazilian realChilean pesoUS DollarChilean pesoBrazilian real1,635,51087,36830,4657618,62490,755202628162466US DollarOther currenciesColombian pesoEuroStrong bolivarBrazilian realChilean pesoTotal assetsArgentine peso20132014a) AssetsStrong bolivarThUS$Cash and cash equivalentsArgentine pesoAs of December 31,As ofDecember 31,US DollarBrazilian realChilean pesoThUS$989,39644,69745,59130,75817,1889,639745,21463,236Brazilian realUS DollarEuroColombian peso38,764369,7744,895195,99082,880Other currencies (*)Chilean pesoArgentine pesoChilean pesoStrong bolivarEuroUS DollarColombian pesoBrazilian realOther currenciesTrade and other accounts receivable, currentStrong bolivar27,5552,5505,494Other financial assets (current and non-current)Colombian pesoEuroArgentine pesoOther currencies33,073735,38745,1691,984,90359,018253,392229,91828,132775,23316,5711,200,828162,80934,235 48 NOTE AND NON-CURRENT ACCOUNTS RECEIVABLE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, The fair value of trade and other accounts receivable does not differ significantly from the book value. The maturity of these accounts at the end of each period is as follows: (*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision. 2013As ofDecember 31,Other accounts receivable ThUS$Trade accounts receivableDecember 31,As of 251,9821,552,4891,269,435210,9092014ThUS$Total trade and other accounts receivable1,804,471Less: Allowance for impairment loss(70,602)1,480,344(71,042)1,409,302(30,465)1,378,837 Trade and other accounts receivable, current1,633,094Total net trade and accounts receivable 1,733,869Less: non-current portion – accounts receivable(100,775)Total1,269,4351,552,489110,029103,661Total matured accounts receivable, but not impairedTotal matured accounts receivable and impairedJudicial, pre-judicial collection and protested documents portfolio sensitization19,63050,97270,602Debtor under pre-judicial collection process and17,08671,042DayExpired from 1 to 90 days1,378,22672,4171,088,36483,599Matured accounts receivable, but not impairedMatured accounts receivable and impairedExpired from 91 to 180 daysMore than 180 days overdue (*)11,54719,69711,52114,909As of As of December 31,December 31,53,95620132014ThUS$ThUS$ 49 Currency balances that make up the Trade and other accounts receivable and non-current accounts receivable: 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. 2013TotalOther currenciesNew Taiwanese Dollar201438,57415,24335,6268,81433,6241,887TotalColombian pesoStrong bolivarCurrency196,1464,63516,5165,70125,20310,3239,67026,19822,8876,89915,2565,34330,570165,699(*) Other currenciesAustralian DollarChinese YuanDanish Krone Pound SterlingIndian RupeeJapanese YenNorwegian KronerSwiss FrancKorean Won10,33214,9706,64516,9291,733,869Argentine PesoEuroChilean Peso US DollarBrazilian RealOther currency (*)1,409,3029,02138,764393,5084,89527,343803,983As of As of December 31,December 31,196,14691,5049,76221,479611,7462,353ThUS$ThUS$165,699100,798529,165137,005Impairment100%100%50%Judicial and pre-judicial collection assetsOver 1 yearBetween 6 and 12 monthsMaturity 50 Movement in the allowance for impairment loss of Trade and other accounts receivables: Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control. Historic and current re-negotiations are not relevant and the policy is to analyze case by case in order to classify them according to the existence of risk, determining whether it is appropriate to re- classify accounts to pre-judicial recovery. If such re-classification is justified, an allowance is made for the account, whether overdue or falling due. The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above. There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA. - - ClosingPeriodsbalancebalanceOpeningWrite-offsbysubsidiariesThUS$ThUS$9,9286,864ThUS$ThUS$(75,503)(70,602)From January 1 to December 31, 2013From January 1 to December 31, 2014(70,602)(71,042) - (Increase)DecreaseThUS$(5,027)(7,304)businesscombinationThUS$ - Addition forDifferences(70,602)1,481,887receivableTrade accounts receivable Other accounts 1,269,435210,909251,9821,198,393210,909(71,042) - 1,552,489251,982-GrossExposure netGross exposureaccording to As of December 31, 2013impairedof risk As of December 31, 2014according toGross exposureof riskImpairedGrossExposure net balanceThUS$ThUS$exposureThUS$concentrationsThUS$ balanceconcentrationsThUS$exposureThUS$ 51 NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES (a) Accounts Receivable (b) Accounts payable Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary. Tax No.Distr. Ltda.ForeignForeign79.773.440-1Transportes San Felipe S.A.Others related partiesChile - BRLBRLBRL3084412414146628 - 2128415 - 9Total current assetsForeignMade In Everywhere Repr. Com.Currency87.752.000-5Granja Marina Tornagaleones S.A.Others related partiesCLP78.591.370-1Bethia S.A. and SubsidiariesCLPCountryChileAs of December 31,2014ThUS$December 31,2013ThUS$As of CLPOthers related partiesPrisma Fidelidade S.A.Joint VentureBrazilTAM Aviação Executiva e Taxi Aéreo S.A.Others related partiesBrazilOthers related partiesBrazilRelated partyRelationshipChileof originTax No.originCurrency65.216.000-KComunidad MujerOther related partiesChile2Total current liabilitiesInversora Aeronaútica ArgentinaOther related partiesArgentina505 - 187-CLP35US$627US$CLPChileForeign78.591.370-1Bethia S.A. and SubsidiariesOther related partiesAssociateChile96.847.880-KLufthansa Lan Technical Training S.A. 2014Related partyRelationshipThUS$CountryDecember 31, ofDecember 31, As of As of2013ThUS$14304 52 NOTE 10 -INVENTORIES The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence that as of December 31, 2014 amounts to ThUS$ 2,982 (ThUS$ 1,757 as of December 31, 2013). The resulting amounts do not exceed the respective net realizable values. As of December 31, 2014, the Company recorded ThUS$ 189,864 (ThUS$ 160,068 as of December 31, 2013) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales. During 2014 no reversals of write-downs resulting from an increase in net realizable value. Technical stockNon-technical stockTotal production suppliersThUS$ThUS$229,313As of As of December 31,December 31,2014201336,726266,039190,20240,826231,028 53 NOTE 11 - OTHER FINANCIAL ASSETS The composition of Other financial assets is as follows: (1) The foreign currency derivatives exchange is collars and cross currency swap. The types of derivative hedging contracts maintained by the Company at the end of each period are presented in Note 18. Private investment fundsDeposits in guarantee (aircraft)Certificate of deposit (CBD)Time depositsGuarantees for margins of derivativesDeposits in guarantee (loan)Other investments Domestic and foreign bondsOther guarantees givenInterest accrued since the last payment date of Cross currency swapFair value of interest rate derivativesFair value of foreign currency derivatives (1)Fair value of fuel price derivativesTotal Other Financial AssetsCurrent AssetsNon-current assetsTotal AssetsAs ofAs ofAs ofAs ofAs ofAs of201420132014201320142013December 31,December 31,December 31,December 31,December 31,December 31,ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$480,777544,182 - - 480,777544,182(a) Other financial assets18,2932,374 - - 18,2932,3748,45851,87970,15549,89378,613101,77292,55628,157 - - 92,55628,157 - 28,181 - - - 28,1814,1931,5834915064,6842,089 - - 11,11611,75311,11611,7532,8524,8223,2243,1376,0767,95941,111351 - - 41,111351726,818(b) Hedging assetsSubtotal of other financial assets648,240661,52984,98665,289733,22616 - - 16377483 - - 3774831,78315,868 - - 1,78315,868 - 32,058 - - - 32,05848,415650,401709,94484,98665,289735,387775,233Subtotal of hedging assets2,16148,415 - - 2,161 54 NOTE 12 - OTHER NON-FINANCIAL ASSETS The composition of Other non-financial assets is as follows: (*) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft. These amounts are calculated based on performance measures, such as flight hours or cycles, are payable periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment. In some cases (5 lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. Since the acquisition of TAM in June 2012, the cost of aircraft maintenance has been higher than the related maintenance reserves for all aircraft. As of December 31, 2014, LATAM had ThUS$ 154,696 in maintenance reserves (ThUS$ 231,809 at December 31, 2013), corresponding to 12 aircraft out of a total fleet of 327 (21 aircraft out of a total fleet of 339 at December 31, 2013). All of the Company’s aircraft leases containing provisions for maintenance reserves will expire fully by 2017. 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). Aircraft leasesAircraft insurance and otherOthersAircraft maintenance reserve (*)Sales taxOther taxesContributions to Société Internationale de Télécommunications Aéronautiques ("SITA")Judicial depositsOthersTotal Other Non - Financial Assets471,864495,612247,871335,617342,813272,276590,684607,893Subtotal other assets191,702279,225280,162216,387544687 - 1,0195441,7061,172 - - 90,45070,38090,45070,3805996574535151,052186,1513,5135,556 - - 3,5135,556155,795120,21564,65265,936220,44731,108152,797123,58879,012154,696231,80962,65155,889118,820112,281(b) Other assets54,42053,21417,97014,65736,45038,557Subtotal advance payments56,16956,39245,88712,16013,180 - - 12,16013,18026,03928,55526,20117,33252,240ThUS$ThUS$ThUS$ThUS$ThUS$(a) Advance paymentsDecember 31,2013Current assetsNon-current assetsTotal AssetsAs ofAs ofAs ofAs ofAs ofAs of20142013201420132014December 31,December 31,December 31,December 31,December 31,ThUS$ 55 NOTE 13 - INVESTMENTS IN SUBSIDIARIES (a) 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. Detail of significant subsidiaries and summarized financial information: The consolidated subsidiaries do not have significant restrictions for transferring funds to controller. incorporationcurrency99.8980394.9905599.89804100.00000OwnershipAs ofDecember 31,%As ofDecember 31,%201499.8980399.0164699.9993899.9993894.9905599.8980471.9499099.01646Name of significant subsidiaryFunctional201369.9785869.97858Lan Perú S.A.Lan Cargo S.A.ofCountryUS$US$PeruChileLan Argentina S.A.Transporte Aéreo S.A.Aerolane Líneas Aéreas Nacionales del Ecuador S.A.ARSArgentinaChileEcuadorUS$US$Aerovías de Integración Regional, AIRES S.A.COPTAM S.A. ColombiaBRLBrazil 56 (*) Corresponds to consolidated information of TAM S.A. and Subsidiaries.AIRES S.A.131,324TAM S.A. (*)6,817,6981,921,3164,896,3825,809,5292,279,1103,530,419Aerolane Líneas Aéreas Nacionales126,47278,30648,166116,040111,7184,322256,925(20,193)Transporte Aéreo S.A.367,57080,090287,480147,27859,80587,473364,580(8,983)267,578(9,966)Lan Argentina S.A.233,142206,50326,639201,168198,5932,575439,929(17,864)ThUS$ThUS$ThUS$ThUS$ThUS$Lan Cargo S.A.575,979250,174325,805234,772119,111115,661239,470214,24525,225228,395226,7841,6111,134,2891,058Results for the periodStatement of financial position as of December 31, 2014 ended December 31, 2014Name of significant subsidiary TotalCurrentNon-currentTotalCurrentNon-current NetAssetsAssetsAssetsLiabilitiesLiabilitiesLiabilitiesRevenue IncomeThUS$ ThUS$LiabilitiesNon-currentAssetsTotalThUS$Statement of financial position as of December 31, 2013 ended December 31, 2013ThUS$TotalLiabilitiesThUS$CurrentLiabilitiesThUS$ThUS$ ThUS$Revenue Net IncomeSummary financial information of significant subsidiaries Aerovías de Integración Regional, Lan Perú S.A.del Ecuador S.A.ThUS$Results for the periodCurrentAssetsThUS$Non-currentThUS$38,75192,57361,73649,57712,159392,433(81,033)6,628,432171,655Name of significant subsidiary AssetsLan Perú S.A.263,516237,57725,939252,109250,6991,4101,173,3913,755Lan Cargo S.A.772,640360,733411,907413,527233,363180,164304,0603,685Lan Argentina S.A.214,426192,59021,836205,672203,5672,105500,128(13,311)Transporte Aéreo S.A.359,69369,459290,234120,39937,04983,350400,518(4,129)Aerolane Líneas Aéreas Nacionalesdel Ecuador S.A.94,16058,86735,29393,53589,8023,733299,138(40,295)Aerovías de Integración Regional, AIRES S.A.188,51869,591118,92736,00924,93611,073335,854(63,359)TAM S.A. (*)8,695,4582,372,0476,323,4117,983,6713,249,5814,734,0906,791,104(458,475) (b) Non-controlling interest 57 %30.000000.106050.2900051.0000026.7000028.050004.220003,323CountryAs of1December 31,December 31,December 31,20132014December 31,2013ThUS$Lan Cargo S.A. and Subsidiaries93.383.000-4Chile0.106050.106059253,423591As ofAs ofAs ofLan Perú S.A 0-EPeru30.0000030.00000%%ThUS$Tax No.of origin2014Equity1,315Inversiones Lan S.A. and Subsidiaries96.575.810-0Chile0.290000.29000519(14,688)966Promotora Aérea Latinoamericana S.A. and Subsidiaries0-EMexico51.0000051.000001,730Inversora Cordillera S.A. and Subsidiaries0-EArgentina4.220004.22000195Aerolane, Lineas Aéreas Nacionales del Ecuador S.A. 0-EEcuador0.0000028.05000 -Lan Argentina S.A.0-EArgentina1.000001.00000217221Americonsult de Guatemala S.A.0-EGuatemala1.000001.000005Americonsult Costa Rica S.A.0-ECosta Rica1.000001.000006Linea Aérea Carguera de Colombiana S.A.0-EColombia10.0000010.00000(826)8660Transportes Aereos del Mercosur S.A.0-EParaguay5.020005.02000825Aerolíneas Regionales de Integración Aires S.A.0-EColombia0.983070.983076843701,695Multiplus S.A.0-EBrazil27.2600027.1500094,71093,057Total101,79987,638As ofFor the period endedIncomesDecember 31,December 31,CountryAs ofDecember 31,Lan Perú S.A 0-EPeru30.00000%ThUS$Tax No.of origin201420143172013ThUS$1,1272013Lan Cargo S.A. and Subsidiaries93.383.000-4Chile0.10605(109)Inversiones Lan S.A. and Subsidiaries96.575.810-0Chile0.29000(14)1111Promotora Aerea Latinoamericana S.A. and Subsidiaries0-EMexico51.00000396Aerolinheas Brasileiras S.A. and Subsidiaries0-EBrasil0.00000 -(511)(1,520)Inversora Cordillera S.A. and Subsidiaries0-EArgentina4.22000269Aerolane, Lineas Aéreas Nacionales del Ecuador S.A. 0-EEcuador0.00000(5,671)(11,303)188Lan Argentina S.A.0-EArgentina1.0000058471.00000Americonsult de Guatemala S.A.0-EGuatemala1.00000411.00000Americonsult Costa Rica S.A.0-ECosta Rica1.000006 -1.00000Linea Aérea Carguera de Colombiana S.A.0-EColombia10.00000(495)(145)10.00000Transportes Aereos del Mercosur S.A.0-EParaguay5.02000(389)Aerolíneas Regionales de Integración Aires S.A.0-EColombia0.98307(797)(645)6711.026655.02000Multiplus S.A.0-EBrazil27.2600039,25429,27327.13000Total32,82917,295 58 NOTE 14 - INTANGIBLE ASSETS OTHER THAN GOODWILL The details of intangible assets are as follows: Movement in Intangible assets other than goodwill: The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of December 31, 2014 amounts to ThUS$ 183,049 (ThUS$ 135,597 as of December 31, 2013). The accumulated amortization of other identifiable intangible assets as of December 31, 2014 amounts to ThUS$ 808 (ThUS$ 727 as of December 31, 2013). (*) See Note 2.5 Classes of intangible assets Classes of intangible assets (net)(gross)As ofAs ofAs ofAs ofDecember 31,December 31,December 31,December 31,2014201320142013ThUS$ThUS$ThUS$ThUS$Computer software126,797143,124309,846278,721Developing software74,05046,07574,05046,075Airport slots1,201,0281,361,8071,201,0281,361,807Loyalty program400,317453,907400,317453,907Trademarks77,88788,31477,88788,3142,229,632Other assets - 81808808Total1,880,0792,093,3082,063,936Closing balance as ofDecember 31, 2013Closing balance as ofDecember 31, 2014Amortization(47,452)---(81)(47,533)126,79774,0501,201,028478,204-1,880,079(4,941)Transfer software22,351(24,539)---(2,188)(64,017)-(236,463)Foreing exchange(6,763)(4,904)(160,779)(5,542)(4,894)(199,323)Withdrawals(1,365)(3,576)---81(72)2,093,308Additions16,90260,994---77,896Opening balance as of January 1, 2014143,12446,0751,361,807542,2212,093,308Amortization(56,419)542,221(467)143,12446,07581(1,975)----Withdrawals--(56,258)-Transfer software46,444(48,890)-(161)Foreing exchangeThUS$softwareAirport slots (*)ThUS$and loyalty1,361,807Developing(79,363)(2,442)2,382,39961,902(492)(2,938)ThUS$Total806---program (*)1,561,130ThUS$ThUS$ComputersoftwareOpening balance as of January 1, 2013621,584Additions47,199144,24414,70354,635NetThUS$(289,194)TrademarksOtherassetsNet 59 NOTE 15 – GOODWILL The Goodwill amount at December 31, 2014 is ThUS$ 3,313,401 (ThUS$ 3,727,605 at December 31, 2013). The Company has two cash- generating units (CGUs), confirming the existence of two cash- generating units: “Air transportation” and, “Coalition and loyalty program Multiplus”; consistent with this, at December 31, 2014 was performed impairment tests based on value in use and no impairment was identified. These tests are done at least once per year. At December 31, 2014, 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: 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 that 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. The sensitivity analysis included individual impact of variations in the key assumptions with impact on the determination of the recoverable amounts, namely: In none of the previous cases was presented impairment in the cash- generating unit. Exchange rate (1)Discount rate based on the weighted average cost of capital (WACC)Discount rate based on cost of equity (CoE)Fuel Price from futures price curves commodities markets(1) In line with the expectations of the Central Bank of Brazil(2) The flows, as in the growth rate and discount, are denominated in real.Coalition and loyalty program Multiplus CGU (2)Air transportationCGU%1.5 and 2.54.7 and 5.7 Annual growth rate (Terminal)%-18.0 and 24.0US$/barril90-9.8 and 10.8-%R$/US$2.7 and 3.622.7 and 3.62Air transportation CGUCoalition and loyalty program Multiplus CGUDecreaseterminalgrowth rateIncreaseIncreaseMinimum%1.54.7MaximumWACC%10.8-MaximumCoE%-24.0 60 Movement of Goodwill, separated by CGU: Opening balance as of January 1, 2013Increase (decrease) due to exchange rate differencesOthersClosing balance as of December 31, 2013 Opening balance as of January 1, 2014Increase (decrease) due to exchange rate differencesOthersClosing balance as of December 31, 2014 (360,371)(87,670)(448,041)Coalitionprogramand loyalty Air 3,361,906851,2544,213,160(530,415)(421,729)(108,686)3,727,6052,985,037742,56844,8603,727,6052,985,037742,56844,860-33,83733,837-2,658,503654,8983,313,401Transport MultiplusTotalThUS$ThUS$ThUS$ NOTE 16 - PROPERTY, PLANT AND EQUIPMENT The composition by category of Property, plant and equipment is as follows: 61 95,981144,2304,522,5894,365,247157,34215,018,910937,27957,988249,3618,660,3527,531,5261,128,82665,832188,20897,090Net Book ValueAs ofDecember 31,2013ThUS$As ofAs ofDecember 31,December 31,20142013ThUS$ThUS$ThUS$ThUS$Gross Book ValueAcumulated depreciationTotalAs ofAs ofDecember 31,December 31,20142013-(4,245,834)(2,019,155)(87,707)(53,452)As ofDecember 31,2014ThUS$858,65059,352247,2638,461,4567,409,394173,109 Financial leasing aircraft Other(33,697)(1,985,458)123,6452,379,789Construction in progressLandBuildingsPlant and equipmentInformation technology equipmentFixed installations and accessoriesMotor vehiclesLeasehold improvementsOther property, plants and equipment Own aircraft OtherMachinery(360,997)(1,347,671)(1,708,668)(75,478)---(42,099)14,934,6291,052,06273,561182,10897,21275,15088,6414,791,2364,618,127(3,951,843)(42,699)(1,777,980)(1,820,679)(71,872)(51,128)(46,620)(135,889)(41,509)(362,856)(1,407,704)(1,770,560)(82,355)(53,307)(137,199)937,27923,733765,9706,123,8226,889,792167,00657,9882,503,43456,52342,52943,78351,00910,773,076858,65032,052691,0656,061,7236,752,788171,78559,352130,4102,840,14716,76924,02250,59246,2192,970,55710,982,786 (a) The movement in the different categories of Property, plant and equipment from January 1, 2013 to December 31, 2014 is shown below: 62 (*) During the first half of 2014 four Boeing 777-300ER aircraft were sold and subsequently leased. (*)Closing balance as of December 31, 2014Plant andequipmentnetThUS$(644,637)(161)(2,512)(219)(12,281)(1)7,542-(320,738)278,206858,6506,807,1189,529(294,353)(5,955)(11,768)Opening balance as of January 1, 2013447,003(53,452)(5,955)(12,414)(71,013)(446,503)(384,669)(430)42,3437,6631,555,66717,73122,1461,153,003 Other increases (decreases) Depreciation expenses Disposals Foreing exchange-(258,017)--- Retirements---(141,328)(31)Constructionin progressThUS$LandnetThUS$netThUS$equipmentinstallationsBuildingsThUS$netThUS$netOthernetThUS$MotorLeaseholdplant andInformationFixedproperty,technology& accessoriesvehiclesimprovementsequipmentThUS$40,463netThUS$6,360,11565,307175,0702,970,557(2,978)1,7444,722(4,959)16,76921,7283,944,325(10)(312)(973,768)303(286)69,703(19,716)(336,586)50,5922,970,55710,982,786 Additions29,9803,44016,6361,214,28222,2392,1901,586-154,0491,444,402Opening balance as of January 1, 2014858,65059,352171,7856,807,11846,21950,5921,74416,769(328)(660,518) Retirements(705)-(403)(39,463)(205)(230)(53)(50)(34,282)(75,391) Disposals---(660,129)(57)-(4)-(286,033)(777,936) Foreing exchange733(4,804)(12,341)(59,957)(3,595)(1,509)330-(110,727)(191,870) Depreciation expenses--(13,980)(431,967)(16,889)(8,899)(1,041)(19,127)(189,802)51,603 Changes, total78,629(1,364)(4,779)146,9714,790(6,809)22139,754(467,123)(209,710) Other increases (decreases)48,621-5,309124,2053,2971,639(597)58,931937,27957,988167,0066,954,08951,00943,7831,96556,5232,503,434equipment(337,483)(468,761)(830,474)(86,426)(786,157)1,685,01110,773,076netThUS$10,982,786(824,290)11,807,076Property,Plant and-Closing balance as of December 31, 2013 Changes, total8,24911,798 Additions--59,3525,75646,219171,785(3,285)(1,527)(14,131)1,417(15)(8,893)11,021(3,375)(615)(270)(65,151) 63 (b) Composition of the fleet: (c) Method used for the depreciation of Property, plant and equipment: (*) Except for certain technical components, which are depreciated on the basis of cycles and flight hours. The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values are estimated according to market value at the end of such contracts. (**) Aircraft with remarketing clause are those that are required to sell at the end of the contract. The depreciation charged to income in the period, which is included in the consolidated statement of income, amounts to ThUS$ 777,936 (ThUS$ 830,474 at December 31, 2013). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income. (1)(1)Total(1) Two aircraft leased to FEDEXBombardierDhc8-400---3-3220211107128327339Boeing 737700---5-5BombardierDhc8-2002-5777Airbus A3403003--434Airbus A340500-2---2Airbus A321200189312110Airbus A330200885121320Airbus A319100403912155254Airbus A32020095956365158160Boeing 767300F 88341112Boeing 777300ER48621010Boeing 767300-3---3Boeing 767300ER3434463840AircraftModelDecember 31,December 31,December 31,December 31,December 31,December 31,201420132014201320142013Aircraft included in the Company´s Property, Operating Totalplant and equipmentleasesfleetAs ofAs ofAs ofAs ofAs ofAs ofBoeing 777Freighter222244Boeing 7878006342105minimummaximum short-haul fleet and 36% in the long-haul fleet. (*)Useful life2050205205101010and equipmentStraight line without residual valueStraight line without residual valueStraight line without residual valueStraight line with residual value of 20% in the1010553MethodStraight line without residual value short-haul fleet and 36% in the long-haul fleet. (*)Straight line without residual valueStraight line with residual value of 20% in theBuildingsInformation technologyOther property, plant Plant and equipmentequipmentFixed installations and accessoriesMotor vehicleLeasehold improvements 64 (d) Additional information regarding Property, plant and equipment: (i) Property, plant and equipment pledged as guarantee: In the period ended December 31, 2014, were added direct guarantees by nine Airbus A321-200 aircraft and three Boeing 787-800 aircraft. Additionally, as a result of fleet transfer plan from TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company added direct guarantees associated with three Airbus A319-100 aircraft, twenty one Airbus A320-200 aircraft and seven Airbus A321-200 aircraft. Moreover, the Company sold its interest in the permanent establishments Flamenco Leasing LLC, Cisne Leasing LLC, Becacina Leasing LLC, Tricahue Leasing LLC and Loica Leasing Limited. Products of the above direct guarantees associated with seven Boeing 767-300, two Airbus A319-100 and two Airbus A320-200 aircraft were removed. Additionally, as a result of sale, direct guarantees associated with four Boeing 777-300 aircraft were removed. Description of Property, plant and equipment pledged as guarantee: The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying value of the goods provided as guarantees. Total direct guaranteeKfW IPEX-BankAircraft and enginesAirbus A32016,08817,516 - - HSBCAircraft and enginesAirbus A32059,00559,342 - - 281,846162,304Airbus A320WilmingtonAircraft and enginesTrust CompanyBoeing 777 / 787Airbus A319Banco Santander S.A.452,622Aircraft and enginesAirbus A32149,208829,185100,48566,31839,739Creditor ofguarantee2014ExistingDebtThUS$ValueThUS$As ofDecember 31,committedAssetsFleetAs ofDecember 31,BookThUS$Existing45,161585,008788,706 - 518,788777,7961,001,31163,939 - 2013BookDebtValueThUS$Boeing 7671,827,3491,277,3571,437,81043,071880,470153,531207,88174,042121,038643,94599,241257,85796,774Aircraft and engines174,714238,103209,993105,353488,19855,946Airbus A320305,949360,064Airbus A32148,814PK AirFinance US, Inc.Aircraft and engines4,355,7585,443,3364,478,836327,094277,62295,292 - Citibank N. A.Aircraft and enginesAirbus A320142,591146,535 - - 70,10269,721Airbus A320405,4165,660,388331,854384,273Aircraft and enginesAirbus A320259,260Aircraft and enginesAircraft and engines - - - DVB Bank SEAirbus A319Airbus A32055,797Airbus A32160,288Airbus A319BNP Paribas199,114JP MorganAircraft and enginesBoeing 777237,463Airbus A320Aircraft and enginesCredit Agricole219,46032,251 - Bank of Utah157,514292,486278,169259,272151,824347,765 - Boeing 767 - - Wells FargoNatixisAircraft and enginesAirbus A320 - Airbus A32155,83659,452 - - 65 Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at December 31, 2014 amounted to ThUS$ 1,626,257 (ThUS$ 2,167,470 at December 31, 2013). The book value of assets with indirect guarantees as of December 31, 2014 amounts to ThUS$ 2,335,135 (ThUS$ 2,767,593 as of December 31, 2013). (ii) Commitments and others Fully depreciated assets and commitments for future purchases are as follows: Purchase commitment of aircraft In July 2014 the cancellation of 4 Airbus A320 was signed and changing 12 Airbus A320 aircraft for 12 Airbus A320 NEO aircraft. In December 2014 a contract was signed changing 4 Airbus A320 aircraft for 4 Airbus A320 NEO aircraft and changing 4 Airbus A321 aircraft for 4 Airbus A321 NEO aircraft. At December 31, 2014, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., remain to receive 97 aircraft Airbus A320 family, with deliveries between 2015 and 2021, and 27 Airbus aircraft A350 family with delivery dates starting from 2015. The approximate amount is ThUS$ 17,600,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 5 Airbus A350 aircraft. As ofDecember 31,December 31,As ofThUS$ThUS$20142013(*) Acording to the manufacturer’s price list.160,11623,900,000138,96021,500,000Gross book value of fully depreciated property, plant and equipment still in use Commitments for the acquisition of aircraft (*)ManufacturerAirbus S.A.S. A320-NEO A321 A321-NEO A350The Boeing Company B777 B787-8 B787-9Total4485142121928323511-235-----8--2----273564---18-3---61689--30-45151515---11125124-218168816232631-52201520162017TotalYear of delivery2018201920202021 66 As of December 31, 2014, and as a result of different aircraft purchase contracts signed with The Boeing Company, remain to receive a total of sixteen 787 Dreamliner aircraft, with delivery dates between 2015 and 2018, and two 777 with delivery expected for 2017. The approximate amount, according to the manufacturer's price list, is ThUS$ 3,900,000. Additionally, the Company has valid purchase options for 2 Boeing 777 aircraft. (iii) Capitalized interest costs with respect to Property, plant and equipment. (iv) Financial leases The detail of the main financial leases is as follows: Average rate of capitalization of capitalized interest costsCosts of capitalized interest %ThUS$2014For the periods endedDecember 31,2.8418,42620133.6325,625Model2-Boeing 767300ER11Chirihue Leasing TrustBoeing 767300F211Airbus A33020033Garza Leasing LLCGeneral Electric Capital CorporationIntraelo BETA Corpotation (KFW)Loica Leasing LimitedAirbus A32022300ER2--11Boeing 777300ER11122Airbus A319100Boeing 767200300F2Boeing 767As ofDecember 31,AircraftBoeing 767300-320142013Airbus A31910044-2As ofDecember 31,21002AWMS I (AWAS)Becacina Leasing LLCFLYAFI 2 S.R.L.FLYAFI 3 S.R.L.Cernicalo Leasing LLCFlamenco Leasing LLCFLYAFI 1 S.R.L.Boeing 777Boeing 777Codorniz Leasing LimitedCaiquen Leasing LLCBoeing 767Conure Leasing LimitedAirbus A320Boeing 767Mirlo Leasing LLCLoica Leasing LimitedAirbus A3191Airbus A32020022Boeing 767300ER12002300ER300ER1300F11Forderum Holding B.V. (GECAS)300ERAirbus A3202002LessorAgonandra Statutory TrustAir CanadaAgonandra Statutory TrustAirbus A320200Airbus A340500-Linnet Leasing LimitedAirbus A32020044Cisne Leasing LLCBoeing 767300ER2-Juliana Leasing Limited1212Airbus A320200 67 Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations. Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircraft, perform maintenance on the aircraft and update the airworthiness certificates at their own cost. Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of December 31, 2014 the Company had seventy one aircraft (ninety nine aircraft as of December 31, 2013). During the period ended December 2014, due to the sale of its participation in the permanent establishments Flamenco Leasing LLC, Cisne Leasing LLC, Becacina Leasing LLC, Tricahue Leasing LLC and Loica Leasing Limited, the Company increased its number of aircraft on lease by seven Boeing 767-300, two Airbus A319-100 and two Airbus A320-200 aircraft. Therefore, these aircraft were reclassified from the Plant and equipment category to the category Other property plant and equipment. During the third quarter of 2014 the option was exercised to purchase one A330-200 and during the fourth quarter of 2014 the option were exercised to purchase two A320-200 aircraft. Therefore, this aircraft was reclassified from the Other property plant and equipment category to the category Plant and equipment. For other hand, as a result of fleet transfer plan from TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company decreases its number of aircraft on lease by three Airbus A319-100 aircraft, twenty one Airbus A320-200 and seven Airbus A321-200 aircraft as a ModelAs ofAs ofDecember 31,December 31,LessorAircraft20142013NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)Airbus A32020011NBB São Paulo Lease CO. Limited (BBAM)Airbus A32120011Osprey Leasing LimitedAirbus A31910088Petrel Leasing LLCBoeing 767300ER11Pochard Leasing LLCBoeing 767300ER22Quetro Leasing LLCBoeing 767300ER33SG Infraestructure Italia S.R.L.Boeing 777300ER11SL Alcyone LTD (Showa)Airbus A32020011TMF Interlease Aviation B.V.Airbus A320200112TMF Interlease Aviation B.V.Airbus A33020011TMF Interlease Aviation II B.V.Airbus A31910055TMF Interlease Aviation II B.V.Airbus A32020022TMF Interlease Aviation III B.V.Airbus A319100-3TMF Interlease Aviation III B.V.Airbus A320200-12TMF Interlease Aviation III B.V.Airbus A321200-7Tricahue Leasing LLCBoeing 767300ER3-Total7199Wacapou Leasing S.AAirbus A32020011Wells Fargo Bank North National Association (ILFC)Airbus A330200-1 68 result of modifications in its financial contracts. Therefore, these aircraft were reclassified from the Other property plant and equipment category to the category Plant and equipment. Additionally, as a result of the leasing contracts had ended; the Company decreases its number of aircraft on lease by three Boeing 767-300 aircraft and two Airbus A340-500 aircraft. These aircraft were on operative leasing agreement, but according to the stated policy were classified as financial leasing. The book value of assets under financial leases as of December 31, 2014 amounts to ThUS$ 2,379,789 (ThUS$ 2,840,147 as of December 31, 2013). The minimum payments under financial leases are as follows: NOTE 17 - CURRENT AND DEFERRED TAXES In the period ended December 31, 2014, the income tax provision was calculated at the rate of 21% for the business year 2014, in accordance with the recently enacted Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014. Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System"(*) is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System"(*) the top rate would reach 25% in 2017. As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System", unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System". This decision must be taken at the latest in the last quarter of 2016. The effects of the updating of deferred tax assets and liabilities according to rates changes introduced by Law No. 20,780 depending on their period back have been recorded in equity in accordance with the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014. The total effect in equity was ThUS $ 150,210, which is explained by an increase in deferred tax assets of ThUS$ 87 and an increase in deferred tax liabilities of ThUS$ 145,253 and an increase in equity by deferred tax of ThUS$ 5,044. The net effect on the assets and liabilities by deferred tax is an increase on liabilities for ThUS$ 145,166. 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. No later than one yearBetween one and five yearsOver five years(192,189)2,309,472As of December 31, 2013GrossPresentValueInterestValueThUS$ThUS$ThUS$462,157(53,925)408,232Total1,786,907(152,515)1,634,3922,501,6611,406,384(118,702)1,287,682261,877(6,409)255,468633,120(19,562)613,558403,840(48,197)355,6431,121,190(97,909)1,023,281As of December 31, 2014GrossPresentValueInterestValueThUS$ThUS$ThUS$ 69 (*) The Partially Integrated Taxation System is one of the tax regimes approved through the Tax Reform previously mentioned, which is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits. (a) Current taxes (a.1) The composition of the current tax assets is the following: (a.2) The composition of the current tax liabilities are as follows: (b) Deferred taxes The balances of deferred tax are the following: The balance of deferred tax assets and liabilities are composed principally of temporary differences to reverse in the long term. Provisional monthly payments (advances)Other recoverable credits Total current tax assetsCurrent assetsNon-current assetsTotal assetsAs ofAs ofAs ofAs ofAs ofAs of2013December 31,December 31,December 31,December 31,December 31,December 31,2014201320142013201461,570ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$68,75261,570 - - 68,75220,32081,890100,70881,89017,663 - 118,37131,95620,32017,663 - 49,619Income tax provision Additional tax provision Total current tax liabilities17,88911,58316,7129,9191,1771,66420142013ThUS$ThUS$Current liabilitiesAs ofAs ofDecember 31,December 31,Total liabilitiesNon-current liabilitiesAs ofAs ofDecember 31,December 31,As ofAs ofDecember 31,December 31, - - 11,583 - - 1,17717,8891,664 - - 2013ThUS$ThUS$16,7129,91920142013ThUS$ThUS$2014# 767,228(18,544)593,325(7,668)402,962(5,999)523,275(6,375)1,051,894 - - (147,074)83,31846,688Concept(18,460)267,189(15,508)(284,339)(12,536)(571,180)(10,778)Revaluation of financial instruments317,883562Tax losses847,965128,35065,0762013ThUS$ThUS$As ofDecember 31,557,845113,579(207,358)(23,675)(31,750)416,153270ProvisionsLeased assets(102,457)LiabilitiesAs ofDecember 31,2014AmortizationAs ofDecember 31,2014ThUS$DepreciationAssetsAs ofDecember 31,2013ThUS$(17,152)Revaluation property, plant and equipment151,569 - TotalOthersIntangibles(2,787)407,323 - 70 Movements of Deferred tax assets and liabilities: (*) In relation to the Tax Recovery Program (REFIS), established in Law No. 11,941/09, the Provisional Measure No. 651/2014 approved by the Brazilian National Congress and signed into Law No. 13,043/14, in its Section VIII, Article 33, establishes that taxpayers that have tax debts can anticipate paying their tax debt by using tax credits related to tax loss carryforwards up to an amount of 70% of the total debt if they pay the other 30% in cash. The Company adhered to the program and paid its debt through this mechanism. Therefore, the company TAM Linhas Aéreas S.A. decreased its liability associated with the REFIS program using its deferred tax assets related to its tax loss of ThUS $ 126,205 at December 31, 2014, generating no effect on the outcome of tax. Others28,310 Total(416,272)93,119(19,345)(22,777)10,792(364,266)9,543-(28,070)1,0091,00918,544(593,325)-(7,638)--86,842-(193,762)(124,357)525,24116,070551,528(19,345)(1,650)--(17,316)-Amortization(76,763)(49,985)DepreciationIntangibles(680,167)-Tax losses420,578148,266Revaluation of financial instruments36,919146Revaluation propety, plant and equipment22,8923,290Leased assets(268,619)70,807-4,050-(124,584)-4,432---2,391-Provisions555,42335,636-(65,818)(a)From January 1 to December 31, 2013(574,997) variationOthersAsset (liability)ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$Assets/(liabilities)incomeincome(454,845)Endingbalanceconsolidatedcomprehensive ratebalanceOpeningRecognized inRecognized inExchange(b)Efect fromchange inExchange rate(644,571)(6,161)70,0503,763-12,806163,596(160,100)(21,812)-351,077Endingbalance(53,090)(1,331)(13,968)From January 1 to December 31, 2014AmortizationOthersThUS$ThUS$ variationThUS$-ThUS$ThUS$Assets/(liabilities)Revaluation propety, plant and equipment18,544(6,384)-Provisions525,241(99,262)-Revaluation of financial instruments16,070(53,675)47,979 Total(364,266)(46,563)47,979(145,166)(114,625)(26,200)(21,930)Intangibles(593,325)--Others10,79213,455---(523,275)(6,039)11,5803,588Depreciation(574,997)(74,623)-Leased assets(193,762)47,749-(225,595)(871,640)(43,029)-(185,775)3,5753,267Tax losses (*)551,528147,798balanceOpeningRecognized inconsolidatedincome(126,205)722,749--5,999Recognized incomprehensive incomeThUS$Asset (liability)ThUS$-(124,357)(21,621)-(16,050)-1,928tax rate 71 Deferred tax assets on tax loss carry-forwards, are recognized to the extent that it is likely to provide relevant tax benefit through future taxable profits. The Company has not recognized deferred tax assets of ThUS$ 2,781 (ThUS$ 6,538 at December 31, 2013) compared to a loss of ThUS$ 11,620 (ThUS$ 28,855 at December 31, 2013) to offset against future years tax benefits. Deferred tax expense and current income taxes: As ofDecember 31,Deferred tax assets not recognized:Tax lossesAs ofDecember 31,2014ThUS$Total Deferred tax assets not recognized2,7816,5386,5382013ThUS$2,78195,63146,46673,050(92,863)142,1949746,563(93,119)(20,069)(256)(2,151)For the periods endedDecember 31,2014ThUS$2013ThUS$73,611(561)97,782 Total current tax expense, net Current tax expense Current tax expense Adjustment to previous period’s current taxDeferred expense for taxes related to the Deferred tax expensecreation and reversal of temporary differences Total deferred tax expense, net Income tax expenseReduction (increase) in value of deferred tax assetsduring the evaluation of its usefulness 72 Composition of income tax expense (income): Profit before tax by the legal tax rate in Chile (21%) (*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015. Thus, at December 31, 2014, the Company filed tax expense reconciliation and legal tax rate considering the rate increase. According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the Company recognized a loss on their retained earnings ThUS$ 150,210 as a result of the rate increase. Deferred tax expense, net, total46,563(93,119)Deferred tax expense, net, foreign168,049(112,047)Total current tax expense, net95,631Current tax expense, net, Chile3,35911,93273,050ThUS$ThUS$For the periods endedDecember 31,20142013Income tax expense142,194(20,069)Deferred tax expense, net, Chile(121,486)18,928Current tax expense, net, foreign92,27261,118(*)(*)6.59(14.99)438.81(4,857)98,211(32.18)1,04640,966(0.34)(13.41)417.81For the periods endedDecember 31,2014%December 31,2014ThUS$2013ThUS$2013%135,389142,194(20,069) Other increases (decreases) in legal tax charge Tax effect of non-taxable operating revenues Tax effect of disallowable expenses(60,960) Total adjustments to tax expense using the legal rate Tax expense using the effective rate(188.12)273.55(24,004)88,64320.0011.247.87Tax expense using the legal rate Tax effect of rates in other jurisdictions347.376,805(61,035)(34,287)112,56321.00 73 Deferred taxes related to items charged to net equity: (*) Correspond to the tax by tax rate increases Law No. 20,780, tax reform, published in the Official Journal of the Republic of Chile on September 29, 2014. NOTE 18 - OTHER FINANCIAL LIABILITIES The composition of Other financial liabilities is as follows: Tax effect by change legal tax rate in other comprehensive income (*)Tax effect by change legal tax rate in net equity (*)(2,708) - Aggregate deferred taxation of componentsAggregate deferred taxation related to For the period endedDecember 31,20142013ThUS$ThUS$7,752 - of other comprehensive income40,227(19,345) items charged to net equitycharged to net equityTotal deferred taxes related to items (3,389)(3,440)41,882(22,785)66,4662,039,7877,803,5881,397,3821,190226,0431,624,6157,360,685As ofAs ofDecember 31,December 31,20142013ThUS$ThUS$Current(a) Interest bearing loans(b) Derivatives not recognized as a hedge1,969,2814,040(c) Hedge derivativesTotal currentNon-current(a) Interest bearing loans(b) Derivatives not recognized as a hedge1,491 - (c) Hedge derivativesTotal non-current54,9067,859,98528,3277,389,012 74 (a) Interest bearing loans Obligations with credit institutions and debt instruments: All interest-bearing liabilities are recorded using the effective interest rate method. Under IFRS, the effective interest rate for loans with a fixed interest rate does not vary throughout the loan, while in the case of loans with variable interest rates, the effective rate changes on each date of reprising of the loan. Currency balances that make the interest bearing loans: 1,902,715401,263602,61831,1091,490,50221,761455,5123,776,9104,163,3641,116,671322,20764,247423,53733,4811,969,281960,72521,206364,514CurrentFinancial leasesOther loans98,711Loans to exporters50,937327,278472,86461,872Bank loansOther guaranteed obligationsGuaranteed obligationsSubtotal bank loansObligation with the publicDecember 31,As of2013ThUS$As ofDecember 31,2014ThUS$Total obligations with financial institutionsTotal non-currentObligation with the publicOther loansFinancial leases1,344,520Total currentSubtotal bank loansGuaranteed obligations3,765,518Non-currentBank loans415,667Other guaranteed obligations1,397,3821,111,48193,9924,275,177620,8387,803,5889,772,869629,5077,360,6858,758,067Currency8,758,067Chilean peso (U.F.)187,614267,554Brazilian real53,41076,674Total2,0299,383,2779,772,869US Dollar As ofAs ofDecember 31,December 31,20142013ThUS$ThUS$43,335Argentine pesoEuro39,0535478,477,443 75 Interest-bearing loans due in installments to December 31, 2014Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.Nominal valuesAccounting valuesMore thanMore thanMore thanMore thanMore thanMore thanUp to90 daysone tothree toMore thanTotalUp to90 daysone tothree toMore thanTotalCreditor90to onethreefivefivenominal 90to onethreefivefiveaccountingEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsvaluedaysyearyearsyearsyearsvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Loans to exporters97.032.000-8BBVAChileUS$100,000 - - - - 100,000100,058 - - - - 100,058At expiration0.400.4097.036.000-KSANTANDERChileUS$45,000 - - - - 45,00045,040 - - - - 45,040At expiration0.340.3497.030.000-7ESTADOChileUS$55,000 - - - - 55,00055,022 - - - - 55,022At expiration0.520.5297.006.000-6BCIChileUS$100,000 - - - - 100,000100,140 - - - - 100,140At expiration0.470.4776.645.030-KITAUChileUS$15,000 - - - - 15,00015,018 - - - - 15,018At expiration0.650.6597.951.000-4HSBCChileUS$12,000 - - - - 12,00012,000 - - - - 12,000At expiration0.500.50Bank loans97.023.000-9CORPBANCAChileUF14,24242,725113,93417,367 - 188,26815,54242,725112,16017,187 - 187,614Quarterly4.854.850-ECITIBANKArgentinaARS - 17,542 - - - 17,54212217,542 - - - 17,664Monthly31.0031.000-EBBVAArgentinaARS - 21,050 - - - 21,05033921,050 - - - 21,389Monthly33.0033.0097.036.000-KBBVAChileUS$ - - 282,967 - - 282,967928 - 282,967 - - 283,895Quarterly2.332.33Guaranteed obligations0-ECREDIT AGRICOLEFranceUS$17,22552,658105,59462,20935,883273,56917,74552,658105,59462,20935,883274,089Quarterly1.681.430-EBNP PARIBASU.S.A.US$7,81524,00567,80673,475178,116351,2178,94024,00567,24873,287178,078351,558Quarterly2.132.040-EWELLS FARGOU.S.A.US$30,35191,866251,040260,112669,5991,302,96834,77191,866219,808245,026653,0561,244,527Quarterly2.261.570-ECITIBANKU.S.A.US$16,62450,489139,491146,931330,579684,11418,15450,489128,993141,745323,754663,135Quarterly2.241.4997.036.000-KSANTANDERChileUS$5,12715,54542,64644,47272,551180,3415,41815,54540,18343,41371,879176,438Quarterly1.320.780-EBTMUU.S.A.US$2,6498,04222,22123,39351,340107,6452,8388,04220,55722,62150,668104,726Quarterly1.641.040-EAPPLE BANKU.S.A.US$1,2963,95210,91911,51625,70753,3901,4483,95210,09411,13125,36651,991Quarterly1.631.030-EUS BANKU.S.A.US$14,15842,960118,206123,705349,129648,15817,16942,96097,791113,644337,272608,836Quarterly3.992.810-EDEUTSCHE BANKU.S.A.US$4,55214,03139,79124,72572,180155,2795,19014,03139,79124,72672,180155,918Quarterly3.253.250-ENATIXISFranceUS$9,73929,80784,88487,304242,496454,23010,27829,80784,88487,304242,496454,769Quarterly1.861.810-EHSBCU.S.A.US$1,3404,08211,24911,82030,51459,0051,4744,08211,24911,82030,51459,139Quarterly2.291.480-EPK AirFinanceU.S.A.US$1,7555,45216,01418,41228,08869,7211,8105,45216,01418,41228,08869,776Quarterly1.861.860-EKFW IPEX-BANKU.S.A.US$6111,8855,5684,3343,69016,0886131,8855,5684,3343,69016,090Quarterly2.102.10-SWAP Aircraft arrivals-US$5951,6473,3331,6581577,3905951,6473,3331,6581577,390Quarterly - - Other guaranteed obligations0-EDVB BANK SEU.S.A.US$7,87723,87732,492 - - 64,2467,92023,87832,492 - - 64,290Quarterly2.002.000-ECREDIT AGRICOLEU.S.A.US$7,45922,37861,500 - - 91,3377,69622,37861,500 - - 91,574Quarterly1.731.73Financial leases0-EINGU.S.A.US$7,74423,78652,04131,15111,806126,5288,75423,78650,98530,85311,771126,149Quarterly4.844.330-ECREDIT AGRICOLEFranceUS$1,5814,87713,955 - - 20,4131,6284,87713,955 - - 20,460Quarterly1.201.200-ECITIBANKU.S.A.US$4,40913,65739,40244,17713,804115,4495,38413,65738,12543,76713,762114,695Quarterly6.405.670-EPEFCOU.S.A.US$14,54944,742125,13063,9573,827252,20516,21644,742122,59663,6203,819250,993Quarterly5.354.760-EBNP PARIBASU.S.A.US$9,45729,10983,46658,79210,848191,67210,12529,10981,50558,42110,820189,980Quarterly4.143.680-EWELLS FARGOU.S.A.US$4,37313,32337,24239,86244,525139,3254,83013,323357,71039,26444,290459,417Quarterly3.983.530-EDVB BANK SEU.S.A.US$4,45713,54532,567 - - 50,5694,54513,54532,567 - - 50,657Quarterly1.891.890-EUS BANKU.S.A.US$28011,701 - - - 11,98128011,701 - - - 11,981Monthly - - 0-EBANC OF AMERICAU.S.A.US$6432,0492,770 - - 5,4626642,0492,770 - - 5,483Monthly1.411.41Other loans0-EBOEINGU.S.A.US$ - - 179,507 - - 179,5073,580 - 179,507 - - 183,087At expiration1.741.740-ECITIBANK (*)U.S.A.US$ - - 164,108184,866101,026450,0001,500 - 164,108184,866101,026451,500Quarterly6.006.00 Total517,908630,7822,139,8431,334,2382,275,8656,898,636543,774630,7832,384,0541,299,3082,238,5697,096,488(*) Securitized bond with the future flows from the sales with credit card in United States and Canada. 76 Interest-bearing loans due in installments to December 31, 2014Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.Nominal valuesAccounting valuesMore thanMore thanMore thanMore thanMore thanMore thanUp to90 daysone tothree toMore thanTotalUp to90 daysone tothree toMore thanTotalCreditor90to onethreefivefivenominal90to onethreefivefiveaccountingEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsvaluedaysyearyearsyearsyearsvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Bank loans0-ENEDERLANDSCHECREDIETVERZEKERING MAATSCHAPPIJHollandUS$1083359711,0941,2883,7961273369711,0941,2883,816Monthly6.01 6.01 Obligation with the public0-ETHE BANK OF NEW YORKU.S.A.US$ - - 300,000 - 800,0001,100,00012,1789,028304,3774,583802,5211,132,687At Expiration7.99 7.19 Financial leases0-EAFS INVESTMENT IX LLCU.S.A.US$1,8645,75216,58018,5558,36951,1202,1045,75216,58018,5558,36951,360Monthly1.25 1.25 0-EAIRBUS FINANCIALU.S.A.US$3,1899,83627,07015,2627,66463,0213,3039,83627,07015,2627,66463,135Monthly1.42 1.42 0-ECREDIT AGRICOLE-CIBU.S.A.US$2,70432,466 - - - 35,1702,75232,466 - - - 35,218Quarterly1.10 1.10 0-ECREDIT AGRICOLE -CIBFranceUS$1,5004,5004,500 - - 10,5001,5664,5004,500 - - 10,566Quarterly/Semiannual3.25 3.25 0-EDVB BANK SEGermanyUS$3,1259,375 - - - 12,5003,1609,375 - - - 12,535Quarterly2.50 2.50 0-EDVB BANK SEU.S.A.US$197540755 - - 1,492199540755 - - 1,494Monthly1.68 1.68 0-EGENERAL ELECTRIC CAPITAL CORPORATIONU.S.A.US$2,29610,79123,761 - - 36,8482,34610,79123,761 - - 36,898Monthly1.25 1.25 0-EKFW IPEX-BANKGermanyUS$3,24610,54118,03713,5355,32850,6873,33910,54118,03713,5355,32850,780Monthly/Quarterly1.72 1.72 0-ENATIXISFranceUS$2,8876,70520,98723,72385,391139,6934,0446,70520,98723,72385,391140,850Quarterly/Semiannual3.87 3.87 0-EPK AIRFINANCE US, INC.U.S.A.US$1,2083,72520,360 - - 25,2931,2563,72520,360 - - 25,341Monthly1.75 1.75 0-EWACAPOU LEASING S.A.LuxemburgUS$4161,1982,8472,40613,11519,9824561,1982,8472,40613,11520,022Quarterly2.00 2.00 0-ESOCIÉTÉ GÉNÉRALE MILAN BRANCHItalyUS$7,76123,85967,97374,783169,730344,1068,57423,85967,97374,783169,730344,919Quarterly3.06 3.58 0-EBANCO DE LAGE LANDEN BRASIL S.ABrazilBRL - - - - - - 8 - - - - 8Monthly11.70 11.70 0-EBANCO IBM S.ABrazilBRL3199572,51427 - 3,817919572,60427 - 3,679Monthly10.58 10.58 0-EHP FINANCIAL SERVICEBrazilBRL2257071,297 - - 2,2291437071,379 - - 2,229Monthly9.90 9.90 0-ESOCIETE AIR FRANCEFranceEUR114 - - - - 114547 - - - - 547Monthly6.82 6.82 0-ESOCIETE GENERALEFranceBRL1263771,005135 - 1,643823771,044135 - 1,638Monthly11.60 11.60 Other loans0-ECOMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTOBrazilBRL30,28115,576 - - - 45,85730,28115,576 - - - 45,857Monthly4.23 4.23 Total61,566137,240508,657149,5201,090,8851,947,86876,556146,269513,245154,1031,093,4061,983,579Total consolidated579,474768,0222,648,5001,483,7583,366,7508,846,504620,330777,0522,575,2991,453,4113,331,9758,758,067 77 Interest-bearing loans due in installments to December 31, 2013Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.Nominal valuesAccounting valuesMore thanMore thanMore thanMore thanMore thanMore thanUp to90 daysone tothree toMore thanTotalUp to90 daysone tothree toMore thanTotalCreditor90to onethreefivefivenominal 90to onethreefivefiveaccountingEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsvaluedaysyearyearsyearsyearsvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Loans to exporters97.032.000-8BBVAChileUS$ - 30,000 - - - 30,000 - 30,022 - - - 30,022At expiration1.00 1.00 97.036.000-KSANTANDERChileUS$230,000 - - - - 230,000230,819 - - - - 230,819At expiration1.63 1.63 97.030.000-7ESTADOChileUS$ - 40,000 - - - 40,000 - 40,023 - - - 40,023At expiration1.06 1.06 76.100.458-1BLADEXChileUS$100,000 - - - - 100,000100,399 - - - - 100,399At expiration1.87 1.87 Bank loans97.036.000-KSANTANDER ChileUS$ - - 115,051 - - 115,051153 - 115,051 - - 115,204At expiration3.19 3.19 97.023.000-9CORPBANCAChileUF15,59046,772124,72481,374 - 268,46017,47546,771122,78080,528 - 267,554Quarterly4.85 4.85 0-ECITIBANKArgentinaARS - 15,335 - - - 15,3353515,335 - - - 15,370Monthly20.75 20.75 0-EBBVAArgentinaARS - 27,603 - - - 27,60336227,603 - - - 27,965Monthly23.78 23.78 Guaranteed obligations0-EINGU.S.A.US$2,8658,80825,17227,86726,83191,5433,6358,80724,14427,43726,68290,705Quarterly5.69 5.01 0-ECREDIT AGRICOLEFranceUS$12,92034,71382,64610,033 - 140,31213,20934,71382,64610,033 - 140,601Quarterly1.99 1.99 0-EPEFCOU.S.A.US$2,2196,745 - - - 8,9642,2396,746(19) - - 8,966Quarterly3.06 2.73 0-EBNP PARIBASU.S.A.US$8,87527,25676,98583,871221,267418,25410,35627,25675,42083,243221,031417,306Quarterly2.45 2.31 0-EWELLS FARGOU.S.A.US$46,007139,012378,314389,7591,146,6842,099,77652,722139,012330,363365,8711,115,3662,003,334Quarterly2.47 1.76 0-ECITIBANKU.S.A.US$9,60729,31581,68187,189164,399372,19110,85029,31576,58384,847162,473364,068Quarterly2.64 2.04 97.036.000-KSANTANDERChileUS$5,02115,23741,76743,55295,022200,5995,34715,23838,96642,25693,880195,687Quarterly1.32 0.78 0-EBTMUU.S.A.US$2,5797,84621,65522,80163,189118,0702,7847,84619,79721,89162,166114,484Quarterly1.64 1.04 0-EAPPLE BANKU.S.A.US$1,2643,84810,63611,21031,54458,5021,4313,8489,71610,75831,02756,780Quarterly1.63 1.04 0-EUS BANKU.S.A.US$13,84041,995115,549120,924411,684703,99217,10641,99593,083109,417395,163656,764Quarterly2.81 2.81 0-EDEUTSCHE BANKU.S.A.US$4,34813,40838,01832,44884,814173,0365,05313,40838,01732,44984,814173,741Quarterly3.27 3.27 -SWAP Aircraft arrivals-US$6811,9154,1042,5217659,9866811,9154,1042,5217659,986Quarterly--Other guaranteed obligations0-EDVB BANK SEU.S.A.US$7,70323,34264,247 - - 95,2927,76623,34364,247 - - 95,356Quarterly1.99 1.99 Financial leases0-EINGU.S.A.US$4,52313,89637,6569,001 - 65,0764,96413,89637,3958,971 - 65,226Quarterly3.23 3.03 0-ECREDIT AGRICOLEFranceUS$4,80813,83363,7157,158 - 89,5144,95213,83463,7157,157 - 89,658Quarterly1.21 1.21 0-ECITIBANKU.S.A.US$1,4304,41412,70714,2547,75940,5641,6514,41312,25414,0897,73140,138Quarterly6.38 5.65 0-EPEFCOU.S.A.US$13,86742,702121,395108,40322,407308,77415,88442,702118,027107,59522,324306,532Quarterly5.35 4.23 0-EBNP PARIBASU.S.A.US$6,44319,83956,98956,9347,129147,3346,90819,83955,40356,5677,109145,826Quarterly4.65 4.15 0-EBANC OF AMERICAU.S.A.US$6161,8915,392 - - 7,8996471,8915,392 - - 7,930Monthly1.43 1.43 Other loans0-EBOEINGU.S.A.US$ - - 170,838 - - 170,838 - 1,650170,838 - - 172,488At expiration1.75 1.75 0-ECITIBANK (*)U.S.A.US$ - - 79,611174,178196,211450,0004,050 - 79,611174,178196,211454,050Quarterly6.00 6.00 Total495,206609,7251,728,8521,283,4772,479,7056,596,965521,478611,4211,637,5331,239,8082,426,7426,436,982(*) Securitized bond with the future flows from the sales with credit card in United States and Canada. 78 Interest-bearing loans due in installments to December 31, 2013Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.Nominal valuesAccounting valuesMore thanMore thanMore thanMore thanMore thanMore thanUp to90 daysone tothree toMore thanTotalUp to90 daysone tothree toMore thanTotalCreditor90to onethreefivefivenominal90to onethreefivefiveaccountingEffectiveNominalTax No.CreditorcountryCurrencydaysyearyearsyearsyearsvaluedaysyearyearsyearsyearsvalueAmortizationraterateThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$%%Bank loans0-ECITIBANKBrazilUS$2,20741,678 - - - 43,8852,30642,413 - - - 44,719At Expiration3.76 3.20 0-EBANCO DO Brazil S.A.BrazilUS$9,050128,799 - - - 137,8499,410130,742 - - - 140,152At Expiration5.20 4.66 0-EBANCO ITAU BBABrazilUS$26,61147,219 - - - 73,83027,80448,424 - - - 76,228At Expiration6.31 4.73 0-EBANCO SAFRABrazilUS$40,62621,731 - - - 62,35741,76822,213 - - - 63,981At Expiration3.73 2.94 0-EBANCO SAFRABrazilBRL19344348 - - 68418743151 - - 669Monthly7.42 7.42 0-EBANCO BRADESCOBrazilUS$74,70047,641 - - - 122,34177,21848,828 - - - 126,046At Expiration3.87 3.29 0-EBANCO BRADESCOBrazilBRL - 42,688 - - - 42,688 - 42,701 - - - 42,701At Expiration10.63 10.15 0-ENEDERLANDSCHECREDIETVERZEKERING MAATSCHAPPIJHollandUS$1023169151,0311,8514,2151233169151,0311,8514,236Monthly6.01 6.01 Obligation with the public0-ETHE BANK OF NEW YORKU.S.A.US$ - - - 300,000800,0001,100,00019,7602,0015,343305,554805,7741,138,432At Expiration8.60 8.41 Financial leases0-EAFS INVESTMENT IX LLCU.S.A.US$1,7625,43815,67317,54017,90858,3212,0365,43715,67317,54117,90858,595Monthly1.25 1.25 0-EAIR CANADA U.S.A.US$1,3251,645 - - - 2,9701,3251,645 - - - 2,970Monthly- - 0-EAIRBUS FINANCIALU.S.A.US$3,0209,31126,79220,81315,41675,3523,1569,31126,79220,81215,41775,488Monthly1.42 1.42 0-EAWASU.S.A.US$2,9922,659 - - - 5,6513,6562,659 - - - 6,315Monthly- - 0-EBNP PARIBASU.S.A.US$5801,8105,2625,9828,44822,0826511,8105,2625,9828,44822,153Quarterly1.00 1.00 0-EBNP PARIBASFranceUS$5781,7584,9595,3719,69322,3596521,7584,9595,3719,69322,433Quarterly0.86 0.75 0-ECITIBANKEnglandUS$5,98318,17944,31847,123106,987222,5906,40118,17944,31847,123106,987223,008Quarterly1.03 0.90 0-ECREDIT AGRICOLE-CIBU.S.A.US$4,25812,91755,57311,43113,76697,9454,51612,91755,57311,43113,76698,203Quarterly1.40 1.40 0-ECREDIT AGRICOLE -CIBFranceUS$7,91125,43358,86650,46952,717195,3968,33425,43358,86650,46952,717195,819Quarterly/Semiannual0.75 0.65 0-EDVB BANK SEGermanyUS$3,1259,37512,500 - - 25,0003,1959,37512,500 - - 25,070Quarterly2.50 2.50 0-EDVB BANK SEU.S.A.US$1975901,210282 - 2,2792015901,210282 - 2,283Monthly1.75 1.75 0-EGENERAL ELECTRIC CAPITAL CORPORATIONU.S.A.US$3,43048,548 - - - 51,9783,50148,548 - - - 52,049Monthly1.25 1.25 0-EHSBCFranceUS$1,3073,98310,97611,53336,49764,2961,4363,98310,97611,53336,49764,425Quarterly1.45 1.25 0-EKFW IPEX-BANKGermanyUS$3,87711,86928,66020,49917,81382,7184,02711,86928,66020,50017,81382,869Monthly/Quarterly1.74 1.74 0-ENATIXISFranceUS$6,00916,49049,29355,352118,984246,1287,58616,49049,29355,352118,984247,705Quarterly/Semiannual2.81 2.78 0-EPK AIRFINANCE US, INC.U.S.A.US$2,7808,61040,22717,17137,615106,4032,9648,61140,22717,17137,615106,588Monthly1.71 1.71 0-EWACAPOU LEASING S.A.LuxemburgUS$4531,3033,0972,61714,26721,7374981,3033,0972,61714,26721,782Quarterly2.00 2.00 0-EWELLS FARGO BANK NORTHWEST N.A.U.S.A.US$1,7691,425 - - - 3,1941,7731,425 - - - 3,198Monthly1.25 1.25 0-ESOCIÉTÉ GÉNÉRALE MILAN BRANCHItalyUS$11,77235,60487,65596,473102,591334,09512,69435,60487,65596,473102,591335,017Quarterly3.86 3.78 0-ETHE TORONTO-DOMINION BANKU.S.A.US$5151,5664,2974,4856,53117,3945411,5664,2974,4856,53117,420Quarterly0.57 0.57 0-EBANCO DE LAGE LANDEN BRASIL S.ABrazilBRL239724 - - - 963222674 - - - 896Monthly10.38 10.38 0-EBANCO IBM S.ABrazilBRL134192511213 - 1,050153192511213 - 1,069Monthly10.58 10.58 0-EHP FINANCIAL SERVICEBrazilBRL2877462,218308 - 3,5592857452,220308 - 3,558Monthly9.90 9.90 0-ESOCIETE AIR FRANCEFranceEUR691,310 - - - 1,3798241,205 - - - 2,029Monthly6.82 6.82 Other loans0-ECOMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTOBrazilBRL27,244537 - - - 27,78127,244537 - - - 27,781Monthly2.38 2.38 Total245,105552,537453,050668,6931,361,0843,280,469276,447559,935458,398674,2481,366,8593,335,887Total consolidated740,3111,162,2622,181,9021,952,1703,840,7899,877,434797,9251,171,3562,095,9311,914,0563,793,6019,772,869 79 (b) Derivatives not recognized as a hedge (c) Hedge derivatives The foreign currency derivatives exchanges are FX forward and cross currency swap. Hedging operation The fair values of assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below: Total derivativeCurrent liabilitiesNon-current liabilities not recognized as a hedgeAs ofAs ofAs ofAs ofAs ofAs ofDecember 31,201420132014201320142013December 31,December 31,December 31,December 31,December 31,ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$Interest rate derivative not recognized as a hedge1,1904,040 - 1,4911,1905,5311,4911,1905,531Total derivativesnot recognized as a hedge1,1904,040 - Total hedgeCurrent liabilitiesNon-current liabilitiesderivativesAs ofAs ofAs ofAs ofAs ofAs ofDecember 31,201420132014201320142013December 31,December 31,December 31,December 31,December 31,ThUS$Accrued interest from the last dateThUS$ThUS$ThUS$ThUS$ThUS$5,775Fair value of interest rate derivatives26,39532,07028,32754,90654,72286,976 of interest rate swap5,1735,775 - - 5,173157,233 - Fair value of foreign currency derivatives37,24228,621 - - 37,24228,621Fair value of fuel derivatives157,233 - - - 121,372Total hedge derivatives226,04366,46628,32754,906254,370Currency collars (8)(1,652)(1,121) - - 13,9901,878(122,678)(32,772)Currency forward CLP/US$ (7)As ofAs ofDecember 31,December 31,20132014Currency forward R$/US$ (6)32,058 - Cross currency swaps (CCS) (1)ThUS$ThUS$(26,028)(38,802)Interest rate options (2)Interest rate swaps (3)(92,088)6(58,758)1Fuel collars (4)Fuel swap (5) 80 (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 and fair value. (2) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate for long-term loans incurred in the acquisition of aircraft. These contracts are recorded as cash flow hedges. (3) Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3 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. These contracts are recorded as cash flow hedges. (5) Covers the significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges. (6) Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$. These contracts are recorded as cash flow hedges. (7) Covers the investments denominated in Chilean pesos to Dollar- Chilean peso exchange rate, in order to secure investment in Dollars. These contracts are recorded as cash flow hedges. (8) Covers the foreign exchange risk exposure of Multiplus income caused by fluctuations in the exchange rate R$/US$. During the periods presented, the Company only maintains cash flow hedges and fair value (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will impact results in the next 12 months from the consolidated statement of financial position date, meanwhile 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, while the cash flows occur at the maturity of the investment. In the case of currency hedges through a CCS, are generated two types of hedge accounting, a cash flow component by UF, and other fair value by US$ floating rate component. During the periods presented, there have not occurred hedging operations of future highly probable transaction that have not been realized. 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: income during the periodDebit (credit) transferred from net equity to income during the period(163,993)(151,520)128,166(18,688)Debit (credit) recognized in comprehensiveFor the periods endedDecember 31,2014ThUS$2013ThUS$ 81 NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES The composition of Trade and other accounts payables is as follows: (a) Trade and other accounts payable: (*) Include agreement entitled "Plea Agreement" with the Department of Justice of the United States of America. See detail in Note 20. (b) Accrued liabilities at the reporting dateTotal trade and other accounts payables293,2731,489,396293,3411,557,736ThUS$ThUS$Current(a) Trade and other accounts payables1,196,1231,264,395As of As of December 31,December 31,20132014Trade creditorsLeasing obligationOther accounts payable (*)Total924,10537,322234,6961,196,1231,264,395ThUS$ThUS$969,26044,756250,379As of As of December 31,December 31,20132014 82 The details of Trade and other accounts payables are as follows: (*) 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 (See Note 17(b)). (**) Include agreement entitled "Plea Agreement" with the Department of Justice of the United States of America. See detail in Note 20. (b) Liabilities accrued: (*) Profits and bonds participation (Note 22 letter b) U.S.A. Department of Justice (**)Aircraft FuelBoarding FeeOther personnel expensesAirport charges and overflightSuppliers' technical purchasesProfessional services and advisoryAviation insuranceTax recovery program (*)CrewHandling and ground handlingServices on boardCommunicationsAchievement of goalsAirlines Distribution sistemTotal trade and other accounts payables1,196,1231,264,39557,913Others - 4,749 - 12,1979083,2936,447ThUS$290,109302,419As of December 31,December 31,20142013102,11147,10354,88534,029As of ThUS$55,503217,389117,41898,56067,99524,64263,08244,75650,009193,26347,04646,16329,940114,24565,44537,32264,7995,05415,79334,92310,66514,56914,0404,57818,2903,10348,7979,80614,75712,403Aircraft and engines leasingMarketingMaintenanceLand servicesLeases, maintenance and IT servicesOthers accrued liabilitiesTotal accrued liabilities293,273130,382Aircraft and engine maintenance121,946293,341151,58624,53827,867110,14716,4073,741ThUS$ThUS$Accrued personnel expensesAccounts payable to personnel (*)As of As of December 31,December 31,20132014 83 NOTE 20 - OTHER PROVISIONS The detail of Other provisions as of December 31, 2014 and December 31, 2013 is as follows: (1) Provisions for contingencies: The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage. The civil contingencies correspond to different demands of civil order filed against the company. The labor contingencies correspond to different demands of labor order filed against the company. The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate. (2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market. (3) Total other provision at December 31, 2014, and at December 31, 2013, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3. 1,150,103Commision investigation (2) - - 9,99911,3499,99911,349Provision for EuropeanTotal other provisions (3)59,22563,45223,28572,229Other - - 15,35127,77015,35127,770Labor contingencies2217,33423,06464,895Tax contingencies3207,092607,371968,211607,691975,303Provision for contingencies (1)ThUS$ThUS$ThUS$December 31,201420132014201320142013December 31,December 31,December 31,December 31,December 31,Current liabilitiesNon-current liabilitiesTotal LiabilitiesAs ofAs ofAs ofAs ofAs ofAs ofCivil contingencies11,870ThUS$ThUS$ThUS$13,43047,35550,02212,41127,856703,1401,122,247715,551 84 Movement of provisions: Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), in the amount of US$ 90 million, was done in order to suspend the enforceability of the tax credit. The company is discussing over the Tribunal the constitutionality of the requirement made by FA in a legal suit. Initially it was covered by the effects of a provisional remedy, meaning that, the company was not obligated to collect the tax while there was not a judicial decision in this regard. However, the decision taken by a judge in the first instance was publicized in an unfavorable way, revoking the provisional remedy relief. As the legal suit is still in progress (TAM appealed from this first decision), the company needed to do the deposit judicial in guarantee to suspend the enforceability of such tax credit; deposit classified in this category deducting the existing provision. 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. The procedural stage at December 31, 2014 is disclosed in Note 30, at case No. 2001.51.01.012530-3. Closing balance as of December 31, 2013Closing balance as of December 31, 20141,366,4461,150,103(170,452)(53,459)(57,192)65,107(347)Legal CommissionclaimsInvestigation(*)ThUS$ThUS$EuropeanTotalThUS$Opening balance as of January 1, 2013Increase in provisions1,355,58165,10710,865 - Exchange difference(831)1,138,75448411,349Difference by subsidiaries conversion (170,452) - Provision used Reversal of provision(53,459)(57,192) - - 1,150,103Increase in provisions42,792 - 42,792Opening balance as of January 1, 20141,138,75411,349Provision used (27,597) - (27,597)Difference by subsidiaries conversion (132,092) - (132,092)705,5529,999715,551Reversal of provision(315,288) - (315,288)Exchange difference(1,017)(1,350)(2,367) 85 (*) 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 an 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 an 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. (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 Airlines Group S.A. cooperated during the investigation. (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. The procedural stage at December 31, 2014 is disclosed in Note 30, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries in European Commission Court. NOTE 21 - OTHER NON-FINANCIAL LIABILITIES 86 (*) Note 2.20. The balance comprises, mainly, deferred income by services not yet rendered and 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, by the accumulation of kilometers that can be exchanged for free flying tickets or 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 on frequent flyer who travel constantly, created the program TAM Fidelidade, in order to improve the passenger attention and give recognition to those who choose the company. By using this program, customers accumulate points in a variety of programs loyalty in a single account and can redeem them at all TAM destinations and related airline companies, and even more, participate in the Red Multiplus Fidelidade. Multiplus is a coalition of loyalty program, with the aim of operate accumulation activities and redemption of points. 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. Deferred revenues 10,43618,344Total other non-financial liabilities2,685,3862,871,640355,40177,5673,040,7872,949,207Other sundry liabilities10,38818,290485452,56749,355Others taxes18,88012,294 - - 18,88012,294Retentions52,56749,355 - - 77,5132,920,7442,816,638Sales tax38,16052,576 - - 38,16052,576(*)2,565,3912,739,125355,3532013ThUS$ThUS$ThUS$ThUS$ThUS$20142013201420132014ThUS$December 31,December 31,Current liabilitiesNon-current liabilitiesTotal LiabilitiesAs ofAs ofAs ofAs ofAs ofAs ofDecember 31,December 31,December 31,December 31, NOTE 22 - EMPLOYEE BENEFITS 87 (a) The movement in retirements and resignation payments and other obligations: (b) The liability for short-term: (*) Accounts payables to employees (Note 19 letter b) The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives. (c) Employment expenses are detailed below: 32,02374,10235,53445,666Total liability for employee benefitsOther obligationsAs ofAs ofDecember 31,December 31,20142013Retirements paymentsResignation paymentsThUS$ThUS$36,5235,5569,639493From January 1 to December 31, 2013From January 1 to December 31, 201474,10238,0959,866 - 45,66645,6661,50729,395(2,295)(2,466)of modelbalanceThUS$ThUS$ThUS$ThUS$balanceprovisionpaidThUS$Increase (decrease)Opening current serviceChangeClosingBenefits 110,14716,407Profit-sharing and bonuses (*)ThUS$ThUS$As ofAs ofDecember 31,December 31,20142013 1,720,513452,15867,508252,5902,492,769248,0302,350,1021,656,565361,32884,179Salaries and wagesTermination benefitsOther personnel expenses TotalShort-term employee benefits2013For the periods endedDecember 31,2014ThUS$ThUS$ NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT 88 (*) 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 (See Note 17(b)). NOTE 24 - 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, 2014 amounts to ThUS$ 2,545,705 divided into 545,547,819 common stock of a same series (ThUS$ 2,389,384, divided into 535,243,229 shares as of December 31, 2013), 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. 577,45457,99711,8549,879663,8372,654176,666922,8874549,595506,3121,945 - 59,148Aircraft and engine maintenanceProvision for vacations and bonusesOther sundry liabilitiesTotal accounts payable, non-currentFleet financing (JOL)Tax recovery program (*)Other accounts payableThUS$ThUS$As ofAs ofDecember 31,December 31,20142013 89 (b) Subscribed and paid shares The following table shows the movement of the authorized and fully paid shares described above: (1) 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 (2) shares established according to Extraordinary Shareholder´s Meetings, where such decreases were authorized. Movement of authorized sharesAutorized shares as of January 1, 2013Increase capital approved at Extraordinary Shareholders meeting dated June 11, 2013Full right decrease of treasury stockAutorized shares as of January 1, 2014No movement of autorized shares at December 31, 2014(7,972)Authorized shares as of December 31, 2013Authorized shares as of December 31, 2014551,847,819551,847,819551,847,819-Nro. Ofshares488,355,79163,500,000Movement fully paid sharesPaid shares as of January 1, 2013Placement of the remaining preferential sharesissued for merger CompaniesSister Holdco S.A. y Holdco II S.A.Preferential placement capital increaseapproved at Extraordinary Shareholders meeting dated June 11, 2013Full right decrease of treasury stockCapitalization of reservesPaid shares as of January 1, 2014Preferential placement capital increaseapproved at Extraordinary Shareholders meeting dated June 11, 2013(3)(7,972)(25)--4,457,739104,351--(179)(6,361)-51,695,410784,219and placement of shares (2)Paid- inCapital1,501,018(6,182)(179)(6,361)(6,361)156,3212,545,705104,3512,389,3842,389,384(25)-784,219Paid shares as of December 31, 2014Paid shares as of December 31, 2013535,243,2292,395,745545,547,8192,552,066535,243,2292,395,74510,304,590156,321479,098,052Movementvalue1,507,200sharesN° ofof shares(1)ThUS$Cost of issuance ThUS$ThUS$ 90 (3) At December 31, 2014, the difference between authorized shares and fully paid shares are 6,300,000 shares allocated to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 33(a)). (c) Treasury stock At December 31, 2014, the Company held no treasury stock, the remaining of ThUS$ (178) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares. 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. (d) Reserve of share- based payments Movement of Reserves of share- based payments: (*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015. The effect on deferred tax calculated on the reserves of share- based payments by modifying the tax rate mentioned above, was a charge to equity of ThUS $ 2,708. These reserves are related to the “Share-based payments” explained in Note 33. (e) Other sundry reserves Movement of Other sundry reserves: (1) The costs incurred through the issuance and placement to ThUS$ 5,264 and ThUS$ 179 corresponds to the capital increase authorized at the Extraordinary Meeting of Shareholders held on June 11, 2013 and the remaining 7,436,816 shares, not used in this exchange From January 1 to December 31, 2013From January 1 to December 31, 2014Deferred taxStock by tax effectOpeningoption Deferredof change in legal rateClosingPeriodsbalanceplantax(Tax reform) (*)balanceThUS$ThUS$ThUS$ThUS$ThUS$5,57418,877(3,440) - 21,01121,01114,728(3,389)(2,708)29,642 From January 1 to December 31, 2013(1)(2)From January 1 to December 31, 2014 - (1,668)2,657,8002,657,800(21,526) - - - (526)2,635,7482,666,682(1,950)(5,443)179ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ThUS$ClosingPeriodosbalance interestof sharescostexchagereservesbalancefor TAM S.A. Opening non-controllingand placement and placement share Legal withCost of issuance share issuance TransactionsCapitalization Higer value 91 (business combination with TAM S.A. and subsidiaries), reallocated as agreed at the Extraordinary Shareholders' Meeting held on September 4, 2012, respectively. (2) The cost of ThUS$ 179 was capitalized during June 2013, according with minute of the Extraordinary Meeting of Shareholders held on June 11, 2013. Balance of Other sundry reserves comprises the following: (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, 2014, correspond to the loss generated by the participation of Lan Pax Group S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480), the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526). 2,665,692 2,620 (5,264)(25,891)Higher value for TAM S.A. share exchange (1)Reserve for the adjustment to the value of fixed assets (2)2,665,6922,620As ofDecember 31,2014ThUS$As ofDecember 31,2013ThUS$(1,409)2,635,748 (5,355)(5,264)107 2,657,800 TotalTransactions with non-controlling interest (3)OthersCost of issuance and placement of shares 92 (f) Reserves with effect in other comprehensive income. Movement of Reserves with effect in other comprehensive income: (*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015. (f.1) Currency translation reserve These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests. (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. (624,499)(165,231)7,752(603,880)(151,340)7,752 - 40,64740,647(1,345,211)Closing balance as of December 31, 2013(589,991)Deferred tax - Difference by subsidiaries conversion (593,565)Closing balance as of December 31, 2014(1,193,871)Opening balance as of January 1, 2014(589,991)Derivatives valuation gains (losses) - Deferred tax - by change legal tax rate (Tax reform)(*) - Difference by subsidiaries conversion (603,880)Tax effect on deferred tax(34,508)(165,231)ThUS$Opening balance as of January 1, 20133,574Derivatives valuation gains (losses) - (140,730)124,227(18,005) - (34,508)(593,565)(137,156)124,227(18,005)(624,499)Cash flowCurrencyThUS$ThUS$hedgingreservereservetranslationTotal 93 (g) Retained earnings Movement of Retained earnings: (*) According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the Company recognized a loss on their retained earnings ThUS$ 150,210 as a result of the rate increase. (h) Dividends per share 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, 2014, have not been provisioned minimum mandatory dividends. ResultOther by tax effect Opening for the increase of change in legal tax rateThUS$ThUS$ClosingPeriodsbalanceperiod(decreases)(Tax reform) (*)balanceDeferred tax - (150,195)536,190From January 1 to December 31, 2014795,303(109,790)872From January 1 to December 31, 20131,076,136(281,114)281795,303ThUS$ThUS$ThUS$Dividend per share (US$)483,547,8190.006804-29-2013dividend is distributedAs of December 31, 2013 Amount of the dividend (ThUS$)3,288Number of shares among which the Date of dividendFinal dividendDescription of dividend2012 94 NOTE 25 - REVENUE The detail of revenues is as follows: NOTE 26 - COSTS AND EXPENSES BY NATURE (a) Costs and operating expenses The main operating costs and administrative expenses are detailed below: Passengers LANCargoFor the periods endedDecember 31,4,464,7611,713,379201412,093,5014,731,2966,330,2621,862,97912,924,537ThUS$TotalPassengers TAM5,915,3612013ThUS$ TotalOther rentals and landing feesAircraft fuelComissionsAircraft rentalsAircraft maintenancePassenger servicesOther operating expenses300,3258,621,888441,077477,086331,4059,090,3761,487,6721,644,8271,327,2384,167,030365,508521,3841,373,0614,414,249408,671452,731For the periods endedDecember 31,2014ThUS$2013ThUS$ 95 (b) Depreciation and amortization Depreciation and amortization are detailed below: (*) Include 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, 2014 is ThUS$ 373,183 (ThUS$ 396,974 at December 31, 2013). (c) Personnel expenses The costs for personnel expenses are disclosed in Note 22 liability for employee benefits. (d) Financial costs The detail of financial costs is as follows: Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 22, 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. (e) Restructuring Costs As part of the ongoing process of review its fleet plan, the company decided to implement a broad restructuring plan in order to reduce the variety of aircraft currently in operation and gradually ThUS$ThUS$For the periods endedDecember 31,20142013Depreciation (*)943,731985,317Amortization47,53356,416 Total991,2641,041,733 Total430,034462,524Other financial instruments27,4943,212Financial leases72,242330,298Bank loan interest382,96976,343ThUS$ThUS$For the periods endedDecember 31,20142013 96 withdrawing the less efficient. According with this plan, during the first quarter of 2014 were formalized contracts and commitments having as a result a negative impact on the results of such period of US$ 112 million before tax that are associated with exit costs of seven A330, six A340, five B737, three Q400, five A319 and three B767-33A aircraft. These exit costs are associated with penalties related to early repayment and maintenance costs for returning. NOTE 27 - OTHER INCOME, BY FUNCTION Other income by function is as follows: NOTE 28 - 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 functional currency is defined primarily as the currency of the primary economic environment in which an entity operates and in each entity 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. ThUS$ThUS$For the periods endedDecember 31,2014201314,74824,281Aircraft leasing31,10436,614Maintenance15,42112,392Customs and warehousing22,368Duty free18,076Tours109,788105,449Other miscellaneous income180,888148,081 Total377,645341,565 97 (a) Foreign currency The foreign currency detail of balances of monetary items in current and non-current assets is as follows: 229,9131422,03562,03925,85434,23551,082162,80944,65616,571 Argentine peso Brazilian realCash and cash equivalents538,21341,0923,683 Chilean peso Chilean peso Other currency Argentine peso U.S. dollar Strong bolivar Colombian pesoOther financial assets, current Other currency Colombian peso Euro U.S. dollar EuroCurrent assetsThUS$16,0084333,07373,030December 31,ThUS$ - 201440,93925,781213,16122,121 Strong bolivar249As of 2013258As of 2,36530,4531,6229,63950,65263,236885December 31,5,254 98 Current assets Argentine peso2,300 - Brazilian real2 - 467356,93824,51558,674Argentine pesoBrazilian real U.S. dollar Colombian peso515Strong bolivarOther currency Euro U.S. dollar Strong bolivar Other currency236,912165,278183,79941,14311,331264,50268,504138,75450,9489,4263,39810,101U.S. DollarColombian pesoEuroChilean peso Chilean pesoTrade and other accounts receivable, currentAccounts receivable from related entities, current Euro Other currencyTotal current assets11,047As of December 31,201380,46119,98611,387417,775128,78033,26761,2912014ThUS$ThUS$December 31,As of 35787Other non - financial assets, current59,70056,218 Argentine peso7,3265,310209,15935,782133,977911,0524,3945,77321,6051,078,590195,990211,995 Chilean peso Colombian peso Chilean peso466 Colombian peso543,2571,4151,011 Euro2,5233,052 Brazilian real148846 Chilean peso18,07316,846 Other currency24,13426,830 U.S. dollar5,7512,221 Strong bolivar330102 Argentine peso Brazilian real14,836466165,4972,353114,37221,4792,24038,7642992994,89575,876Tax current assets 99 Non-current assets36,715571,05049,78659724Other financial assets, non-current Argentine peso Brazilian realThUS$ThUS$2014December 31,1,1002034,24329,238824Total non-current assets Argentine peso Brazilian realU.S. dollar10,5695,4135,0001563102 Colombian peso256 Chilean peso Colombian peso2,6132,35468,700 Euro U.S. dollarOther currencyAccounts receivable, non-currentChilean pesoU.S. dollarOther currencyOther non - financial assets, non-currentOther currencyDeferred tax assetsOther currencyOther currency4,24334,24222,0911,0506,513459 Chilean peso Colombian peso Euro U.S. dollarAs of December 31,2013As of 5,0008,22713,42982840,8945,4882541,70118,00618,00618,80318,7574,4605972485,6812022,0562,404 - 21,44047,9505,4882549,928 Argentine peso45 - U.S. dollar1 - 100 The foreign currency detail of balances of monetary items in current liabilities and non-current is as follows: Other currency - 130 - - Trade and other accountsTax liabilities, current268134 - - Chilean peso2684 - - Chilean peso814 - - U.S. dollar27304 - - Other currency112,930137,7168053Accounts payable to related entities, current35318 - - U.S. dollar175,298433,3778274,902Strong bolivar5,2614,024 - - Colombian peso13,65214,445187422Euro35,93719,3738,2663,316Brazilian real14,3309,671138Chilean peso25,04029,56011,50211,975 payables, current421,188679,76920,87520,676Argentine peso38,74031,603 - - Euro547824 - 1,205U.S. dollar55,347249,183130,691513,451Other financial liabilities, current71,436303,626173,416561,428Chilean peso15,54253,61942,72546,772Current liabilitiesDecember 31,December 31,December 31,December 31,2014201320142013Up to 90 days91 days to 1 yearAs of As of As of As of ThUS$ThUS$ThUS$ThUS$ 101 - 20,514EuroOther currencyU.S. dollarStrong bolivar145,8434,661131,629 - 81684,13628,57942,884275,4005,488158,403 - - 54 - 6058,766422Up to 90 days91 days to 1 year19 - 52As of As of December 31,2013As of As of December 31,December 31,20142013126,9535,69895918,79876,0406,06937,2273,7464,670Current liabilitiesThUS$ThUS$ThUS$ThUS$liabilities, current72EuroBrazilian realColombian pesoChilean pesoDecember 31,2014Other non-financial8,3826,400Argentine peso10,710518,3537,9976371,2728,266158 - 46 - - - 111 - 1194,4494,521120,42413,41742,3131,059,887582,176 - 1 - 619,880 - Strong bolivarTotal current liabilitiesOther currencyU.S. dollar5954,22718744,43815,28959,65618,322Colombian pesoBrazilian realChilean pesoArgentine peso44,72822745,473 102 Provisions for - - U.S. dollar822636 - - - - - - U.S. dollar6,02524 - - - - - 4,938468,1841,83316,660454Chilean pesoU.S. dollarOther currency - 2,3162,316 - - - - - - - - 578,393455,613112,161122,78017,186754,256673,72880,528 - 1,366,871 - - 11 - 1,366,8601,366,8601111 - - - - - - - 641641 - 1,088,2181,088,218 - - - - - - - - - 1,088,218 - - - - 1,088,218 - - - 754,897 - 81,1691,48911,929410 - - 19,502 - 154,102673,728 - 171,288154,102Chilean pesoEuroU.S. dollarOther currencyBrazilian realOther provisions, non-currentTotal non-current liabilitiesArgentine pesoBrazillian realChilean pesoEuroArgentine pesoemployees benefits, non-current129,96711,3491,095,4771,489 - 173,604647,8807,187639,2041,366,860 - 146369,999 - - 988,2761,833146 - 11,3491,238,8384101461,117,843454146822 - 636 - 117,1359,999ThUS$ThUS$ThUS$ThUS$More than 1 to 3 yearsAs of December 31,2013ThUS$More than 3 to 5 yearsAs of More than 5 yearsAs of December 31,As of December 31,20142013As of December 31,2014December 31,2013As of December 31,2014ThUS$474,955625,406513,245Non-current liabilitiesOther financial liabilities, non-currentAccounts payable, non-currentU.S. dollarChilean peso 103 Other currencyEuroU.S. dollarStrong bolivarOther currencyArgentine pesoBrazilian realChilean pesoColombian pesoEuroU.S. dollarStrong bolivarNet position13,623As of December 31,2013Chilean pesoColombian pesoEuroU.S. dollarStrong bolivar286,593Brazilian realThUS$Argentine pesoChilean pesoColombian pesoAs of Argentine pesoBrazilian realTotal assetsGeneral summary of foreign currency:ThUS$2014December 31,979,75236,832134,079215,672Total liabilitiesOther currency18,50968,504172,99655,1919,885250,52015,49444,8923,193,994126,27663,016(2,464,629)(5,958)(8,624)(34,848)21,33889,187160,3175,4882,637,62561,1491,164,271258,352165,278231,74946,63111,585366,86625,11258,69842,7235,002,6694,338,55444,44920,936110,966160,617(4,106,805)2,182(9,351)390,337(23,471)11,48915,975147,3864,661 104 (b) Exchange differences Exchange differences recognized in the income statement, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2014 and 2013, generated a debit of ThUS$ 130,201 and ThUS$ 482,174, respectively. Exchange differences recognized in equity as reserves for currency translation differences for the period ended December 31, 2014 and 2013, represented a debit of ThUS$ 650,439 and ThUS$ 629,858, respectively. The following shows the current exchange rates for the U.S. dollar, on the dates indicated: 8.552.6624.252.991.2814.746.861.2212.000.822,839.50606.756.5221.49As of December 31,2014As of December 31,2013Argentine pesoNew Zealand dollarStrong bolivar BolivianoUruguayan pesoMexican pesoColombian pesoChilean pesoEuroBrazilian realPeruvian SolAustralian dollar2.801.2213.076.861.126.300.721,925.52524.612.36 105 NOTE 29 - EARNINGS / (LOSS) PER SHARE (0.20125)545,547,819(0.57613)487,930,977For the periods endedDecember 31,2014(109,790)Diluted earnings / (loss) per share (US$)Earnings / (loss) attributable to owners of the parent (ThUS$)Weighted average numberof shares, basicBasic earnings / (loss) per share (US$)owners of the parent (ThUS$)Weighted average numberof shares, basicWeighted average numberof shares, diluted(109,790)545,547,819(281,114)487,930,977Basic earnings / (loss) per shareDiluted earnings / (loss) per shareEarnings / (loss) attributable to 2013(281,114)487,930,977(0.57613)2013December 31,2014545,547,819(0.20125)For the periods ended 106 NOTE 30 – CONTINGENCIES Lawsuits (i) Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries Company Court Case Number Origin Stage of trial Atlantic Aviation Investments LLC (AAI) Supreme Court of the State of New York County of New York. 07-6022920 Atlantic Aviation Investments LLC (AAI) Supreme Court of the State of New York County of New York. 602286-09 Atlantic Aviation Investments LLC. ("AAI"), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 29th , 2007 Varig Logistics S.A. ("Variglog") for non-payment of four documented loans in credit agreements governed by New York law. These contracts establish the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A. Atlantic Aviation Investments LLC. (“AAI”) sued on July 24th, 2009 Matlin Patterson Global Advisers LLC, Matlin Patterson Global Opportunities Partners II LP, Matlin Patterson Global Opportunities Partners (Cayman) II LP and Logistics LLC Volo (a) as alter egos of Variglog for non-payment of the four loans mentioned in the previous note and (b) for breach of its obligation to guarantee and other the Memorandum of obligations under Understanding signed between the parties on September 29th, 2006. implementation stage in In Switzerland, conviction the stated that Variglog should pay the principal, interest and costs 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 the Switzerland judgment that declared the state of and subsequent bankruptcy. to recognize recovery judicial AAI a filed (abbreviated "summary judgment" trial) which the court ruled favorably. The defendants appealed this decision which was ultimately dismissed by the High Court. The cause was turned back to the lower court for determination of the amount actually payable by (damages) the ongoing proceedings before the court. applicants Amounts Committed ThUS$ 17,100 Plus interests and costs 17,100 Plus interest costs and compensation for damage. Company Court Case Number Origin Stage of trial 107 Lan Argentina S.A. National 36337/13 Administrative Court. ORSNA Resolution No. 123 which directs Lan Argentina to vacate the hangar located in the Airport named Aeroparque Metropolitano Jorge Newberry, Argentina. the On June 19th, 2014, the Second Federal Division of Chamber Administrative confirmed the extension of the injunction granted by the Court of 1st Instance in March. On September 18th, 2014 the Court of 1st Instance decided to extend the validity of the injunction until a sentence is reached in the main trial. On December 30th, 2014 the Supreme Court of Justice of the Nation decided to reject the appeal of complaint presented by ORSNA against the granting of the injunction. Amounts Committed ThUS$ Undetermined (ii) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries 108 Company Court Case Number Origin Stage of trial LATAM Airlines Group S.A. y Lan Cargo S.A. European Commission. - On April 14th, 2008, the the European notification of Commission The appeal was filed on January 24, 2011. was replied. Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight. On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. the and LATAM Airlines Group S.A. imposition of a ThUS$ 9,999. This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. We cannot predict the outcome of this appeal process. fine in the amount of Amounts Committed ThUS$ 9,999 Lan Cargo S.A. y LATAM Airlines Group S.A. - In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway) and Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands), Cologne Regional Court (Landgerich Köln Germany). Cases are in evidence stage. the uncovering Undetermined Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based the Netherlands and in England, Norway, Germany. Company Court Case Number Origin Stage of trial 109 Aerolinhas Brasileiras S.A. Administrative Council for Economic Defense, Brazil. 08012.011027/2006-02 Investigation of alleged to competition of cargo airlines, especially fuel surcharge infringements Amounts Committed ThUS$ 12,315 following: Council On the conviction stated over the new administrative appeal, the for Administrative Economics Defense (CADE) agreed to reduce the amounts of the fines imposed to ABSA and its executives, as (i) ABSA: US$ 12 million; (ii) Norberto Jochmann: ThUS$ 246; (iii) Hernan Merino: ThUS$ 123; (iv) Felipe Meyer: ThUS$ 123. After internal analysis it was to present new decided not administrative appeals in order to try new reductions on the Court before a cancellation request that will be filed in the beginning of 2015, through the guarantee of the mentioned amounts. previously Aerolinhas Brasileiras S.A Federal Justice. 0001872- 58.2014.4.03.6105 Is discussed the collection of court fines and taxes originally imposed and collected through administrative process 10831.005704/2006-43. We obtained adverse decision administratively and are judicially discussing now. First instance - pending Federal Union statement regarding our request for invalidation of the tax debt. 13,668 LATAM Airlines Group S.A. Tenth Civil Court of Santiago. C-32989-2011 Jara and Jara Limited company demanded LATAM Airlines Group S.A. based on the damage they have caused by fraud complaints filed against them in 2008, and were finally dismissed. They claim that the damage caused by LATAM Airlines Group S.A. affected their prestige and business continuity. The trial is currently in first instance. LATAM Airlines Group the S.A. abandonment of the procedure. The resolution of this incident is pending. requested has 11,935 Company Court Case Number Origin Stage of trial 110 Tam Linhas Aéreas S.A. Court of the Second Region. 2001.51.01.012530-0 Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to raise the Air Fund. Unfavorable court decision in Currently instance. first the ruling of the expecting appeal filed by the company. In order to suspend chargeability of Tax Credit a Guaranty Deposit the Court was delivered by US$ 90 million which is revealed in more detail in Note 20. to Amounts Committed ThUS$ 111,011 Tam Linhas Aéreas S.A. Internal Revenue Service of Brazil 16643.000087/2009-36 Notice of Violation to the requirement to pay the Social Contribution on Liquid Profit (CSL). Tam Linhas Aéreas S.A. Internal Revenue Service of Brazil 10880.725950/2011-05 Compensation Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS). credits the of Decisions of first and second administrative instance adverse to the interests of the company. Currently expecting the result on the new appeal filed by the company are expected. Court decision was unfavorable to the interests of the company, which was appealed. At present, pending the trial of the appeal, the Board of Tax Appeals (CARF). 27,270 25,070 Company Court Case Number Origin Stage of trial 111 Tam Linhas Aéreas S.A. 6th Rod Treasury of San Pablo. 0012938- 14.2013.8.26.0053 Lawsuit filed by the tax authority imputing to TAM the Service Tax on amounts paid to Infraero, according to a change in applicable law. Tam Linhas Aéreas S.A. Internal Revenue Service of Brazil 16643.000085/2009-47 Tam Linhas Aéreas S.A. Internal Revenue Service of Brazil 10831.012344/2005-55 File demanding the recovery of income tax and social contribution on net profits (CSL) derived from royalties and costs of using the TAM brand. Auto infringement presented to demand the import tax (II), the Social Integration Program (PIS) Contribution for Social Security Financing (COFINS) arising from the loss of international unidentified cargo. Tam Linhas Aéreas S.A. Department of Finance of the State of Sao Paulo. 3.123.785-0 Infringement notice to demand payment of the tax on the circulation of goods and services (ICMS) regulating the import of aircraft. Amounts Committed ThUS$ 12,517 12,069 with The application for interlocutory preliminary appeal granted, was injunction suspending the accrual of tax the file credits derived from infringement 66233992, n. 66234000 and 66234026. On March 10, 2014, the Municipal Government Paulo of presented opposed bill. Currently awaiting trial on the merits of the appeal mentioned. Sao First instance decision was unfavorable to the interests of the company. Currently expecting ruling on the appeal filed by the company on March 15, 2012. The trial is currently in the Board 9,709 of Tax Appeals (CARF). Currently awaiting the decision the the appeal filed by on company. 10,081 Company Court Case Number Origin Stage of trial 112 Tam Linhas Aéreas S.A. 1st Civil Court of the District of Goiânia/GO. 200702435095 (ordinary) Aerovías de Integración Regional, AIRES S.A. United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A. 2013-20319 CA 01 Lawsuit filed by a former TAM sales representative that requires compensation for moral and material damages resulting from the termination of his sales representative. contract as initiated a legal process The July 30th , 2012 LAN COLOMBIA in AIRLINES Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LAN COLOMBIA AIRLINES arising from breach of contractual obligations of the aircraft HK- 4107. The June 20th , 2013 AIRES SA And / Or LAN AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LAN COLOMBIA AIRLINES customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One. Currently undergoing liquidation term sentencing and pending expert witness. The process from request in Colombia is pending resolution of preliminary objections filed by the defendant. The Federal Court ruled on March 26th, 2014 and approved the LAN to AIRLINES COLOMBIA suspend the process in the U.S. as the demand in Colombia is underway. Additionally, the U.S. case judge administratively. Regional One appealed this decision to the Federal Court, and in September 2014 the the Court ordered parties to reconcile, process that is currently underway. closed the Amounts Committed ThUS$ 8,909 12,443 Company Court Case Number Origin Stage of trial 113 Tam Linhas Aéreas S.A. Department of Finance of the State of Rio de Janeiro. 03.431129-0 Tam Linhas Aéreas S.A. Internal Revenue Service of Brazil 10880.722.355/2014-52 Tam Linhas Aéreas S.A. Department of Finance of the State of Sao Paulo 4037054-9 Tam Linhas Aéreas S.A. Labor Court of Porto Alegre. 0001611- 93.2012.5.04.0013 The State of Rio de Janeiro requires VAT tax credit for the purchase of kerosene (jet fuel). According to a report, the auditor noted that none of the laws of Rio de Janeiro authorizes the appropriation of credit, so the credit was refused and demanded tribute. On August 19th , 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport. On September 20th, 2014 we were notified that the Department of Finance of the State of São Paulo filed an infringement lawsuit for non- payment of tax on the circulation of goods and telecommunications to services services ICMS. relating Civil Action of Ministry of Labor that requires the granting of black shoes, belts and socks for workers who wear uniforms. Amounts Committed ThUS$ 85,706 Objection was filed on December 12th, 2013. Currently, waiting for the trial of the first administrative instance. An administrative objection was filed on September 17 th, 2014. Currently awaiting trial. 169,038 An objection protocol was filed. 9,750 Currently awaiting trial. Pending the formalization of agreement for the beginning of the concession of to employees. The process will be completed in the coming months. shoes 9,991 Approximate value / estimated 128,125 TAM S.A. Conselho Administrativo de Recursos Fiscais 13855.720077/2014-02 Notice of an alleged infringement presented by Secretaria da Receita Federal do Brasil requiring the payment of IRPJ and CSLL, taxes related to the income earned by TAM on March, 2011, in relation of the reduction of the statute capital of Multiplus S.A. On January 12, 2014, it was filed an appeal against the object of the notice of infringement. Currently, the company is waiting for the the court regarding the Conselho appeal filed Administrativo Recursos de Fiscais. judgment in Aerolinhas Brasileiras S.A. Labor Court of Campinas. 0010498- 37.2014.5.15.0095 Lawsuit filed by the National Union of Trial in initial stage. requiring weekly aeronauts, rest payment (DSR) scheduled stopovers, displacement and moral damage. 19,963 Approximate value / estimated Company Court Case Number Origin Stage of trial 114 Aerolinhas Brasileiras S.A. Labor Court of Manaus. 0002037- 67.2013.5.11.0016 Lawsuit filed by the Union of Manaus Aeroviarios requiring assignment of hazard to ground workers (AEROVIARIOS). Process in the initial phase. The value is in the calculation stage by the external auditor. Amounts Committed ThUS$ Undetermined Aerolinhas Brasileiras S.A. Labor Court of Campinas 0011014- 52.2014.5.15.0129 Lawsuit filed by the Union of Air Service Workers of Campinas requiring assignment of hazard for ABSA workers. Process in the initial phase. The amounts committed are being calculated by external auditor. Undetermined First Labor Court of Santiago. S-99-2014 Lawsuit filed by the Union of Workers of LAN Airlines S.A. Airport CAMB Pudahuel (Sindicato). Accusation of anti-union practice and declare of a unique employer for labor effects of the defendant. Judgment on evidence scheduled for January 30th, 2015. In such hearing the trial was finished due to agreement on payment of ThUS$ 10. Undetermined LATAM Airlines Group S.A., Transporte Aéreo S.A., Lan Cargo S.A., Andes Airport Services S.A., Inversiones LAN S.A., Lantours División Servicios Terrestres S.A., Fast Air Almacenes de Carga S.A. - Governmental Investigations. The investigation by the authorities of Chile and the United States of America continues, related to payments carried out by LATAM Airlines Group S.A. (before called LAN Airlines S.A.) in 2006-2007, to a consultant that advised it in the resolution of labor matters in Argentina. The Company continues cooperating with the respective authorities in the aforementioned investigation. Presently the Company cannot predict the results in the matter; nor estimate or range the potential losses or risks that may eventually come resulting from the way in which this matter is finally resolved. - In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2014, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 20. - The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome. 115 NOTE 31 - 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, 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 banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries. At December 31, 2014, the Company is in compliance with all indicators detailed above. (b) Commitments under operating leases as lessee Details of the main operating leases are as follows: ACS Aircraft Finance Bermuda Ltd. - AircastleBoeing 737Airbus Financial ServicesAirbus A340Aircraft 76B-26329 Inc.Boeing 767Aircraft 76B-27613 Inc.Boeing 767Aircraft 76B-27615 Inc. Boeing 767Aircraft 76B-28206 Inc.Boeing 767Aviacion Centaurus, A.I.EAirbus A319Aviación Centaurus, A.I.E.Airbus A321Aviación Real A.I.E. Airbus A319Aviación Real A.I.E. Airbus A320Aviación Tritón A.I.E.Airbus A319Avolon Aerospace AOE 19 LimitedAirbus A320Avolon Aerospace AOE 20 LimitedAirbus A320Avolon Aerospace AOE 6 LimitedAirbus A320Avolon Aerospace AOE 62 LimitedBoeing 777Avolon Aerospace AOE 63 LimitedBoeing 787LessorAircraft1311111111111313313 - - 11111As of December 31,20131As of December 31,2014 - 1111 116 The rentals are shown in results for the period for which they are incurred. AWAS 4839 Trust Airbus A320AWAS 5125 Trust Airbus A320AWAS 5178 LimitedAirbus A320AWAS 5234 TrustAirbus A320Baker & Spice Aviation LimitedAirbus A320BOC Aviation Pte. Ltd.Airbus A320CIT Aerospace InternationalBoeing 767CIT Aerospace InternationalAirbus A319CIT Aerospace InternationalAirbus A320Continuity Air Finance IV B.VAirbus A319Delaware Trust Company, National AssociationBombardier Dhc8-200Eden Irish Aircr Leasing MSN 1459Airbus A320GECAS Sverige Aircraft Leasing Worldwide ABAirbus A320GECAS Sverige Aircraft Leasing Worldwide ABAirbus A330GFL Aircraft Leasing Netherlands B.V. Airbus A320International Lease Finance CorporationBoeing 737International Lease Finance CorporationBoeing 767International Lease Finance CorporationAirbus A320KN Operating Limited (NAC)Bombardier Dhc8-400Magix Airlease limitedAirbus A320MASL Sweden (1) AB Airbus A320MASL Sweden (2) ABAirbus A320MASL Sweden (7) ABAirbus A320MASL Sweden (8) ABAirbus A320MCAP Europe Limited - MitsubishiBoeing 737Orix Aviation Systems LimitedAirbus A320Pembroke B737-7006 Leasing LimitedBoeing 737RBS Aerospace LimitedAirbus A320SASOF II (J) Aviation Ireland LimitedAirbus A319SKY HIGH V LEASING COMPANY LIMITEDAirbus A320Sky High XXIV Leasing Company LimitedAirbus A320Sky High XXV Leasing Company LimitedAirbus A320SMBC Aviation Capital LimitedAirbus A320SMBC Aviation Capital LimitedAirbus A321Sunflower Aircraft Leasing LimitedAirbus A320TC-CIT Aviation Ireland LimitedAirbus A320Volito Aviation August 2007 ABAirbus A320Volito Aviation November 2006 ABAirbus A320Volito Brasilien ABAirbus A319Volito November 2006 ABAirbus A320Wells Fargo Bank North National AssociationAirbus A319Wells Fargo Bank North National AssociationAirbus A320Wells Fargo Bank Northwest National AssociationAirbus A320Wells Fargo Bank Northwest National AssociationAirbus A330Wells Fargo Bank Northwest National AssociationBoeing 787Wells Fargo Bank Northwest National AssociationBoeing 777Wells Fargo Bank Northwest National AssociationBoeing 787Wilmington Trust CompanyAirbus A319Yamasa Singapore Pte. Ltd.Airbus A340Zipdell LimitedAirbus A320Total111122733111 - 116611 - 311LessorAs of As of December 31,December 31,Aircraft20142013111111 - 12311 - 1 - 111610 - 224 - 21 - 22222 - 1 - 11107112851067223411 - 12234532 - 2222 - 15711 - 12 - 11 - 1 117 The minimum future lease payments not yet payable are the following: The minimum lease payments charged to income are the following: In the first quarter of 2013, 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 were 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 were leased for a period of 8 years each, one Boeing 787-800 aircraft was leased for a period of 12 years and two Boeing 777-300ER aircraft were leased for a period of 5 years each. Moreover, one Airbus A320-200, two Boeing 767-300ER aircraft and one Bombardier Dhc8-400 aircraft were returned. Additionally, during July of 2013 two Bombardier Dhc8-200 aircraft were acquired on leasing. In the fourth quarter of 2013, three Airbus A320-200 aircraft were leased for a period of eight years each, one Boeing 787-800 aircraft was leased for a period of twelve years. Moreover, two Airbus A320-200, one Airbus A319-100, one Airbus A340-300 and one Boeing 737-700 aircraft were returned. During the first quarter of 2014, two Airbus A320-200 aircraft were acquired and two Airbus A321- 200 aircraft were leased for a period of 8 years each. Moreover, two Boeing 737-700 aircraft, one Boeing B767-300F aircraft, one Boeing 767-300F aircraft, one Airbus A340-300 aircraft and one Bombardier Dhc8-400 aircraft were returned. Additionally, as a result of its sale and subsequent lease, during March 2014 four Boeing 777-300ER aircraft were added as operative leasing, with each aircraft being leased for periods between four and six years each. Between one and five yearsNo later than one yearOver five years511,6241,202,440441,419Total475,7621,101,741335,0191,912,5222,155,483As ofDecember 31,2013ThUS$As ofDecember 31,2014ThUS$521,384441,077Minimum operating lease paymentsTotalFor the periods endedDecember 31,2014ThUS$521,3842013ThUS$441,077 118 During the second quarter of 2014, were added one Airbus A320-200 aircraft and one Boeing 787- 800 aircraft by leasing them for a period of 8 and 12 years, respectively. For other hand, one Bombardier Dhc8-400 aircraft, four Airbus A320-200 aircraft, seven Airbus A330-200 aircraft and three Boeing 737-700 aircraft were returned. In the third quarter of 2014, were added one Airbus A320-200 aircraft and one Boeing 787-800 aircraft by leasing them for a period of 8 and 12 years, respectively. For other hand, one Bombardier Dhc8-400 aircraft, two Airbus A319-100 aircraft and one Boeing 767-300ER aircraft were returned. In the fourth quarter of 2014, two Airbus A320-200 aircraft and one Boeing 767-300ER aircraft were returned. For other hand, three A340-300 aircraft and one A319-100 aircraft were bought. Additionally it was reported that the purchase option will be exercised by 2 Bombardier Dhc8-200 aircraft. Therefore, these aircraft were reclassified to the category Property, plant and equipment. 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. At December 31, 2014 the Company has existing letters of credit related to operating leasing as follows: Creditor GuaranteeDebtorTypeAFS Investments 48 LLC.Lan Cargo S.A.Two letter of creditGE Capital Aviation Services Limited LATAM Airlines Group S.A.Six letter of creditGE Capital Aviation Services Limited Lan Cargo S.A.Three letter of creditInternational Lease Finance CorpLATAM Airlines Group S.A.Four letter of creditORIX Aviation System LimitedLATAM Airlines Group S.A.One letter of creditTAF MercuryLATAM Airlines Group S.A.One letter of creditTAF VenusLATAM Airlines Group S.A.One letter of creditWells Fargo Bank Northwest,National AssociationLan Cargo S.A.Four letter of creditBaker & Spice Aviation Limited Tam Linhas Aéreas S.A.One letter of creditCit Aerospace InternationalTam Linhas Aéreas S.A.Five letter of creditMACQUARIETam Linhas Aéreas S.A.Three letter of creditRoyal Bank Of scotland AerospaceTam Linhas Aéreas S.A.One letter of creditSMBC Aviation Capital Ltd.Tam Linhas Aéreas S.A.Two letter of creditWells Fargo Bank Northwest,National AssociationTam Linhas Aéreas S.A.Two letter of creditWilmingtonTam Linhas Aéreas S.A.One letter of credit5,738 Jan 31, 20158,939 Jul 13, 201518,532 6,000 Feb 23, 2015Mar 28, 2015Jun 30, 2015Jun 30, 2015Oct 13, 201523,456 10,435 1,700 Jan 5, 20154,000 4,000 22,995 10,060 19,580 144,314 ReleasedateValueThUS$Apr 25, 20153,500 2,124 May 4, 20153,255 Jul 31, 2015Dec 4, 2015Dec 4, 2015Apr 25, 2015Apr 13, 2015 119 (c) Other commitments At December 31, 2014 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows: Creditor GuaranteeDebtorTypeAena Aeropuertos S.A.LATAM Airlines Group S.A.Four letter of creditAmerican Alternative InsuranceCorporationLATAM Airlines Group S.A.Four letter of creditBBVALATAM Airlines Group S.A.One letter of creditCitibank N.A.LATAM Airlines Group S.A.One letter of creditComisión EuropeaLATAM Airlines Group S.A.One letter of creditDeutsche Bank A.G.LATAM Airlines Group S.A.Three letter of creditDirección General de AeronáuticaCivilLATAM Airlines Group S.A.Sixty seven letter of creditDirección Nacional de AduanasLATAM Airlines Group S.A.Three letter of creditEmpresa Pública de Hidrocarburosdel Ecuador EP PetroecuadorLATAM Airlines Group S.A.One letter of creditMetropolitan Dade CountyLATAM Airlines Group S.A.Five letter of creditThe Royal Bank of Scotland plcLATAM Airlines Group S.A.Two letter of creditWashington International InsuranceLATAM Airlines Group S.A.Two letter of creditWells Fargo BankLATAM Airlines Group S.A.Four letter of creditWestpac Banking CorporationLATAM Airlines Group S.A.One letter of credit6ª Vara de Execuções Fiscais FederalTam Linhas Aéreas S.A.de Campo Grande/MS(Pantanal)Two insurance policies guarantee8 Vara da Fazenda Pública da Comarca Tam Linhas Aéreas S.A.de São Paulo(Pantanal)One insurance policies guaranteeFundação de Proteção e Defesa do Consumidor ProconTam Linhas Aéreas S.A.One insurance policies guaranteeVara da Fazenda Pública da Comarca de São PauloTam Linhas Aéreas S.A.One insurance policies guaranteeVara De Execuções FiscaisEstaduais de São PauloTam Linhas Aéreas S.A.One insurance policies guarantee5,500 Jun 18, 20151,675 May 31, 20155,160 Mar 13, 20151,046 Apr 4, 20152,100 Apr 5, 201528,000 May 20, 201513,839 17,703 Jan 31, 20151,210 Jun 28, 2015ValueReleaseThUS$dateFeb 11, 201510,254 3,140 Apr 5, 20156,825 Dec 20, 20152,373 Nov 15, 201524,315 Aug 3, 2015Apr 16, 201528,522 Jan 4, 201613,834 Apr 12, 201540,000 Mar 31, 20151,651 May 16, 20162,943 Mar 29, 2016210,090 120 NOTE 32 - TRANSACTIONS WITH RELATED PARTIES (a) Details of transactions with related parties as follows: On December 28, 2012, Inmobiliaria Aeronáutica S.A. as seller and Sotraser S.A. (Subsidiary of Bethia S.A.) as purchaser, entered into an agreement to purchase the land called "Lot No. 12 of parcellation project Lo Echevers". The value of the sale amounts to ThUS$ 14,217. On December 31, 2013, this balance is paid. training of womenOther related partiesTransportServices receivedTransaction amount As of December 31,with related partiesChilePiscicultureRevenue from services providedCLP155231Revenue from services providedLeases as lessorCLP2013ThUS$17Nature of CLP2532,726(883)(84)10(11)9Services receivedUS$(1,186)(1,146)(6)(84)CLP14,21717(142)ForeignMade In Everywhere ForeignTAM Aviação Executiva(119) - ForeignPrismah Fidelidade S.A.Joint Venture - 485 - (17)12(2)Services received(499)(27)Leases as lessorUS$(334)(358)(1,156)Services receivedCLP(70)CLPCommitments made on behalf of the entityCLP - - 26 - 9(11)BRLBrazilBRLCommitments made on behalf of the entityBRL - Services receivedBRL(12) - Commitments made on behalf of the entityCLPBRL2014ThUS$31209(785)(743)(3)7InvestmentsTransportSettlement of Property plant and equipment (1)ARSRevenue from services providedCLPCLPTransportRevenue from services providedCLPCLPMarketingLiabilities settlement on behalf of the entity for the related partyBRLServices receivedCLP79.773.440-378.591.370-187.752.000-5Granja Marina Tornagaleones S.A.Other related parties Repr. Com. Distr. Ltda.ChileBethia S.A and subsidiariesOther related partiesOther related partiesTransportes San Felipe S.AChileExplanation of other informationControlling shareholderCountry of originabout related partiesChileChileInvestmentsTraining centerNature of relationship withrelated partiesRelated party Ltda. y CPA.Lufthansa Lan Technical Training AssociateInversiones Costa Verde ForeignBrazilArgentinaForeignTransportServices receivedJochmann Paticipacoes Ltda.Other related partiesRevenue from services providedInversora Aeronáutica ArgentinaInvestmentsOther related partiese Taxi Aéreo S/AOther related partiesBrazilForeignBrazilrelated partiestransactionsCurrencyServices receivedLeases as lessorRevenue from services provided65.216.000-KCLPRevenue from services providedOther related partiesChilePromotion andComunidad Mujer96.847.880-KTax No.96.810.370-9 121 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. (b) 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. NOTE 33 - SHARE-BASED PAYMENTS (a) Compensation plan for increase of capital in LATAM Airlines Group S.A. Compensation plans implemented by providing options for the subscription and payment of shares that have been granted by LATAM Airlines Group S.A. to employees of the Company and its subsidiaries, 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. (a.1) Compensation plan 2011 At a Special Shareholders Meeting held on December 21, 2011, the Company’s shareholders approved, among other matters, an increase of capital of which 4,800,000 shares were allocated 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 Share-based paymentsTotalNon-monetary benefitsShort-term benefits37,79616,08617,709RemunerationManagement fees19,5071,21315,148368565For the periods endedDecember 31,2014ThUS$2013ThUS$56,190990 - 22,400 122 shown in the following schedule of accrual and is related to the permanence condition of the executive as employee of the Company at these dates for the exercise of the options: These options have been valued and recorded at fair value at the grant date, determined by the "Black-Scholes-Merton”. The effect on income to September 2014 corresponds to ThUS$ 15,895 (ThUS$ 17,200 at December 31, 2013). The input data of option pricing model used for share options granted are as follows: (a.2) Compensation plan 2013 At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, 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. 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: From December 21, 2015 and until December 21, 2016.From June 21, 2016 and until December 21, 2016.PercentagePeriod30%30%40%From December 21, 2014 and until December 21, 2016.Number of share optionsShare options in agreements of share- based payments, as of December 31, 20134,497,000Share options in agreements of share- based payments, as of January 1, 2013-Share options granted4,497,000Share options in agreements of share- based payments, as of December 31, 20144,202,000Share options in agreements of share- based payments, as of January 1, 20144,497,000Share options cancelled(455,000)Share options granted160,0000.00550As of December 31, 2013As of December 31, 2014US$ 23.55US$ 24.9761.52%3.6 years0%US$ 15.4734.74%3.6 years0%0.00696US$ 18.29Weighted averageExpectedLife ofDividendsRisk-freeExerciseshare pricevolatilityoptionexpectedinterestpriceFrom November 15, 2017 and until June 11, 2018.PeriodPercentage100% 123 (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, 2014, which amounted to 96,675 shares and 637,400 shares, respectively. 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. The acquisition of the share's rights, in both companies is as follows: 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.. Not exist value recorded in liabilities at December 31, 2014 and in income ThUS$ 191 (at December 31, 2013 the amount recognized in liabilities was ThUS$ 1,493 and ThUS$ 509 in incomes). Date10-04-201096,67511-20-201396,6754th Grant05-28-2010 TotalTotalOutstanding option number7,760129,371205,575294,694637,40004-16-201210-04-20104th GrantTAM Linhas Aéreas S.A.4nd ExtraordinaryGrantMultiplus S.A.DescriptionDateOutstanding option numberDescription1st Grant3rd Grant96,675637,400Number of sharesNon accrued optionsNumber of sharesAccrued optionsCompanyTAM Linhas Aéreas S.A. Multiplus S.A. -- 124 NOTE 34 - THE ENVIRONMENT LATAM Airlines Group S.A. manages 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 and environmental programs that meet the increasingly demanding requirements globally; well as continuous improvement programs in their internal processes that generate environmental and economic benefits and to join the currently completed. The Environment Strategy LATAM Airlines Group S.A. is based on the following objectives: - Minimize the impact of its operations by using a modern fleet, efficient operational management and continuous incorporation of new technologies. - Promote the efficient use of resources and minimization of waste in all processes. - Manage responsibly our carbon footprint by measuring, monitoring and reducing emissions. - Promote the development and use of alternative energy more efficient and less environmental impact. For 2014, we have established four priority areas of work to develop: 1. Advance in the implementation of an Environmental Management System; 2. Manage the Carbon Footprint by measuring, external verification and compensation of our emissions by ground operations; 3. Development of environmental projects based on renewable energy. 4. Establishment of corporate strategy to meet the global target of aviation to have a carbon neutral growth by 2020. Thus, during the first half of the year, we have worked in the following initiatives: - Advance in the implementation of an Environmental Management System for main operations, with an emphasis on Santiago, Miami (USA) y San Carlos (Brasil). In addition to continuing with the process of certification of IATA Environmental Assestment (IEnvA). Preparation of the environmental chapter for reporting sustainability of the Company, to measure progress on environmental issues. The preparation of the first report supporting environmental management of the Company. - - Measurement and external verification of the Corporate Carbon Footprint. - As achievement this year, LATAM Airlines Group was selected in the Dow Jones Sustainability index, in global category, emerging as a leader in the global aviation industry its strategy on Climate Change and its efficient operation (Eco-Efficiency). At December 31, 2014 the Environment Management has spent US$370,159 (US$ 478,445 at December 31, 2013). 125 NOTE 35 – EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS Subsequent to the closing date of the annual financial statements, at December 31, 2014, has occurred an important variation in the exchange rate R$/US$, from R$ 2.66 per US$ to R$ 3.27 per US$ at March 17, 2015, which represents a 23% depreciation of the Brazilian currency. At the date of issuance of these financial statements, given the complexity of this matter, the administration has not yet concluded the analysis and determination of the financial effects of this situation. LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at December 31, 2014, have been approved by the Board of Director’s in an extraordinary meeting held on March 17, 2015. Information about Subsidiaries and Affiliated Companies 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 the Public Notary Miguel Garay Figueroa, 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 communication aeronautical concessions, 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. and traffic rights radio and 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 joint stock regulation applicable companies the is Superintendencia de Valores y Seguros (SVS), Chile’s stock market regulator, under Inscription N° 0306 of 22 January 1987. to registered with listed and The financial presented about Note: subsidiaries been summarized. Their complete financial statements are available to the public at our offices and at the Superintendencia de Valores y Seguros (SVS). information has below TAM S.A. Incorporation: Joint stock company established in Brazil in May 1997. Purpose: To participate as a shareholder in other companies, especially companies that provide regular domestic and international air transport services and other activities associated, related and complementary to regular air transport. Subscribed and paid-in capital: Net income: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$2,304,021 ThUS$210,521 100.00% 4.92% Mauricio Rolim Amaro Henri Philippe Reichstul Noemy Almeida Oliveira Amaro Flávia Turci Enrique Cueto Plaza Ignacio Cueto Plaza Subsidiaries of TAM S.A. and stakes: - - - - - - TAM Linhas Aereas S.A. and subsidiaries Aerolinhas Brasileiras S.A. and subsidiary Multiplus S.A. Transportes Aéreos del Mercosur S.A. Corsair Participações Ltda. TP Franchising Limited 100.00% 100.00% 72.74% 94.98% 100.00% 100.00% TAM S.A. Consolidated Classified Statement of Financial Position ASSETS As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ Total current assets different from assets or groups of assets for disposal classified as held for sale or held for distribution to owners Total non-current assets different from assets or groups of assets for disposal 1,920,909 2,370,275 classified as held for sale or held for distribution to owners 407 Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Equity attributable to controller's owners Non-controlling interest Total equity TOTAL LIABILITIES AND EQUITY 1,772 1,921,316 2,372,047 4,896,382 6,323,411 6,817,698 8,695,458 2,279,110 3,249,581 3,530,419 4,734,090 5,809,529 7,983,671 912,639 95,530 617,039 94,748 1,008,169 711,787 6,817,698 8,695,458 Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period For the period from 1 January to 31 December 2014 ThUS$ For the period from 1 January to 31 December 2013 ThUS$ 6,588,741 1,238,846 356,613 (146,092) 210,521 171,655 38,866 210,521 6,791,104 1,302,493 (483,311) 54,820 (428,491) (458,475) 29,984 (428,491) Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Other comprehensive income Total comprehensive income Total comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME For the period from 1 January to 31 December 2014 ThUS$ For the period from 1 January to 31 December 2013 ThUS$ 210,521 (10,841) 199,680 161,306 38,374 199,680 (428,491) (23,006) (451,497) (468,760) 17,263 (451,497) Equity attributable to controller's owners Non-controlling interest Total equity Statement of Changes in Equity ThUS$ ThUS$ ThUS$ Equity as of 1 January 2013 Total comprehensive income Issue of equity Dividends Other increases (decreases) in equity Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Issue of equity Dividends Other increases (decreases) in equity Closing balance at 31 December 2014 (480,634) (468,760) 1,650,000 - (83,567) 617,039 103,033 17,263 - (26,070) 522 94,748 617,039 45,600 250,000 - - 912,639 94,748 38,374 - (34,962) (2,630) 95,530 (377,601) (451,497) 1,650,000 (26,070) (83,045) 711,787 711,787 83,974 250,000 (34,962) (2,630) 1,008,169 Consolidated Statement of Cash Flow – Direct Method For the period from 1 January to 31 December 2014 ThUS$ For the period from 1 January to 31 December 2013 ThUS$ Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at end of period 339,699 65,690 (575,519) (170,130) (62,433) 135,805 127,832 (1,056,225) 977,123 48,730 (1,078) 368,368 LAN Cargo S.A. 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, an extract of which was 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 was 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 was recorded on the Business Register of the Santiago Real Estate Registry Office at Folio 26,994 Nº 20,082 of 2004 and was published in the Official Gazette of 30 August 2004. Purpose: To engage in and develop, on its own account or on behalf of others, the following activities: transport in general in any of its forms and, in particular, the air transport of passengers, cargo and mail within and outside Chile; tourism, hotel and other complementary activities in any of their forms within and outside Chile; the purchase, sale, manufacture and/or assembly, maintenance, renting or any other form of use of aircraft, spare parts and 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, in particular, 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 pursuit of these objectives, the Company may make investments or become a partner in other companies by acquiring shares or rights or interests in any other type of association, whether existing or formed in the future, and may in general perform all the acts and enter into all contracts necessary and pertinent to fulfill the above objectives. Subscribed and paid-in capital: Net income: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$83,226 ThUS$(103,587) 99.8980% 2.22% Juan José Cueto Plaza Enrique Cueto Plaza Andrés Osorio Hermansen Ignacio Cueto Plaza Ramón Eblen Kadis Subsidiaries of LAN Cargo S.A. and stakes: - - - - - - - - - - - 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% 100.00% 99.00% 99.89% 100.00% 100.00% 99.99% 100.00% 100.00% 100.00% LAN CARGO S.A. (Closed joint stock company) Consolidated Classified Statement of Financial Position ASSETS Total current assets different from assets or groups of assets for disposal classified as held for sale or held for distribution to owners Total non-current assets different from assets or groups of assets for disposal classified as held for sale or 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 Equity attributable to controller's owners Non-controlling interest Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 311,741 315,616 85 85 311,826 550,576 862,402 315,701 757,942 1,073,643 186,789 219,470 406,259 214,272 279,531 493,803 455,700 443 456,143 862,402 577,948 1,892 579,840 1,073,643 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 912,792 (141,480) 1,328,571 24,462 (106,717) 3,130 (103,587) 112,075 (5,697) 106,378 (103,285) (302) (103,587) 108,611 (2,233) 106,378 Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Other comprehensive income Total comprehensive income Total comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2014 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 106,378 (103,587) (1,732) (837) (105,319) 105,541 (105,017) (302) (105,319) 107,775 (2,234) 105,541 Equity attributable to controller's owners ThUS$ Non-controlling interest Total equity ThUS$ ThUS$ 447,027 107,775 23,146 577,948 577,948 (105,017) (17,231) 455,700 5,009 (2,234) (883) 1,892 1,892 (303) (1,146) 443 452,036 105,541 22,263 579,840 579,840 (105,320) (18,377) 456,143 Consolidated Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at end of period For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 40,582 526,442 (567,098) (101,453) 181,521 (72,667) (374) (2) 19,862 7,401 149 20,238 Lan Perú S.A. Incorporation: Joint stock company established in Peru on 14 February 1997. Purpose: To provide passenger, cargo and mail air transport services domestically and internationally in accordance with civil aviation laws. Subscribed and paid-in capital: Net income: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$4,341 ThUS$1,058 70.00% 0.05% Emilio Rodríguez Larraín Salinas Enrique Cueto Plaza Ignacio Cueto Plaza Armando Valdivieso Montes Jorge Harten Costa Alejandro García Vargas Luis Enrique Gálvez de la Puente LAN PERÚ S.A. (Closed joint stock company) Statement of Financial Position ASSETS Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Equity attributable to controller's owners Non-controlling interest Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 214,245 25,225 239,470 237,577 25,939 263,516 226,784 1,611 228,395 250,699 1,410 252,109 11,075 11,407 - - 11,075 11,407 239,470 263,516 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 1,134,289 142,420 1,173,391 154.146 4,636 (3,578) 1,058 5,059 (1,304) 3,755 Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2014 Equity issued ThUS$ 4,341 - - 4,341 4,341 - - 4,341 Legal reserve ThUS$ 868 - - 868 868 - - 868 Retained earnings ThUS$ 3,833 3,755 (1,390) 6,198 6,198 1,058 (1,390) 5,866 Total equity ThUS$ 9,042 3,755 (1,390) 11,407 11,407 1,058 (1,390) 11,075 Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Cash and cash equivalents at end of period For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ (76,147) (1,323) 24,132 108,672 (1,387) 21,389 (53,338) 117,486 128,674 170,824 Inversiones Lan S.A. 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: Stake: % of consolidated assets: ThUS$458 ThUS$(4,537) 100.0% 0.01% Board of Directors Chairman: Directors: Enrique Cueto Plaza Ignacio Cueto Plaza Andrés Osorio Hermansen Roberto Alvo Milosawlewitsch Enrique Elsaca Hirmas ________________________________________________________________________________________ Subsidiaries of Inversiones Lan S.A. and stakes: - - - - 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% INVERSIONES LAN S.A. (Closed joint stock company) Consolidated Classified Statement of Financial Position ASSETS Total current assets different from assets or groups of assets for disposal classified as held for sale or held for distribution to owners Total non-current assets different from assets or groups of assets for disposal classified as held for sale or 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 Equity attributable to controller's owners Non-controlling interest Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 4,969 2,536 572 572 5,541 10,494 16,035 3,108 12,254 15,362 13,560 1,186 14,746 7,718 1,215 8,933 1,272 17 1,289 16,035 6,421 8 6,429 15,362 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 32,821 5,846 31,735 8,649 (3,986) (551) (4,537) 633 (107) 526 (4,546) 9 (4,537) 517 9 526 Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Other comprehensive income Total comprehensive income Total comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ (4,537) (49) (4,586) 526 (109) 417 (4,594) 8 (4,586) 410 7 417 Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Dividends Other increases (decreases) in equity Closing balance at 31 December 2014 Equity attributable to controller's owners ThUS$ Non-controlling interest Total equity ThUS$ ThUS$ 6,466 410 (455) 6,421 6,421 (4,592) (627) 70 1,272 1 7 - 8 8 8 - 1 17 6,467 417 (455) 6,429 6,429 (4,584) (627) 71 1,289 Consolidated Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at end of period For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 327 (4) - 323 (4) 526 1,419 (1,480) - (61) (22) 207 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: Stake: % of consolidated assets: Board of Directors Chairman: ThUS$1,147 ThUS$1,906 100.00% 0.11% Enrique Cueto Plaza Andrés Osorio Hermansen Armando Valdivieso Montes INMOBILIARIA AERONÁUTICA S.A. (Closed joint stock company) Classified Statement of Financial Position ASSETS Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Total equity TOTAL LIABILITIES AND EQUITY Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Total comprehensive income As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 1,475 38,445 39,920 1,028 37,525 38,553 6,642 10,212 16,854 4,808 7,316 12,124 23,066 39,920 26,429 38,553 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 4,352 2,686 2,527 (621) 1,906 4,797 3,352 3,050 (1,819) 1,231 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 1,906 1,906 1,231 1,231 Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Dividends Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2014 Equity issued ThUS$ Retained earnings ThUS$ Total equity ThUS$ 1,147 - - 1,147 1,147 - - 1,147 33,051 1,231 (9,000) 25,282 25,282 (740) (2,623) 21,919 34,198 1,231 (9,000) 26,429 26,429 (740) (2,623) 23,066 Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at end of period For the period ended on 31 December 2014 ThUS$ (2,086) (2,098) - (12) (17) - 2013 ThUS$ (14,163) 14,073 - (90) (23) 29 Lantours División Servicios Terrestres S.A. 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: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$225 ThUS$2,074 100.00% 0.00% Armando Valdivieso Montes Armando Valdivieso Montes Andrés Osorio Hermansen Subsidiary of Lantours División Servicios Terrestres S.A. and stake: - Lantours División Servicios Terrestres II S.A. 100.00% LANTOURS DIVISIÓN SERVICIOS TERRESTRES S.A. (Closed joint tock company) Classified Statement of Financial Position ASSETS Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Total equity TOTAL LIABILITIES AND EQUITY Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Total comprehensive income As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 3,056 2,478 173 244 3,229 2,722 2,283 2,203 6 7 2,289 2,210 940 512 3,229 2,722 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 10,710 6,813 2,509 (435) 2,074 10,365 5,781 1,017 (230) 787 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 2,074 2,074 787 787 Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Dividends Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Dividends Closing balance at 31 December 2014 Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Cash and cash equivalents at end of period Equity issued ThUS$ Retained earnings ThUS$ 225 - - 225 225 - - 225 300 787 (800) 287 287 2,074 (1,646) Total equity ThUS$ 525 787 (800) 512 512 2,074 (1,646) 715 940 For the period ended on 31 December 2014 ThUS$ 2,027 (17) (1,646) 364 372 2013 ThUS$ 782 15 (800) (3) 8 Lan Pax Group S.A. Incorporation: Established as a closed joint stock company by public deed of 27 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; in addition, within its area of activity, the company may form other companies of any type 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: Stake: % of consolidated assets: Board of Directors Chairman: Directors: Subsidiaries of Lan Pax Group S.A. and stakes: Inversora Cordillera S.A. and subsidiaries Lantours 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 ThUS$424 ThUS$(120,739) 100.00% 0.00% Ignacio Cueto Plaza Andrés del Valle Enrique Elsaca Hirmas 95.78% 100.00% 99.00% 99.00% 100.00% 100.00% 100.00% 100.00% 99.875% LAN PAX GROUP S.A. (Closed joint stock company) Consolidated Classified 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 Equity attributable to controller's owners Non-controlling interest Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 343,304 296,716 640,020 326,373 315,216 641,589 390,914 674,243 1,065,157 378,370 523,481 901,851 (426,016) 879 (425,137) 640,020 (246,521) (13,741) (260,262) 641,589 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 1,095,242 166,660 1,140,255 95,188 (113,085) (7,654) (120,739) (143,800) 27,143 (116,657) (114,511) (6,228) (120,739) (104,966) (11,691) (116,657) Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Other comprehensive income Total comprehensive income Comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Other increases (decreases) in equity Closing balance at 31 December 2014 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ (120,739) (43,298) (164,037) (116,657) (27,036) (143,693) (157,315) (6,722) (164,037) (131,495) (12,198) (143,693) Equity attributable to controller's owners ThUS$ Non-controlling interest Total equity ThUS$ ThUS$ (112,396) (131,495) (2,630) (246,521) (246,521) (157,315) (22,180) (426,016) (3,048) (12,198) 1,505 (13,741) (13,741) (6,722) 21,342 879 (115,444) (143,693) (1,125) (260,262) (260,262) (164,037) (838) (425,137) Consolidated Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchange-rate variations Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at end of period For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ (12,710) (53,535) 96,340 30,095 (77) 86,528 (110,576) (75,586) 200,403 14,241 (66) 56,510 Lan Chile Investments Limited 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: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$10 ThUS$2,844 100.00% 0.01% Andrés del Valle Eitel Andrés Osorio Hermansen Pilar Duarte Peña Subsidiary of Lan Chile Investments Limited and stake: - Inversiones La Burguería S.A. 99.90% LAN CHILE INVESTMENTS LIMITED (Limited liability company) Consolidated Classified Statement of Financial Position ASSETS Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Equity attributable to controller's owners Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period As of 31 December 2014 ThUS$ As of 31 December 2013 ThUS$ 2,015 - 2,015 2,015 2,404 4,419 - - - 12 5,236 5,248 2,015 2,015 2,015 (829) (829) 4,419 For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ - - 2,844 - 2,844 2,844 - 2,844 - - (1) - (1) (1) - (1) Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Total comprehensive income Total comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME For the period ended on 31 December 2014 ThUS$ 2013 ThUS$ 2,844 2,844 (1) (1) 2,844 - 2,844 (1) - (1) Statement of Changes in Equity Equity as of 1 January 2013 Total comprehensive income Closing balance at 31 December 2013 Equity as of 1 January 2014 Total comprehensive income Closing balance at 31 December 2014 Equity attributable to controller's owners ThUS$ Non-controlling interest Total equity ThUS$ ThUS$ (828) (1) (829) (829) 2,844 2,015 - - - - - - (828) (1) (829) (829) 2,844 2,015 Consolidated Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment 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 on 31 December 2014 ThUS$ 2013 ThUS$ - - - - - (1) - - (1) - TECHNICAL TRAINING LATAM S.A. Incorporation: Established as a joint stock company by public deed of 23 December 1997 in Santiago, Chile, recorded at Folio 878 N° 675 of 1998 of the Santiago Business Register. Purpose: To provide technical training services and other types of related services. Subscribed and paid-in capital: Net income: Stake: % of consolidated assets: Board of Directors Chairman: Directors: ThUS$881 ThUS$287 100.0% 0.1% Enrique Elsaca Sebastián Acuto Fernando Andrade TECHNICAL TRAINING LATAM S.A. (Limited liability company) Consolidated Classified Statement of Financial Position ASSETS Total current assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Total current liabilities Total non-current liabilities Total liabilities EQUITY Equity attributable to controller's owners Total equity TOTAL LIABILITIES AND EQUITY Consolidated Statement of Income by Function Revenues from ordinary activities Gross income Profit (loss) before tax Income tax expenses PROFIT (LOSS) OF THE PERIOD Profit (loss) of the period attributable to: Controller's owners Non-controlling interest Profit (loss) of the period As of 31 December 2014 ThUS$ 1,387 273 1,660 263 0 263 1,397 1,397 1,660 For the period from 26 November to 31 December 2014 ThUS$ 171 3 (26) (23) (49) (49) 0 49 Consolidated Statement of Comprehensive Income PROFIT (LOSS) OF THE PERIOD Other comprehensive income Total comprehensive income Total comprehensive income attributable to: Controller's owners Non-controlling interest TOTAL COMPREHENSIVE INCOME For the period from 26 November to 31 December 2014 ThUS$ (49) (19) (68) 0 0 (68) Statement of Changes in Equity Equity as of 26 November 2014 Total comprehensive income Closing balance at 31 December 2014 Equity issued ThUS$ 881 0 881 Retained earnings ThUS$ 564 (68) 496 Total equity ThUS$ 1,445 (68) 1,377 Consolidated Statement of Cash Flow – Direct Method Net cash flows from (used in) operating activities Net cash flows from (used in) investment activities Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Effect of exchange-rate variation on cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period For the period from 26 November to 31 December 2014 ThUS$ 281 0 0 281 1 168 450 A N N U A L R E P O R T 2 0 1 4 / S wO R N ST A T EmE N T Sworn Statement As Directors and Chief Financial Officer of LATAM Airlines Group, we declare under our responsibility on the veracity of the information contained in this Annual Report.

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