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
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ANNUAL REPORT 2014 W 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
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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 COmPANy Message 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 COmPANy Message 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 COmPANy Message 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 COmPANy Business 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
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ANNUAL REPORT 2014 / OUR COmPANy Business 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.
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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).
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ANNUAL REPORT 2014 / OUR COmPANy history
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.
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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.
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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$320
million; purchase orders for 32
Boeing 787 Dreamliners.
Completion of renewal of
LAN’s short-haul fleet with
aircraft from the Airbus
A320 family.
Start of cargo operations
in Colombia and domestic
passenger operations in
Ecuador.
TAM S.A. lists on the NYSE / Start
of flights to London and, through
agreement with Air France, to
Zurich and Geneva.
TAM S.A. lists on the
BOVESPA stock market;
start of flights to New York
and Buenos Aires.
Start of TAM flights to Milan and
Córdoba; authorization from
Brazil’s National Civil Aviation
Agency (ANAC) to start flights to
Madrid and Frankfurt.
TAM receives its first
Boeing 777-300ER.
Launch of Multiplus Fidelidade;
Acquisition of Pantanal Linhas
Aéreas
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ANNUAL REPORT 2014 / OUR COmPANy
history
20 11
LAN and TAM sign binding
agreements related to the
business combination of the
two airlines.
20 14
TAM joins oneworld alliance,
which becomes LATAM
Airlines Group global
alliance.
LATAM launches its 2015-
2018 Strategic Plan aiming
to become one of the 3
most important ailrine
groups in the world.
20 12
LATAM Airlines Group is
born as a result of the
business combination
between LAN and TAM.
20 13
Capital increase for US$
940.5 million
200200
199
Acquisition of Colombia’s
Aires airline.
TAM officially joins Star
Alliance.
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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
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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
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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
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ANNUAL REPORT 2014 / OUR COmPANy Fleet
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 COmPANy Fleet
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 COmPANy Fleet
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 COmPANy Destinations
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 COmPANy Destinations
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 COmPANy Destinations
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 COmPANy Destinations
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 COmPANy Destinations
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 COmPANy Destinations
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 COmPANy Destinations
galápagos san cristóbal
quito
guayaquil
cuenca
05 domestics destinations ECUADOR
2 7
ANNUAL REPORT 2014 / OUR COmPANy Destinations
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 COmPANy Destinations
42
destinos
norteamérica
19
destinos
europa
05
destinos
africa
10
destinos
asia
destinos09
australia
85 CODESHARE
2 9
ANNUAL REPORT 2014 / OUR COmPANy Our 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 COmPANy Our 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 COmPANy Latam 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 GOvERNANCE Board 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 GOvERNANCE Board 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 GOvERNANCE Senior 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 GOvERNANCE Senior 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 GOvERNANCE Senior 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 GOvERNANCE Senior 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 GOvERNANCE Year 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 GOvERNANCE Compensation 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 GOvERNANCE Compensation 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 GOvERNANCE Corporate 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 GOvERNANCE Corporate 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 GOvERNANCE Corporate 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 GOvERNANCE Corporate 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 GOvERNANCE Corporate 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 GOvERNANCE Ownership 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 GOvERNANCE Ownership 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 GOvERNANCE Financial 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 GOvERNANCE Financial 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 GOvERNANCE Financial 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 GOvERNANCE Financial 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 GOvERNANCE A 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 / OPERATIONS International 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 / OPERATIONS Argentina
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 / OPERATIONS Brazil
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 / OPERATIONS Colombia
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 / OPERATIONS Colombia
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 / OPERATIONS Ecuador
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 / OPERATIONS Peru
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 / OPERATIONS Cargo 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 / OPERATIONS Cargo 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 / OPERATIONS Loyalty 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 / OPERATIONS Property, 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 / OPERATIONS Property, Plant and Equipment
OTHER FACILITIES
In São Paulo, TAM has other facilities such as:
Commercial Headquarters, Uniform Building,
Morumbi Office Tower and a Call Center
Building. Besides, in São Paulo, TAM has the
offices belonging to the Group as: Multiplus
Office, TAM Viagens Office, one store of TAM
Viagens and Bahia state. In Guarulhos, TAM has
a Passenger Terminal, Operational Areas such
as Check-in, Ticket Sales, Check Out, Operations
Areas, VIP Lounges, Aircraft Maintenance, GSE,
Cargo Terminal, Distribution Centers, etc.
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 / OPERATIONS A 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 / REsULTs Industry 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.
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ANNUAL REPORT 2014 / REsULTs Regulatory 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
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ANNUAL REPORT 2014 / REsULTs Regulatory 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 / REsULTs Regulatory 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.
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ANNUAL REPORT 2014 / REsULTs Regulatory 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.
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ANNUAL REPORT 2014 / REsULTs Regulatory 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 / REsULTs Regulatory 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 / REsULTs Financial 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 / REsULTs Financial 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 / REsULTs Financial 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 / REsULTs Financial 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 / REsULTs Financial 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 / REsULTs Awards 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 / REsULTs stock 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 / REsULTs stock 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 / REsULTs stock 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 / REsULTs Additional 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 / REsULTs Material 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 / REsULTs share, 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 / REsULTs Risk 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 / REsULTs A 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 / SUSTAiNAbiLiTy Sustainability 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 / SUSTAiNAbiLiTy Climate 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 / SUSTAiNAbiLiTy Climate 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 / SUSTAiNAbiLiTy Corporate 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 / SUSTAiNAbiLiTy Relation 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 / SUSTAiNAbiLiTy LATAM 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.