Annual Report
1
INT003
OUR COMPANY
SIG030
CORPORATE GOVERNANCE
SIG008
OPERATIONS
Welcome letter ........................................4
Business Strategy ....................................6
Our History ..............................................8
Fleet .......................................................17
Destinations ...........................................21
Our People ..............................................30
Company Information .............................36
Board of Directors ...................................39
Senior Management ................................43
Year 2016 ...............................................46
Corporate Governance Practices ..............49
Property ownership structure and main
shareholders ...........................................56
Financial Policy .......................................67
International Passenger Operations.........71
Brazil ......................................................74
Argentina ................................................76
Chile .......................................................78
Colombia ................................................80
Ecuador ..................................................82
Peru ........................................................84
Cargo operation ......................................86
Customer Loyalty Programs ....................88
Property, Plant and Equipment ...............89
SIG110
MANAGEMENT 2016
SEC051
SUSTAINABILITY
Industry Overview ...................................92
Regulatory Framework ............................94
Financial Results .....................................98
Awards and Recognitions .......................102
Material Facts ........................................103
Stock Market information ......................110
Risk factors ...........................................113
Additional information ...........................122
Investment Plan ....................................123
Sustainability Vision ..............................126
Sustainability Governance .....................128
Climate Change .....................................130
Corporate Citizenship .............................131
Relation with Groups of Interest ............133
UID003
FINANCIAL STATEMENTS
Financial Statements .............................135
Subsidiaries and Affiliated Companies ...219
Analysis of the Financial Statements .....254
Sworn Statement ...................................261
INDEX
2
INT003
OUR COMPANY
OUR COMPANY | Welcome letter
Brazil is going through one of the biggest political crises in its
history, with the consequences of the impeachment of the
former President of the Republic amplified by an anti-corrup-
tion action, Lava Jato operation. As a result, the private sector
has adopted defensive strategies, postponing investments, in-
creasing unemployment and reducing stock replenishment in
factories, which contributed sharply to the persistence of the
recession in 2016.
Despite the poor performance of the Brazilian economy, it is
important to note that government policies aimed at balanc-
ing public finances and structural reforms were initiated, not
only approved by the markets, but have also revised their pro-
jections favorably for 2018.
Therefore, we can say that Brazil is emerging from a serious
turbulence to have a more stable flight, which aims at a GDP
growth that although still modest, has a highly positive effect
on the economy of the whole continent.
One of the creative and renovating actions carried out by the
Company during the year was the design of a new model to
reduce the costs of passenger transportation. In it, customers
can choose to fly by paying for additional services according
to their needs. This initiative will put us in a more competi-
tive position with any of our competitors, and may represent
a 50% increase in the volume of passengers transported in the
coming years.
In the area of sustainability, whose adherence and improve-
ment are necessary conditions for competition in the market,
we are rapidly advancing in new practices and the improve-
ment of old ones, in order to maintain a leading position and
create the bases for its permanence. A stimulating recognition
was our inclusion in the Dow Jones Sustainability Index for
the third consecutive year as one of the leading companies in
sustainability, based on economic, social and environmental
criteria.
Our long-term strategy has not changed. It can be mentioned in
three cardinal points: a continent, a wide network of destinations
and a brand. These three points are interconnected by common
premises: being simpler, more efficient and more competitive.
In LATAM, constant attention to reducing costs to replace pro-
cesses and equipment that have become costly and unproduc-
tive is an essential requirement. The restructuring of our fleet
allowed a reduction of US$ 2.2 billion of our fleet assets pro-
jected for 2018 during the last 12 months. In Brazil, where we
are implementing changes due to the intense importance of
that market for the company, the reduction of flight capacity
reached 12% in 2016, preparing the way for a market recovery.
All the setbacks that emerged in this very complex period for
the economy of our continent, and in particular for the civil
aviation sector, only reinforce my conviction that the union of
TAM and LAN could not have been more successful. I am very
proud to have participated in the construction of this great
company, which represents a milestone in the history of avia-
tion. I think it was the most important experience of my pro-
fessional and business life. If not for the creation of LATAM,
the wind of the crisis could have shaken the structure of the
founding companies and divert them to other non-successful
routes.
In LATAM, my story had a new beginning. Starting with my
friends and partners, the Cueto family, followed by executives
and professionals from different areas, from TAM and LAN, or
those who later joined us. They were enriching relationships
from all angles - business, work and affection. I have learned a
lot. I think I collaborated a lot too. I will always collaborate. But
for LATAM, renewal is the first word of our informal nature, our
conviction as shareholders and managers, the principle that
governs the philosophy of the Company.
Mauricio Rolim Amaro
Chairman of the Board of LATAM Airlines Group
4
Dear shareholders,
The year 2016 was characterized by a low growth period for
the countries of Latin America and the Caribbean, which had
a reduction of regional gross domestic product of the order of
1.1%, according to data from the Economic Commission for
Latin America and the Caribbean (ECLAC). It should be noted
that the region already came from a contraction of 0.4% in its
economy.
South America was the most affected sub-region, with an ex-
pected decline of 2.5% of GDP in 2016. In the years 2015/2016
Brazil was responsible for the greatest negative impact on
economic activity in the region. The country’s GDP fell 3.8% in
2015 - the biggest drop in history - and 3.6% in 2016, estab-
lishing the largest wealth loss in Brazil’s history.
We have continued to strengthen our network – despite mo-
dest growth in the region – with the launch of 14 new routes
in 2016 and the announcement of a further eight for this
year; a record number for the group. Of these routes, we in-
augurated four new destinations that improve connectivity
both within the region and with the rest of the world: Puerto
Natales, Jaén, Washington D.C., and Johannesburg. In doing
so, we became the only Latin American airline to offer a di-
rect service between Latin America and Africa.
Furthermore, as part of our commitment to further expand
our network of flights and connections in South America, we
continue to make progress towards achieving our ‘Joint Bu-
siness Agreements’ with IAG (the holding company of British
Airways and Iberia) and American Airlines, so we can con-
nect more people in Latin America with the rest of the world.
We are convinced that these agreements will strengthen the
connectivity of our region and deliver access to a wider des-
tination network, more flights, better connecting times and
lower prices as well as contribute to the development of tou-
rism in the region with the arrival of more travelers from the
USA and Europe.
In 2016, we worked on one of the most significant changes
for the company and our customers in our history with the
renewal of the domestic flight model for the six countries in
the region where we have national operations. The new mo-
del, which is already being gradually implemented in some
markets, will give our customers the flexibility to choose how
they want to fly, by only paying for the additional services
they use. As a result, we will be able to offer fares up to 30%
cheaper, allowing more people to choose flight as a means
of transport as well as helping those who already fly, to do
so more often. All of this will be supported by a new digi-
tal experience, where passengers can control their own flight
experience using only their phone. In addition to the benefits
for passengers, this change will allow us to better compe-
te with the increasing number of low cost operators in the
region. With the new travel model, we project to increase
our passenger numbers for domestic flights by 50% by 2020,
OUR COMPANY | Welcome letter
helping to consolidate flight as a widely-accessible means
of transport in the region and boost economic growth in the
markets where the company operates.
The last three years have been very challenging. However,
thanks to the work over this time, we have seen a significant
improvement in our profitability, achieving a 6% EBIT margin
in 2016 and the first positive net profit in five years. This im-
provement in profitability in a tough year showcases the re-
silience of our business model and demonstrates that we are
on the right path with the strategic initiatives we have put in
place. These positive results, together with the restructuring
of our fleet plan and the strengthening of our balance sheet,
have also been recognized by the financial markets, as de-
monstrated by the 53% recovery of the LATAM share in 2016.
In conclusion, I would like to thank our teams for all their work
this year. Without their commitment and dedication it would
have not been possible to carry out these significant changes
we are currently implementing. I would also like to especially
thank our shareholders – both new and long-standing – for
their patience during the challenges of recent years, for their
support in this period of adjustment and for the faith they
have placed in our project. Our challenge and what motivates
us is to maintain our industry leadership, strengthen our fi-
nancial position and secure our long-term sustainability. For
this reason, I invite everyone in the LATAM family to maintain
their trust in this project and to continue moving forward to-
gether towards these objectives.
Enrique Cueto
CEO, LATAM Airlines Group
5
Dear shareholders,
2016 will be remembered as one of the most challenging
years in our company’s history, with us continuing to adapt
to the volatile environment of recent years. We initiated big
changes and major projects, so we can better deal with the
evolving airline industry landscape and the slowdown of Latin
American economies.
We seek to consolidate ourselves as the leading airlines
group in the region, connecting the continent with an expan-
sive network under a single brand. Guided by this long-term
vision, we are proud to have successfully launched the uni-
fied brand LATAM, which combines the best of LAN and TAM
and provides the client with a single image.
OUR COMPANY | Business Strategy
The leading airline group in Latin America
LATAM Airlines Group S.A. (hereinafter, without distinction
“the Company”, “LATAM” or “LATAM Group”) is Latin Amer-
ica’s largest air transport company, resulting from the as-
sociation of a Chilean (LAN) and a Brazilian (TAM) airline.
The Group has domestic operations in six South Ameri-
can countries - Argentina, Brazil, Chile, Colombia, Ecuador,
and Peru – an advantage that allows it to provide the best
connectivity at the regional level, as well as from South
America to the rest of the world and vice versa, reaching
some 135 destinations points in 25 different countries. In
addition, this allows it to have a geographically diversified
passenger and cargo revenue base.
At the end of April 2016, the Company formally submit-
ted its unified LATAM brand, which started to be visible in
the website, physical spaces and aircraft, among others,
a brand under which we will continue along the leadership
path started several decades ago by LAN, TAM and their
respective subsidiaries. This change will allow us to pro-
vide a better service and consistent across our network,
strengthening our position in the region.
During 2016, the Company went ahead in its process of
becoming a more simple, lean and efficient organization
to adapt to the changing dynamics of the industry and the
needs of our customers.
This process considers a change in organizational culture,
which began to be executed with greater force in 2016
through our Twist Project at airports, contact centers
and service on board. The objective of this project is to
strengthen the organization with empowered teams pre-
pared to respond to the needs of the passengers more
quickly and easily, always considering the impact that their
decisions may have on our clients.
Company decisions always focus on customer satisfaction.
This implies a constant work toward improving passenger
experience throughout the different stages of the journey,
while always looking for differentiation in terms of service.
This is how in 2016 LATAM continued to invest in the de-
velopment of digital tools at all points of contact with the
customer, in order to simplify the travel experience and
provide a personalized service.
In is our permanent goal to incorporate best industry prac-
tices and adapt to industry-wide trends. By the end of
2016 the Company announced the redesign of its travel
model in the six domestic markets where it operates. This
will be implemented on a country-by-country basis and in
stages starting in the first half of 2017. Indeed, this has
become one of our projects with greater breadth and scope
and relevance toward ensuring the sustainability of LATAM
over the long term. This new model seeks to meet the
needs of today’s passengers who appreciate the trip to be
simple, efficient, and expeditious and wish to be empow-
ered to make their own decisions and have the tools to ac-
tively influence and customize their own travel experience,
thereby paying only for the services used. Passengers will
be entitled to choose how to fly, paying for the additional
services required and selecting the airfare that best suits
their needs.
Thanks to this new form of travel, LATAM Group estimates
it will increase by 50% the number of passengers trans-
ported in domestic markets by 2020, thereby consolidat-
ing air travel as a means of mass transport in the region
progressively increasing the number of people able to fly,
and that those who already do so may fly even more.
With respect to international operations, one of the year’s
major milestones was the announcement of the execution
of Joint Business Agreements (JBAs) with American Air-
lines and the IAG Group (Iberia’s and British Airways’ par-
ent company), aimed at providing greater connectivity to
passengers. With these agreements, the Company seeks
to provide access to a wider network of international des-
6
tinations, more flights, better connection times and better
prices to destinations not flown by LATAM. The Group ex-
pects the respective approval processes to make progress
rapidly so as soon to become a reality, in order to connect
more and more people from Latin America to the rest of
the world and vice-versa.
In its continuous effort to strengthen the network, in 2016
the Company opened 18 new routes – a historical record
for LATAM. Noteworthy among them is the first flight from
Brazil to Johannesburg, becoming the only Latin Ameri-
can airline that now connects the region with the African
continent. It should also be noted, moreover, that many
of these new routes will help to further boost our main
regional hubs, such as the Lima and Sao Paulo airports.
LATAM reduced its fleet commitments through postpone-
ments and cancellations, and will also reduce its current
fleet assets returning additional aircraft as compared to
last year’s fleet plan.
With this, the Company will have achieved a reduction of
$2.2 billion in fleet assets between 2016 and 2018, in line
with previously announced plans to achieve a reduction of
US$ 2.0 to $3.0 billion in our expected 2018 fleet assets.
In line with the Company’s strategy to make its operation
more efficient, during 2016 LATAM received 24 aircraft of
the more large, modern and efficient models that allow
transporting more passengers consuming less fuel, there-
by adapting to current market conditions in a more ef-
ficient manner. In line with the foregoing, LATAM keeps its
commitment to offer its passengers the best fleet in Latin
America. To that effect, in 2016 the company incorporated
the first Airbus A320neo to its fleet; thus becoming the
first airline in America to operate this ultra-efficient air-
craft model, whose greater flying range does not only al-
low it to operate its domestic but also its regional network.
OUR COMPANY | Business Strategy
Additionally, LATAM incorporated six Airbus A350 to its
fleet, ending the year with a total of seven aircraft of this
model; which stands out because of a CASK up to 25%
lower than similar size aircraft.
All things considered, in 2016 LATAM Group opened a new
chapter in the history of world aviation. The new brand
poses the challenge of delivering a unique and improved
service experience, offering to the world the best of South
America, while becoming a more efficient and productive
group operating in simpler ways. The Company aspires to
be among the best airlines in the world, and the initiatives
that are currently underway indeed provide ample oppor-
tunity to achieve this objective.
7
OUR HISTORY
Under LATAM, we will continue the path of
leadership initiated several decades ago
OUR COMPANY | Our History
1929
Under LATAM, we will continue the
path of leadership initiated several
decades ago
1946
1956
1958
► Linea Aerea Nacional de Chile
(LAN) founded by Comandante
Arturo Merino Benítez.
► First LAN international flight:
Santiago-Buenos Aires.
► Start of LAN services to Lima.
► Start of LAN services to Miami.
8
OUR HISTORY
OUR COMPANY | Our History
1961
1970
1975
1976
► TAM-Taxi Aéreo Marília created
by five charter flight pilots
► LAN begins flights to Europe.
► Foundation of TAM-Transportes
Aéreos Regionais by Capitan Rolim
Adolfo Amaro.
► Launch of TAM services in
Brazilian cities, especially Mato
Grosso and São Paulo.
9
OUR HISTORY
OUR COMPANY | Our History
1983
1985
1986
1989
► Constitution of Linea Aerea
Nacional - Chile Limitada, through
CORFO
► LAN becomes a joint stock
company
► TAM acquired Brasil Central
Linhas Aéreas-VOTEC, a regional
airline that served the North and
Central West regions of Brazil.
► Start of privatization of LAN:
the Chilean government sells a
51% stake to local investors and
Scandinavian Airlines System
(SAS).
10
OUR HISTORY
OUR COMPANY | Our History
1990
1993
1994
1996
► Brasil Central renamed TAM-
Transportes Aéreos Meridonais
► Launch by TAM of TAM
Fidelidade, Brazil’s first frequent
flyer program.
► Privatization of LAN completed
with the acquisition of a 98.7%
stake by its current controllers and
other shareholders.
► Acquisition by TAM of Lapsa
airline from the Paraguayan
government and creation of TAM
Mercosur; start of São Paulo
► Start of São Paulo – Asuncion
flights
11
OUR HISTORY
OUR COMPANY | Our History
1997
1998
1999
2000
► LAN lists on the New York Stock
Exchange, becoming the first Latin
American airline to trade ADRs on
this important market.
► Arrival of first A330; first TAM
international flight from São Paulo
to Miami.
► LAN’s expansion begins: start of
operations of LAN Perú.
► LAN joins the oneworld alliance
12
OUR HISTORY
OUR COMPANY | Our History
2001
2002
2003
2004
► LAN Alliance with Iberia and
inauguration of Miami cargo
terminal.
► LAN Alliance with Qantas and
Lufthansa Cargo
► LAN continues its expansion
plan: start of operations of LAN
Ecuador.
► Creation of TAM Technology
Center and Service Academy in São
Paulo.
► Launch of new corporate image
as LAN Airlines S.A.
► Start of TAM flights to Santiago.
► Launch of the new executive
class for flights to Paris and Miami.
13
OUR HISTORY
OUR COMPANY | Our History
2005
2006
2007
2008
► Further step in LAN’s regional
expansion plan: start of operations
of LAN Argentina
► TAM S.A. lists on the BOVESPA
stock market.
► Start of flights to New York and
Buenos Aires.
► Launch of new LAN Premium
Business Class.
► Implementation of low-cost
model in domestic markets.
► TAM S.A. lists on the NYSE
► Capital increase of US$320
million.
► Start of flights to London and,
through agreement with Air France,
to Zurich and Geneva
► Start of TAM flights to Milan and
Córdoba; authorization from Brazil’s
National Civil Aviation Agency
(ANAC) to start flights to Madrid
and Frankfurt.
► Completion of renewal of LAN’s
short-haul fleet with aircraft from
the Airbus A320 family.
► TAM receives its first Boeing
777-300ER.
14
OUR HISTORY
OUR COMPANY | Our History
2009
2010
2011
2012
► Start of cargo operations in
Colombia and domestic passenger
operations in Ecuador.
► Launch of Multiplus Fidelidade.
► Acquisition of Colombia’s Aires
airline.
► TAM officially joins Star Alliance.
► LAN and TAM sign binding
agreements related to the business
combination of the two airlines.
► LATAM Airlines Group is born as a
result of the business combination
between LAN and TAM.
► Issuance of 2.9 million shares.
15
OUR HISTORY
OUR COMPANY | Our History
2013
2014
2015
2016
► Capital increase for US$ 940.5
million.
► TAM joins oneworld alliance,
which becomes LATAM Airlines
Group global alliance.
► LATAM is Born: The New Brand
for LAN Airlines, TAM Airlines and
Affiliates.
► Capital increase of US $ 608
million with which Qatar Airways
acquires 10%* of the total of paid
and subscribed shares of LATAM.
► LATAM launches its 2015- 2018
Strategic Plan.
► EETC structured bond issue
for US $ 1,020MM: First in Latin
America.
* Qatar owns 9.999999918% of total issued shares of LATAM.
16
OUR COMPANY | Fleet
Committed to provide the
most advanced, efficient
and comfortable fleet
During the year 2016, the LATAM Group operated a fleet
comprised of 329 aircraft averaging approximately 7 years
old, standing out among the newest in South America and
the world.
One of this year’s milestones was the launching of the uni-
fied LATAM Brand. As of December 2016, the Company had
43 aircraft already painted with the new logo; a progres-
sive process expected to be completed in 2018, the year in
which we project having the entire fleet designed with the
new corporate logo. It is worth noting, however, that paint-
ing each aircraft takes an average between 6-12 days and
that this operation is performed during each aircraft’s rou-
tine maintenance work in order to optimize the efficiency
of the entire process.
During this period, the Company continued to make prog-
ress in its fleet renewal plan, incorporating larger and more
modern aircraft, while gradually disposing of the older
models. In total, 23 aircraft were withdrawn and 24 new
and more efficient models were incorporated, allocating
them as most appropriate for the respective markets in
which they operate.
In order to develop its short-range passenger operations
(domestic and regional flights within South America), LA-
TAM operated 243 aircraft, all of them of the Airbus A320
family. We received 11 Airbus A321 aircraft (the largest
version of this family), totaling 47 aircraft of this operating
as of this year’s closing.
In the medium term, the Company is aiming at operating a
short range fleet of only the A320 family, in its A320, A321
and A320neo versions. In 2016, we received the first two
aircraft of the latter type, thus becoming the first A320neo
operator in the American continent. With a seat capacity
for 174 passengers and an Airbus Space-Flex cabin config-
uration, LATAM expects to receive five additional such air-
craft during 2017, from a total order portfolio of 34 aircraft.
These aircraft incorporate state-of-the-art technology
that includes new generation engines and sharklets (ad-
vance technology devices installed on the wings, designed
to reduce aerodynamic resistance), permitting fuel savings
of up to 15% and a resulting reduction in annual emissions
of about 3,600 tons of CO2 per aircraft.
In order to service its long-range flights, the LATAM Group
used a fleet comprised of 76 aircraft during 2016; note-
worthy among which was the Boeing 787 Dreamline in its
versions 8 and 9, in addition to the new Airbus A350-900.
The wide-body fleet plan is aimed at a renewal in order
to incorporate the best technology and become leaders
in terms of efficiency, reducing the number of aircraft but
increasing capacity through larger models. In effect, dur-
ing this period we incorporated five Boeing 787-9 aircraft,
among whose advantages stands out its greater capac-
ity, both in terms of passengers (+27%) and cargo volume
(+23%), as compared to the Boeing 787-8. Designed for
313 passengers (283 Economy seats and 30 Premium
Business seats), the Boeing 787-9 burns up to 20% less
fuel than similar aircraft dropping its CO2 emissions by
up to 20%. As of December 2016, LATAM’s Boeing 787
Dreamliner fleet included 12 Boeing 787-9 and 10 Boeing
787-8 aircraft.
Additionally, in 2016 the Company incorporated six Air-
bus A350-900 aircraft, adding seven units of this model
by the closing of the year. The Company received the first
such aircraft in December 2015, then becoming the first
airline in America to operate it and the fourth worldwide.
Designed for 348 passengers, 318 in Economy and 30 in
Business Premium, the Airbus A350 is a medium-sized
high-technology product; noteworthy for having a 25%
lower CASK, as compared to similarly sized aircraft, such as
the Airbus A330, and an equivalent drop in CO2 emissions.
17
OUR COMPANY | Fleet
It should be noted that during 2016, LATAM ceased to op-
erate the Airbus A330, a model that was fully removed
from the fleet.
In the meantime, in order to develop its cargo operations,
the Company closed the year with an operating fleet of
10 aircraft (one less than operated in 2015), comprised
of eight Boeing 767-300F and two Boeing 777-200F; the
latter being the most modern dedicated freighter of its
type in the industry. Since the focus is now placed on op-
timizing the bellies (storage space) of passenger aircraft,
LATAM has been gradually reducing its dedicated freighter
fleet. Along such lines, during 2016 the Company main-
tained a lease contract for three of its Boeing 767-300F
freighters and one Boeing 777-200F to cargo operators
out of the region.
Maintenance
The Company’s major, line and component maintenance
facilities are duly equipped and certified to look after its
entire Airbus and Boeing fleet.
With facilities in Brazil (Sao Carlos) and Chile (Santiago),
the LATAM Group’s Maintenance, Repair and Revision Unit
is responsible for major maintenance of the Group’s air-
craft; occasionally, it also does maintenance to third par-
ties. Both of them provide 76% of the Company’s total
major maintenance requirements, while those that are not
performed internally are contracted from among MRO’s
(Maintenance & Repair Organization) vast worldwide mem-
bership network. This unit is also responsible for the plan-
ning and execution of aircraft returns.
In response to the macroeconomic slowdown and the en-
suing demand for air travel, LATAM continued to move for-
ward in its plan to reduce the fleet, through postponements
and sales of both its long as well as its short-range aircraft,
with the main objective of adjusting its overall capacity to
prevailing market conditions in the Latin American market.
Within this context, in March 2016, the Company managed
a US$ 2.9 billion drop in its fleet commitments for the pe-
riod 2016-18; which represents a 37% drop in this respect
during the last year.
The Brazil MRO, which includes its own engineering and
support capabilities and a full technical training center, is
indeed prepared to look after up to eight aircraft simulta-
neously, with a specially-dedicated extraction and painting
hangar. This facility is also equipped with 22 technical com-
ponent shops, including a full repair shop to check landing
systems, hydraulic, electronic and pneumatic equipment,
electroplating, composite materials, wheels and brakes, in-
teriors and emergency equipment. Moreover, it has its own
exclusive 1,720-meter runway.
During 2016, the Company made significant progress in its
plan to reduce total fleet assets and fleet commitments,
reaching the lowest fleet commitment levels in the recent
history of LATAM for 2017 and 2018. LATAM reduced its
fleet commitments through deferrals and cancellations,
and it will also reduce existing fleet assets by returning ad-
ditional aircraft as compared to the previous year fleet plan.
With this, the Company will have reached US$2.2 billion re-
duction in fleet assets for 2016–2018, in line with our pre-
viously announced plans to achieve a decrease of US$2.0 to
US$3.0 billion in our expected fleet assets by 2018.
The Santiago MRO, located in the vicinity of the Como-
doro Arturo Benítez International Airport, is equipped with
two hangars capable of simultaneously servicing one wide-
body and two narrow-body aircraft. It is also equipped with
eight workshops ready to provide support to the hangars,
with the cabins, galleys, composite structures and materi-
als, and also to adapt aircraft interiors, including IFE (In-
flight entertainment) systems and winglets.
On the other hand, our line maintenance network provides
a range of full maintenance services to aircraft in order to
18
OUR COMPANY | Fleet
ensure that the fleet is always operating safely and ac-
cording to all local and international regulations.
As of December 31, 2016
Off-Balance On-Balance Total
LATAM strives to provide the best experience to its pas-
sengers with the highest standards in terms of on-time-
performance and cabin image.
In 2016, our line maintenance network effectively used
more than 2.1 million man-hours in both preventive as well
as corrective tasks to LATAM’s fleet. The Company also re-
sorts to certified third-party services that are economi-
cally convenient; such as in Frankfurt, where its aircraft is
looked after by Lufthansa Technik; in Milan, by Air France-
KLM; and in Johannesburg, by South African Airways.
It is worth highlighting that ever since the year 2010, LA-
TAM’s maintenance has transformed production and sup-
port processes by means of the LEAN Methodology, which
has translated into an automation and integration of pro-
cesses, improving both the levels of productivity of the
technical teams as well as response times when confront-
ing contingencies, in addition to simplifying and strengthen-
ing the maintenance processes, making them more scalable
and visible to the entire organization.
Along with the development of these data-processing
systems, in 2016 we handed out 300 iPads to the Brazil
maintenance network, in addition to the other 300 iPads
delivered to the Spanish-speaking countries during 2015,
in order to improve maintenance connectivity in the field.
The Company also has its own hangar (built in 2015) at
the Miami International Airport. This city represents a
strategic geographical advantage in order to secure sup-
plies and services, as well as to gain access to a broader
range of suppliers to cover more complex maintenance
tasks. The hangar and the surrounding structures com-
prise an area of over 66,000 square feet and involved a
US$ 15 million investment.
Passenger Aircraft
Airbus A319-100
Airbus A320-200
Airbus A320- Neo
Airbus A321-200
Airbus A330-200
Airbus A350-900
Boeing 767-300
Boeing 777-300 ER
Boeing 787-8
Boeing 787-9
TOTAL
Cargo Aircraft
Boeing 777-200F
Boeing 767-300F
TOTAL
12
53
1
17
-
2
3
6
4
8
36
93
1
30
-
5
34
4
6
4
48
146
2
47
-
7
37
10
10
12
106
213
319
2
3
5
-
8
8
2
11
13
TOTAL FLEET
111
221
332
Note: This table includes three B767-300F that Latam is
currently leasing to a third party, does not include two B777-
200F (one currently leasing to a third party), three A330 and one
A320 that were reclassified from property plant and equipment
to held for sale.
19
OUR COMPANY | Fleet
AIRBUS A350
BOEING 787
NARROW BODY
AIRBUS A319-100
Length 33.8 mts
Width 34.1 mts
Seats 144
Cruising Speed 830 km/h
Maximum weight at taken-off 70,000 kg
WIDE BODY
AIRBUS A321-200
Length 44.5 mts
Width 34.1 mts
Seats 220
Cruising Speed 830 km/h
Maximum weight at taken-off 89,000 kg
BOEING 777-300 ER
Length 73.9 mts
Width 64.8 mts
Seats 379
Cruising Speed 894 km/h
Maximum weight at taken-off 346,500 kg
AIRBUS A320-200
Length 37.6 mts
Width 34.1 mts
Seats 156-168–174
Cruising Speed 830 km/h
Maximum weight at taken-off 77,000 kg
AIRBUS A350-900
Length 66.8 mts
Width 64.8 mts
Seats 348
Cruising Speed 903 km/h
Maximum weight at taken-off 186,880 kg
AIRBUS A320-200 neo
Length 37,6 mts
Width 34,1 mts
Seats 174
Cruising Speed 830 Km/hr
Maximum weight at taken-off 77,000 kg
BOEING 767-300
Length 54.9 mts
Width 47.6 mts
Seats 221 – 238
Cruising Speed 851 km/h
Maximum weight at taken-off 186,880 kg
BOEING 787-8
Length 56.7 mts
Width 60.2 mts
Seats 247
Cruising Speed 903 km/h
Maximum weight at taken-off 227,900 kg
BOEING 787-9
Length 62.8 mts
Width 60.2 mts
Seats 313
Cruising Speed 903 km/hr
Maximum weight at taken-off 252,650 kg
FREIGHTER
BOEING 777-200F
Length 63.7 mts
Width 64.8 mts
Cargo Volume 652.7 m3
Cruising Speed 894 km/h
Maximum weight at taken-off 347,450 kg
BOEING 767-300F
Length 54.9 mts
Width 47.6 mts
Cargo Volume 445,3 m3
Cruising Speed 851 km/h
Maximum weight at taken-off 186,880 kg
20
INTERNATIONAL
27 DESTINATIONS
Build and ensure the best network in South
America and its connection with the World
OUR COMPANY | Destinations
21
21
ARGENTINA
ARGENTINA
15 DESTINATIONS
OUR COMPANY | Destinations
22
22
BRASIL
41 DESTINATIONS
OUR COMPANY | Destinations
23
23
CHILE
16 DESTINATIONS
+ ISLA DE PASCUA
OUR COMPANY | Destinations
24
24
COLOMBIA
14 DESTINATIONS
OUR COMPANY | Destinations
25
25
ECUADOR
5 DESTINATIONS
OUR COMPANY | Destinations
26
26
PERU
17 DESTINATIONS
OUR COMPANY | Destinations
27
27
CODESHARES
OUR COMPANY | Destinations
84
NORTH AMERICA
DESTINATIONS
46
EUROPE
DESTINATIONS
9
ASIA
DESTINATIONS
4
AFRICA
DESTINATIONS
22
AUSTRALASIA
DESTINATIONS
28
28
CARGO
11 DESTINATIONS*
OUR COMPANY | Destinations
*Cargo exclusive
29
29
OUR COMPANY | Our People
Generating a connection with our customers to
create a distinctive experience
The LATAM group is an airline that stands out because of
the multiculturalism of its teams. This is keenly reflected in
the diversity of nationalities -more than 60- of its person-
nel and staff; which, by the end of the year totaled 45,916
persons distributed throughout 25 different countries.
As of December 2016, the company had some 9 thousand
persons working under the Twist model; including all em-
ployees working at contact centers, airport hubs, half of
Brazil’s airports, major non-hub airports, and Chile’s Wide
Body fleet cabin crews.
During 2015 we began to execute the so-called Twist Project
at airports, contact centers and on-board services. We con-
tinued to pursue this initiative during 2016 and it became
the most relevant initiative in the area of persons, since it
involves a new way of conceiving the delivery of services.
The main objective of this initiative is to generate an
emotional connection between company employees
and customers and, consequently, to achieve a greater
passenger loyalty. This objective will be achieved upon
adapting the work of our human teams to the evolution
of the industry, to the empowering clients and to the size
now reached by the LATAM Group, granting them with a
greater degree of autonomy to respond to our custom-
ers’ diverse needs in the different places where we op-
erate and with the capacity of providing flexible service
responses to these realities.
For example, at the Brasilia airport, 50% of the people us-
ing this airport are there flying for the first time; while only
5% of those using Sao Paulo’s Guarulhos Airport are in that
situation. This suggests that the way to inform and serve
our customers in either one of these airports should be
different in order to be successful. Consequently, our lo-
cal teams must be empowered and trained to respond to
customers in a customized way.
We still have more than 50% of our customer-contact per-
sonnel to be trained by Twist. This poses an additional chal-
lenge to our company in order to change our way of work-
ing by applying a model with proven results. LATAM now
needs to adopt Twist fully in order to be among the world’s
top airlines in the coming years
On the other hand, during 2016 we trained 3,705 workers
in homologating frequent flyer plans; they were joined by
other 1,208 persons working in CTOs, call centers and air-
ports in our “Favorite seat” Program (prioritizing the sale of
seats; i.e. those with more leg space and located toward
the front part of the cabin), and other 2,864 persons on
indirect sales, CUS, CTOs, call centers and airports in sim-
plifying and automating re-emission processes.
Additionally, the company closed the year with more than
1,000 persons trained for on-board sales on domestic
flights in Chile, Colombia, Argentina and Peru.
In the Support Area, we developed a “Management of emo-
tions” course aimed at those who work in direct contact
with clients, providing them with tools for handling their
own emotions and teaching them to apply such strategies
in their handling of passenger emotions. This project was
executed through 2016 in training over 90% of our staff at
airports and LATAM channels.
Through our Twist Program we teach and train our leaders
how to get organized, motivate their teams and interact with
our customers toward building a new relationship with each
of them and enabling them to attain their own preferences.
Concurrently, we introduced a Child Tracker System at air-
ports, aimed at enabling parents to monitor their non-ac-
companied traveling minors, permitting them to know their
30
location and thus “accompany” them throughout the trip.
Toward these purposes we trained 2,200 passenger service
agents in Argentina, Chile, Peru and Colombia.
With respect to our Emergency Response Plan, the re-
spective company department trained 2,391 persons in
11 subsidiaries (Chile, Brazil, Argentina, Peru, Colombia,
Ecuador, United States, Paraguay, Spain, Mexico and the
LATAM Office in Brazil) in how to respond in the event of
a plane crash. In such case, the respective teams simulate
an aircraft crash situation and must apply the procedures
of the Emergency Response Plan in order to determine
its effectiveness, level of coordination, eventual gaps and
introduce the necessary corrections.
On the other hand, during 2016 the company worked on
the collaborative construction of a Leadership Model that
would reflect the major challenges that confront all those
who lead person teams. Participatory workshops were held
with leaders at all levels and with the information thus
obtained we designed a LATAM leadership model aimed
at aligning, directing and making transparent what the
organization needs and expects from each of its leaders.
Among the practices suggested by this leadership model
is the Barometer, which seeks to promote conversations
and personal closeness between leaders and their team,
supported by a survey.
Moreover, during 2016 we offered 34 assertive Communi-
cation Workshops among LATAM Group executives. These
workshops were imparted to 362 company executives, in
pairs of executives especially prepared to play this role.
OUR COMPANY | Our People
Finally, in order to acknowledge those who best represent
LATAM’s guidelines of conduct (Safety, Attentiveness and
Efficiency), during 2016 we launched the LATAM Apprecia-
tion Platform, whereby persons who are part of the com-
pany can acknowledge the merits of a partner and at the
same time be acknowledged by others, regardless of the
type of job performed or the country of location, in an
attempt to have a cross-sectional acknowledgement of
all those persons who represent LATAM’s spirit of service.
31
GENERAL
1) Total Employees / Nationality / Country
Total Employees
Total Nationalities
Total Country
45916
64
25
OUR COMPANY | Our People
3.
2.
4. Proportion of Gross Salary by gender
Executive level
Medium level
General role
1.37 times
1.10 times
0.98 times
32
DIVERSITY OF THE ORGANIZATION
OUR COMPANY | Our People
5.
6.
33
OUR COMPANY | Our People
DIVERSITY OF THE MANAGEMENT
7. By country and gender
9. By years in the Company
Years in LATAM
People
Up to 3 years
From 4 to 6 years
From 7 to 9 years
From 10 to 12 years
More than 12 years
235
274
214
175
309
%
19%
23%
18%
14%
26%
Total
1207
100%
Country
Argentina
Brazil
Chile
Colombia
Ecuador
Peru
USA
Others
Total
8. By age
Age
Up to 30 years
From 31 to 40 years
From 41 to 50 years
From 51 to 60 years
From 61 to 70 years
10
131
153
10
7
11
13
14
28
267
407
24
13
29
53
37
Total
38
398
560
34
20
40
66
51
349
858
1.207
People
79
643
331
133
21
%
7%
53%
27%
11%
2%
Total
1207
100%
34
OUR COMPANY | Our People
DIVERSITY OF BOARD OF DIRECTORS
10. By country and gender
12. By years in the Company
Country
Chile
Brazil
Spain
United Kingdom
Total
-
-
-
-
0
Total
5
2
1
1
9
5
2
1
1
9
Years in LATAM
N° Directors
Up to 3 years
From 4 to 6 years
From 7 to 9 years
From 10 to 12 years
More than 12 years
Total
2
5
-
-
2
9
%
22%
56%
0%
0%
22%
100%
11. By age
Age
Up to 30 years
From 31 to 40 years
From 41 to 50 years
From 51 to 60 years
From 61 to 70 years
More than 70 years
Total
N° Directors
-
1
1
3
3
1
9
%
0%
11%
11%
33%
33%
11%
100%
35
OUR COMPANY | Company Information
LATAM AIRLINES GROUP S.A.
Chilean Tax N° (RUT): 89.862.200-2
Residence: Santiago
Fantasy names: “LATAM Airlines”, “LATAM Airlines Group”,
“LATAM Group”, “LAN Airlines”, “LAN Group” y/o “LAN”.
with the Superintendencia de Valores y Seguros (SVS),
Chile’s stock market regulator, under Inscription N° 0306
of 22 January 1987.
The corporate purpose is: a) The commerce of air and /
or land transport in any of its forms, whether of passen-
gers, cargo, mail and everything that has direct or indirect
relation with said activity, inside and outside the coun-
try, for own account or others; b) The provision of services
related to the maintenance and repair of aircraft, own or
third parties; c) The development and exploitation of oth-
er activities derived from the corporate purpose and / or
related, related, auxiliary or complementary to it; d) The
commerce and development of activities related to travel,
tourism and hotels; and e) Participation in societies of any
type or kind that allow society to fulfill its purposes.
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 Santia-
go Business Register and published in the Official Gazette
of 31 December 1983.
By public deed of 20 August 1985, extended by Public No-
tary Miguel Garay Figueroa, the company became a joint
stock company under the name of Línea Aérea Nacional
de Chile S.A. (now LATAM Airlines Group S.A.). As regards
aeronautical and radio communication concessions, traffic
rights and other administrative concessions, this company
was expressly designated by Law N°18.400 as the legal
continuation of the state company created in 1929 under
the name of Línea Aérea Nacional de Chile.
The Extraordinary Shareholders’ Meeting of LAN Chile S.A.
held on 23 July 2004 agreed to change the company’s
name to “LAN Airlines S.A.” and the Extraordinary Share-
holders’ Meeting of LAN Airlines S.A. held on 21 December
2011 agreed to change the company’s name to “LATAM
Airlines Group S.A.”, current corporate name of the Com-
pany. An extract of the public deed corresponding to the
Meeting’s minutes was recorded on the Business Register
of the Real Estate Registry Office at Folio 4,238 Nº 2,921
of 2012 and was published in the Official Gazette of 14
January 2012. The change of name came into force on 22
June 2012.
LATAM Airlines Group S.A. is subject to the regulation ap-
plicable to listed joint stock companies and is registered
36
OUR COMPANY | Company Information
CORPORATE HEADQUARTERS
Avenida Presidente Riesco 5711, Piso 19
Las Condes, Santiago, Chile
Tel: (56) (2) 2565 2525
MAINTENANCE CENTER
Aeropuerto Arturo Merino Benítez
Santiago, Chile
Tel: (56) (2) 2565 2525
TICKER SYMBOL
LAN- Santiago Stock Exchange
LFL- New York Stock Exchange
FINANCIAL INFORMATION
Investor Relations
LATAM Airlines Group S.A.
Avenida Presidente Riesco 5711, 20th Floor
Las Condes, Santiago, Chile
Tel: (56) (2) 2565 3944
Email: InvestorRelations@latam.com
SHAREHOLDER INQUIRIES
Depósito Central de Valores
Huérfanos 770, Piso 22
Santiago, Chile
Tel: (56) (2) 2393 9003
Email: atencionaccionistas@dcv.cl
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 (651) 453-2128
Tel: Global Invest Direct (800) 428-4237
Email: jpmorgan.adr@wellsfargo.com
CUSTODIAN BANK ADRS
Banco Santander Chile
Bandera 140, Santiago
Custody Department
Tel: (56) (2) 2320 3320
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.latam.com
37
SIG030
CORPORATE GOVERNANCE
38
BOARD OF DIRECTORS
At the Ordinary
Shareholders’
Meeting of 2017, the
Company’s board
of directors will be
completely renewed
The Board of Directors was elected during the
Shareholder’s Meeting on April 28, 2015 for a period
of two years.
CORPORATE GOVERNANCE | Board of Directors
Mauricio Rolim Amaro
Chairman of the Board
RUT: 48.143.165-4
Mr. Mauricio Rolim Amaro, has served as member of LA-
TAM Airlines Group’s board of directors since June 2012.
He was reelected to the board of directors of LATAM in
April 2015 and has served as Chairman since September
2012. Mr. Amaro has previously held various positions in
the TAM Group and served as a professional pilot at TAM
Linhas Aéreas S.A. and TAM Aviação Executiva S.A. Mr.
Amaro has been a member of the Board of TAM S.A. since
2004, and vice-chairman of the Board since April 2007.
He is also an executive officer at TAM Empreendimentos
e Participações S.A. and chairman of the boards of Mul-
tiplus S.A. (subsidiary of TAM S.A.) and of TAM Aviação
Executiva e Taxi Aéreo S.A.
39
CORPORATE GOVERNANCE | Board of Directors
Henri Philippe Reichstul
Director
RUT: 48.175.668-5
Juan José Cueto Plaza
Director
RUT: 6.694.240-6
Georges de Bourguignon
Director
RUT: 7.269.147-4
Mr. Henri Philippe Reichstul, joined LATAM’s board of directors
in April 2014. Mr. Reichstul has served as President of Petro-
bras and the IPEA-Institute for Economic and Social Planning
and Executive Vice President of Banco Inter American Express
S.A. Currently, in addition to his roles as Administrative Board
member of TAM and LATAM Group, he is also a member of
the Board of Directors of Repsol YPF, Peugeot Citroen, AES
Brasil, and SEMCO Partners, among others. Mr. Reichstul is an
economist with an undergraduate degree from the Faculty of
Economics and Administration, University of São Paulo, and
postgraduate work degrees in the same discipline—Hertford
College—Oxford University.
Mr. Juan José Cueto Plaza, has served on LAN’s board of direc-
tors since 1994 and was reelected to the board of directors of
LATAM in April 2015. Mr. Cueto currently serves as Executive
Vice President of Inversiones Costa Verde S.A., a position he
has held since 1990, and serves on the boards of directors
of Consorcio Maderero S.A., Inversiones del Buen Retiro S.A.,
Costa Verde Aeronáutica S.A., Sinergia Inmobiliaria S.A., Valle
Escondido S.A., Fundación Colunga and Universidad San Se-
bastián. Mr. Cueto is the brother of Messrs. Enrique and Igna-
cio Cueto Plaza, LATAM Airlines Group Executive Vice-Presi-
dent and LAN CEO, respectively. Mr. Cueto is a member of the
Cueto Group (LATAM Airlines Group’s Controlling Shareholder).
Mr. Georges de Bourguignon, has served on LATAM Airlines
Group’s board of directors since September 2012 and was re-
elected to the board of directors of LATAM in April 2015. Mr.
de Bourguignon has been a partner and executive director of
Asset Chile S.A., a Chilean investment bank, since 1993. He
is currently member of the board of directors K+S Chile S.A.
and Embotelladora Andina S.A. In the past he has served in
several other boards of public and private companies, as well
as of boards of non profit organizations. Between 1990 and
1993, 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.
40
CORPORATE GOVERNANCE | Board of Directors
Ramón Eblen Kadis
Vice-president of the Board
RUT: 4.346.062-5
Carlos Heller Solar
Director
RUT: 8.717.000-4
Gerardo Jofré Miranda
Director
RUT: 5.672.444-3
Mr. Ramón Eblen Kadis, has served on LAN’s board of directors
since June 1994 and was reelected to the board of directors
of LATAM in April 2015. Mr. Eblen has served as President of
Comercial Los Lagos Ltda., Inversiones Santa Blanca S.A., In-
versiones Andes SpA, Granja Marina Tornagaleones S.A. and
TJC Chile S.A. Mr. Eblen is a member of the Eblen Group (a
major shareholder of LATAM Airlines Group).
Mr. Carlos Heller Solari, joined the board of LAN in May 2010
and was re-elected to the Board of Directors of LATAM in April
2015. Mr. Heller has vast experience in retail, communications,
transport and agriculture industries. Mr. Heller is president of
Bethia S.A. (“Bethia”) (parent company of Axxion S.A. and In-
versiones HS SpA). He is also President of the Boards of Fa-
labella Retail S.A., Red Televisiva Megavision S.A., Club Hípico
de Santiago S.A., Sotraser S.A., Blue Express S.A., Aero Andi-
na S.A. and “Azul Azul S.A.” concessionaire of the Corporación
de Fútbol Profesional de la Universidad de Chile. He is also a
member of the Board of Directors of S.A.C.I Falabella, Viña
Indómita S.A., Viña Santa Alicia S.A. and Viña Dos Andes S.A.
Mr. Heller is a member of the Bethia Group (a major sharehol-
der of LATAM Airlines Group).
Mr. Gerardo Jofré Miranda, joined LATAM Airlines’ Board of direc-
tors on May 2010 and was reelected to the board of directors
of LATAM in April 2015. Mr. Jofré is member of the board of
directors of Codelco, Enel Chile and member of the Real Estate
Investment Council of Santander Real Estate Funds. From 2010
to 2014 he served as president of the board of directors of Co-
delco. From 2005 to 2010 he served as member of the boards
of directors of Endesa Chile S.A., Viña San Pedro Tarapacá S.A.,
D&S S.A., Inmobiliaria Titanium S.A. Construmart S.A., Inmobi-
liaria Playa Amarilla S.A. and Inmobiliaria Parque del Sendero
S.A. and was President of Saber Más Foundation. Mr. Jofré was
Director of Insurance for America for Santander Group of Spain
between the years 2004 and 2005. From 1989 to 2004 he ser-
ved on Santander Group in Chile, as Vice Chairman of the Group
and as CEO, member of the boards of directors and Chairman
of many of the Group’s companies.
41
CORPORATE GOVERNANCE | Board of Directors
Giles Agutter
Director
Foreign
Francisco Luzón López
Director
RUT: 48.171.119-3
Mr. Giles Agutter is the owner and Chief Executive Officer of
Southern Sky Ltd, an airline consultant company specializing
in airline strategy, fleet planning, aircraft acquisition and air-
craft financing. Mr. Agutter has had vast experience in advising
airlines, including Qatar Airways, on significant Merger and Ac-
quisition projects within the airline industry. Mr Agutter has a
degree in Aerospace Engineering from Manchester University
and he currently resides in England.
Mr. Francisco Luzón López, has served on LATAM Airlines Group’s
board of directors since September 2012 and was reelected to
the board of directors of LATAM in April 2015. He has ser-
ved as a consultant of the Inter-American Development Bank
(BID) and he has been Teacher “Visiting Leader” of the School
of Business China-Europe (“CEIBS”) in Shanghai (2012-2013).
He is currently a member of the board of La Haya Real Es-
tate and served as Independent Director at Willis Group be-
tween June 2013 and January 2016. Between 1999 and 2012,
Mr. Luzon served as Executive Vice President for Latin Ameri-
ca of Banco Santander. In this period, he was also Worldwide
Vice President of Universia S.A. Between 1991 and 1996 he
was Chairman and CEO of Argentaria Bank Group. Previously,
in 1987, he was appointed Director and General Manager of
Banco de Vizcaya and in 1988, 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 Indi-
tex-Zara from 1997 until 2012.
42
CORPORATE GOVERNANCE | Senior Management
SENIOR MANAGEMENT
Our experience
makes us unique
Enrique Cueto Plaza
CEO LATAM Airlines Group
RUT: 6.694.239-2
Mr. Enrique Cueto Plaza, is LATAM Airlines Group’s Chief Executive
Officer (“CEO”) and has been in this position since the combina-
tion between LAN and TAM in June 2012. From 1983 to 1993,
Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Car-
go airline. From 1993 to 1994, Mr Cueto was a member of the
board of LAN Airlines. Thereafter, Mr. Cueto held the position of
CEO of LAN until June 2012. Mr. Cueto has in-depth knowledge
of passenger and cargo airline management, both in commercial
and operational aspects, gained during his 30 years in the airline
industry. Mr. Cueto is an active member of the oneworld® Alliance
Governing Board, the IATA (International Air Transport Association)
Board of Governors. He is also member of the Board of the En-
deavor foundation, an organization dedicated to the promotion of
entrepreneurship in Chile, and president of the Latin American and
Caribbean Air Transport Association (ALTA).
43
CORPORATE GOVERNANCE | Senior Management
Ignacio Cueto Plaza
CEO LAN
RUT: 7.040.324-2
Armando Valdivieso
Senior Commercial Vice President of LATAM
RUT: 8.321.934-3
Claudia Sender
CEO TAM President
Foreign
Mr. Ignacio Cueto Plaza, is LAN’s CEO. His career in the airline
industry extends over 30 years. In 1985, Mr. Cueto assumed the
position of Vice President of Sales at Fast Air Carrier, the biggest
national cargo company of that time. In 1985, Mr. Cueto as-
sumed as Service Manager and Commercial Manager for the Mi-
ami sales office. Mr. Cueto later served on the board of directors
of Ladeco (from 1994 to 1997) and LAN (from 1995 to 1997).
Mr. Cueto served as President of LAN Cargo from 1995 to 1998,
as Chief Executive Officer-Passenger Business from 1999 to
2005, and as President and Chief Operating Officer of LAN since
2005 until the combination with TAM in 2012. Mr. Cueto also led
the establishment of the different affiliates that the Company
has in South America, as well as the implementation of key al-
liances with other airlines. Mr. Cueto is expected to leave the
Company’s senior management team in mid-April 2017 and is
applying to become a member of LATAM’s board of directors.
Mr. Armando Valdivieso Montes, is Senior Commercial Vice
President of LATAM since 2015. After the combination be-
tween LAN and TAM in 2012, Mr. Valdivieso served as Gen-
eral Manager of LAN, and from 2006 until 2012 he served as
the General Manager-Passenger. Between 1997 and 2005
he served as Chief Executive Officer-Cargo Business of LAN.
From 1995 to 1997, Mr. Valdivieso was President of Fast Air,
and from 1991 to 1994, Mr. Valdivieso served as Vice Presi-
dent, North America of Fast Air Miami. Mr. Valdivieso is a civil
engineer and obtained an AMP (Advance Managements Pro-
gram) from Harvard Business School. Mr. Valdivieso will leave
the Company during August 2017 as was announced by the
Company on March 16, 2017.
Mrs. Claudia Sender Ramirez, has served as TAM Airlines’ Presi-
dent since May 2013. Mrs. Sender joined the company in De-
cember 2011, as Commercial and Marketing Vice-President.
After June 2012, with the conclusion of TAM-LAN combina-
tion and the creation of LATAM Airlines Group, she became the
head of Brazil Domestic Business Unit, and her functions were
expanded in order to include TAM’s entire Customer Service
structure. Mrs. Prior to joining LATAM Airlines, she was Market-
ing Vice-President at Whirlpool Latin America for seven years.
She also worked as a consultant at Bain & Company, develop-
ing projects for large companies in various industries, including
TAM Airlines and other players of the global aviation sector.
She has a bachelor’s degree in Chemical Engineering from the
Polytechnic School at the University of São Paulo (“USP”) and
a MBA from Harvard Business School.
44
CORPORATE GOVERNANCE | Senior Management
Ramiro Alfonsín
Chief Financial Officer
Rut: 22.357.225-1
Juan Carlos Menció
Senior Vice President of Legal Affairs
RUT: 24.725.433-1
Emilio del Real
Senior Vice President of Human Resources
RUT: 9.908.112-0
Mr. Ramiro Alfonsín, is LATAM’s Chief Financial Officer (“CFO”), a
position he holds since July 2016. Over the past 16 years, before
joining LATAM, he worked for Endesa, a leading utility company,
in Spain, Italy and Chile, having served as Deputy Chief Execu-
tive Officer and Chief Financial Officer for their Latin American
operations. Before joining the utility sector, he worked for 5
years in Corporate and Investment Banking in large European
banks. Mr. Alfonsín holds a degree in business administration
from Pontificia Universidad Católica de Argentina.
Mr. Juan Carlos Mencio is Senior Vice President of Legal Affairs
and Compliance for LATAM Airlines Group since September 1,
2014. Mr. Mencio had previously held the position of General
Counsel for North America for LATAM Airlines Group and its
related companies, as well as General Counsel for its world-
wide Cargo Operations, both since 1998. Prior to joining LAN,
he was in private practice in New York and Florida representing
various international airlines. Mr. Mencio obtained his Bach-
elor’s Degree in International Finance and Marketing from the
School of Business at the University of Miami and his Juris
Doctor Degree from Loyola University.
Mr. Emilio del Real Sota, is LATAM’s HR Executive Vice-Presi-
dent, a position he assumed (with LAN) in August 2005. Be-
tween 2003 and 2005, Mr. del Real was the Human Resource
Manager of D&S, a Chilean retail company. Between 1997 and
2003 Mr. del Real served in various positions in Unilever, in-
cluding Human Resource Manager for Chile, and Training and
Recruitment Manager and Management Development Man-
ager for Latin America. Mr. del Real has a Psychology degree
from Universidad Gabriela Mistral.
45
CORPORATE GOVERNANCE | Year 2016
Board Members’ Compensation
2016
Board
members
Position
Board member’s Board member’s
allowance
(US$)
Committee
allowance (US$)
Subcommittee
allowance
(US$)
Total
(US$)
Mauricio Amaro
President
25,029
Francisco Luzón López
Board member
2,470
Juan José Cueto Plaza
Board member
Ramón Eblen Kadis
Board member
Juan Gerardo Jofré Miranda Board member
Carlos Heller Solari
Board member
Georges Antoine de
Bourguignon Arndt
Board member
19,071
19,071
19,071
15,576
19,071
Ricardo J. Caballero
Board member
6,212
Henri Philippe Reichstul Board member
13,774
-
-
-
25,555
25,555
-
25,555
-
-
1,992
-
13,879
12,497
12,497
-
12,489
2,976
10,024
27,021
2,470
32,950
57,123
57,123
15,576
57,115
9,188
23,798
2015
Board
members
Position
Board member’s Board member’s
allowance
(US$)
Committee
allowance (US$)
Subcommittee
allowance
(US$)
Total
(US$)
Mauricio Amaro
President
Francisco Luzón López
Board member
Juan José Cueto Plaza
Board member
Ramón Eblen Kadis
Board member
Juan Gerardo Jofré Miranda Board member
Carlos Heller Solari
Board member
Georges Antoine de
Bourguignon Arndt
Board member
Ricardo J. Caballero
Board member
Henri Philippe Reichstul Board member
38,315
15,333
21,106
21,106
21,106
15,349
21,106
15,360
21,106
-
-
-
23,150
28,282
-
28,282
-
-
9,224
10,735
13,839
12,261
15,344
1,527
12,252
9,233
10,804
47,539
26,068
34,945
56,517
64,732
16,876
61,640
24,593
31,910
t should be noted that the compensations thus report-
ed correspond to allowances for monthly attendance to
Board of Directors’ Meetings and Directors’ Committee
Meetings pursuant to the resolution approved by the Ordi-
nary Shareholders Meeting of April 28, 2015.
During the year 2016, neither the Board of Directors nor
the Directors’ Committee incurred in any additional con-
sulting service costs.
46
CORPORATE GOVERNANCE | Year 2016
Organizational chart
During 2017, the Company will implement a new organiza-
tional structure focused on four basic areas –Clients, Rev-
enue, Operations and Fleet, and Finance– which will be the
pillars of the Company’s business strategy and will report
directly to the CEO LATAM. The new structure will be sim-
pler, more efficient and more functional, and will enable the
Company to face an increasingly competitive environment.
With this reorganization that will focus on functions instead
of business units, the Company expects to optimize its in-
ternal synergies and strengthen its structure.
The Clients area will be initially led by Claudia Sender. This
area will focus on providing the client with a complete expe-
rience. The Revenues area, focused on maximizing revenues
for the Company, will be initially led by Roberto Alvo Mi-
losawlewitsch, who will be LATAM’s Chief Commercial Of-
ficer. The Operations and Fleet area will be initially led by
Hernan Pasman, who will be responsible for the Operations
and Fleet Vice-presidency. The Finance area will preserve its
existing organization and structure, and will be led by Ramiro
Alfonsín, the current Chief Financial Officer of the Company
CEO LATAM
LATAM Airlines
Brazil
LATAM Airlines
Argentina
LATAM Airlines
Chile
LATAM Airlines
Colombia
LATAM Airlines
Ecuador
LATAM Airlines
Peru
Customer
Vice-presidency
Operations and Fleet
Vice-presidency
Commercial
Vice-presidency
Finance
Vice-presidency
Legal
Planning
Technology
Safety
Corporate
Affairs
Human
Resources
Board of
Directors
Board of
Committees
Internal
Audit
47
CORPORATE GOVERNANCE | Year 2016
(a.2) 2013 Compensation Plan
At the Extraordinary Shareholders Meeting held on June
11, 2013, the Company’s shareholders approved a ca-
pital increase and the allocation of 1,500,000 shares
to compensation plans for employees of the Company
pursuant to Article 24 of the Chilean Corporations Law.
The Company has not defined a date for implementa-
tion of this compensation plan yet.
(b) The 2016-2018 Compensation Plan
The Company implemented a long-term retention plan
for executives, with an end date of December 2018
and a vesting period between October 2018 and March
2019. The plan contemplates an extraordinary bonus to
be paid in cash, whose calculation formula based on the
variation of the value of the Company’s shares over a
certain period of time.
For more information, please see note 34 Note to our con-
solidated financial statements.
During the year 2016, the LATAM Airlines Group paid to all
its senior executives a total of US$ 40,194,453 and US$
14,980,291 corresponding to performance incentives paid
in March 2017. Consequently, the company paid to its se-
nior executives a total gross remuneration amounting to
US$ 55,174,744.
On the other hand, during the year 2015, the LATAM Air-
lines Group paid to all its senior executives a total of US$
40,404,395, in addition to US$ 13,789,916 corresponding
to performance incentives paid in March 2016. Conse-
quently, the company paid to its senior executives a total
gross remuneration amounting to US$ 54,194,311.
Compensation plans
(a) Capital increase Compensation Plans
(a.1) 2011 Compensation Plan
On December 21, 2016, the subscription and pay-
ment period of the 4,800,000 shares corresponding to
the compensation plan approved at the Extraordinary
Shareholders Meeting held on December 21, 2011 (the
“2011 Compensation Plan”), expired. Of the total shares
allocated to the 2011 Compensation Plan, only 10,282
shares were subscribed and paid and were placed on
the market in January 2014. At the expiration date, the
2011 Compensation Plan had a balance of 4,789,718
unsubscribed and unpaid shares, which was deducted
from the authorized capital of the Company.
48
CORPORATE GOVERNANCE | Practices
Corporate Governance Practices
LATAM Airlines Group S.A. is a listed joint stock company
registered with the Superintendencia de Valores y Segu-
ros (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)
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 (“LSA”), including their as-
sociated norms, as well as other norms issued by the SVS,
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.
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 activi-
ties are underpinned by the ethical principles established
in LATAM’s Code of Conduct.
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, Fi-
nance, Leadership and Product, Brand and Frequent Flyer
Program Committees created after the association be-
tween 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 mem-
bers 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 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 28th, 2015.
LATAM Airlines Group’s Board holds ordinary monthly
meetings and extraordinary meetings whenever the Com-
pany’s affairs so require. Directors’ fees must be approved
by vote at the Ordinary Shareholders’ Meeting. The Direc-
tors’ Committee usually meets monthly and its functions
and powers are those established by the applicable legis-
lation and regulation.
DIRECTORS’ COMMITTEE OF LATAM AIRLINES GROUP
Under Chilean law, listed joint stock companies must ap-
point 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 ful-
fills 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 corre-
sponding SEC norms.
49
CORPORATE GOVERNANCE | Practices
The Directors’ and Audit Committee has the functions es-
tablished in Article 50 bis of Chile’s Corporations Law and
the other applicable regulation. These include:
► To examine the reports of LATAM Airlines Group’s exter-
nal 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 com-
plaints.
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 inde-
pendent director. Committee members have not changed
in the last two years.
DIRECTORS’ COMMITTEE ANNUAL REPORT
In accordance with article 5°, subsection 8° of article 50
bis under the Corporations Law No. 18,046, the Directors’
Committee of LATAM Airlines Group S.A. issues the annual
management for 2016.
► To examine and report on all matters regarding rela-
I. Integration of the Directors’ Committee and Sessions
ted-party transactions.
► To examine the pay scale of LATAM’s senior manage-
ment.
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 be-
tween directors and LATAM’s controlling shareholders.
A director is considered independent when he or she does
not, in general, have ties, interests or economic, profession-
al, 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 ex-
ecutives 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 Com-
mittee, comprising at least three Board members, that ful-
fills the independence requirements established under Rule
10A of the Exchange Act.
The members of the Directors’ Committee of the Company
are Messrs. Gerardo Jofré Miranda, Georges de Bourguignon
Arndt and Ramón Eblen Kadis. Messrs. Jofré and De Bourgui-
gnon are considered independent directors of the Company.
Gerardo Jofré Miranda chairs the Directors’ Committee.
The directors were appointed in the Ordinary Shareholders’
Meeting held on April 28, 2015, for a two-year period pursu-
ant the bylaws of the Company.
II. Report of the Committee’s Activities.
During 2016, the Directors’ Committee held twenty-one
sessions, in order to exercise its functions and fulfill its ob-
ligations pursuant to article 50 Bis under the Corporations
Law No. 18,046, and also to undertake those other issues
that the Directors’ Committee decided to review, revise or
evaluate. Please find below the main topics covered.
Test and Review of the Balance Sheet and Financial
Statements
As of 31 December 2016, all the members of the Direc-
tors’ Committee, who also act as part of the Audit Com-
mittee, were independent directors as defined under Rule
10A of the Exchange Act. At that date, its members were
The Directors’ Committee tested and reviewed the financial
statements of the Company as of December 31, 2015, as
well as the quarterly statements as of March 31, June 30
50
CORPORATE GOVERNANCE | Practices
deterioration. This new methodological tool makes it possible
to determine the need to perform in depth the proof of im-
pairment of certain assets of the cash generating units.
Systems of Compensation for Executives and Employees
completed by the Company’s directors and executives. Ad-
ditionally, the transactions that pursuant to the legal and
accounting regulation applicable to the Company were re-
viewed, which are considered operations with related parties,
and was approved by the Committee.
and September 30 of 2016, understanding the tests of the
respective reports of external auditors of the Company. The
External Auditor of the Company participated in their respec-
tive sessions of the Committee, for the purpose of providing
the opinion related to the audit and to inform the relevant is-
sues of the review, the main aspects of internal control and
communications required by the regulators of External Au-
ditor, and including in every occasion the confirmation of (i)
didn’t experience any difficulties to carry out the audit, (ii)
didn’t have any difference of opinion with the Management,
and (iii) didn’t came up any facts that represented a threat to
its independence.
Likewise, Ernst & Young (EY) in its capacity as external auditor
of TAM S.A. and subsidiaries participated in the session of the
Directors’ Committee held in September 30, 2016, with the
purpose of presenting the main aspects of the external audit
of TAM, the main focuses of its review process and internal
control aspects.
Review of the Cash Generating Units Impairment Reports
In the session held on March 7, 2016, the Directors’ Committee
examined and analyzed the impairment reports of the cash
generating units of the Company for certain assets included
in the Financial Statements as of December 31, 2015, in ac-
cordance with the reports issued by the management of the
Company and by Deloitte, acting as the consulting firm, hired
for the purpose, being present at the session.
In session held on January 25, 2016, the Directors’ Commit-
tee examined the systems of remunerations and compensa-
tion plans for managers, main executives and employees of
the Company. This session examined the current remunera-
tion policies and compensation plans of senior executives
and the functioning of bonuses calculation. At the Directors’
Committee meeting held on September 30, 2016, the ac-
counting treatment of the long-term incentive plan for ex-
ecutives was reviewed.
In session held on November 7, 2016, the Directors’ Com-
mittee reviewed the main topics discussed in the Leader-
ship Committee during the year, which comprise the main
leadership initiatives planned to be developed by the Com-
pany, the “Headcount Challenge” and the new LATAM Orga-
nizational Structure. In compensation matters, short-term
incentive agreements and the long-term bonus program for
executives and the performance evaluation of top execu-
tives were reviewed.
Review of Background Related to Related Party Transac-
tions and Approval of Control Policy for Related Party
Transactions
In session held on August 1, 2016, the Directors’ Committee
examined and analyzed the impairment reports of the cash
generating units of the Company for certain assets included in
the Financial Statements as of June 30, 2016, in accordance
with the reports issued by the management of the Company
and by KPMG, acting as the consulting firm, hired for the pur-
pose, being present at the session.
In session held on July 4, 2016, Comptroller Area of LATAM
presented to the Directors’ Committee a methodology devel-
oped internally to carry out the early evaluation of signs of
In sessions held on June 6, 2016 and June 29, 2016, the Di-
rectors’ Committee reviewed and approved a proposal for
a Control Policy for Related Party Transactions applicable
to LATAM and its subsidiaries, which was recommended to
and approved in the last instance by the Company’s Board
of Directors. This Policy considers the legal and accounting
regulations related to the control and report of operations
with related parties, the general policy of ordinary course of
operations approved by the Board of Directors and informed
by material fact, the controls associated with this type of
transactions and the related information form that must be
Corporate Governance Practices.
In order to comply with General Rule No. 385 of the Super-
intendence of Securities and Insurance (“NCG 385”), in the
sessions held on June 6, 2016, November 10, 2016, January
23, 2017 and March 6, 2017, the Directors’ Committee, ana-
lyzed and examined the corporate governance practices of
LATAM for 2015, according to the questionnaire provided in
Addendum I of General Rule No. 385. In those sessions the
Committee evaluated corporate improvements to corporate
governance practices of the Company, some of which were
recommended to the Board of Directors for their implementa-
tion, such as training of Board members, annual planning and
review of a plan for continuous improvement of the functions
and organization of the Board of Directors, regular meetings
with certain areas of the Company and implementation of
procedures for the hiring of experts who advise the Board on
specific matters.
Contracting of Additional Services from External Auditors
In the session held on April 1, 2016, the Directors’ Committee
examined and evaluated the rules and guidelines for future se-
lections of external audit services, since the tenders that have
been made in the past, such as those carried out in the future,
demonstrate the firm intention of LATAM Airlines Group to en-
sure the independence of its external auditors and the willing-
ness to proceed with its evaluation, change, replacement or
rotation, to the extent deemed necessary for the purpose of
securing an adequate performance over time of external audit
services, without prejudice to the legal regulations in Chile and
abroad that it applies to the Company, approving a Policy for
the Selection of External Audit Services, which was recom-
mended to and approved in the last instance by the Board of
Directors of the Company.
51
CORPORATE GOVERNANCE | Practices
Sustainability Policy
Counseling, Ambassadors Program, Hotline and internal inves-
tigations, risk assessment, certification and training.
5) Extraordinary Session N°44 30/03/2016
• Presentations of proposals for external audit services.
In sessions held on June 6, 2016 and July 4, 2016, the Direc-
tors’ Committee reviewed the Sustainability Policy proposed
by the Management, which was recommended to and ap-
proved by the Board of Directors of the Company. This Policy
includes the objectives of LATAM in this area, the responsibili-
ties assigned within the Administration to meet these objec-
tives and the main guidelines, including international commit-
ments, identification of stakeholders, goals and compliance.
Recommendations of the Directors’ Committee
6) Ordinary Session N°164 01/04/2016
On the other hand, the Directors’ Committee made the rec-
ommendations mentioned below to this annual management
report, with the occasion of the appointment of external audi-
tors of the Company and the private risk rating agencies for
2016.
• Proposition of External Auditors and Private Rating Risk
Agencies for 2016.
• Policy for the selection of External Audit Services of LA-
TAM and Subsidiaries.
• Annual Management Report of the Directors’ Committee.
• Annual Agenda of the Directors’ Committee.
Internal Audit
Activities by Session of the Directors’ Committee Report
7) Ordinary Session N°165 02/05/2016
In ordinary sessions held on May 2, 2016, September 5, 2016
and December 6, 2016, the Directors’ Committee examined
and reviewed the audit and internal control reports issued by
the internal auditor of LATAM. In these sessions the audit work
performed in 2016 was approved, and throughout the year in-
formed of its main results. In session held on June 6, 2016,
the Directors’ Committee reviewed the most relevant internal
audit reports of LATAM Airlines Brazil issued as of April 2016.
Corporate Risk Management
In session held on May 2, 2016, the Directors’ Committee re-
ceived an update on the progress of the corporate risk man-
agement plan in the Company, including the risks detected,
the state of progress of the project in the LATAM Group
countries, advances in the management of the “risk table”
and in subsequent sessions of July 4, 2016 and November 7,
2016, specific risk analyzes were carried out as requested by
the Committee.
Compliance
In ordinary sessions held on January 25, 2016 and August 1,
2016, the Directors’ Committee received training regarding the
Compliance Program currently in force at the Company and its
main contents, among which are the Code of Conduct, Policies
and Procedures, Due Diligence of Third Party Intermediaries
(TPIs), Crime Prevention Handbook, Continuing Compliance
Notwithstanding the above, the Directors’ Committee met and
held sessions in the opportunities mentioned below, where we
present a summary of the matters discussed in each session.
1) Ordinary Session N°162 25/01/2016
• Deferred tax assets in TAM.
• Presentation of the Compliance area.
• Remuneration systems and compensation plan for LATAM
Executives.
• Response letter to the Chilean Superintendency of Securi-
ties (SVS).
2) Ordinary Session N°163 07/03/2016
• Press release on financial results as of December 31, 2015
(“Press Release”).
• Analysis of the “Impairment” test of certain assets in-
cluded in Financial Statements as of December 31, 2015.
• Deferred tax assets in TAM.
• Reports of the Corporate Internal Audit.
• Updating information on Corporate Risk Management.
• Summary of requests made by the Directors’ Committee.
8) Extraordinary Session N°45 de fecha 11/05/2016
• Review of Financial Statements as of March 31, 2016.
• Summary of requests made by the Directors’ Committee.
9) Ordinary Session N°166 06/06/2016
• Review of the status of pending issues requested by the
Committee.
• Presentation of the Internal Audit Reports on LATAM Air-
lines Brazil.
• Analysis of the proposal for presentation to the Board of
Directors of the Corporate Risk Management.
• Analysis of the topics in charge of the Legal department
included in the list of pending issues.
• Summary of requests made by the Directors’ Committee.
• Bidding for external audit services in 2016.
10) Extraordinary Session N°46 29/06/2016
3) Sesión Extraordinaria N°42 15/03/2016
• Analysis of the document required by the general rule
385.
4) Extraordinary Session N°43 21/03/2016
• Review of Financial Statements as of December 31, 2015.
• Analysis of the proposed control policy for transactions
with related parties LATAM.
11) Ordinary Session N°167 04/07/2016
• Analysis of the proposed control policy for transactions
with related parties LATAM.
• Model of early evaluation of signs of deterioration.
• SOX review, plan of the year.
• Corporate risk management, risk analysis Olympic Games.
52
CORPORATE GOVERNANCE | Practices
• Presentation on Sustainability and DJSI (Dow Jones Sus-
tainability Index).
• Summary of requests made by the Directors’ Committee.
12) Ordinary Session N°168 01/08/2016
• Analysis of the “Impairment” test of certain assets in-
cluded in Financial Statements as of June 30, 2016.
• Letter received from the External Auditors.
• Presentation of the Revenue Accounting area.
• Presentation of the Compliance area.
• Summary of requests made by the Directors’ Committee.
13) Extraordinary Session N°47 04/08/2016
• Review of the investigation related to the notification to
TAM Linhas Aéreas S.A. (“TAM”) by the Federal Revenue
Secretariat of Brazil.
14) Extraordinary Session N°48 11/08/2016
• Review of Financial Statements as of June 30, 2016.
• Summary of requests made by the Directors’ Committee.
15) Ordinary Session N°169 05/09/2016
• Internal Audit Plan.
• PwC External Audit Plan year 2016.
• Presentation on one aspect of the agreement with the
SEC / DOJ.
• Summary of requests made by the Directors’ Committee.
16) Ordinary Session N°170 30/09/2016
• Presentation of the firm of auditors EY on the revision of
the Financial Statements of LATAM Airlines Brazil.
• Accounting treatment of the long-term incentive plan for
executives.
• Compliance issues.
• Summary of requests made by the Directors’ Committee.
17) Ordinary Session N°171 07/11/2016
• Tax issues.
• Corporate Risk Management: LATAM Data Centers.
• Compliance issues.
• Leadership Committee.
• Summary of requests made by the Directors’ Committee.
IV.
Recommendations of the Directors’ Committee.
18) Extraordinary Session N°49 10/11/2016
IV.1 Proposal of External Auditors’ Appointment.
• Review of Financial Statements as of September 30,
2016.
• Summary of requests made by the Directors’ Committee.
19) Extraordinary Session N°50 10/11/2016
• Analysis of the Corporate Governance practices of the
Company under the general rule N ° 385.
20) Ordinary Session N°172 06/12/2016
• Internal Audit Reports.
• Status of the “NOW” Project (LATAM Airlines Brazil).
• Status of progress SOX 2016 Review and internal control
statutes.
• Letter received from the External Auditors.
• Legal and Compliance Issues.
• Summary of requests made by the Directors’ Committee.
21) Extraordinary Session N° 51 16/12/2016
• Review of Legal and Compliance issues
III. Remunerations and Expenses of the Directors’ Committee.
The Ordinary Shareholders Meeting of the Company, held on
April 26, 2016, agreed that every member of the Committee
receives a monthly allowance of the equivalent to 67 Unidades
de Fomento for attending the Directors’ Committee sessions.
For the operation of the Directors’ Committee and its advi-
sors, Corporations Law established that the expense budget
has to be at least the same as the annual remuneration of the
Committees’ members, and therefore in the aforementioned
Ordinary Shareholders Meeting a budget of 2,412 Unidades de
Fomento for 2016 was approved.
Therefore, the expenses of the Directors’ Committee are relat-
ed with the monthly allowances for attendance to the sessions,
without having any other expenses or outflows to inform.
In session held on April 1, 2016, , In accordance with article 5°,
subsection 8° of article 50 bis under the Corporations Law No.
18,046, the Directors’ Committee agreed to propose to the
Board of Directors the external auditors that were suggested
at the Ordinary Shareholders Meeting held on April 26, 2016.
The above, having previously at the session of the Directors’
Committee dated March 30, 2016, reviewed the submissions
of the audit firms participating in the tender process. In this
regard, the Committee proposed to the Board of Directors the
appointment of PriceWaterhouseCoopers Consultores, Audi-
tores y Cía. Limitada (“PWC”) Ernst & Young Servicios Profe-
sionales de Auditoría y Asesorías Limitada (“EY”) and KPMG
Auditores Consultores Ltda (“KPMG”) as Auditors of the Com-
pany, in this order of priority, but notwithstanding the recom-
mendation to maintain PWC as the Audit Company for 2016.
The Director’s Committee recommendation to maintain PWC
as the external auditor of the Company for 2015 is based on
the following reasons and fundamentals:
(i) The Company has carried out a bidding process for the
External Audit services for the years 2016, 2017 and
2018, which is subject for each calendar year to the de-
cision of the respective LATAM Shareholders’ Meeting,
all in accordance with article 5°, subsection 8° of article
50 bis under the Corporations Law No. 18,046. In this
bidding process, the three firms mentioned above have
participated. It is noted that for the aforementioned
period, PWC was not asked to quote its external audit
services for TAM S.A. and its subsidiaries. Only EY and
KMPG were requested to make offers for external audit
services for (a) LATAM Airlines Group S.A. and subsid-
iaries (excluding TAM S.A.), (b) TAM S.A. and subsidiar-
ies, and (c) LATAM Airlines Group S.A. and subsidiaries
and TAM S.A. and subsidiaries. In the case of TAM S.A.
The decision on the election of the external auditor for
each financial year corresponds to its respective board
of directors and the tender in question does not con-
53
CORPORATE GOVERNANCE | Practices
template the possibility of PWC being elected as the
external auditor of TAM S.A. and subsidiaries.
(ii) Concerning fees and hours and resources available in
relation to LATAM Airlines Group S.A. and subsidiaries
(excluding TAM S.A. which has a different auditing firm),
there are differences between the three audit firms
suggested to the shareholders of the Company, with
PWC being the lowest bid in respect of audit services
for LATAM Airlines Group S.A. and subsidiaries (exclud-
ing TAM S.A.). Likewise, it is considered that the profes-
sional level of the auditors of the three firms would be
equivalent.
(iii) All three audit companies have internal control systems
that make us assume an adequate and equivalent level
of independence when providing an audit service. Due
to the above, even though PWC has been the external
auditor of LATAM Airlines Group S.A. for the last twen-
ty-four years, the independence of this audit company
is guaranteed through the policy defined by PriceWa-
terhouseCoopers worldwide, with the change of the
partner in charge each five years, which is in line with
section f) of article 243 under the Securities Law No.
18,045. The current partner in charge of LATAM’s audit
has been in the role for four years.
(iv) The quality of services provided by PWC to LATAM Air-
lines Group, doesn’t have had any observations or ob-
jections from the Company’s management or its Board
of Directors.
(v) Since 2014, the external auditor of TAM S.A. and its
subsidiaries is KPMG Auditores Independentes, being
part of the KPMG global network. In this regard, TAM
S.A. and subsidiaries represent an important portion of
the balance sheet and financial statements of LATAM
Airlines Group S.A., so there’s a second external audit
firm, also among the most important worldwide, and
in addition to PWC, would participate in the delivery of
external audit services.
(vi) The interaction and coordination between the two exter-
nal audit companies PWC and KPMG for the period 2014
and 2015, as external auditors of LATAM Airlines Group
and TAM S.A., respectively, has been evaluated as positive.
ers’ 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.
(vii) On the other hand, and in accordance with the results
of the aforementioned bidding process, the Board’s rec-
ommendation, in accordance with the recommendation
of the Directors’ Committee, to the Board of Directors
of TAM S.A., consists in the designation of EY as the
external auditor of TAM S.A. and subsidiaries, replacing
KPMG. This in consideration of the economic offer of EY
and that this would allow in the future there are three
auditing firms perfectly qualified to take charge of the
external audit of LATAM.
IV.2
Proposal of Private Risk Rating Agencies.
The Directors’ Committee in session held on April 1, 2016
and in accordance with article 2) subsection 8° of article 50
bis under the Corporations Law No. 18,046, agreed to pro-
pose the Board of Directors the risk rating agencies to be
suggested at the Ordinary Shareholders Meeting to be held
on April 26, 2016. In this regard, the Committee agreed to
propose the Board of Directors of the Company the appoint-
ment of Fitch Chile Clasificadora de Riesgo Limitada and
Feller-Rate Clasificadora de Riesgo Limitada.
COMMITTEES OF THE BOARD OF DIRECTORS OF LATAM
AIRLINES GROUP
In accordance with the shareholders’ agreement of 25 Janu-
ary 2012 between LATAM Airlines Group S.A. (previously LAN
Airlines S.A.) and TEP Chile S.A., the Ordinary Board Session of
August 3, 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) Fi-
nance Committee, and (iv) Brand, Product and Frequent Flyer
Program Committee. In accordance with the said sharehold-
The Strategy Committee will focus on corporate strategy, cur-
rent 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, appoint-
ment of the executive vice-president of LATAM Airlines Group
(henceforth, “CEO of LATAM”) and those who report to this
person, the philosophy of corporate compensations, struc-
tures 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
optimization strategy and the quality and reliability of finan-
cial information.
Finally, the Brand, Product and Frequent Flyer Program Com-
mittee 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
June 10, 2014, a Risk Committee was formed with the pur-
pose of supervising the implementation of the Risk manage-
ment success factor, included in LATAM’s Strategic Plan, and
particularly to oversee LATAM Airlines Group’s risk manage-
ment of risks of LATAM Airlines Group and ensure a corporate
risk matrix structuring.
54
CORPORATE GOVERNANCE | Practices
RELATED-PARTY TRANSACTIONS
PRINCIPLES OF GOOD CORPORATE GOVERNANCE
On August 2, 2016, the Board of Directors of LATAM ap-
proved a Related Party Transactions’ Control Policy applica-
ble to LATAM and its subsidiaries, Under Chile’s Corporations
Law, which establishes that all the operations of a publicly
traded company with a related party must contribute to the
social interest, be carried out under market conditions, in ad-
dition to meeting certain requirements of prior examination
by the directors’ committee, authorization by the board of
directors or shareholders meeting and disclosure, which are
different from those that apply to a non-listed company.
This policy includes the definition by the Board of Directors
of those operations that are considered habitual, which was
approved in a board session dated December 29, 2009 and
was informed on the same date to the SVS through material
fact. Operations indicated as usual may be executed without
the requirements of prior examination and approval by the
Board of Directors or Shareholders Meeting.
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, cargo transportation 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 as those which could
be obtained from a third party under market conditions.
LATAM Airlines Group’s good corporate governance is the result
of the interaction of different individuals and stakeholders.
Although all employees share responsibility for compliance
with the high standards of ethics and adherence to regulation
established by LATAM Airlines Group’s Board of Directors, it
is the Board, the Directors’ Committee and the Company’s
principal executives who are primarily responsible for LATAM
Airlines Group’s good corporate governance. In line with the
above, LATAM Airlines Group is committed to transparency
and compliance with the ethics and regulatory standards es-
tablished 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 Code of Conduct for LATAM Airlines Group,
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 re-
quired by LATAM Airlines Group.
The LATAM Group has an Ethics Complaints Channel (www.
etica-grupolatam.com). This facility 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 re-
prisal against the person reporting them.
These transactions are summarized in the audited consoli-
dated financial statements for the year ending on December
31, 2016.
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 Se-
guros and, since Law Nº 20.382 on Corporate Governance
came into force, also by Chilean securities market legisla-
tion. 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 pur-
chase and sale of LATAM’s shares, mechanisms for continu-
ous disclosure of market-sensitive information and mecha-
nisms 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 co-
ordination with and under the supervision of the Board of
Directors and its Directors’ Committee, this Program super-
vises compliance with the laws and regulation applicable to
LATAM Airlines Group’s businesses and activities in the dif-
ferent countries in which it operates.
CORPORATE GOVERNANCE PRACTICES
On March 28, 2017, the Report on LATAM’s Corporate Practices
which was approved by LATAM Airlines Group’s Board of Direc-
tors and prepared in accordance with General Norm N° 385,
previously N° 341, issued by the Superintendencia de Valores
y Seguros (SVS) on June 8, 2015, 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 submitted annually to the SVS shall refer to
the following matters:
• The functioning of the Board of Directors.
• The relation between LATAM, its shareholders and the gen-
eral public.
• The replacement and compensation of main executives.
• The definition, implementation and supervision of the com-
pany internal control policies and procedures and risk man-
agement.
55
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Property ownership structure and main shareholders
As of January 31, 2017, LATAM Airlines Group had a total of 1,585 shareholders on record and it is controlled
by the Cueto Group.
Table 1: January 31, 2017
Name or Business name
Costa Verde Aeronautica SA
2. Qatar Airways Investments (Uk) Ltd
3. Costa Verde Aeronautica Tres SPA
4. Banco de Chile por Cuenta de Terceros No Residentes
5. J P Morgan Chase Bank
6. Inversiones Nueva Costa Verde Aeronautica Ltda
7. Banco Itau Corpbanca por Cta de Inversionistas Extranjeros
8. Axxion S.A.
9. Tep Chile S.A.
10. Inversiones Andes SPA
11. Inversiones HS SPA
12. Costa Verde Aeronautica SPA
31 de diciembre 2015
Name or Business name
1. Costa Verde Aeronautica SA
2. Tep Chile SA
3. Inversiones Nueva Costa Verde Aeronautica Ltda
4. Banco de Chile por Cuenta de Terceros No Residentes
5. J P Morgan Chase Bank
6. Banco Itau por Cuenta de Inversionistas Extranjeros
7. Axxion SA
8. Inversiones Andes SPA
9. Inversiones HS SPA
10. Larrain Vial S A Corredora de Bolsa
11. Banchile C de B S A
12. Costa Verde Aeronautica SPA
Shares paid and subscribed Percentage
as of Jan 31, 2017
90.427.620
60.837.452
35.300.000
28.809.081
27.608.310
23.578.077
21.481.918
18.473.333
18.342.913
17.146.529
14.894.024
12.000.000
14,9%
10,0%1
5,8%
4,8%
4,6%
3,9%
3,5%
3,0%
3,0%
2,8%
2,5%
2,0%
Shares paid and subscribed Percentage
as of Dec 31, 2015
90.427.620
65.554.075
23.578.077
22.557.207
21.339.756
18.653.574
18.473.333
17.146.529
14.894.024
12.986.050
12.416.588
12.000.000
16,6%
12,0%
4,3%
4,1%
3,9%
3,4%
3,4%
3,1%
2,7%
2,4%
2,3%
2,2%
1. Qatar owns 9.999999918% of total issued shares of LATAM.
56
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
January 31
2017
December 31
2015
Cueto Group
171.430.090
136.394.023
Qatar Airways
60.837.452
-
Eblen Group
35.945.199
35.945.199
Bethia Group
33.367.357
33.367.357
Amaro Group
18.342.913
65.554.075
ADRs
BDRs
AFPs
27.608.310
21.339.756
-
2.418.235
117.687.316
102.265.164
Foreign Investors
61.700.947
51.909.593
Others
Total
79.488.109
96.364.699
606.407.693
545.558.101
Cueto Group
Qatar Airways
Eblen Group
Bethia Group
Amaro Group
ADRs
BDRs
AFPs
Foreign Investors
Others
31 enero
2017
28,3%
10,0%2
5,9%
5,5%
3,0%
4,6%
0,0%
19,4%
10,2%
13,1%
31 diciembre
2015
25,0%
0,0%
6,6%
6,1%
12,0%
3,9%
0,4%
18,7%
9,5%
17,7%
2. Qatar owns 9.999999918% of total issued shares of LATAM.
Below we show the percentage controlled, directly or
indirectly, by the controller and by each of its mem-
bers; we also identify the natural persons that stand
behind such legal persons.
1. The Cueto Group is LATAM’s controlling partner,
whose property owners are: Messrs. Juan José Cue-
to Plaza (one of our board members), Ignacio Cueto
Plaza (LAN CEO), Enrique Cueto Plaza (LATAM CEO)
and other members of this family. As of January 31,
2017 the Cueto Group owned 28.27% of LATAM’s
ordinary shares of stock through the following com-
panies (Table 1):
Table 1
RUT Taxpayer
ID N°
Participant
Current number
of shares
%
81.062.300-4
Costa Verde Aeronáutica S.A.
90.427.620
14,91%
76.116.741-3
Inversiones Nueva Costa Verde Aeronáutica Ltda.
23.578.077
76.213.859-K
Costa Verde Aeronáutica SpA
76.237.329-7
Inversiones Caravia Dos y Cia. Ltda.
76.237.354-8
Inversiones Priesca Dos y Cía. Ltda.
76.237.343-2
Inversiones El Fano Dos y Cía. Ltda.
76.327.426-8
Inv. La Espasa Dos y Cia. Ltda.
76.809.120-K
Inv. La Espasa Dos S.A.
96.625.340-1
Inv. Mineras del Cantabrico S.A.
12.000.000
3.553.344
3.568.352
2.704.533
252.097
32.324
13.743
76.592.181-3
Costa Verde Aeronáutica Tres SpA
35.300.000
3,89%
1,98%
0,59%
0,59%
0,45%
0,04%
0,01%
0,00%
5,82%
Total GROUP
171.430.090
28,27%
57
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
2. The shareholders of COSTA VERDE AERONÁUTICA S.A.,
are the following (Table 2):
4. The above-described INVERSIONES COSTA VERDE LIM-
ITADA - LIMITED JOINT-STOCK PARTNERSHIP, (I in Table
3), has the following partnership structure (Table 4):
Table 2
Shareholder
Percentage
Table 4
Inversiones Costa Verde Aeronáutica Limitada
77,96%
Shareholder
Percentage
Main partner
TEP Chile S.A.
Inversiones Mineras del Cantábrico S.A.
21,88%
0,0001%
Inversiones Costa Verde Limitada y CIA en C.P.A. 0,13%
Accionistas minoritarios
0,0001%
3. In turn, the controlling company of the above-described
Costa Verde Aeronáutica S.A., is COSTA VERDE AERONAU-
TICS limited (A in Table 2), whose partnership structure is
as follows (Table 3):
Table 3
Shareholder
Percentage
Inversiones Costa Verde Limitada y CIA en C.P.A. 99,85%
Inversiones Costa Verde y CIA Limitada
Inversiones Costa Verde Limitada
0,131%
0,014%
RUT Taxpayer
ID N°
Inmobiliaria e Inversiones El Fano Limitada
Inmobiliaria e Inversiones Caravia Limitada
Inmobiliaria e Inversiones Priesca Limitada
Inmobiliaria e Inversiones La Espasa Limitada
8%
8%
8%
8%
Inmobiliaria e Inversiones Puerto Claro Limitada 8%
Inmobiliaria e Inversiones Colunga Limitada
30%
Inversiones del Cantábrico Limitada
30%
Enrique Miguel Cueto Plaza
6.694.239-2
Juan José Cueto Plaza
Ignacio Javier Cueto Plaza
Juan Jose Cueto Plaza
Isidora Cueto, Felipe Cueto
y María Emilia Cueto
Mismos accionistas de Inv.
Mineras del Cantábrico S.A.
Mismos accionistas de Inv.
Mineras del Cantábrico S.A.
6.694.240-6
7.040.324-2
7.040.325-0
18.391.071-K
76.180.199-6
76.006.936-1
5. With respect to INMOBILIARIA E INVERSIONES COLUN-
GA LIMITADA e INVERSIONES DEL CANTÁBRICO LTDA.
100% owned by the Cueto Group, its final shareholders
are Messrs.: (i) Juan José Cueto Plaza, previously identi-
fied; (ii) Ignacio Javier Cueto Plaza, previously individual-
ized; (i) Juan José Cueto Plaza, previously identified; (ii)
Ignacio Javier Cueto Plaza, previously identified; (iii) En-
rique Miguel Cueto Plaza, previously identified; (iv) María
Esperanza Cueto Plaza, RUT taxpayer ID N° 7.040.325-0,
(v) Isidora Cueto Cazes, RUT taxpayer ID N° 18.391.071-
k; (vi) Felipe Jaime Cueto Ruiz-Tagle, RUT taxpayer ID N°
20.164.894-7 (vii) María Emilia Cueto Ruiz-Tagle, RUT
taxpayer ID N° 20.694.332-7 (viii) Andrea Raquel Cueto
Ventura, RUT taxpayer ID N° 16.098.115-6 (ix) Daniela
Esperanza Cueto Ventura, 16.369.342-9; (x) Valentina
Sara Cueto Ventura, RUT taxpayer ID N° 16.369.343-7
(xi) Alejandra Sonia Cueto Ventura, RUT taxpayer ID N°
17.700.406-5; (xii) Francisca María Cueto Ventura, RUT
taxpayer ID N° 18.637.286-7; (xiii) Juan José Cueto Ven-
tura, RUT taxpayer ID N° 18.637.287-5; (xiv) Manuela
Cueto Sarquis, RUT taxpayer ID N° 19.078.071-6; (xv)
Pedro Cueto Sarquis, RUT taxpayer ID N° 19.246.907-4;
(xvi) Juan Cueto Sarquis, RUT taxpayer ID N° 19.639.220-
3; (xvii) Antonia Cueto Sarquis, RUT taxpayer ID N°
20.826.769-8 (xviii) Fernanda Cueto Délano, RUT tax-
payer ID N° 18.395.657-4 (xix) Ignacio Cueto Délano,
RUT taxpayer ID N° 19.077.273-k; (xx) Javier Cueto
Délano, RUT taxpayer ID N° 20.086.836-6 (xxi) Pablo
Cueto Délano, RUT taxpayer ID N° 20.086.837-4 (xxii)
José Cueto Délano, RUT taxpayer ID N° 20.963.574-7;
(xxiii) Nieves Isabel Alcaíno Cueto, RUT taxpayer ID N°
18.636.911-4; (xxiv) María Elisa Alcaíno Cueto, RUT tax-
payer ID N° 19.567.835-9, and (xxv) María Esperanza Al-
caíno Cueto, RUT taxpayer ID N° 17.701.730-2.
58
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
6. The shareholder of Costa Verde Aeronáutica Tres SpA is
10. The partners of INVERSIONES CARAVIA DOS Y CIA. LTDA.
(Table 5):
Table 5
are the following (Table 9):
Table 9
Shareholder
Percentage Main partner
Shareholder
Costa Verde Aeronáutica S.A. 100%
Inversiones Costa
Verde Aeronáutica
Limitada (77,96%)
Juan José Cueto
Others
Percentage
99%
1%
7. The shareholders of INVERSIONES NUEVA COSTA VERDE
11. The partners of INVERSIONES EL FANO DOS Y CIA. LTDA.
AERONÁUTICA LIMITADA are the following (Table 6):
are the following (Table 10):
Table 6
Partners
Percentage Main partner
Shareholder
Table 10
Costa Verde Aeronáutica S.A. 99,99%
Inversiones Costa
Verde Aeronáutica
Ltda (99,8%)
Enrique Cueto
Others
Percentage
99%
1%
Inversiones Costa Verde
Aeronáutica Ltda
0,01%
Inv. Costa Verde
Ltda y Cia en C.P.A.
12. The partners of INVERSIONES LA ESPASA DOS Y CIA.
LTDA. are the following (Table 11):
8. The shareholders of COSTA VERDE AERONÁUTICA SpA are
the following (Table 7):
Table 11
Partners
Percentage
Table 7
Shareholder
Inversiones Nueva Costa Verde
Aeronáutica Dos Limitada
Percentage
100%
9. The partners of INVERSIONES PRIESCA DOS Y CIA. LTDA.
are the following (Table 8):
Inversiones La Espasa Dos S.A.
María Esperanza Alcaíno Cueto Uno y Cia. Ltda.
99%
1%
13. The partners of INVERSIONES LA ESPASA DOS S.A. are
the following Table 12):
Table 12
Shareholder
Percentage
Table 8
Shareholder
Ignacio Cueto
Others
Percentage
Inmobiliaria e Inversiones La Espasa Limitada
99%
1%
María Esperanza Alcaíno Cueto
Uno y Compañía Limitada
99%
1%
59
INVERSIONES MINERAS DEL CANTÁBRICO LIMITADA, is a
company 100% owned by the Cueto Group, and its final share-
holders are the persons identified in paragraph 5 above.
The rest of the shareholder base is composed of a diversity of
institutional investors, legal entities and natural persons. As of
January 31, 2017, 4.6% of LATAM’s property ownership was in
the form of ADRs.
Listed below are the controlling shareholders, other main
shareholders and LATAM’s minority shareholders who, either in
and by themselves or along with others with whom they have
a standing joint action agreement, may designate at least one
company board member, or weigh 10% or more of the com-
pany’s voting shares.
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Shareholder
Cueto Group3
Costa Verde Aeronáutica S.A.
Costa Verde Aeronáutica Tres SpA
Shareholding
(as of January 31, 2017)
Number of
subscribed and
paid shares
171.430.090
90.427.620
35.300.000
Inversiones Nueva Costa Verde Aeronáutica Ltda.
23.578.077
Costa Verde Aeronáutica SpA
Others
Qatar Airways
QATAR Airways Investments (UK) LTD
Amaro Group5
TEP Chile S.A.
Eblen Group
Inversiones Andes SpA
Inversiones Andes II SpA
Inversiones Pia SpA
Comercial Las Vertientes SpA
Bethia Grupo
Axxion S.A.
Inversiones HS SpA
Other minority shareholders
Total
12.000.000
10.124.393
60.837.452
60.837.452
18.342.913
18.342.913
35.945.199
17.146.529
8.000.000
5.403.804
5.394.866
33.367.357
18.473.333
14.894.024
286.484.682
286.484.682
Property ownership
% over the subscribed
and paid shares
28,3%
14,9%
5,8%
3,9%
2,0%
1,7%
10,0%4
10,0%
3,0%
3,0%
5,9%
2,8%
1,3%
0,9%
0,9%
5,5%
3,0%
2,5%
47,2%
47,2%
3 The Cueto Group, whom we also refer to as “LATAM’s Controlling Shareholders”, have executed a Shareholders’ Agreement with the controlling
shareholders of LATAM, TEP Chile and TAM, whose terms and provisions are spelled out below.
4 Qatar owns 9.999999918% of total issued shares of LATAM.
5 The Amaro Group, whom we also refer to as “TAM’s Controlling Shareholders”, have executed a Shareholders’ Agreement with LATAM and its
controlling shareholders, whose terms and provisions are spelled out below.
60
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Following the combination with TAM in 2012, the Amaro
Group, which includes the Chairman of the Board of Directors,
Mauricio Amaro and the former board of directors María Clau-
dia Amaro, among others, also became the principal share-
holder of LATAM Airlines Group, through TEP Chile SA (Rut No.
76.152.798-3), a company wholly owned by the Amaro Group
and through the majority ownership of Holdco I, which owns
100% of TAM’s common shares. During 2016, the Amaro Group
decreased its stake in LATAM, being as of January 31, 2017,
direct owner of 3.02% of LATAM Airlines Group common stock
and 5.82% indirectly through 21.88 % ownership owned by
Amaro Group in Costa Verde Aeronáutica SA, the main invest-
ment vehicle of the Cueto Group in LATAM.
Also in 2016, on the occasion of the capital increase approved
at the Extraordinary Shareholders’ Meeting held on August 18,
2016, Qatar Airways entered the property of LATAM, holding
at January 31, 2017, 10.0%6 of the total The subscribed and
paid-in shares of LATAM Airlines Group through the company
Qatar Airways Investments (UK) Ltd.
Board’s total shares
Georges de Bourguignon Arndt4
0
-
Juan José Cueto Plaza5
171.430.090
28,27%
N° of shares Percentage
Ramón Eblen Kadis5
Carlos Heller Solari5
Juan Gerardo Jofré
Maurício Rolim Amaro5
Francisco Luzón López
Henri Philippe Reichstul
Giles Agutter
Executives’ total shares
35.945.199
33.367.357
81.882
18.342.913
0
0
0
5,93%
5,50%
0,01%
3,02%
-
-
-
Finally, we would like to point out that as of this date com-
pany shareholders have not submitted any comments or pro-
posals with respect to the company’s business affairs.
Enrique Cueto Plaza e Ignacio Cueto Plaza5
171.430.090
28,27%
Armando Valdivieso Montes
95.859
0,02%
N° of shares Percentage
The table below shows the number of subscribed and paid
shares and the percentage shareholding in LATAM’s prop-
erty ownership of each of the company’s board members
and senior executives:
Ramiro Alfonsín
Claudia Sender
Juan Carlos Menció
Emilio del Real
0
0
0
0
-
-
-
-
4. It should be noted that Georges de Bourguignon Arndt does not directly own any
LATAM shares; but rather, that he is the Legal Representative of a company owned by
his children that owns 3,153 LATAM shares.
5. It should be noted that Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto
Plaza are part of the Cueto Group, Ramon Eblen Kadis is part of the Eblen Group, Car-
los Heller Solari is part of the Bethia Group and Mauricio Rolim Amaro is part of the
Amaro Group, since none of them own the above-mentioned shares on their own, but
rather through the group in which they participate.
6 Qatar owns 9.999999918% of total issued shares of LATAM.
61
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Shareholders’ Agreement
Following the combination between LAN and TAM in June
2012, LAN Airlines S.A. was transformed into “LATAM Airlines
Group S.A.” and TAM continues to exist as a subsidiary Hold-
co I and LATAM. In order to execute this combination, TAM’s
controlling shareholders created four new closely-held stock
companies pursuant to Chilean law: TEP Chile, Holdco I, Hold-
co II and Sister Holdco. Upon execution of the above-referred
transaction, Holdco II and Sister Holdco ceased to exist.
Prior to such business combination, LATAM Airlines Group and
its controlling shareholders executed several shareholders’
agreements with TAM, its shareholders (acting through TEP
Chile) and Holdco I, thus establishing agreements and restric-
tions related to corporate governance in an attempt to bal-
ance the interests of the LATAM Airlines Group, as the owner
of substantially all economic rights in TAM, and TAM’s control-
ling shareholders, as the continuing controlling shareholders
of TAM pursuant to Brazilian law. In order to achieve these
objectives, the various shareholders’ agreements prohibited
undertaking certain actions and making important corporate
decisions without the prior approval of a qualified majority of
its shareholders and/or the Board of Directors of Holdco I or
TAM. Moreover, these shareholders’ agreements also establish
the parties’ covenants regarding the governance and manage-
ment of the LATAM Airlines Group, subsequent to the combi-
nation of LAN and TAM businesses.
The LATAM Group’s governance and management
Insofar as the governance and management of the LATAM
Group is concerned, there are different shareholders’ agree-
ments:
1. Shareholders’ agreement of the controlling group: execut-
ed between the controlling shareholders of LATAM and TEP
Chile, establishing agreements with respect to the corpo-
rate governance, control and operation of LATAM, Holdco I,
TAM and their respective subsidiaries. It also governs the
votes and transfers of the ordinary shares of the LATAM
Airlines Group and the voting shares of Holdco I owned by
TEP Chile.
2. Shareholders’ agreement between the LATAM Airlines Group
and TEP: executed between LATAM and TEP Chile; wherein,
among other subject matters, it establishes agreements
regarding the corporate governance, management and op-
eration of LATAM. It also governs the relationships between
LATAM and other LATAM Group members.
3. Shareholders’ agreement of Holdco I: executed between
LATAM, Holdco I and TEP Chile establishing agreements
with respect to the corporate governance, management
and operation of Holdco I, as well as the votes and transfer
of the voting shares of Holdco I.
4. Shareholders’ agreement of TAM: executed between LA-
TAM, Holdco I, TAM and TEP Chile, establishing the agree-
ments related to the corporate governance, management
and operation of TAM and its subsidiaries.
Following the combination of the business of LAN and TAM,
the Holdco I and the TAM shareholders’ agreements establish
the covenants between the parties with respect to the gover-
nance and management of Holdco I, TAM and its subsidiaries
(collectively, the “TAM Group”).
Following are the key provisions of the Shareholders’ agree-
ments referred to in paragraphs 1 and 2 above. It is impor-
tant to note, however, that the rights and obligations of the
members of the Controlling Group are indeed governed by the
terms and conditions of such shareholders’ agreements and
not by the summary of any of such agreements contained in
this annual report.
Board membership of the LATAM Airlines Group
Mr. Mauricio Rolim Amaro was re-elected as board member
of the LATAM Airlines Group in April of 2015. If Mr. Amaro
abandons and leaves his position vacant for any reason
whatsoever during the two-year period, TEP Chile has the
right to appoint his replacement in order to complete the
mentioned period. Subsequently, the Board of Directors of
the LATAM Airlines Group shall appoint any of its members
as Chairman thereof, in accordance with existing statutes.
Maria Cláudia Oliveira Amaro was elected as board member
of the LATAM Airlines Group in June 2012, and resigned her
position in September 2014. On the same date, and pursu-
ant to Chilean law, Henri Philippe Reichstul, was appointed
by the Board to replace Maria Cláudia Oliveira Amaro until
the next shareholders’ meeting that was held in Santiago,
Chile on April 28, 2015, at which time he was confirmed as
board member.
Management of the LATAM Airlines Group
In June 2012, Enrique Cueto Plaza became LATAM’s CEO
(“LATAM CEO”). The position of LATAM CEO is the top-rank-
ing position in the LATAM Airlines Group, who reports di-
rectly to the LATAM’s Board of Directors. The LATAM CEO is
in charge of overall supervision, direction and control of the
LATAM Airlines Group’s business and certain other respon-
sibilities set forth in the Shareholders’ Agreement of the
LATAM Airlines Group and TEP. Upon the eventual depar-
ture of LATAM’s current CEO, the LATAM Board of Directors
will appoint his successor after receiving a recommendation
from the Leadership Committee.
In June 2012, Ignacio Cueto Plaza became LAN’s CEO
(“LAN CEO”). The LAN CEO reports directly to the LATAM
CEO and is responsible for the general supervision, direc-
tion and control over the passenger and cargo operations
of the LATAM Group, excluding those assumed by Holdco
I, TAM and its subsidiaries, and those regarding the inter-
62
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
national passenger business of the LATAM Group. The LAN
CEO, in conjunction with the TAM CEO, are responsible for
recommending the LATAM CEO candidate to serve as head
of the international passenger business of the LATAM
Group (including long-haul and regional flights), who must
report jointly with the LAN CEO and the TAM CEO. The key
executives of the LATAM Group (in addition to the LATAM
CEO and those of the TAM group) shall be appointed by
and report directly or indirectly to the LATAM CEO. Ignacio
Cueto is scheduled to leave his post as LAN CEO on April
15, 2017 in order to apply to LATAM’s Board of Directors
and, in line with the strategy of building a simpler com-
pany the position will not be replaced.
The main headquarters of the LATAM Airlines Group are
still located in Santiago, Chile.
Following are the key provisions of the Shareholders’ agree-
ments referred to in the preceding paragraphs 3 and 4. It
is important to note, however, that the rights and obliga-
tions of the members of the Controlling Group are indeed
governed by the terms and conditions of such shareholders’
agreements and not by the summary of any of such agree-
ments contained in this a.
Board membership of Holdco I and TAM
The shareholders’ agreement of Holdco I and the share-
holders’ agreement of TAM provide, in general terms,
identical board memberships and the same Holdco I and
TAM CEO; whereupon LATAM appoints two board mem-
bers and TAM appoints four board members (including the
Chairman of the Board).
Maria Cláudia Oliveira Amaro resigned from her position
as board member on September 8, 2014 and in her re-
placement, the Board appointed, Mr. Henri Philippe Reich-
stul. TAM’s Board membership was totally renewed on
April 2015.
The shareholders’ agreement of the controlling group es-
tablishes that the persons elected by or on behalf of LA-
TAM’s controlling shareholders or TAM’s controlling share-
holders, as board members of LATAM’s Board of Directors,
will also serve as members of the Board of Directors of
Holdco I and TAM.
Management of Holdco I and TAM
The affairs and day-to-day business of Holdco I shall be
managed by the CEO of the TAM Group under the su-
pervision of the Board of Directors of Holdco I. The af-
fairs and day-to-day business of TAM will be managed
by the Board of Directors of TAM under the supervision
of the Board of Directors of TAM. The “TAM Board” shall
be comprised of the TAM Group’s CEO, TAM’s CFO, TAM’s
COO and TAM’s CCO. Currently, the position of TAM CEO is
being performed by Ms. Claudia Sender. The TAM Group’s
CEO will be in charge of overall supervision, direction
and control over the business and operations of the TAM
Group (on matters not related to the LATAM Group’s inter-
national passenger business) and will perform all orders
and resolutions issued by TAM board members. The initial
TAM CEO, “CFO of TAM’S CFO” has been jointly appointed
by LATAM and TEP Chile and any successor of the CFO
shall be designated by TEP Chile from among three can-
didates proposed by LATAM. The TAM COO, “TAM’s COO”,
and the commercial manager of TAM, “TAM’s CCO”, shall
be jointly appointed and recommended to TAM’s Board of
Directors by the CEO of the TAM Group and TAM’s CFO;
additionally, he/she must be approved by TAM’s Board
of Directors. These shareholders’ agreements also gov-
ern the composition of the board of directors of TAM’s
subsidiaries.
Following the combination, TAM still has its main headquar-
ters located in São Paulo, Brazil.
Actions requiring qualified majority votes
Certain actions of Holdco I or TAM require approval by a quali-
fied majority of the board or the shareholders of Holdco I or
TAM; which, indeed require the approval of LATAM and TEP
Chile before such actions can be carried out.
Those actions requiring qualified majority votes by the boards
of Holdco I or TAM are the following:
► approving the annual budget and business plan and the
multi-year business (collectively known as the “Approved
Plans”), and also the amendments to these plans;
► carrying out or agreeing to carry out any action that causes,
or that may reasonably cause, individually or in aggregate
form any capital, operational or other costs of any TAM
company and its subsidiaries greater than (i) the lesser of
1% of revenues or 10% of the profits under the Approved
Plans, with respect to actions affecting income statement
items; or (ii) the lesser of 2% of assets or 10% of cash and
cash equivalents (as defined by the IFRS) as established in
the provisions of the Approved Plans and in effect, in rela-
tion to actions affecting the cash flow statement;
► the creation, disposal or admission of new shareholders in
one of the subsidiaries of the relevant company, except
to the extent that it is expressly contemplated in the Ap-
proved Plans;
► approving the acquisition, disposal, modification or en-
cumbrance by any TAM company of any assets above $15
million or of any share value or securities convertible into
shares of any TAM company or of the Company, except
to the extent that it is expressly contemplated in the Ap-
proved Plans;
► approving any investment in assets not related to the cor-
porate purpose of any TAM company, except to the extent
that it is expressly contemplated in the Approved Plans;
► executing any contract amount in excess of $15 million, ex-
cept to the extent that it is expressly contemplated in the
Approved Plans;
63
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
► executing any contract related to the distribution of prof-
its, company associations, business collaborations, alliance
memberships, code-sharing agreements, with the excep-
tion of those approved in the business plans and budget,
except to the extent that they are expressly contemplated
in the Approved Plans;
► setting, modifying or waiving any right or claim of a relevant
company or its subsidiaries in excess of $15 million, except
to the extent that it is expressly contemplated in the Ap-
proved Plans;
► starting, participating in, committing or establishing any
important action with respect to any litigation or legal pro-
ceeding in excess of $15 million, related to the relevant
company, except to the extent that it is expressly contem-
plated in the Approved Plans;
► approving the execution, modification, termination or rati-
fication of agreements with third parties, except to the ex-
tent that they are expressly contemplated in the Approved
Plans;
► approving any financial statement, modifications, or any
accounting policy, regarding dividends or taxes relevant to
the company;
► approving the granting of any interest of securities or guar-
antees of third party obligations;
► appointing executives other than the CEO of Holdco I or the
Board of Directors of TAM or re-electing TAM’s current CEO
or CFO; and
► approving any voting of the relevant company or its subsid-
(vi) the deadline; (vii) the change of the main headquarters
of a relevant company; (viii) the composition, powers and
commitments of the management of any relevant com-
pany; and dividends and other distributions;
Airlines Group any person designated by TEP Chile, unless
TEP Chile owns enough ordinary shares of LATAM Airlines
Group in order to directly elect two board members of the
LATAM Airlines Group;
► approving the dissolution, settlement or liquidation of a rel-
evant company;
► approving the transformation, merger, division or any type
of corporate reorganization of a relevant company;
► paying or distributing dividends or any other type of distri-
bution to shareholders;
► approving the issue, withdrawal or amortization of debt in-
struments, shares or convertible securities;
► approving a disposal plan for the sale, encumbrance or oth-
er involving 50% or more of the assets, as determined by
the previous-year balance sheet of Holdco I;
► approving the disposal for the sale, encumbrance or other
involving over 50% of the assets of a Holdco I subsidiary
representing at least 20% of Holdco I or approving to sell,
encumber or dispose of shares in a manner such that Hold-
co I would lose control.
► approving the concession of interests over instruments of
guarantees toward guaranteeing obligations in excess of
50% of the assets of a relevant company; and
► approving the execution, modification, terms or ratification
of acts or agreements with related parties, but only in those
cases in which the applicable law requires the approval of
such matters.
► the parties agree to vote their ordinary LATAM Airlines
Group shares to support the other parties in removing or re-
placing board members or others designated by the Board
of LATAM Airlines Group;
► the parties agree to consult among them and make use
of their good faith efforts to achieve agreements and act
jointly in all actions (except in those actions that require
majority approval pursuant to the Chilean law) and be con-
sidered by the Board of Directors of the LATAM Airlines
Group or by the shareholders of the LATAM Airlines Group;
► the parties agree to maintain the size of the Board of Direc-
tors of the LATAM Airlines Group at a total of nine (9) board
members and maintain the quorum required by the major-
ity of the Board of Directors of the LATAM Airlines Group;
and
► in case that, after endeavoring in good faith efforts aimed
at reaching an agreement with respect to any action requir-
ing a qualified majority vote pursuant to the Chilean law
and a period of mediation, the parties do not reach such
agreement, then, TEP Chile has agreed to give its vote to
the subject matter requiring a qualified majority vote as
indicated by the controlling shareholders of the LATAM Air-
lines Group; which we refer to as “direct vote”.
iaries in their capacity as shareholders.
Voting agreements, transfers and other agreements.
Those actions requiring qualified majority votes by the share-
holders are the following:
The controlling group of LATAM and TEP Chile has agreed, in the
Shareholders’ Agreement of the Controlling Group, to vote their
respective ordinary LATAM Airlines Group shares as follows:
The number of TEP Chile “exempt shares” means that the
number of ordinary shares of the LATAM Airlines Group that
TEP Chile owns immediately after the effective date in excess
of 12.5% of the valid ordinary shares of LATAM Airlines Group
shall be determined on the basis of a total dilution.
► approving any modification of the bylaws of any relevant
company or its subsidiaries in relation to the following sub-
ject matters: (i) corporate objectives; (ii) corporate equity
capital; (iii) rights inherent to each class of shares and their
shareholders; (iv) the powers of ordinary shareholder meet-
ings or limitations to the powers of the board of directors;
► until that moment, TEP Chile sells any of its ordinary LAN
shares (other than the exempt shares, as defined herein
below, and owned by TEP Chile), the Controlling Group of
LATAM Airlines Group will vote its ordinary LATAM Airlines
Group shares to elect to the Board of Directors of LATAM
The parties to the Holdco I Shareholders’ Agreement and to
the TAM Shareholders’ Agreement have agreed to vote their
Holdco I voting shares and TAM shares so as to make effective
the agreements related to the above-discussed representa-
tion of the Board of Directors of TAM.
64
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Restrictions to the transfers.
Pursuant to the Shareholders’ Agreement of the Controlling
Group, the controlling shareholders of the LATAM Airlines
Group and TEP Chile are subject to certain restrictions re-
garding the sale, transfer and encumbrance of the ordinary
shares of the LATAM Airlines Group and (only in the case of
TEP Chile) the voting shares of Holdco I. With the excep-
tion of a limited amount of the ordinary shares of the LATAM
Airlines Group, neither the controlling shareholders of the LA-
TAM Airlines Group nor those of TEP Chile are authorized to
sell the ordinary shares of the LATAM Airlines Group, nor can
TEP Chile sell its shareholding rights to Holdco I until June
2015. Subsequently, the sale of the ordinary shares of the
LATAM Airlines Group by any of the parties shall be allowed,
subject to (i) certain limitations of volume and frequency of
such sale, and (ii) only in the case of TEP Chile, the latter
company must meet certain minimum property ownership
requirements. After June 2022, TEP Chile shall be entitled to
sell all its shares of the LATAM Airlines Group and sharehold-
ing rights over Holdco I in one block, subject to the follow-
ing conditions: (i) LATAM Board’s approval of the assignee;
(ii) that the sale does not have an adverse effect; and (iii)
that the preferred purchase option be in favor of the control-
ling shareholders of the LATAM Airlines Group; conditions to
which we refer, collectively, as “block sale provisions”.
An “adverse effect” is so defined in the Shareholders’ Agree-
ment of the Controlling Group as a significant adverse effect
in the capacity of Holdco I to receive the total benefits of
the property ownership of TAM and its subsidiaries in order
to operate the airline business worldwide. The controlling
group of the LATAM Airlines Group has agreed to transfer all
the voting shares of Holdco I acquired pursuant to LATAM’s
preferred purchase option, for the same price paid for such
shares.
Additionally, TEP Chile is entitled to sell as of June 2015 all
the ordinary shares of the LATAM Airlines Group and voting
shares of Holdco I, subject to meeting the block sale clause,
should a liberation event (as described previously) should oc-
cur or if TEP Chile is required to exercise one or more direct-
ed votes during any 24-month period in two (consecutive or
not) shareholders’ meetings of the LATAM Airlines Group held
at least 12 months apart, and if the LATAM Airlines Group
would not have totally exercised the conversion of options
described previously.
A “disclosure event” will occur if: (i) there is a capital increase
of the LATAM Airlines Group; (ii) TEP Chile does not exer-
cise all its preferred rights granted pursuant to the applicable
Chilean law with respect to the capital increase in relation to
all of LATAM Airlines Group’s restricted ordinary shares; and,
(iii) after completing the capital increase, the person desig-
nated by TEP Chile for the voting of the Board of Directors of
the LATAM Airlines Group with the collaboration of the Con-
trolling Group of the LATAM Airlines Group, is not elected as
board member of the LATAM Airlines Group.
Additionally, after June 22, 2022 and before the capitaliza-
tion date of the entire property (as described below under
Section “Conversion option”), TEP Chile could sell all or part
of its LATAM Airlines Group’s ordinary shares, subject to:
(i) the preferred option right in favor of LATAM’s controlling
shareholders; and (ii) the restrictions to the sale of ordinary
shares of the LATAM Airlines Group more than once during a
12-month period.
The Shareholders’ Agreement of the Controlling Group pro-
vides certain exceptions to these transfer restrictions for
certain pledged shares of the LATAM Airlines Group realized
by the parties and for transfers to subsidiary companies, in
each case open to certain limited circumstances.
Additionally, TEP Chile accepted, in the Shareholders’ Agree-
ment of Holdco I, not to vote its Holdco I voting shares, or
take any action in support of any transfer on the part of
Holdco I of shares or convertible securities into shares is-
sued by them or by TAM or by any of its subsidiaries without
LATAM’s prior written consent.
Restrictions to TAM shares transfers
In the Shareholders’ Agreement of Holdco I, LATAM agreed
not to sell or transfer TAM shares to any person (other than
our subsidiaries), for as long as TEP Chile owns Holdco I vot-
ing shares. Without prejudice of the foregoing, LATAM shall
be entitled to carry out such sales or transfers if, simultane-
ously with such sales or transfers, LATAM (or its assignee)
would acquire all of Holdco I’s voting shares owned by TEP
Chile for an amount equal to TEP Chile’s then in effect tax-
able base with respect to such shares and pay any cost in
which TEP Chile might have to incur in order to carry out such
sale or transfer. TEP Chile has irrevocable assigned to LATAM
the assignable right to acquire all of Holdco I’s voting shares
owned by TEP Chile related to such sale.
Conversion option
Pursuant to the Shareholders’ Agreement of the Controlling
Group and the Shareholders’ Agreement of Holdco I, LATAM
is unilaterally entitled to convert our non-voting Holdco I
shares into Holdco I voting shares up to the maximum al-
lowed by law, and to increase our representation in the
Boards of Directors of both TAM and Holdco I as permitted
by the Brazilian laws that govern foreign property owner-
ships and by other applicable laws if the conversion would
not have an adverse effect (as previously defined in the sec-
tion on “Transfer Restrictions”).
During or after June 2022, and after LATAM would have to-
tally converted all its Holdco I non-voting shares into Hold I
voting shares, as allowed by Brazilian laws and other appli-
cable laws, LATAM shall be entitled to acquire all of Holdco
I’s voting shares owned by TAM’s controlling shareholders for
an amount equal to their taxable base with respect to such
shares and pay any cost that might be incurred in order to
materialize such sale; an amount to which we shall refer as
“sale consideration”. If LATAM does not exercise its right to
acquire such shares on a timely basis, or if, after June 2022
LATAM should be entitled, pursuant to Brazilian laws and
other applicable laws, to convert all of Holdco I’s non-voting
65
CORPORATE GOVERNANCE | Property ownership structure and main shareholders
Dividends
In terms of dividends, the Company has established that
they shall be equal to the minimum legally required; namely
30% of profits pursuant to current regulations. The foregoing
is not inconsistent with the distribution of dividends over and
above such mandatory minimum, in consideration of the pe-
culiarities and circumstances of fact that might be perceived
throughout the year.
Going forward, the Company does not expect any changes in
its dividend distribution policy.
During the years 2014 and 2015, the Company did not show
profits; consequently, no dividends were distributed. Dur-
ing the year 2016, however, the Company provisioned US$
20,766,119 associated to dividends to be payable during 2017.
shares into Holdco I voting shares, and if such conversion
would not have an adverse effect but we would not have ex-
ercised such right fully and totally during a specific period
of time, then, the controlling shareholders of TAM would be
entitled to offer us their Holdco I voting shares for an amount
equal to the sale price.
Acquisition of TAM’s shares.
The parties hereto have agreed that all acquisitions of TAM’s
ordinary shares by the LATAM Airlines Group, Holdco I, TAM
or any of their respective subsidiaries as of and after the
effective date of business combination shall be carried out
by Holdco I.
Insofar as the main organs of Corporate Governance of the
LATAM Airlines Group are concerned, they are: the Board of
Directors and the Directors’ Committee (which, additionally,
embodies the functions of Audit Committee for the pur-
poses of the Sarbanes-Oxley Act of the United States of
America), along with the Committees of Strategy, Finance,
Leadership and Product, Brand and Frequent Flyer Program
created following the association between LAN and TAM. The
main powers of such corporate organs are specified below.
66
Financial Policy
The Corporate Finance Department is responsible for man-
aging the Company’s Financial Policy. This policy enables
responding effectively to changes in conditions other than
the normal business operating conditions and, thus, main-
taining and anticipating a continuous flow of funds toward
ensuring operational continuity.
Additionally, the Finance Committee, integrated by the Ex-
ecutive Vice-president’s Office and LATAM Board Members,
meet periodically to review and propose to the Board of
Directors the consideration and approval of topics not here-
tofore regulated by such Financial Policy.
The Financial Policy of the LATAM Airlines Group seeks to
achieve the following objectives:
► To ensure a minimum level of operational liquidity. To
preserve and maintain adequate cash flows in order to
ensure operational requirements and growth. To maintain
an adequate level of lines of credit with local and foreign
banks in order to react before contingencies.
► To maintain an optimum level and profile of indebted-
ness in a proportion considered reasonable as a function
of operational growth, while bearing in mind the objec-
tive of minimizing financing costs.
► To make cash surpluses yield profits, through financial
investments that guarantee a risk and liquidity consis-
tent with the Financial Investment Policy.
► To diminish impacts implying market risks such as fuel
price changes, foreign exchange and interest rate fluc-
tuations over the Company’s net margin.
► To reduce Counterpart Risks, by diversifying and limiting
investments in counterpart operations.
► To maintain a visibility of the Company’s long-term fi-
nancial projections, in order to anticipate situations of
eventual breach of covenants (agreements), low liquid-
ity, deterioration of financial ratios committed with rat-
ing agencies, etc.
CORPORATE GOVERNANCE | Financial Policy
The Company’s Financial Policy issues guidelines and re-
strictions for the handling of Liquidity and Financial In-
vestment Operations, Financing Activities, and Market
Risk Management.
Liquidity and financial investment policy
During 2016, the LATAM Airlines Group maintained ad-
equate liquidity levels in order to hedge against eventual
external shocks and the volatility and cycles inherent to the
industry, closing as of December 2016 with a liquidity ratio
of approximately 19 % over total sales. Additionally, as of
the closing of the year 2016, the Company kept a commit-
ted revolving line of credit for a total amount of US$ 325
million with both local as well as foreign financial institu-
tions; which, by the year’s end were fully available.
Additionally, during this year 2016, the Company continued
to finance with its own corporate equity an important part
of the advance payments associated to aircraft manufac-
turing (pre-delivery payments) linked to the aircraft that
LATA has ordered and will receive in the future, from both
Boeing as Airbus; whose balance as of December 31, 2016
amounted to US$170 million in pre-delivery payments fi-
nanced with corporate equity.
During 2016, the Company managed to reduce its gross
debt balance by approximately US$ 412 million, which is
explained by the pre-payment of debt maturities totaling
approximately US$ 1,816 million and the drawing new debt
totaling US$ 1,404 million. Among the main financing ac-
tivities carried out during the year 2016 is the issue of debt
linked to the acquisition of aircraft and engines for approxi-
mately US$ 903 million, and US$ 501 million of bank debt.
With respect to the Company’s Financial Investment Policy,
the objective is to centralize investment decisions so as to
optimize profitability, corrected by currency risk and subject
to maintaining an adequate level of safety and liquidity.
67
CORPORATE GOVERNANCE | Financial Policy
Additionally, such policy seeks to manage risk through the
diversification of counterparts, deadlines, currencies and
instruments (securities).
With respect to short-term financing, as of December 31,
2016, LATAM kept about 3% of its total debt in exporter
and importer loans aimed at financing working capital re-
quirements.
Financing Policy
The scope of LATAM’s Financing Policy is to centralize fi-
nancing activities and offset the useful life of assets with
the maturity of the debt.
Most of the investments materialized by the LATAM Airlines
Group correspond to fleet acquisition programs, which are
generally financed through a combination of corporate eq-
uity and long-term structured financial debt. Normally, LA-
TAM finances between 80-85% of such programs with bank
loans or bonds secured by export promotion agencies, while
the remaining portion is usually financed with commercial
loans and corporate equity.
The payment terms of the different financing structures
vary between 12-16 years, while the vast majority of them
are at 12 years. Additionally, LATAM hires a significant per-
centage of its fleet acquisition commitments through op-
erational leases as an additional financial tool.
With the objective of diversifying aircraft financing alter-
natives, on May 29, 2015 LATAM issued and placed private
debt securities denominated Enhanced Equipment Trust Cer-
tificates (“EETC”) for an aggregate amount of US$ 1,020.8
million. The execution of this operation allowed financing
the acquisition of eleven new Airbus A321-200, two Airbus
A350-900 and four Boeing 787-9 that were delivered during
2015 and the first half of 2016. The total amount of debt
securities issued during 2016 amounted to US$ 345 million.
In addition, on May 18, 2016, the company executed com-
mercial financing in the Senior and Junior formats for a total
amount of US $ 456 million to finance the acquisition of
three Airbus A350-900s and one Airbus A320neo.
Another objective of the Company’s Financial Policy con-
sists in ensuring a stable profile of debt and lease com-
mitment maturities, including servicing the debt and paying
fleet leases, which would be consistent with LATAM’s oper-
ating cash flow.
Market risks policy
Given the nature of its operations, the LATAM Airlines Group
is exposed to market risks, such as: (i) fuel price risks; (ii) rate
of interest risks; and, (iii) foreign exchange rate risks. With
the objective of hedging against these risks, either totally or
partially, LATA operates with derivative instruments to fix or
limit hikes in underlying assets. Market Risk Management is
performed in an integral manner and considers the existing
correlation of each exposure. In order to operate with each
counterpart, the Company must have an approved line and
a specific contract executed with the chosen counterpart.
Such counterpart must have a Risk Classification, issued by
an International Risk Classification Agency, equal or greater
than an equivalent “A-“rating.
i. Fuel price risks:
Fuel price fluctuations significantly depend on: fuel supply
and demand worldwide; the decisions adopted by the Orga-
nization of Petroleum Exporting Countries (OPEP); refining
capacity worldwide; maintained inventory levels; the occur-
rence or lack of climactic phenomena; and, on geopolitical
factors. LATAM purchases jet fuel denominated Grade 54
Jet Fuel. There is a reference index in the international mar-
ket for this underlying asset; namely, the US Gulf Coast Jet
54, which was used by the LATAM Airlines Group for its 2016
hedging operations.
68
Our Fuel Hedging Policy restricts the minimum and maximum
fuel range to hedge against, as a function of the capacity to
pass these cost fluctuations onto prices and on the market
scenario reflected in fuel prices. Additionally, it restricts the
maximum hedging period and allows portfolio restructuring.
With respect to fuel hedging instruments, our Policy allows
contracting Swaps and Options combined.
ii. Interest rate risks to the cash flow:
Interest rate fluctuations depend heavily on the state of the
world economy. An upward movement of long-term eco-
nomic prospects pushes long-term rates upward, while an
economic slowdown causes them to drop driven by market
forces. However, if governmental intervention is considered,
during economic contraction periods referential rates of-
ten drop in order to boost aggregate demand upon making
credit more available and, in turn, expanding production (in
the same manner that such referential rates increase during
economic expansion periods).
The existing uncertainty as to how the market and govern-
ments will behave and, consequently, as to how the rate of
interest will fluctuate, represents a risk associated to LATAM’s
variable interest rate debt and its investments. The rate of
interest risk on the debt is equivalent to the risk of the future
cash flows of the financial instruments, given the fluctuation
of market interest rates.
iii. Foreign exchange rate fluctuation risks:
The functional currency used by the Parent Company is the
United States Dollar (USD), in terms of the pricing of its ser-
vices, the composition of its financial statement, and the ef-
fects on its operating results. There are two types of foreign
exchange rate risks: cash flow risks and balance sheet risks.
The cash flow risk is generated as a consequence of the net
position of non-USD revenue and costs.
LATAM sells most of its services in USD, at prices equiva-
lent to the USD and Brazilian Reals. Approximately 58% of
the revenue is denominated in USD, while approximately 21%
is denominated in Brazilian Reals. Most expenses are de-
nominated in USD or USD equivalents, particularly fuel costs,
aeronautic duties, aircraft leases, insurance, and aircraft
parts and accessories. Payroll expenses are denominated in
local currencies. The total percentage of USD-denominated
costs is about 56%, while the approximate Brazilian-Real-
denominated costs are 17%.
The LATAM Airlines Group maintains the majority of its inter-
national passenger and cargo business tariffs in USD. A portion
of the tariffs of the international passenger business depends
significantly from the Euro. In the domestic businesses, most
fares are stated in local currency without any type of USD in-
dexation. In the case of Ecuador’s domestic business, both its
tariffs as well as its sales are stated in USD. As a result of the
foregoing, LATAM is indeed exposed to the fluctuation of vari-
ous currencies, mainly the Brazilian Real and the Euro.
LATAM’s exposure to market interest rate fluctuation risks is
mostly related to variable-rate long-term debt.
In order to diminish the risk before eventual interest rate
hikes, the LATAM Airlines Group maintains interest rate
Swaps in effect.
The LATAM Airlines Group has hedged against foreign ex-
change exposure risks mainly using currency forward and
option contracts. Thus, as of December 31, 2016, LATAM is
mainly hedged against the Brazilian Real for US$ 60 million for
the January-March 2017 period.
The instruments approved by the Company’s Rate of Interest
Hedging Policy are: interest rate Swaps and Call Options.
On the other hand, the balance sheet risk presents itself
when balance sheet entries are exposed to foreign exchange
rate fluctuation risks, since such entries are stated in a
monetary unit other than the functional currency. Although
CORPORATE GOVERNANCE | Financial Policy
LATAM is entitled to execute derivative hedging contracts
against the impact of the eventual appreciation or depre-
ciation of currencies with respect to the functional currency
used by the parent company, during the year 2016 LATAM
did not execute any hedging contract against such eventual
balance sheet risk.
The main mismatch factor here is generated in TAM S.A. since
its functional currency is the Brazilian Real and a significant
portion of its liabilities are stated in USD. At the closing of
2016, TAM entered into a derivative contract to partially hedge
this balance sheet mismatch, whose net value on TAM’s bal-
ance sheet amounted to approximately US$1,100 million.
69
OPERATIONS
70
OPERATIONS | International Passenger Operations
Twelve new international routes during 2016
The international passenger operation considers regional
flights within South America and The Caribbean, and the
long-range ones between this subcontinent and the rest of
the world. In 2016, the company served 50 destinations in
25 countries, with 29 regional (including four cities in the
Caribbean) and 32 long-haul routes.
During the year 2016, the international business continued
to develop amidst a complex regional macroeconomic envi-
ronment, characterized by the weak growth in the countries
in which LATAM operates, added to Brazil’s second decline
year, in addition to a significant devaluation of Latin Ameri-
can currencies.
During this period, moreover, the market was character-
ized by a strong competitive pressure in the region, mostly
attributable to the entry of new operators in international
routes to/from Spanish-speaking countries, and by an in-
creased supply in the industry in general, as a result of the
adjustments introduced in Brazil and the subsequent real-
location of such capacity.
In order to mitigate the effects of this complex scenario,
the LATAM Group intensified the downsizing of its supply of
routes from Brazil to the United States, with reductions of
up to 35% capacity toward the end of 2016. By contrast, it
continued to boost its supply along those routes with greater
demand, especially from Spanish-speaking countries, both
for regional as well as long-haul flights, while also launching
new routes to the United States, Europe and Africa.
As a result of the reduced capacity applied by different op-
erators in Brazil, added to the appreciation of currencies,
mainly the Brazilian Real, market conditions indeed im-
proved as of the second half of the year, which resulted in a
recovery of average tariffs on international flights.
Within this context, the LATAM Group remained the main
operator in these regional flights, with 15 million passen-
gers transported; i.e. 6.7% more than in the previous year.
Of the total passengers transported in this period, 9.2 mil-
lion corresponded to passengers flying regional routes and
5.9 million to passengers flying long-haul flights.
Its consolidated traffic of passengers transported in inter-
national flights (measured in RPK) increased 7.4% as com-
pared to the previous year, while its capacity (measured in
ASK) increased by 5.6%, thereby turning out a healthy oc-
cupation factor of 82.6%; i.e. an increase of 1.4 percentage
points in relation to 2015.
The LATAM Group’s international operation has had a sig-
nificant growth in recent years thanks to the delivery of a
unique, improved and differentiating proposal and to the
continued strengthening of the connections network; an at-
tribute that is highly valued by the passengers in this type
of operations.
In line with its objective of consolidating its network lead-
ership while offering the best connectivity to its passen-
gers, in 2016 the Company opened up 12 new international
routes, seven of which are regional and five long-hauls.
Regional flights
At the regional level, in 2016 we opened the Lima-Mon-
tevideo routes, with five weekly flights; Lima-Rosario and
Lima-Salta, with four and three weekly flights, respectively,
thereby boosting the Peruvian capital as one of LATAM’s
main hubs in the region. Along the same lines, the Com-
pany announced the opening of the Lima-Cartagena de In-
dias (Colombia) route as of January 2017, thus becoming the
first industry operator to connect these two cities. With four
weekly frequencies, this new route aims at strengthening the
connectivity between Peru and Colombia; which, as of this
date, has seven weekly frequencies along the Lima-Bogota
route operated by LATAM Peru and 14 weekly frequencies
along the Bogota-Lima route operated by LATAM Colombia.
71
OPERATIONS | International Passenger Operations
Additionally, the Company announced the opening of the
Lima-Mendoza (Argentina) route as of February 2017.
Thus, LATAM Peru will have added nine new international
destinations in just two years, expanding to 29 its network
of flights and direct connections from the capital of Peru
to the world.
Other international routes inaugurated in 2016 are Bogota-
Buenos Aires, Iquique-La Paz, Iquique-Santa Cruz and San-
tiago-La Paz. On the other hand, the Company announced
the beginning of direct flights between Santiago, Chile to
Santa Cruz, Bolivia as of March 2017, with three weekly fre-
quencies, also becoming the only airline to operate direct
services between the two cities, offering greater comfort
and faster travel times than any other operator.
All things considered, in terms of regional routes, the Com-
pany maintained its market leadership increasing its mar-
ket share to 45%, measured in terms of capacity (ASK). Its
main competitors on these routes are: Avianca, Aerolíneas
Argentinas and GOL, which achieved a market rate of 23%,
11% and 9%, respectively, among others.
Long-haul operations
On long-distance routes, the Company covered 20 desti-
nations as of December 2016; with the United States and
Europe remaining the most relevant markets and, conse-
quently, the most strategic for LATAM.
During this year, the Company inaugurated five new routes,
three of which are to the United States, prominent among
which is a direct non-stop flight between Lima and Wash-
ington. This is the only regional airline to directly connect
(with three weekly frequencies) the capitals of Peru and the
United States. Washington thus became the fifth destina-
tion served by the LATAM Group in that country from Lima,
adding to its operations in New York, Miami, Los Angeles
and Orlando from where passengers can connect to over 60
cities within the United States, thanks to the agreements
entered into with our partner airlines. The other two routes
to the United States inaugurated during this year are: Reci-
fe-Miami and Santiago-Los Angeles.
Moreover, in December 2016, the Company opened a non-
stop route between Lima and Barcelona, with three flights
per week; an operation that complements the LATAM
Group’s direct daily flights between Sao Paulo and Barce-
lona, as well as its direct services from Lima, Sao Paulo,
Santiago and Guayaquil (Ecuador) to Madrid, whose pas-
sengers can make flight connections to/from Barcelona
through Iberia, its OneWorld ally.
Among the main milestones of the year stands out the
opening in October of direct flights between Guarulhos (Sao
Paulo) to Johannesburg, South Africa’s largest and most
populated city, thus becoming the only Latin American
airline connecting the region with a country of the African
continent with its own flights and three weekly frequencies.
With respect to flights to North America (which, in addition
to the five US destinations include Cancun and Mexico City),
LATAM positioned itself as the second market operator
(measured in ASK) with a 20% market share, after American
Airlines’ 21% and Copa’s 13%, among its main competitors.
Regarding operations to Europe, the Company stood in third
place, with a 13% market share (versus 12% in 2015) mea-
sured in ASK; a market that is led by Air France-KLM and
the IAG Group, with 21% and 19%, respectively.
In terms of Oceania operations, on the other hand, LATAM
consolidated itself as the main operator, expanding its
market share to 44% (versus 43% in 2015), where it com-
petes the Australia’s Quantas and Air New Zealand, which
reached market shares of 36% and 20%, respectively. In
this case, the Company flies to Auckland, Sydney, Papeete
and Easter Island.
It is worth noting that in 2016 LATAM announced a new
direct flight between Santiago, Chile and Melbourne, Aus-
tralia beginning in October 2017, thereby reinforcing its
commitment to the Asia Pacific region, as well as the
72
OPERATIONS | International Passenger Operations
connectivity between South America and Oceania. With a
stretch of 11,000 kilometers and duration of 15 hours, this
will become the longest flight in LATAM’s history. Moreover, it
will become the first airline ever to link Latin American coun-
tries non-stop to Melbourne, Australia’s second largest city
with 4.5 million inhabitants. The Company is poised to oper-
ate this route tree times per week, this becoming the second
Australian city, along with Sydney, where LATAM operates
(via Auckland in New Zealand).
and better connection times, in addition to better prices to
destinations never before flown by LATAM. These agreements
deepen the relationship between the LATAM Group and the
other members of OneWorld Alliance, reflecting a world-
wide industry trend that took off some two decades ago. The
Company expects the respective approval processes to make
quick progress and soon become a reality in order to connect
ever more persons from Latin America with the rest of the
world and vice-versa.
Additionally, in 2016 the Company continued to strengthen
its commercial alliances with other Airlines, such as inter-line
agreements, shared codes and its OneWorld Alliance mem-
bership. In this realm, the shared code agreement entered
into between LATAM Airlines Colombia and Iberia, aimed at
strengthening non-stop flights to Europe, stands out. The
routes offered via this agreement are: Bogota-Madrid, with
seven weekly frequencies, Cali-Madrid and Medellin-Madrid,
with three weekly frequencies, respectively.
In this respect, however, LATAM’s most relevant and strate-
gic project is its Joint Business Agreement (JBA) with Ameri-
can Airlines and the International Airlines Group (for its Brit-
ish Airways and Iberia airlines), which will permit to expand
the Group’s international network to over 420 destinations in
North America and Europe, principally, offering more flights
Fleet
In order to develop its international operations, in 2016 the
Company used a fleet comprised of an average of 122 air-
craft throughout the year. In order to serve its regional routes
it operated aircraft of the Airbus A320 family. Whereas, for
long-haul flights it used Boeing 767 and 787 aircraft (in their
versions 8 and 9), in addition to the new Airbus A350 incor-
porated to its fleet, which as of December 2016 totaled seven
such units. The latter aircraft were mostly allocated to boost
the routes from Sao Paulo to Miami and Orlando, in the USA,
and from Sao Paulo to Madrid and Milan, in Europe.
It is worth noting that in December we incorporated a third
Boeing 767-300 to the fleet of LATAM Airlines Argentina (fol-
lowing 10 years of work and commitment in the country),
enabling it to expand its supply of flights along the Buenos
Aires-Miami route, increasing such frequencies from 7 to 11
per week.
In terms of service, in addition to offering flights using the
most modern fleet of the continent, the Company continued
to invest this year in technological platforms and/or solutions
to optimize its passengers travel experience. In addition to the
entertainment system which they can access using their own
mobile devices during the flights, it is worth highlighting an
application that affords them greater control over their trip,
such as checking-in, selecting their seat, saving their boarding
passes without the need to print them, checking the status
of the flight and carrying a register of all their trips in their
smartphones, among other options.
Additionally, the LATAM Group made available to its clients
yet another application permitting them to learn about the
status of their flight and choose, via the airline’s website, the
best rescheduling alternatives in case of delays or contin-
gencies, speeding up the entire process and making it more
effective. All of the above, in line with the objective of im-
proving and progressively simplifying the travel experience
of its passengers.
73
OPERATIONS | Brazil
BRAZIL
Improving connectivity from the main hubs:
Sao Paulo and Brasilia
With 210 million inhabitants, Brazil is by far the largest
South American domestic market and the third worldwide,
with more than 88 million passengers transported within
the country during 2016. This is a market with low penetra-
tion in air transportation and high growth potential, which is
why it continues to be an opportunity for the LATAM Group.
The year 2016 it was particularly complex for the trans-
port of passengers in Brazil, with its economy undergoing
a severe recession. As a result, the 2016 projections of the
International Monetary Fund are for a 3.5% GDP slowdown,
this being the first time that the country undergoes two
consecutive years of economic contraction. In 2015, the
drop in GDP was 3.8%, the worst performance since 1990.
At the beginning of 2016 the U.S. dollar surpassed the level
of R$ 4, the highest in the history of the Real Plan; how-
ever, throughout the year it had a significant drop of 18%.
Inflation, on the other hand, stood at 6.4%.
This recession had a direct impact on commercial aviation,
particularly affecting the demand for corporate passen-
gers (persons travelling on business). For the LATAM Group,
Brazil’s domestic operation represents approximately 43%
of the total number of passengers transported; a number
higher than the sum of all its local operations in the Span-
ish-speaking countries where it operates.
Key toward mitigating the impact of the country’s slow-
down and especially the weakness of the real has been the
Company’s supply discipline applied since entering Brazil
in 2012; a market that is yet characterized by a situation
of overcapacity.
During 2016 the company continued focused on main-
taining its strategic position within Brazil, enhancing con-
nectivity from its major hubs, as are the Guarulhos and
Brasilia terminals.
In this context, during 2016 LATAM Airlines Brazil reduced
its supply by 11.5%, measured in ASK (available seats per
kilometer), which adds to the 2.5% decrease applied in
2015; from 1.4% in 2014 and 8.4% in 2013. On the other
hand, demand decreased by 10.7% measured in RPK (rent-
ed kilometers per passenger), resulting in a healthy total
occupancy factor of 82.3% for the year, thus representing
an advance of 0.8 percentage points when compared to
the previous year.
By December 2016 the company operated 44 airports,
with approximately 580 daily domestic flights. With 29
million passengers transported in the year, representing a
9.7% decline when compared to 2015, the Company closed
the year as the second major market operator in domestic
routes -with a 35% market share, measured in RPK (pas-
sengers transported per kilometer); namely, 1 percentage
point less than the GOL airline; next came Blue with 17%,
among the major competitors.
In order to develop its domestic operations, the Company
used an average fleet of 100 aircraft, which included 30
Airbus A321 -three more than in 2015- allowing it to more
efficiently serve high density routes. It should be noted
that the LATAM Group is currently the only operator of this
type of aircraft in Brazil. Another important achievement
of this year was adding the first A320neo aircraft of the
Americas to the LATAM Airlines Brazil fleet, whose initial
flight took place on September 19.
74
OPERATIONS | Brazil
In 2016, and for the eighth consecutive year, TAM was the
most recalled brand in the airlines category of the “Top of
the Mind” ranking promoted by Folha de Sao Paulo newspa-
per. Also for the eighth consecutive year, the company won
the airline category of the 19th Edition of the ranking of the
most admired companies in Brazil, in the survey carried out
by Officina Sophia.
Even amidst a challenging scenario, the company made
great strides in the consolidation of its identity as LATAM
Group; a brand that it used in its work as the official air-
line of the 2016 Olympic Games (August) and the 2016 Rio
Paralympics (September). The first aircraft with the new
corporate image took off from Rio de Janeiro on May 2,
bound for Geneva, Switzerland, to pick up the torch and
convey it to the Brasilia terminal, the country’s most im-
portant hub for flights to the interior of the country. Sub-
sequently, the company transported the Olympic flame
over eight thousand kilometers in 12 domestic flights, for
15 days, landing in 13 cities of the North, Northeast and
Central-West Brazil regions, in a special operation con-
ducted over an Airbus A319 aircraft. In order to meet the
demand stemming from the Olympic Games, the network
of flights was fitted with more than 140 additional flights,
whereas during the month of August the Rio-São Paulo
system operated with an occupancy factor of 81% (com-
pared to 68% in same month of 2015).
75
ARGENTINA
We serve 15 domestic destinations
in the country
With 11 years of operations in the country, LATAM Airlines
Argentina has positioned itself as the second operator of
that’ country’s domestic flights, in a market characterized
by a strong dominance of Aerolíneas Argentinas, the state
flag company, which concentrates 75% of the business.
During the year 2016 the company transported 2.6 mil-
lion passengers on domestic air routes, 7.0% more than in
2015, achieving a market share of 25%, with an increase of
0.6 percentage points over the previous year. The Compa-
ny’s consolidated traffic, measured in passengers per kilo-
meter (RPK) grew 7.2%, while its capacity (ASK) increased
5.5%, representing an occupation factor of 77.0% with an
increase of 1.3 percentage points in relation to the previ-
ous year.
This achievement has been possible thanks to persistent
work focused on providing a differentiated value proposal,
incorporating the highest standards of security and quality
of service.
LATAM Airlines Argentina has 15 domestic destinations
that connect Buenos Aires to/from the cities of Bahia
Blanca, Bariloche, Comodoro Rivadavia, Cordoba, El Cala-
fate, Iguazu, Mendoza, Neuquen, Río Gallegos, Rosario,
Salta, San Juan, Tucuman and Ushuaia. Aiming to enhance
connectivity to the interior of the country and respond
to the demand, in 2016 the Company increased its daily
flights from Buenos Aires to Córdoba from 5 to 6, reaching
40 weekly flights on this route; It also increased from 21
to 26 its weekly flights from Buenos Aires to Neuquén and
boosted its flights to Tucumán, with three weekly flights.
OPERATIONS | Argentina
76
OPERATIONS | Argentina
In addition to strengthening the itineraries, check-in and
preventive task processes were also strengthened to mini-
mize delays, including the use aircraft access gateways
(mangas) and the improvement in luggage delivery times
at all airports of the country.
In order to fly domestic routes, the Company used 15
Airbus aircraft of the A320 family, one more than in the
previous year. These aircraft are considered the most ef-
ficient in the industry for domestic operations, while offer-
ing the most spacious and comfortable passenger cabin in
the category. Moreover, they are all equipped with the new
IFE Wireless Entertainment Service on board, allowing the
traveler to access movies, music, games and information
content through their own mobile devices, thus making
their flying experience more enjoyable.
Thanks to all these initiatives, the company was enshrined
in 2016 as an aeronautical industry leader in terms of cus-
tomer experience, according to the study that shows the
percentage of “brand advocate persons”, which measures
the relationship between customer loyalty and the cre-
ation of value in the companies.
LATAM Airlines Argentina operates from Buenos Aires at
the Ministro Pistarini (Ezeiza) Airport and at the Aeroparque
Jorge Newbery Airport, the country’s most important do-
mestic terminal. The Company inaugurated its own hangar
within that facility in November 2009.
77
OPERATIONS | Chile
CHILE
Record number of passengers
transported during 2016
During the year 2016 air transport operations in Chile
registered a dynamic behavior, which was reflected in
the record number of passengers transported within the
country, representing 10.6 million people and a growth of
9.4% (without considering Easter Island) when compared
to the previous year, according to statistics prepared by
the Civil Aeronautics Board (JAC, in its Spanish acronym).
Although the local economy had a poor performance,
with a GDP of 1.7% according to International Monetary
Fund estimates, the sustained tariff reduction applied
by the industry at large in recent years has been key in
stimulating domestic air travel demand and, consequent-
ly, increased domestic air traffic.
Chile’s aero-commercial policies allow all companies to en-
ter the market provided that they meet certain technical
requirements, where each airline is free to develop its own
business; a situation that has also allowed introducing new
low-cost business models in the market, both for domestic
as well as international routes.
In this environment of increased competition, LATAM Air-
lines Chile has remained the leading operator in domes-
tic routes, thanks to its continuous efforts to offer com-
petitive rates, while maintaining its differentiated service
proposal focused on customer satisfaction. This is how in
2016 the company transported more than 7.8 million pas-
sengers, 8.8% more than in 2015, reaching a market share
of 73.1% measured in passengers carried, with a drop of
0.4 percentage points when compared to the previous
year. On domestic routes it competes mainly against SKY
Airlines, which this year raised its participation to 25.9%.
The Company’s consolidated passenger traffic (RPK) grew
9.6% and its capacity increased 10.0% measured in ASK
(seats per kilometer), as compared to the previous year;
moreover, as a result of the foregoing, its average occu-
pancy factor stood at 83.0%, similar to that obtained in
2015.
LATAM Airlines Chile serves 16 domestic destinations (not
considering Easter Island), covering the main cities from
north to south such as Santiago, Arica, Iquique, Calama,
Antofagasta, Copiapo, La Serena, Concepcion, Temuco,
Valdivia, Osorno, Puerto Montt, Castro, Balmaceda, Puerto
Natales and Punta Arenas. It should be noted that Puerto
Natales, located in the southernmost part of the country,
south of the Chilean Patagonia, was inaugurated in De-
cember, initially with two weekly flights from Santiago and
in January 2017 were expanded to four such weekly fre-
quencies, which remained operational until February 2017.
With the opening of this new route, the Company seeks to
continue to contribute to the development of the nation
and its regions, and to draw all passengers near to one of
the world’s main tourist attractions, both national and in-
ternational. According to National Geographic, Puerto Na-
tales is the fifth most beautiful place on Earth, and more
than five million people voted for it as “the eighth wonder
of the world” in a survey conducted by the online travel
guide Virtual Tourist.
Likewise, in 2016 the company significantly increased
tourist route opportunities (17% more seats than in the
previous year), including flights to Arica, Iquique, Puerto
Montt, Castro, Balmaceda, Puerto Natales and Punta Are-
78
OPERATIONS | Chile
On its Easter Island route, on the other hand, the Company
has been using its Boeing 787 Dreamliner since 2015.
It should be noted that LATAM Airlines Chile’s entire fleet
has been equipped with a modern on-board entertainment
system upon installing, during the first quarter of the year,
IFE Wireless technology in all its aircraft used to serve its
domestic flights.
nas. This was partly accomplished by increasing flight
frequencies in these markets and also by using a greater
percentage of A321 aircraft, with a capacity for 220 pas-
sengers; 46 seats more than the A320.
In the same vein, LATAM Airlines Chile modified its itinerary
by offering a direct flight to the island of Chiloe (formerly
with a stopover in Puerto Montt), reducing by more than
one hour the time of travel to this island destination.
In order to serve its domestic routes, the company used
a fleet composed by 27 aircraft of the Airbus A320 fam-
ily, two more than in the previous year. During this period,
four A321 aircraft joined the fleet, completing a total of 12
aircraft of this model by the end of the year. The Airbus
A321 is the largest and most modern aircraft of this fam-
ily whose technology, materials and aerodynamics allow a
more efficient operation, a strong reduction of CO2 emis-
sions and lower fuel consumption.
79
OPERATIONS | Colombia
COLOMBIA
Colombia’s most punctual airline
for the fourth consecutive year
Colombia is Latin America’s third largest air traffic market,
with a rate of 0.7 trips per capita per year; an indicator
that although exceeds the average of the countries of the
region where the company operates, is still quite distant
from the rates experienced in developed countries such
as United States and England, with two or more trips by
person per year.
The year 2016 posed significant challenges overall to the
airline industry in Colombia, as a consequence of the in-
creased value of the US dollar and of the economic slow-
down in the country, compounded by an increasing com-
petition that has been characterizing the market (at year’s
end began to operate Wingo, a new low-cost airline owned
by Copa Airlines). Even though rates have fallen 13%, the
number of passengers carried on domestic flights grew 4.4
percent, evidencing a slowdown in the dynamism shown
by domestic operations during the last decade, with aver-
age expansion rates of 11% per year.
In this scenario, LATAM Airlines Colombia continued to
strengthen its value proposal focused on the client and,
at the same time, on its own competitiveness and effi-
ciency by reducing operating costs and passing them on
to lower rates and thus maintaining sustainable levels of
profitability over time.
With five years of operation in the country, the Company
remained during this year as the domestic market’s sec-
ond airline, with 4.8 million passengers transported in
domestic flights, 4.4% more than in 2015 and achieving
a market share of 21.1%, measured in RPK, growing 0.7
percentage points in relation to the previous year.
In domestic routes, the Company competes with the Co-
lombian nation’s flag carrier, Avianca, the market leader
with a market share of 58.1%, besides Viva Colombia
(13.8%); Satena (3.0%); Easy Fly; and, Copa/Wingo with
less than 2% each, among the top ones.
LATAM Airlines Colombia serves 14 destinations in the local
market, offering a wide connectivity from Bogotá and Me-
dellin. In 2016, its consolidated air passenger traffic (RPK)
grew 8.9% and its capacity increased by 6.8% (ASK); and,
consequently its occupation factor stood at 80.3%, with an
advance of 1.5 percentage points in relation to 2015. It
should be highlighted that starting on July the company
suspended the operation of the Cali-Medellin-Cali route
that operated with two daily frequencies; however the
connectivity between both cities was maintained without
modifications from the city of Bogota. The decision to sus-
pend this route was adopted considering the low level of
passenger occupancy of these flights.
Beginning in March 2017, the company will begin operating
two new routes to the interior of the country, such as Cart-
agena-San Andres and Medellin-Santa Marta, initially with
four weekly flights in each case. In this manner, the LATAM
Group seeks to strengthen the network of connections in
Colombia and continue boosting demand for travelers to
the North of the country, with flights connecting directly
with cities other than Bogota, taking a new step toward
decentralizing its domestic operations.
To serve its domestic flights, in 2016 the Company used a
fleet composed by 17 Airbus aircraft of the A320 family,
two more than in the previous year; eight of which cor-
respond to Airbus A320 and nine to Airbus A319; a model
80
OPERATIONS | Colombia
that LATAM Airlines Colombia began to operate in October
of 2016. All of these aircraft are equipped with a modern
on-board wireless entertainment system that operates
through a mobile application.
In terms of service, one of the landmarks of the period
is the consolidation of LATAM Airlines Colombia -for the
fourth consecutive year- as the most punctual airline in
the country on domestic flights, with 97.4% punctuality
according to the latest airline compliance report prepared
by Colombia’s civil aviation authority covering the first half
of 2016. This recognition is due to the Company’s continu-
ous effort toward promoting a culture of punctuality within
the organization, by investing in training, technology and a
modern fleet. For LATAM Airlines Colombia, punctuality is
indeed an attribute that differentiates it before its clients.
On the other hand, the District’s Environmental Secretariat
(Secretaría Distrital de Medio Ambiente) distinguished LA-
TAM Airlines Colombia as a leader in environmental man-
agement and performance in Bogotá (District’s Program of
Environmental Excellence – PREAD, in its Spanish acro-
nym). Following a rigorous evaluation by over 100 compa-
nies, the Company joined the “Environmental Excellence,
generating sustainable development” level, comprised of
those organizations that, in addition to complying with
environmental regulations, have an environmental man-
agement system in place based on continuous improve-
ment permitting compliance with its environmental per-
formance indicators.
Along this line, and for the third consecutive year, LATAM
Airlines Colombia offset the CO2 emissions of its 2015
land operations by acquiring 1,335 carbon bonds of the
restoration project of degraded areas in Caceres, located
in the northeast of Colombia in the Department of An-
tioquia. In total, the company has offset 3,346 tons of
carbon dioxide emissions that correspond to their land
emissions from 2013 to 2015.
81
OPERATIONS | Ecuador
ECUADOR
About 1 million
passengers transported
During 2016, air operations in Ecuador developed in a com-
plex economic environment derived mostly from the fall
of petroleum prices (one of the country’s main sources of
income), the valuation of the US dollar, currency devalua-
tions in neighboring countries, and the devastating earth-
quake that hit the country’s east coast in April. All of these
shocks had a profound economic impact. Thus, the coun-
try’s GDP closed the year with a 2.3% drop, according to
International Monetary Fund estimates; the region’s worst
economic performance after Brazil.
Within this context, LATAM Airlines Ecuador transported
nearly 1.0 million passengers along domestic routes; a drop
of 8.3% when compared to 2015. Its consolidated traffic
of passengers slowed down by 2.4%, as measured by RPK,
whereas its average capacity, measured in ASK, dropped by
0.7% as compared to the previous year. Consequently, the
country’s average occupation factor stood at 79.3%; a drop
of 1.4 percentage points in relation to 2015.
The Company began its domestic operations in Ecuador in
2009 and since then it has been progressively positioning
itself as a relevant actor in the country’s domestic routes,
thanks to continuous work aimed at giving its clients a dif-
ferentiating value proposal in terms of service. In 2016, it
achieved a market share of 30.5%, measured in ASK, with a
slight increase of 0.2 percentage points with respect to the
previous year. The Company’s main competitors include
the country’s flag carrier, Tame, with 40.8% market share
as of this closing, and Colombia’s Avianca with 28.7%.
added the direct flight Quito-Baltra inaugurated in 2016,
offering connectivity that seeks to promote tourism and
national economic development.
On the occasion of the strong earthquake that impacted
the country, in April LATAM Airlines Ecuador and LATAM
Airlines Cargo activated their Solidary Airplane Program
which is triggered under emergency situations that require
the urgent transportation of humanitarian aid. Thus, during
one entire month the Company transported volunteers and
more than 600 tons of humanitarian aid to earthquake-
ridden zones. Moreover, the Company also activated soli-
dary flights along the special Quito-Manta-Quito route
for the transportation of donations and volunteers of the
Quito Metropolitan District.
On the other hand, the Company’s regular flights from/to
Cuenca were affected toward the end of the month of April
until mid-September because of the landing restriction
on wet runway issued by the country’s aeronautic author-
ity and by the subsequent closure of the Mariscal del Mar
Airport, for one entire month, for runway repair work. This
situation derived in the cancellation of nearly 149 flights,
affecting LATAM and Tame; the two airlines serving Cuenca.
During this period, LAM Airlines Ecuador maintained its cli-
ents continuously informed and offered commercial facili-
ties to affected passengers. The Company ultimately was
able to renew its regular flight program on September 19,
following the opening of the air terminal.
LATAM Airlines Ecuador operates in five cities of the
country, via the Quito-Guayaquil and Quito-Cuenca routes,
Quito-Guayaquil toward the St. Christopher Islands and
Baltra in the Galapagos Archipelago, to which must be
Among the initiatives implemented to encourage tourism
travel, the Company launched a new catalog in Alliance
with national and international operators, with a broad
range of tariff promotions available at travel agencies.
Until December 2016 nine destinations were offered with
82
OPERATIONS | Ecuador
20 land service combinations, including lodging and routes
provided by wholesale tour operators.
In order to serve the domestic routes, LATAM Airlines Ec-
uador used a fleet of three aircraft Airbus A319, without
variations from the previous year. These aircraft are small-
er in capacity, compared to the A320 and allow adapting
to demand conditions in this market. Additionally, they
are equipped with LATAM’s modern on-board entertain-
ment system, which offers the best travel experience to
passengers.
In line with industry trends and the development of the
digital experience at all stages of the trip, LATAM Airlines
Ecuador transformed one of its commercial Quito offices
into a kiosk, with three self-service modules. In each mod-
ule the passengers can access www.latam.com to perform
searches, book and pay tickets, manage LATAMPass ac-
counts and inquire about products and services.
In is worth highlighting that in 2016 LATAM Airlines Ecuador
was distinguished with the eCommerce awards, as an elec-
tronic commerce leader in the tourism category, an initia-
tive of the eCommerce Institute co-organized by Ecuador’s
Chamber of Electronic Commerce; and the eDay Award
in the Large Corporations category, the latter of which is
awarded by the Guayaquil Chamber of Commerce. Both
distinctions confirm and consolidate the Company’s lead-
ership in the field of electronic commerce.
Additionally, in 2016 LATAM Airlines Ecuador became wor-
thy of the Recognition for Operational Security Manage-
ment awarded by Mariscal Sucre International Airport.
Among others, the Company also received recognitions
from Ecuador’s Red Cross and the Corps of Firefight-
ers of Quito’s Metropolitan District Firefighters, both for
transporting humanitarian aid to the areas affected by the
earthquake as well as for transporting firefighter volunteer
to such areas.
83
OPERATIONS | Peru
PERU
Leaders in one of the best performing
economies in the region
Peru once again on 2016 stood as one of the top perform-
ing economies in the region, closing the year with a GDP
growth of around 3.8% (versus 3.3% in 2015), according to
estimates prepared by the International Monetary Fund
(IMF). In this context, domestic market passenger air traffic
continued to grow, reaching over 10 million persons trans-
ported during the period.
With its 17-year presence in Peru, the bargain air tariff
model promoted by the LATAM Group as of the year 2006
has been decisive in the growth of its domestic market,
which tripled during the last decade.
With 6.6 million passengers transported in domestic flights
(6.7% more than in 2015), LATAM Airlines Peru remained
the main operator of these routes with a market share of
61.4%. Its main competitors are Peruvian Airlines and Avi-
anca; which, during this period, reached market shares of
12.5% and 11.9%, respectively, followed by LC Peru with
8.4% and Star Peru with 4.5%.
Its consolidated passenger traffic (RPK) grew 6.5% and its
capacity (ASK) increased by 8.0% as compared to 2015;
consequently, the occupation factor stood at 80.4%, with
a drop of 1.2 percentage points with respect to the previ-
ous year.
LATAM Airlines Peru serves 17 destinations in the country,
offering a varied range of daily flights aimed at meeting
the demand and generating greater passenger traffic. For
example, it offers 22 daily flights to Cusco, 10 to Arequipa,
6 to Piura, 5 to Iquitos, 4 to Chiclayo, Juliaca, Tarapoto and
Trujillo, 3 to Tacna and Pucallpa, 2 to Ayacucho, Cajamarca,
Puerto Maldonado, Tumbes and Talara.
In September 2016, the Company opened up its domes-
tic destination number 17 upon launching its new route to
Jaen (Cajamarca province), with one daily flight from Lima.
This was possible thanks to the improvements introduced
by the Civil Aeronautics Board (DGAC, in its Spanish acro-
nym) and Peru’s Corporation of Airports and Commercial
Aviation (CORPAC, in its Spanish acronym) in this city’s air
terminal located in Northeast Peru, whose touristic attrac-
tion is the archaeological site of Kuelap. In this manner, the
Company made progress in its objective to continue to im-
prove domestic connectivity, offering more flight options
to Peruvians, while contributing toward the country’s tour-
ism and commercial development.
In order to serve its domestic operations, it deployed a fleet
of 18 Airbus aircraft of the A320 family, one more than in
2015. As part of its continued passenger service improve-
ment, during this period LATAM Airlines Peru launched
its projected fleet renewal plan incorporating, during the
month of October, five modern Airbus A320 to replace an
equal number of Airbus A319 that remained in operation
to that date. With a 174-passenger seat capacity, versus
144 in the A319, these aircraft enables transporting more
persons without increasing frequencies, while introducing
significant advantages in terms of efficiency and passen-
ger comfort.
Among the most important milestones of the year, it is
worth highlighting the acknowledgment obtained by LATAM
Airlines Peru, for the second consecutive year, as one of
“Peru’s most admired 2016 companies” (EMA, in its Spanish
acronym), in its fifth edition, ranking 5th in the international
ranking prepared by PwC Peru and Revista G de Gestión
management journal, a distinction that corresponds to an
evaluation made by 4,500 country executives (from 1,500
84
OPERATIONS | Peru
companies) through a survey that determines corporate
performance according to eight fundamental attributes in
order to be considered of excellence. Additionally, the Com-
pany was chosen among the country’s top 10 companies to
work in and was ranked N°11 in the ranking of the 15 top
2016 Merco Preferred Employers (corporate reputation).
Moreover, for the second consecutive year, LATAM Airlines
Peru was distinguished with the award of Spain’s Co-re-
sponsible Foundation (Fundación Corresponsables de Espa-
ña) for its “Night Flights to Cusco with RNP (Required Navi-
gation Performance) technology” project, within the scope
of Corporate Social Responsibility (CSR). The RNP system
applied to the Lima-Cusco route since September 2013
is an example of the Company’s ongoing revenue genera-
tion practices. This technology uses advanced avionics (a
discipline that studies the electronic techniques that are
applied in air navigation) capacities and is supported via
satellite guidance, permitting more precise routes while
operating safely under low visibility conditions, avoiding
flight delays and cancellations.
On the other hand, for the third consecutive year, LATAM
Airlines Peru became the only transportation company in
the country and in South America to be distinguished as a
Socially Responsible Company (ESR®), awarded by Peru’s
2021 Civil Association in Mexico’s Center for Philanthropy
(CEMEFI, in its Spanish acronym). This recognition is given
to companies that voluntarily and publicly undertake to
apply socially-responsible management practices as part
of their own corporate culture and business strategy.
The company was also awarded first and second place in
the Spot & Online Video category of the 2016 DIGI Awards
for its “Christmas in airplane mode” and “I love you to the sky”
campaigns, respectively.
85
OPERATIONS | Cargo operation
CARGO
We are the largest cargo operator in the region
LATAM is Latin America’s largest cargo operator group, of-
fering its clients the broadest connectivity between points
in the region and around the world, with 139 destinations
in 29 countries. The Company transports cargo in the holds
(bellies) of 319 passenger aircraft and in 10 dedicated car-
go aircraft (two Boeing 777-200F and eight Boeing 767-
300F, excluding aircraft leased to other operators).
During the year 2016, the Company transported 944,000
tons; i.e. 6.4% less than in 2015. The supply, measured in
available tons per kilometer (ATKs), dropped by 5.3% and
its load factor hovered around 51.7%, with a 1.9 percent-
age-point drop as compared to the previous year. These
results occurred within a complex air cargo demand sce-
nario worldwide, which for years now has been showing low
rates of growth. In 2016, it increased by only 2.6% as com-
pared to the previous year.
Insofar as markets are concerned, the highly challenging
economic and political conditions of the region continued
to have a negative impact in the air cargo business. Al-
though the flows from South America to the North benefit-
ed from the strengthening of the United States’ economy,
overall Latin America’s air cargo traffic dropped by 5.7%.
Traffic within South America was the weakest (with an in-
ter-annual contraction of 14%), with Brazil being the hard-
est hit and where the amount of kilograms transported at
the domestic level dropped by 12%. This impacted LATAM
Cargo with a 3 percentage-point market share loss. In spite
of this, the Company remained as the country’s leading op-
erator in the business.
structural flight supply of cargo aircraft from Europe and
the United States to this South American destination, as
well as in its domestic operations.
With respect to Latin America’s export markets, since
Chile’s salmon production was severely affected because
of harmful algal blooms that increased fish mortality, this
market dropped by 15% with respect to 2015. Fruit traf-
fic from Chile and Argentina exhibited a healthy expansion
and flowers from Colombia and Ecuador remained stable,
albeit with a diminished LATAM share in such markets be-
cause of changes in the Company’s strategy.
The downward pressure on rates continued during this pe-
riod, where yields at the global level were 4.1% lower than
those in 2015, mostly as a result of the region’s oversup-
ply of cargo fleet and passengers, in addition to low fuel
prices. Although fuel prices increased by 48.5% throughout
2016, they remained at low levels if compared to those of
the last years.
The Company remained focused on strengthening its
operational efficiency in order to achieve a more agile
and simpler organizational structure, aimed at provid-
ing a better experience to clients. Along these lines, we
worked toward reducing and optimizing basic structural
costs through a series of productivity initiatives, restruc-
turing of the cargo fleet, third-party supplies and opera-
tion support processes.
In order to maximize the use of passenger aircraft holds
(bellies), thereby yielding better asset profitability, LATAM
Cargo continues adjusting its capacity.
On the other hand, import markets continued to show
weakness during 2016, mainly the cargo traffic into Brazil.
In order to confront this situation, the Company reduced its
During 2017, the Company will remove a Boeing 767F air-
craft that was under lease, while also during the first quar-
86
OPERATIONS | Cargo operation
ter of that same year it envisages removing another two
Boeing 777-F cargo aircraft from its fleet.
Additionally, during this period we managed to increase the
productivity of our dedicated cargo fleet by leasing ser-
vices to external operators, thereby improving their usage.
In this same sense, the year 2016 was also successful with
respect to special operations and charters, totaling 176,
principally in the region.
On the other hand, we developed LATAM Cargo’s new prod-
uct portfolio, with an innovative proposal aligned with our
clients’ needs, permitting us to deliver greater consistency
and a clear promise to the market. Within this ambit, we
made progress in transforming the Company’s internal pro-
cesses aimed at guaranteeing compliance with our com-
mitments to clients and created the Continuous Improve-
ment Area in order to focus and follow up projects.
At the same time, during the second half of the year we
launched the Net Promoter Score (NPS) as an indicator
to measure client loyalty; an initiative framed within the
Company’s will to put clients and their preferences at the
center of our decision-making process.
All things considered, 2016 was indeed a challenging year
for the LATAM Group’s cargo unit, and one in which we man-
aged to ride a complex domestic and foreign context, while
making progress in consolidating an integrated cargo and
passenger network, strengthening connectivity, reinforcing
our value proposal and portfolio of products for all clients,
while continuing to optimize processes and costs in order
to ensure the Company’s future competitiveness.
87
OPERATIONS | Customer Loyalty Programs
CUSTOMER LOYALTY PROGRAMS
More than 26 million registered members
Frequent flyer programs are intended to acknowledge the
loyalty of those passengers that fly the most by giving
them various benefits and awards. This is a distinctive fea-
ture of the LATAM Group airlines and one of the ways that
companies have to thank their customer preference; one
which is indeed highly valued by the passengers.
was granted upon the closing of the flight and its confir-
mation depended on the existence of available space). The
members of LATAM Pass and LATAM Fidelidade that now
have cabin upgrade coupons may access this benefit in all
the flights of the Group’s airlines, regardless of the pro-
gram to which they are affiliated.
Within the framework of the unification process of the
LATAM Brand, in 2016, the two loyalty programs offered
by the Company adopted new names: LATAM Pass (for-
merly, LAN Pass), and LATAM Fidelidade (formerly, TAM Fi-
delidade), including improvements and more benefits that
seek to contribute significantly to the LATAM Group travel
experience.
Additionally, current member categories were unified,
leaving four unique categories for all of the Group’s affili-
ates: Gold (formerly, Premium and formerly Blue); Platinum
(formerly, Silver and formerly Vermelho); Black (formerly,
Commodore and formerly Vermelho Plus) and Black Sig-
nature (formerly Black in both programs). Moreover, these
four categories retain their OneWorld equivalents; where
Gold corresponds to Ruby, Platinum to Sapphire, while
both Black and Black Signature correspond to Emerald.
It is worth highlighting that the benefits of these four new
categories will remain the same for passengers flying with
the LATAM Group Airlines, as well as with the other One-
World alliance members.
The name change of the LATAM Group’s Frequent Flyer
Program incorporates improvements, facilitates the pro-
cesses of kilometer accumulation, and enables access to
superior categories expanding the benefits to customers.
One of the most important changes is that now members
applying for a courtesy upgrade will receive confirmation of
the benefit 12 hours before the flight (before, such benefit
Insofar as the program’s currency is concerned, they remain
unchanged; namely, LATAM Pass members will continue to
accumulate kilometers while LATAM Fidelidade members
will continue to accumulate points.
As of the closing of the year 2016, the Company has more
than 26 million registered members in its frequent flyer pro-
grams; i.e. a 15.4% increase as compared to 2015; with 13.0
million members under LATAM Pass (1.9 million more than in
the previous year), and 13.2 million members under LATAM
Fidelidade (1.6 million more than in the previous year).
In 2016, the LATAM Group had 2.3 million tickets redeemed;
i.e. 31% more than the previous year.
Members (million)
Members (million)
88
OPERATIONS | Property, Plant and Equipment
Properties, Plant
and Equipment
CHILE
Venue
BRAZIL
Venue
Our main facilities are located near the international Co-
modoro Arturo Merino Benítez Airport. The complex in-
cludes offices, conference rooms and training facilities,
dining rooms and simulation cabins used for crew instruc-
tion. Our corporate offices are located in a more central
area of Santiago, Chile.
Maintenance base
Our Maintenance base is located in the grounds of the In-
ternational Comodoro Arturo Merino Benítez Airport. These
facilities include our aircraft hangar, warehouses, work-
shops and offices, and parking space for parking up to 30
short-range aircraft or 10 long-range aircraft.
Other facilities
We have a flight training center right beside the Interna-
tional Comodoro Arturo Merino Benítez Airport. We also
developed a recreational facility for our employees, with
the support of Airbus. The facility, denominated “LAN
Park”, is located in an area of our property near the Inter-
national Comodoro Arturo Merino Benítez Airport.
TAM’s main facilities are located in São Paulo, in the han-
gars located in and around the Congonhas Airport. At the
Congonhas Airport, TAM leases hangars which belong to
INFRAERO (Local Airport Administrator). The Services
Academy is located approximately at 2.5 km from the
Congonhas Airport; it is separate property owned by LA-
TAM Airlines Brazil exclusively dedicated to the areas of
selection, medical care, training and simulations.
Maintenance base
LATAM Airlines Brazil maintains offices and hangars at the
Congonhas Airport, which also include the areas of aircraft
maintenance and procurement and logistics of aeronauti-
cal materials. In addition, LATAM Airlines Brazil has its air-
craft maintenance facilities (MRO) in São Carlos (Brazil),
which can serve up to eight aircraft simultaneously and
comprises 22 technical component-workshops.
Other facilities
In Sao Paulo, LATAM Airlines Brazil has other facilities,
such as the commercial center, the uniforms building, the
Morumbi Office Tower and the call center building. Ad-
ditionally, in São Paulo, LATAM Airlines Brazil has subsid-
iaries’ offices owned by the group, such as Multiplus and
LATAM Travel.
89
OTHER LOCATIONS
LATAM has facilities at the Miami International Airport,
rented out to them by the airport through a concession
agreement. Such facilities include a corporate building
of 4,150 m2, cargo holds (including a refrigeration area)
of around 35,300 m2, and an aircraft parking platform of
around 72,700 m2, as well as fully equipped offices. Addi-
tionally, during 2015, the Company opened its first main-
tenance hangar in Miami, with an area of 6,140 m2 for air-
craft maintenance and adjacent infrastructure (workshop,
stores and offices). The project entailed a final investment
of US$ 16.4 million, funded 100% by the company.
Moreover, LATAM keeps lease contracts through airport
concessions, administrative and sale offices, hangars and
areas of maintenance in Argentina, Colombia, Ecuador
and Peru.
OPERATIONS | Property, Plant and Equipment
90
MANAGEMENT 2016
91
MANAGEMENT 2016 | Industry Overview
Emerging economies driving the industry
During the year 2016, world economic growth was slightly
lower that in 2015 due to slower growth in advanced econ-
omies, mainly the United States and, to a lesser extent,
the United Kingdom and the euro zone as a result of the
uncertainty generated by the Brexit, while emerging econ-
omies remain with growths similar to those of the pre-
vious year. On the other hand, the global airline industry
benefited from the fall in the fuel prices, which in January
2016 reached their lowest levels since 2003, and whose
average stood at US$ 53.1/barrel (Jet Fuel), a 16.8% lower
than the average price for the year 2015.
In general, the year 2016 was a good year for the aeronau-
tic industry, which is reflected in its 6.3% growth in pas-
senger traffic during the period – surpassing the average
growth of the last 10 years - while achieving historically
high levels of occupancy factor, with 80.5% in 2016, which
implied improvements in operational income and global
industry profits, estimated at $35.6 billion (vs $35.3 bil-
lion in 2015).
At the domestic and regional level, we continue to see a
trend toward low-cost models, where one can see a great-
er segmentation of passengers according to their travel
needs. Additionally, the trend toward deepening alliances
and cooperation agreements between airlines around the
world continues; thus enhancing passenger connectivity.
With regard to the different geographical markets, the air-
lines of North America are those that had the best results
in terms of profits, as a result of low fuel prices, added
to a strong domestic demand and the operator’s capacity
discipline; all of which drove their occupation factors to
the highest levels in the industry; with 83.5%.
In Europe, the growth of the airline industry was hit by
different terrorist attacks in the region. On the other hand,
there was greater competitive pressure from regional and
international airlines. Despite this, however, starting in the
second half of the year, conditions improved along with
better macroeconomic expectations and increases in con-
sumer confidence levels; all of which led European airlines
to secure profits similar to those of 2015.
The Asia-Pacific region was the second region with the
highest growth in terms of passenger traffic (after the
Middle East), driven primarily by a higher regional traffic.
The Asian airlines obtained profits lower than those of the
year 2015, mainly because of the weakness of the cargo
business, which began to stabilize during the second half
of the year.
In Latin America, during 2016, the largest economies of
the region (Brazil and Argentina) showed contractions in
their respective economies, which added to the weak-
ness of other local markets and to the devaluation of the
currencies of the region that impacted airline industry
results during the year. On the other hand, starting on
the second semester, a change of that trend began to be
noticeable, with improvements in the results of the re-
gional airlines, hand-in-hand with better macroeconomic
perspectives and more appreciated currencies. Latin
America was the most disciplined region in terms of ca-
pacity increase (+ 1.9% YoY), mainly due to adjustments
made in Brazil’s domestic and international markets. As a
consequence of this, the airline industry obtained profits
of $0.3 billion [thousand millions], as compared to a loss
of $1.7 billion in 2015.
As for the cargo business, traffic increased by 3.8%, higher
than the 2.2% growth in 2015. From the second half of
the year; however, the cargo business began to see an
increase in demand, attributed mainly to the regions of
Europe (+ 7.6%) and the Middle East (+ 6.9%) On the other
hand, the cargo business in Latin America was the worst
performer, showing a drop in traffic of 4.2% as a result of
lower imports from Brazil.
92
MANAGEMENT 2016 | Industry Overview
Given the current structure of the industry and the pros-
pects of higher fuel prices, the International Air transport
Association (IATA) expects a decline in profits for the
global airline industry during the year 2017, reaching US$
28.9 billion and an operating margin of 6.6% (- 1.7 per-
centage points with respect to 2016). This drop would be
explained by an increase in unit costs, in part by fuel prices
higher than expected, and by demand growth that will fail
to absorb the supply, pushing occupancy factors down. It
is important to highlight that the drivers of global traffic
growth in 2017 will continue to be the emerging econo-
mies, mainly those of the Asia-Pacific, Middle East and
Latin American regions. This trend is likely to continue for
the next 20 years, due to economic growth projections in
these regions and the low penetration of air transport in
their countries.
93
MANAGEMENT 2016 | Regulatory Framework
Regulatory Framework
Below we provide a brief reference about the important ef-
fects of aeronautic regulations, free competition and other
type of regulations that apply in Chile.
corporated into our country’s laws and regulations by the
Chilean authorities.
Chile’s Aeronautic Regulations
Both the General Bureau of Civil Aviation (DGAC, in its
Spanish acronym) as well as the Civil Aeronautics Board
(JAC, in its Spanish acronym) supervise and regulate Chile’s
aviation industry. The DGAC reports directly to the Chilean
Air Force and is responsible for ensuring compliance of the
country’s laws and regulations governing aviation. The JAC
is Chile’s civil aviation authority.
Primarily by virtue of Executive Order N° 2,564, that gov-
erns civil aviation, the JAC regulates the allocation of do-
mestic and international routes and the DGAC regulates
flight operations, which include personnel, aircraft, security
levels, air traffic control and airport management.
We obtained and continue to have the authorization that
is required by the Chilean Government to perform flight
operations, including the JAC certificates and the DGAC
operative and technical certificates, whose period of ef-
fectiveness are subject to the continuous compliance with
the statutes, rules and regulations that govern the aero-
nautic industry, including any rule or regulation to be is-
sued in the future.
Chile is a signatory state as well as a permanent member
of the International Civil Aviation Organization (ICAO), a
United Nations organization established in 1947 aimed at
assisting in the planning and development of international
air transport.
The ICAO establishes the international aeronautic indus-
try’s technical guidelines; which, in turn, have been in-
In the absence of an applicable Chilean standard related
to security or maintenance matters, the DGAC has in-
corporated most of OACI’s technical guidelines by way
of references. We are certain to comply with all relevant
technical guidelines.
Routing Rights
► National routes
Chilean Airlines are not required to obtain permits to trans-
port passengers or cargo on domestic routes, but only to
comply with the technical and insurance requirements es-
tablished by the DGAC and the JAC, respectively. Never-
theless, there are no regulatory barriers preventing foreign
airlines to create a Chilean subsidiary company and en-
ter the country’s domestic market via such subsidiary. On
January 18, 2012, Chile’s Transportation Ministry and Eco-
nomics Ministry announced that the country was adopting
a unilateral open skies policy. The foregoing was subse-
quently confirmed on November 2013 and remains in ef-
fect to this date.
► International routes
As an airline that provides services in international routes,
LATAM Airlines is also subject to a number of bilateral
international civil transportation agreements that estab-
lish reciprocal air traffic rights between Chile and several
other countries. Since there is no guarantee whatsoever
that such currently existing bilateral agreements between
Chile and those foreign governments will remain in effect,
a modification, suspension or revocation of one or more
of such international agreements could damage our opera-
tions and financial results.
94
MANAGEMENT 2016 | Regulatory Framework
International route rights, as well as their corresponding
landing rights, are derived from a number of international
transport agreements negotiated between Chile and other
foreign governments. By virtue of such agreements, the
government of one of such countries grants another gov-
ernment the right to assign the operation of scheduled
flight services between certain destinations of that coun-
try to one or more of its domestic airlines.
When Chile opens routes to and from foreign cities, any
airline that meets the necessary requirements may bid for
their use. If there is more than one bidder for a given route,
then, the JAC awards it for a 5-year period via a public
contest. The JAC awards grants the use of routes under the
condition that the awarded bidding airline operate them
continuously. Were an airline to cease to operate a given
route during a 6-month period or more, the JAC is entitled
to revoke its rights over such route. International routes can
transfer their use without cost. In the past, generally, we
have only paid nominal amounts for the right to use in-
ternational routes awarded via public contests in which we
were the only bidder.
International Rate-Fixing Policy
Chilean airlines are free to fix their own domestic and
international rates without any government regulation
whatsoever.
In 1997, Resolution N° 496 issued by the Hon. Resolutory
Commission (predecessor of the Hon. Free Competition
Tribunal) approved a self-regulating tariff plan submitted
by LATAM for its domestic operations in Chile. Said plan
was submitted in compliance with what was ordered in
1995 by Resolution N° 445 of the Hon. Resolutory Com-
mission. In general terms, according to this plan, we must
ensure that the yields of routes classified as “non-com-
petitive” by Resolution N° 445 do not exceed the yields
of routes of a similar distance defined as “competitive” by
the same resolution, and inform the JAC about tariff reduc-
tions or increases in “non-competitive” and “competitive”
routes, in the manner and within the deadlines indicated in
the referred self-regulation plan.
Aircraft Registration
The Chilean Aeronautics code (CAC, in its Spanish acro-
nym) governs the registration of aircraft in Chile. In order
for an aircraft to be registered or remain registered in Chile,
its owner must be:
► A natural person of Chilean nationality.
► A juridical person incorporated in Chile whose main legal
domicile and its real and effective headquarters are in
Chile, and whose majority capital is owned by natural
or juridical Chilean persons, among other requirements
established in article 38 of the CAC.
► The Aeronautic Code expressly entitles the DGAC to per-
mit registering aircraft whose property owners are not
natural or juridical Chilean persons, provided that they
have a permanent commercial domicile in Chile. Aircraft
owned by foreigners, but that are operated by Chileans
or by an airline affiliated to a Chilean aviation entity
may, likewise, be registered in Chile. The registration of
any aircraft can be revoked in case of failure to comply
with the registration requirements and, particularly, in
the following cases:
► If its property ownership requirements are not met.
► It the aircraft does not meet any of the applicable safety
requirements established by the DGAC.
Prevention
The DGAC requires that any aircraft operated by a Chil-
ean airline is registered before the DGAC or before anoth-
er equivalent entity empowered as supervisor in another
95
MANAGEMENT 2016 | Regulatory Framework
country. Every aircraft must have its own airworthiness cer-
tificate; whether issued by the DGAC or by another equiva-
lent non-Chilean entity with supervising powers. Moreover,
the DGAC does not issue a maintenance permit to a Chilean
airline until the DGAC has evaluated that airline’s capacity to
perform such maintenance.
The DGAC renews maintenance permits annually and has in-
deed approved our maintenance operations. Only such main-
tenance facilities certified by the DGAC or by an equivalent
non-Chilean entity with supervising powers in the country in
which the aircraft is registered may perform maintenance and
repair work to aircraft operating in Chile.
Likewise, aircraft maintenance personnel working at such fa-
cilities must be certified by the DGAC or by an equivalent
non-Chilean entity with supervising powers before assuming
any aircraft maintenance position.
Safety
The DGAC establishes and supervises the execution of safety
standards and regulations in Chile’s commercial aeronautic
industry.
Such standards and regulations are based on the standards
developed by international commercial aeronautic organiza-
tions. Each of Chile’s airlines and airports must submit before
the DGAC an air safety manual describing the safety proce-
dures that they execute in their daily commercial aviation op-
erations, as well as their personnel training procedures with
respect to safety. LATAM has already submitted its air safety
manual to the DGAC. Chilean airlines operating international
routes must adopt safety measures pursuant to the appli-
cable requirements of international bilateral agreements.
Airport Policies
The DGAC supervises and manages Chile’s domestic airports,
including takeoff and landing charges. The DGAC proposes
airport costs to be approved by the JAC, and the same are
subsequently applied to all airports nationwide.
Ever since the mid 90’s, a number of Chilean airports have been
privatized, including Santiago’s Arturo Merino Benítez Interna-
tional Airport. Airport Managers manage private airport facili-
ties under the supervision of the DGAC and the JAC.
Environmental and Noise Regulations
There are no significant environmental standards or controls
imposed on airlines applicable to aircraft nor that would af-
fect us within Chile, except for the environmental laws and
standards of general application. Currently, neither are there
noise restriction standards applicable to aircraft within Chile.
Nevertheless, Chilean authorities intend to issue environ-
mental noise regulations to govern aircraft flying toward and
within the country.
The regulation that has been proposed will require such air-
craft to meet specific noise restrictions, which the market
nowadays refers to as Stage 3 Standards.
Most of LATAM’s fleet already meets the proposed restric-
tions; therefore, we consider that issuing such standards will
not impose a significant burden to our operations.
Antitrust Legislation
Chile’s antitrust authority, to which we refer to as the Free
Competition Defense Tribunal (formerly, the Antitrust Com-
mission, and heretofore the “TDLC”), oversees antitrust affairs
governed by Executive Order N° 211 of 1973 and its eventual
subsequent amendments, or the Antitrust Law. The Antitrust
Law forbids any entity to impede, restrict or distort free com-
petition in any market or any sector of any market.
The Antitrust Law forbids, additionally, any company having
a dominant position in any market or that has dominates a
substantial part of any market, to abuse its position.
Any damaged person is entitled to file suit for damages result-
ing from the non-compliance of the Antitrust Law and/or to file
a claim before the Antitrust Tribunal so that the latter orders
putting an end to such Antitrust Law infringement.
The Antitrust Tribunal is empowered to impose a variety of
sanctions to Antitrust Law violations, including the termina-
tion of contracts that infringe the Antitrust Law, the dissolu-
tion of companies and the imposition of penalties and daily
sanctions to companies. The courts of justice may order the
payment of indemnity for damages, as well as other relief
measures (such as injunction) whenever appropriate. In Octo-
ber 1997, the Antitrust Tribunal approved our self-regulating
tariff plan.
Ever since October 1997, LAN Airlines S.A. and LAN Express
abide by a self-regulating plan that was amended and ap-
proved by the Free Competition Tribunal in July 2005 and also
in September 2011.
In February 2010, the National Economic Affairs Investigation
Bureau (FNE, in its Spanish Acronym) completed the investiga-
tion initiated in 2007 with respect to our compliance with our
self-regulating plan and no further observations were made.
By virtue of Resolution N° 37/2011, issued on September 21,
2011 (the “Resolution”), Chile’s Hon. Free Competition De-
fense Tribunal approved the association between LAN and
TAM, imposing 14 mitigation measures to LATAM, whose
scope and regulation is established in the Resolution, as sum-
marized below by way of reference:
96
1. To exchange 4 pairs of daily slots at the Guarulhos Airport
in Sao Paulo, to be used exclusively for servicing non-stop
flights along the SCL-GRU route.
9. To express before air transport authorities their favorable
opinion regarding Chile’s unilateral open skies policy for
domestic air traffic by airlines of other States, without re-
quiring reciprocity.
between Sao Paulo and Santiago, Chile. The aforementioned
conditions are consistent with the mitigation measures ad-
opted in Chile by the TDLC.
MANAGEMENT 2016 | Regulatory Framework
2. To extend for a 5-year period its frequent flyer program
to those airlines that operate (or state their interest in op-
erating) the Santiago-Sao Paulo, Santiago-Río de Janeiro,
Santiago-Montevideo and Santiago-Asunción routes, that
apply to LATAM for an extension of the referred program
for such route(s).
3. To execute inter-line agreements along the Santiago-Sao
Paulo, Santiago-Río de Janeiro, and/or Santiago-Asunción
routes, with those airlines interested in operating such
routes and that so request it.
4. To adhere to certain temporary capacity and supply re-
strictions along the Santiago-Sao Paulo route.
5. To introduce and execute certain amendments into LA-
TAM’s Self-regulatory Tariff Plan, applicable to its domes-
tic operations.
6. To renounce, before June 22, 2014, to one of the two
worldwide alliances that LAN and TAM belonged to prior
to the date of the Resolution.
7. To adhere to certain restrictions in the execution and
maintenance of code-sharing agreements (without prior
consultation with the Free Competition Defense Tribunal)
along certain routes and with member airlines or associ-
ates of an alliance other than that to which LATAM be-
longs.
8. To adhere to certain restrictions, in their future bidding
contest bids, regarding 3rd, 4th and 5th freedom rights be-
tween Santiago and Lima; and to renounce to four 5th free-
dom frequencies to Lima.
10. To commit, in all pertinent matters, to promote the growth
and normal operations of the airports of Guarulhos in São
Paulo and Arturo Merino Benítez in Santiago.
Additionally, the association between LAN and TAM was sub-
mitted before the free competition authorities of Germany,
Italy and Spain. All these jurisdictions granted their uncondi-
tional approval of this operation.
11. To adhere to certain guidelines in the granting of incen-
tives to travel agencies.
12. To temporarily maintain, except in cases of force majeure:
i) at least 12 non-stop round-trip flights per week, direct-
ly operated by LATAM, in the routes between Chile and
the United States; and, ii) at least 7 non-stop round-trip
flights per week, directly operated by LATAM, in the routes
between Chile and Europe.
13. To adhere to certain restrictions: in the average price of
passenger transport airfares, corresponding to the San-
tiago-Sao Paulo and Santiago Río de Janeiro routes; and
in the rates in effect and published, as of the date of the
Resolution, for the transport of cargo in each of the routes
between Chile and Brazil.
14. To hire an independent consultant, so that such third par-
ty provides advice to the FNE for a 3-year period in the
supervision of LATAM’s compliance with the Resolution.
Brazil’s Administrative Council for Economic Defense (CADE,
in its Portuguese acronym) unanimously approved the asso-
ciation between LAN and TAM at its meeting on December
14, 2011, subject to the following conditions: (1) The new
group (LATAM) must renounce to one of the two worldwide
alliances in which it heretofore participated (Star Alliance or
OneWorld); and, it must offer to exchange 2 pairs of slots
at the Gaurulhos International Airport for them to be used
by a third-party interested in offering direct non-stop flights
97
MANAGEMENT 2016 | Financial Results
LATAM reports a net income of US$ 69.2 million
The LATAM Airlines Group recorded an operating perfor-
mance of US$ 567.9 million during 2016; an increase of
10.5% as compared to the operating performance of the
year 2015. The operating margin reached 6.0%, repre-
senting an increase of 0.9 percentage points with respect
to the previous year. LATAM’s improved financial perfor-
mance is mostly explained by a reduction of its operating
costs as a result of a drop in fuel prices and cost savings
initiatives carried out by LATAM.
routes with less demand, such as the operations between
Brazil and the United States. Moreover, the capacity of
Spanish-speaking domestic markets expanded by 8.0%,
boosted mostly by the Chilean and Peruvian markets. On
the other hand, during 2016, we continued to downsize our
operations in the Brazilian domestic market, reducing our
supply for the fifth consecutive year, closing the year with
a capacity 11.5% smaller than that of 2015 and leading
the downsizing of capacities in that country.
Total income for the year 2016 reached US$ 9,527.1 mil-
lion, as compared to US$ 10,125.8 million in 2015. This
5.9% drop is explained by a 6.3% drop in passenger rev-
enues and a 16.5% drop in cargo revenues, partially offset
by a 39.7% increase in other revenues. Such revenue de-
crease was mainly explained by a weaker macroeconomic
scenario in Latin America and by the devaluation of Latin
American currencies throughout the period, especially the
59% devaluation of the Argentinean Peso, the 11% de-
valuation of the Colombian Peso, and 6% devaluation of
the Peruvian Sol. In 2016, passenger and cargo income
represented 82.7% and 11.7% of total operating revenues,
respectively.
The 6.3% decrease in passenger income during the year re-
flects a 0.6% capacity increase, offset by a 6.9% decline in
Revenue per Available Seat-Kilometer (RASK), in compari-
son to 2015. The RASK reduction was the result of a 8.1%
reduction in yields and an increase of 1.1 p.p. in load factor,
reaching 84.2%. Yield performance continued to be affected
by the weak macroeconomic scenario in South America.
In terms of capacity, during the year 2016, LATAM ex-
perienced a 0.6% increase, explained mostly by a 5.6%
increase in the capacity of the international business,
centered around strengthening the capacity of our inter-
national hubs, from which we began operating new desti-
nations, such as to Washington from Lima, and to Johan-
nesburg from Sao Paulo, offset by a reduction of those
Cargo revenues declined by 16.5% in 2016 as a result of
an 8.7% decline in cargo demand and a 8.5% decrease in
yields. Throughout the entire year, the demand for cargo
services remained weak, especially in local markets and in
Brazil’s international market, as a result of a decline in that
country’s overall economic activity that directly impacted
imports. To the latter, is added a drop in Chile’s exports as
a result of the algae bloom affecting its salmon production.
The foregoing, added to the drop in fuel prices, explains
most of the downturn in the yields of the cargo business.
Operating costs during the year 2016 reached US$ 8,959.2
million, a 6.8% reduction as compared to the operating
costs of 2015, resulting in a 5.1% reduction in Cost of
Available Seat-Kilometer (CASK) equivalent (including net
financial expenses). Such cost reduction is mostly attrib-
utable to the 16.8% drop in fuel prices, as well as to the re-
sult of the cost reduction program driven by the Company.
Fuel spending decreased by 22.4% reaching US$ 2,056.6
million, as compared to the US$ 2,651.7 million spent in
2015. Such fuel spending drop is attributable to the drop
in fuel prices as well as to a 1.4% drop in fuel consumption
per ASK-equivalent, as a result of the Company’s fuel ef-
ficiency programs and an ever more efficient fleet.
Additionally, the Company recognized a fuel hedge loss of
US$ 48.1 million in 2016, as compared to the US$ 239.4
million fuel hedge loss incurred in 2015. In terms of for-
98
eign exchange hedges, the Company recognized a currency
hedge loss of US$ 40.8 million in 2016, versus a gain of
US$ 19.2 million in 2015.
Wages and benefits declined by 5.9% in the year 2016, main-
ly due to a reduction in the number of employees as com-
pared to the year 2015, in line with the supply drop in Brazil,
and the efficiency initiatives executed by the Company.
As to its non-operating performance, the company
showed a non-cash profit caused by foreign exchange rate
differences amounting to US$ 121.7, mostly attributable
to the appreciation of the Brazilian Real during the year, as
compared to the US$ 467.9 million loss acknowledged in
the previous fiscal year.
In cumulative terms, LATAM recorded a net profit at-
tributable to its controllers totaling US$ 69.2 million, as
compared to the net loss of US$ 219.3 million incurred in
2015. The foregoing entails a positive net margin of 0.7%,
which represents an increase of 2.9 percentage points, as
compared to the net margin of the year 2015.
REVENUE
Passenger
Cargo
Other
TOTAL OPERATING REVENUE
EXPENSES
Wages and Benefits
Aircraft Fuel
Comissions to Agents
Depreciation and Amortization
Other Rental and Landing Fees
Passenger Services
Aircraft Rentals
Aircraft Maintenance
Other Operating Expenses
TOTAL OPERATING EXPENSES
OPERATING INCOME
Operating Margin
Interest Income
Interest Expense
Other Income (Expense)
INCOME BEFORE TAXES AND MINORITY INTEREST
Income Taxes
INCOME BEFORE MINORITY INTEREST
Attributable to:
Shareholders
Minority Interest
NET INCOME
Net Margin
Effective Tax Rate
EBITDA
EBITDA Margin
EBITDAR
EBITDAR Margin
MANAGEMENT 2016 | Financial Results
For the twelve month period ended December 31
2016
2015
% Change
-6,3%
-16,5%
39,7%
-5,9%
-5,9%
-22,4%
-11,1%
2,8%
-2,9%
-3,0%
8,3%
-16,3%
10,9%
-6,8%
10,5%
0,9 pp
-0,2%
0,7%
-108,9%
-176,7%
-191,5%
-161,9%
7.877.715
1.110.625
538.748
8.410.614
1.329.431
385.781
9.527.088
10.125.826
-1.951.133
-2.072.805
-2.056.643
-2.651.067
-269.296
-960.328
-302.774
-934.406
-1.077.407
-1.109.826
-286.621
-568.979
-366.153
-295.439
-525.134
-437.235
-1.422.625
-1.283.221
-8.959.185
-9.611.907
513.919
5,1%
75.080
-413.357
-532.757
-357.115
178.383
-178.732
567.903
6,0%
74.949
-416.336
47.358
273.874
-163.204
110.670
69.220
41.450
69.220
0,7%
-59,6%
-219.274
-131,6%
40.542
2,2%
-219.274
-131,6%
-2,2%
-50,0%
2,9 pp
-9,6 pp
5,5%
1,7 pp.
6,3%
2,5 pp.
99
1.528.231
1.448.325
16,0%
14,3%
2.097.210
1.973.459
22,0%
19,5%
SYSTEM
ASKs-equivalent (millions)
RPKs-equivalent (millions)
Overall Load Factor (based on ASK-equivalent)%
Break-Even Load Factor (based on ASK-equivalent)%
Yield based on RPK-equiv (US Cent)
Operating Revenues per ASK-equiv (US Cent)
Costs per ASK-equivalent (US Cent)
Costs per ASK-equivalent ex fuel (US Cents)
Fuel Gallons Consumed (millions)
Fuel Gallons Consumed per 1,000 ASKs-equivalent
Fuel Price (with hedge)
Fuel Price (without hedge)
Average Trip Length (km)
Total Number of Employees (average)
Total Number of Employees (end of the period)
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)
MANAGEMENT 2016 | Financial Results
For the twelve month period ended December 31
2016
2015
Var. %
205.538
150.110
208.723
151.478
73,0%
71,2%
6,0
4,4
4,52
3,52
72,6%
71,3%
6,4
4,7
4,77
3,50
1.185,5
1.221,1
5,8
1,7
1,6
1,7
49.619
45.916
134.968
113.627
66.960
84,2%
6,9
5,8
6.704
3.466
944
51,7%
32,0
16,6
5,9
2,2
2,0
1,6
52.887
50.413
134.167
111.510
67.835
83,1%
7,5
6,3
7.083
3.797
1.009
53,6%
35,0
18,8
-1,5%
-0,9%
0,5 pp
-0,1 pp
-6,9%
-6,3%
-5,1%
0,8%
-2,9%
-1,4%
-22,9%
-17,6%
3,2%
-6,2%
-8,9%
0,6%
1,9%
-1,3%
1,1 pp
-8,1%
-6,9%
-5,3%
-8,7%
-6,4%
-1,9 pp
-8,5%
-11,7%
* Fuel Gallons Consumed per 1,000 ASKs-equivalent
100
MANAGEMENT 2016 | Financial Results
Thousands of US$
Peru
Argentina
U.S.A
Europe
Colombia
Brazil
Ecuador
Chile
Asia Pacífico & Other Latin America
For the twelve month period ended December 31
2016
2015
Var. %
627.215
1.030.973
933.130
714.436
343.001
681.340
979.324
1.025.475
723.062
353.007
2.974.234
3.464.297
198.171
238.500
1.512.570
1.575.519
654.610
699.521
-7,9%
5,3%
-9,0%
-1,2%
-2,8%
-14,1%
-16,9%
-4,0%
-6,4%
101
MANAGEMENT 2016 | Awards and Recognitions
Our most outstanding awards
The companies that belong to the LATAM Airlines Group
received around 20 awards in various fields: services, sus-
tainability, and on-board entertainment, among others. The
following are the most notable recognitions received by the
LATAM Group during the year 2016:
2016 Corporate transparency report – IdN
► LATAM: First place in the “Most transparent company in
the services sector” category for Open Stock Companies
(corporations).
► LATAM: Third place in the “2016 Best practices” category
SERVICE AWARDS
World Line Airline Awards- Skytrax 2016: It is the most
recognized award in the industry.
► LAN: First place in the “Best airline in South America”
category.
► TAM: Fourth place in the “Best airline in South America”
for Open Stock Companies (corporations).
OTHER AWARDS
Most admired companies (2016 EMA) – “G for Manage-
ment” and PwC.
► LATAM: Outstanding commercial strategy.
category
► LAN: Second place in the “Best service in South America”
Merco companies and Leaders Chile – 7th Edition.
► LATAM: Second place in the “Best corporate reputation”
category.
category.
► TAM: Fourth place in the “Best service in South America”
category.
2016 Global Traveler’s - Tested Reader Survey awards
► LATAM: First place in the “Best airline to South America”
category (for the third consecutive year).
SUSTAINABILITY AWARDS
2016 Dow Jones Sustainability Index:
► Third year in the “DJSI World” category.
Alas20 (Wings 20) Company award:
► First place in the “Leader in sustainability” category.
► Second place in the “Leader in sustainability” category.
IF Design Awards - World Design Guide: One of the most
prestigious international design awards.
► LATAM and Interbrand: First place in the “New Brand
Identity” category for the creation of the new LATAM
Brand.
E Commerce Awards 2015: The most important e-com-
merce sector award.
► LAN CL: “e-Commerce leader in the tourism industry”.
► LAN PE: “e-Commerce leader in the tourism industry”.
► LAN EC: “e-Commerce leader in the tourism industry”.
2016 Fohla Top of Mind award (BR):
► TAM: Most recalled brand in the airline category (eighth
consecutive occasion).
Peru 2021 - Socially responsible company distinction-
► LATAM: distinguished for assuming a sustainable and re-
sponsible competitiveness culture.
Hall of Fame (Valora Group): Great Chilean Brand distinc-
tion, because of its relevance abroad.
Revista Capital
► Second place in the “ISC Corporate sustainability” index.
102
MANAGEMENT 2016 | Material Facts
Material Facts
JANUARY 15 / CONTRACT EXECUTION OR RENEWAL
1. LATAM announces to have executed two independent
commercial agreements. On the one hand, with British
Airways and Iberia airlines of the International Airlines
Group S.A. (”IAG”) and, on the other hand, with American
Airlines. These agreements represent an intensification
of LATAM’s collaboration with the members of the One-
World Alliance.
2. These agreements will bring about important benefits to
passengers and clients upon expanding the number of
destinations available, providing access to more conve-
nient prices, improving the travel experience by delivering
more itinerary options with reduced connection times,
while increasing the potential of opening up new routes
and more direct flights to new destinations or currently
operated by the mentioned airlines. These new services
and options will also be made available to LANPASS and
TAM Fidelidade frequent passengers. These agreements
will also benefit South America upon improving its con-
nectivity to/from the region to the world, boosting tour-
ism and business travel
3. The mentioned agreements follow a worldwide indus-
try trend, consisting in deepening collaboration between
inter-alliance airlines, which most of the world’s main
Airlines have already executed.
4. The commercial agreement with British Airways and
Iberia will include managing the operation of the routes
between Europe and all the countries that operate these
airlines in South America.
5. On the other hand, the agreement with American Air-
lines will include the flights between the United States
of America and Canada and six South American coun-
tries; namely, Brazil, Chile, Colombia, Paraguay, Peru
and Uruguay.
6. These two LATAM agreements with OneWorld members
will allow, on the one hand, that the airlines that are part
of the LATAM Airlines Group, British Airways and Iberia,
manage the networks between South America and Eu-
rope; and, in case that the same airlines of the LATAM
Airlines Group and American Airlines manage certain
routes between South America and the United States /
Canada.
7. These agreements are of a commercial nature; they do
not involve any shareholding in LATAM nor imply any
management change whatsoever in any of the airlines
that comprise the LATAM Group. After its execution, each
airline maintains its brand and operations independently
as well as their control over their own flights.
8. The execution of these commercial agreements is sub-
ject to their approval by the pertinent authorities in the
different countries in which the airlines that are part of
such agreements operate; a process estimated to take
anywhere between 12 to 18 months. Likewise, upon
obtaining such approvals, each commercial agreement
must be executed by their respective parties within
the deadlines established to that effect and subject to
completion of the commercial agreements in all pending
aspects contemplated therein.
MARCH 8 / OTHERS
On this date, and without prejudice of the delivery of the
corresponding financial statements within the applicable
deadlines to that effect, the Directors’ Committee and the
Board of Directors of LATAM Airlines Group S.A., has ap-
proved the publication, by way of an Essential Fact, the
financial information attached to this communication.
This corresponds to a summary of the financial informa-
tion taken from the company’s Financial Statement and
the Consolidated Balance Sheet, which will also incorporate
a qualitative analysis of the company’s operating perfor-
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MANAGEMENT 2016 | Material Facts
mance both during the year as during the fourth quarter of
the year ended on December 31, 2015.
LATAM Airlines Group S.A. is providing this financial infor-
mation to its shareholders, investors and market in general
in order to deliver truthful, sufficient and timely advance in-
formation, prior to releasing the respective financial state-
ments pursuant to the deadlines applicable to that effect.
Finally, it is here stated for the record that this financial
information does not in any way replace or modify the cor-
responding financial statements of the company, which
shall be released for the purposes of the year 2015 within
the deadlines prescribed by the regulations issued by the
Superintendence for Securities & Insurance.
MARCH 21 / EXTRAORDINARY SHAREHOLDERS’
MEETING, SUMMONS, AGREEMENTS AND PROPOSALS.
At the Ordinary Shareholders’ Meeting held on March 21,
2016, the Board of Directors of LATAM Airlines Group S.A.
(hereinafter, the “Company”), Securities Register No. 306,
agreed to summon to an Ordinary Shareholders’ Meeting to
be held on April 26, 2016 at 10:00 hours, in order to discuss
the following agenda:
a) To approve the Company’s Balance Sheet and Financial
Statements, corresponding to the year ended on Decem-
ber 31, 2015;
b) To determine the remuneration of the Company’s Board
of Directors;
c) To determine the remuneration of the Company’s Direc-
tors’ Committee and its budget;
d) To designate the Company’s external auditors; Risk
Classification Agency; and, to report about those topics
referred to under Title XVI of Law N° 18,046 on Corpo-
rations.
e) To inform about the cost of processing, printing and
delivering the information referred to under Circular
Letter N° 1.816 of the Superintendence for Securities
& Insurance;
f) To designate the newspaper in which to make the publi-
cations of the Company; and,
g) Other topics of corporate interest incumbent upon the
Company’s Ordinary Shareholders’ Meeting.
APRIL 5 / OTHERS
a) The Securities Commission (CVM, in its Portuguese ac-
ronym) of the Republic of Brazil, authorized on Febru-
ary 2, 2016 via Official Memorandum N° 70/2016-CVM/
SRE/GER-2, the termination of the Brazilian Depositary
Receipts (“BDRs”) program of the LATAM Airlines Group
S.A., which is to be executed pursuant to the procedure
approved by said authority in the above-cited Official
Memorandum (hereinafter, the “Termination Procedure”).
b) The Company reported on February 5, 2016, as market
interest information, the CVM’ approval of the project
under evaluation to discontinue the BDR program, noting
that such project should in the future be subjected to the
consideration of the Company’s Board of Directors.
c) The Board of Directors of the LATAM Airlines Group S.A.
approved as of this date to terminate the BDR program
registered before the CVM, pursuant to the above-de-
scribed Termination Procedure and, consequently the
termination of its registration as foreign securities issuer
before the CVM; all of it pursuant to the regulations of
applicable in the Republic of Brazil. LATAM’s Board of
Directors calls the attention to the fact that the forego-
ing does not affect the LATAM Airlines Group’s long-term
commitment with Brazil.
d) It is here stated for the record that each such BDR cer-
tificate represents one (1) common share (equity shares)
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MANAGEMENT 2016 | Material Facts
of the LATAM Airlines Group S.A. and that as of March 31,
2016 the BDR program represented 0.44% of all the shares
of shares issued by the Company.
e) Therefore, as of this date and for a 30-day period beginning
on this date, BDR holders shall have the following options:
i. To adhere to the so-called “Sale Facility” procedure; or,
ii. To maintain their ownership title over LATAM Airlines
Group S.A.’s common shares underlying the respective BDR.
f) If a BDR holder does not state the option to which it ad-
heres pursuant to the Procedure; then, for all purposes, it
shall be understood to adhere to the so-called “Sale Facil-
ity” procedure.
g) The “Sale Facility” procedure is executed by selling the un-
derlying BDR common shares (the “Common Shares”) at the
Santiago Stock Exchange. Those BDR holders to manifest
their intention to remain the property owners of the respec-
tive Common Shares shall become shareholders of the LA-
TAM Airlines Group S.A. by conveying such shares to a stock
broker or custodian in Chile, pursuant to instruction to be
executed subject to compliance with the terms and condi-
tions set forth in the Cancellation Procedure.
h) Attached is a copy of the free translation into Spanish of
the corresponding Essential Fact (“Fato Relevante”) forward-
ed to the CVM as of this same date. It is here stated for the
record that the notification to BDR Holders reporting the
cancellation of the BDR program of LATAM Airlines Group
S.A. as well as the instructions, terms and conditions ap-
plicable to the same, shall be communicated to the CVM on
April 6 of the present year and published in Brazil by LATAM
Airlines Group S.A. on April 7, 2016 in the Official Gazette of
the State of Sao Paulo and in the LATAM website: http://
www.latamairlinesgroup.net .
i) Finally, we hereby state for the record that BDR are foreign
securities that are not registered with the Superintendence
for Securities & Insurance.
MAY 23 / OTHERS
a) On April 5, 2016, LATAM reported, as an Essential Fact, the
cancellation procedure of the Brazilian Depositary Receipts
(BDR) program of the LATAM Airlines Group S.A., which
must be executed according to the procedure approved and
described in such communication (hereinafter, the “Cancel-
lation Procedure”).
b) According to the Cancellation Procedure, whose general
terms were published by LATAM on April 7, 2016 in: the Offi-
cial Gazette of the State of Sao Paulo, in Economic Value, and
in LATAM’s website: http://latamairlinesgroup.net (herein-
after, the “Notification”), May 9, 2016 was the deadline for
BDR holders to state their option to keep the underlying
common stock of such BDR (the “Shares”) and, on May
23, 016, BM&FBOVESPA blocked the respective balances
of those BDR that opted in favor of adhering to the sale
procedure of the Shares at the Santiago Stock Exchange,
through the so-called Sale Facility.
c) In tandem with such blockage, a theoretical sale value was
attributed in Brazil to the sale of the Shares at the San-
tiago Stock Exchange in the amount of $4,333,80 (four
thousand three hundred and thirty three pesos and eighty
cents, of Chile’s legal currency), corresponding to the mar-
ket value of such Shares as of May 23, 2016, equivalent in
Brazilian Reals to R$22,25 (Twenty-two reals and twenty-
five cents, of Brazil’s legal currency) per Share, converted
on the basis of the PTAX rate of foreign exchange, which
is defined as the average foreign exchange sale rate in the
foreign exchange market in effect on May 23, 2016; an
average that is released electronically by Brazil’s Central
Bank via the internet.
d) Additional information and instructions regarding the Can-
cellation Procedure may be obtained from the Essential
Fact of last April 5 and the Notification.
e) Finally, LATAM informs that the next Essential Fact regard-
ing the Cancellation Procedure is scheduled to be published
on June 9, 2016, in order to report about: the total amount
of Shares sold in Chile according to the so-called Sale
Facility; the average Chilean-peso price of each BDR; the
payment date to BDR holders; and the final price in Reals
(Brazil’s legal currency) payable for each BDR, among other
relevant information with respect to the sale of the Shares.
JUNE 7 / CHANGES IN MANAGEMENT
On this date, the Board of Directors accepted the resignation
submitted by Mr. Ricardo J. Caballero as Board Member, con-
sidering that he has assumed new functions in his country of
residence; namely, the United States of America, that prevent
him from discharging his duties as LATAM Board Member. For
the time being, the Board did not agree to appoint a replace-
ment, which could take place during the next Board Meeting,
Likewise, the entire Board of Directors must be renewed at the
Company’s upcoming Ordinary Shareholders’ Meeting.
JUNE 9 / OTHERS
a) On April 5, 2016, LATAM reported, as an Essential Fact, the
cancellation procedure of the Brazilian Depositary Receipts
(BDR) program of the LATAM Airlines Group S.A., which
must be executed according to the procedure approved and
described in such communication (hereinafter, the “Cancel-
lation Procedure”).
b) According to the Cancellation Procedure, whose general
terms were published by LATAM on April 7, 2016 in: the Offi-
cial Gazette of the State of Sao Paulo, in Economic Value, and
in LATAM’s website: http://latamairlinesgroup.net (herein-
after, the “Notification”), May 9, 2016 was the deadline for
BDR holders to state their option to keep the underlying
common stock of such BDR (the “Shares”) and, on May
23, 016, BM&FBOVESPA blocked the respective balances
of those BDR that opted in favor of adhering to the sale
procedure of the Shares at the Santiago Stock Exchange,
through the so-called Sale Facility.
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MANAGEMENT 2016 | Material Facts
c) On May 24, 2016, LATAM reported, as an Essential Fact, oc-
curring last May 23, of the deadline for BDR holders to state
their option to keep the Shares and of the blockage on that
same date on the part of BM&FBOVESPA of the respective
Share balances of those BDR holders that opted in favor
of adhering to sell their Shares through the procedure so-
called Sale Facility, assigning them to that effect a theoreti-
cal sale value at the Santiago Stock Exchange.
d) On this same date, we hereby report that BTG Pactual Chile
S.A. Corredores de Bolsa stock brokerage company (“BTG
Pactual Chile”), a Chilean institution contracted by the Com-
pany to that effect, sold at the Santiago Stock Exchange the
Shares of the respective holders who had adhered to the
Sale Facility procedure.
e) In that sense, on June 2, 2016, via an auction sale at the
Santiago Stock Exchange, were sold 672,500 (six hundred
seventy-two thousand five hundred) Shares at an average
price of $4,150.038 (four thousand one hundred and fifty
pesos and zero-thirty-eight cents, legal currency in Chile)
per Shares, equivalent in reals to R$20.528003378 (twenty
reals and five-two-eight-zero-zero-three-three-seven-
eight cents, legal currency in Brazil) per Shares, converted
on the basis of the purchasing rate of the foreign currency
exchange market of June 8, 2016; that being the price per
BDF payable by the respective holders. The payment shall
be made on July 16, 2016, via a transfer from Itaú Corretora
de Valores S.A. (“Itaú Corretora”) to BM&FBOVESPA (which,
in turn, shall be responsible for transferring such funds to
their respective property owners, via their custody agents.
Those BDR holders keeping their title certificates directly
in Itaú Corretora shall receive their funds directly from said
institution.
f) For additional information and instructions with respect to
the Cancellation Procedure you may refer to the Essential
Facts of last April 5 and May 23 and to the Notification.
JULY 12 / OTHERS
1. Capital increase. At the next Ordinary Board of Directors’
Meeting, which is scheduled for no later than August 2,
2016, the Company will summon to an Extraordinary Share-
holders’ Meeting (the “Shareholders’ Meeting”) with the
purpose of proposing a capital increase of US$ 613,164,240
by issuing 61,316,424 new cash shares (the “Cash Shares”)
at a price per share of US$ 10 (the “Subscription Price”).
Because of the Shareholders’ Meeting to be held by no
later than September 2, 2016, the equity capital of LATAM
Airlines will increase from the current 551,847,819 shares
to 613,164,243 shares; thus, following the capital increase
such Cash Shares will represent 10% of all Company shares.
2. Investor. As of this date, Qatar Airways (the “Investor”)
has undertaken to acquire up to 10% of LATAM Airlines
shares. The investor undertook to subscribe and pay the
Cash Shares permitted by the Assignment of Options (as
defined in the following paragraph) prior to the expiration of
the subscription option period, as well as to subscribe such
non-subscribed shares that the Company may offer it im-
mediately following the completion of such period (jointly,
the “Subscriptions”).
3. Support. On this same date, each one of the shareholders
of the Cueto groups: Amaro, Eblen and Bethia (the “Support
Shareholders”); which represent 49.72% of LATAM Airlines
currently subscribed and paid shares, has undertaken to
attend the Shareholders’ Meeting and vote in favor of the
subject matters to be proposed therein. Likewise, as soon
as the Company launches the subscription option period for
the Cash Shares, each Support Shareholder has undertaken
to assign and transfer to the Investor its right to subscribe
its corresponding prorated amount of Cash Shares, at a
nominal value (jointly with the “Assignment of Options”).
4. Purchase Order. In the event that, upon materializing the
Subscriptions, the shares to which the Investor is the prop-
erty owner were below 10% of all the shares issued by the
Company, the Investor undertook to issue an unconditional
Purchase Order for a period of 20 days at the Santiago Stock
Exchange for the balance, in a manner such as to reach 10%
of the Company’s total shares, at a price per share equal to
the Subscription Price (the “Purchase Order”).
5. Purchase from TEP. Only if upon materializing the Subscrip-
tions and the Purchase Order, the shares of stock owned
by the Investor were below 10% of all the shares issued by
the Company, and with the sole purpose of facilitating the
Investor reaching 10% of the Company’s total shares, the
TEP Chile S.A. shareholder (a company owned by the Amaro
Group) has undertaken to sell to the Investor, and the lat-
ter has undertaken to purchase, at a price per share equal
to the Subscription Price, the balance of shares required to
reach such 10% (the “Purchase from TEP”); in the under-
standing that such commitment does not extend beyond
2.5% of the total number of Company shares.
6. Market. In the event that, upon materializing the Subscrip-
tions and the Purchase Order from TEP the shares of stock
owned by the Investor were below 10% of all the shares
issued by the Company, the Investor shall be entitled to
purchase the remaining shares in Chile’s secondary market
(shares traded at the stock exchange) and in New York (ADR
at the New York Stock Exchange).
7. Transfers and Commitments. The Investor shall be free to
transfer its stock ownership in the Company, after agreeing
to certain registration rights aimed at an orderly secondary
issue and other usual restrictions.
Recognizing the relevance that the OneWorld® Alliance has
for the company, the Investor has undertaken that a sale of
its shares in the company at an airline outside such Alliance
requires the prior consent of the Board or must be executed
through a mechanism that would allow all Company share-
holders to sell.
In addition to the restrictions stated in the previous para-
graph, in order not to cause major stock market disruptions,
the Investor has undertaken not to sell, during the first year
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MANAGEMENT 2016 | Material Facts
following the last Subscription, shares representing over 2%
of all Company shares, and not to exceed selling 5% of all
Company shares within any 12-month period henceforth.
During a 30-month period counted from the last Subscrip-
tion, the Investor undertook not to increase its Company
shareholding over and above 10% of all Company shares
and not to propose revoking the Board of Directors elected
by the shareholders, nor a transition aimed at causing a
change of control of the Company.
8. Board of Directors. If a vacancy were to arise in the Board
of Directors prior to the 2017 Ordinary Shareholders’ Meet-
ing and the Investor owned at least a 7.4% shareholding of
the total amount of shares issued by the Company; then,
the Board shall nominate the person to be proposed by the
Investor to replace such vacancy, provided it is acceptable
to the Board.
Likewise, if at the 2014 Ordinary Shareholders’ Meeting the
Investor did not manage to elect a Board Member and, follow-
ing such Shareholders’ Meeting there is a vacancy in the Board
of Directors and provided that the Investor owns at least a
7.4% shareholding of the total amount of shares issued by the
Company; then, the Board shall nominate the person to be
proposed by the Investor to replace such vacancy, provided it
is acceptable to the Board.
As of this date, the communication reservation submitted as
an Essential Fact on June 7, 2016, and whose content is refur-
bished with the agreements depicted in the present commu-
nication, is hereby removed.
As of this date it is not possible to determine the financial
effects that the topics reported hereunder may have over the
Company’s assets, liabilities or income. It is estimated, how-
ever, that the Subscriptions will be materialized within the
fourth quarter of 2016. The Company shall keep that Superin-
tendence duly apprised of any relevant development occurring
in relation to the events reported hereunder.
JULY 13 / OTHERS
In addition to the Essential Fact reported to that Superinten-
dence on July 12, 2016, we hereby inform that the funds to
be obtained from the capital increase to be proposed will be
allocated to preserve the Company’s balance sheet and pay
short- term financial commitments (whose amount and defi-
nition is under evaluation). The foregoing will mean an increase
of cash available for the end of the year 2016, estimated at
US$ 1,500 million, which, in turn will enable approaching LA-
TAM’s strategic plans on a solid financial basis.
At the time of publishing the first summons to the Sharehold-
er Meeting we will upload, into to the Company’s internet web-
site: www.latamairlinesgroup.net , the background information
that supports the proposals to be voted upon.
JULY 18 / EXTRAORDINARY SHAREHOLDERS’ MEETING,
SUMMONS, AGREEMENTS AND PROPOSALS
The Company’s Board of Directors has agreed to summon to
an Extraordinary Shareholders’ Meeting to be held on August
18, 2016 in order to propose a capital increase to LATAM Air-
lines totaling US$ 613,164,240 via the issue of 61,316,424
Cash Shares, all of them common stock, without any nominal
value at an issue price of US$ 10 per share, thereby autho-
rizing the Company to place the remaining non-subscribed
shares following the subscription period to be subscribed by
Qatar Airways.
The notifications and summoning letters, as well as the back-
ground information that support the proposals to be sub-
mitted to a vote, shall be forwarded and made available to
shareholders pursuant to the terms provide by the Law on Cor-
porations (“Ley Sobre Sociedades Anónimas”).
JULY 25 / OTHERS
United States of America in effect as of this date, the contents
of which are essentially similar to that depicted in the reserved
Essential Fact submitted before that Superintendence on May
3, 2016, a copy of which is attached to this Essential Fact and
is an integral part of same for all purposes. The amounts ulti-
mately agreed to be paid are: US$ 12,750,000 to the DOJ and
US$ 6,700,000 plus interest to the SEC.
May3 / Essential and Reserved Fact
1. With respect to the investigation of the U.S. Securities
and Exchange Commission (“SEC”) and the U.S. Department
of Justice (“DOJ”), both of them authorities of the Unit-
ed States of America, regarding payments totaling US$
1,150,000 made during 2006-2007 by LAN Airlines S.A.
(“LAN”) to a consultant that provided professional advice
with respect to labor affairs in Argentina; investigation with
which LATAM has cooperated actively, this Board of Di-
rectors hereby reports as an Essential and Reserved Fact
that following an extensive exchange of opinions between
LATAM lawyers with both SEC as well as DOJ representa-
tives regarding the facts subject of that investigation and
legal evaluation, the referred professional advisers arrived
at the conclusion that the way available to put an end to
it requires searching and executing agreements with such
authorities that would consider the payment of fines and
other provisions as described hereunder.
2. The purpose of the investigation was to inquire whether
such payments infringed anticorruption regulations of the
United States of America (“FCPA”); which: (i) bars the pay-
ment of bribes to foreign government officials in order to
obtain commercial advantage; and (ii) requires the com-
panies governed by such regulations to keep adequate ac-
counting records, as well as maintaining an adequate sys-
tem of internal controls. The alluded FCPA indeed applies
to LATAM because of its ADR program that is currently in
effect in the North American securities market.
LATAM informs that it executed agreements with the U.S. De-
partment of Justice (“DOJ”) and with the U.S. Securities and Ex-
change Commission (“SEC”), both of them authorities of the
3. Following an extensive investigation, the DOJ and the
SEC concluded that there were no infringements of FCPA
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MANAGEMENT 2016 | Material Facts
regulations barring the payment of bribes, which is con-
sistent with the results of LATAM’s own internal investiga-
tion. Nevertheless, the DOJ and the SEC considered that
LAN would have incorrectly registered the mentioned pay-
ments in its accounting and, consequently, that it would
have violated that part of the FCPA that requires com-
panies to enter and maintain precise accounting records.
Moreover, the referred authorities considered that LAN’s
internal controls in place during 2006-2007 were indeed
deficient; reason why LAN would have additionally vio-
lated FCPA regulations requiring the maintenance of ad-
equate internal controls.
4. Under these circumstances, LATAM lawyers held numer-
ous and extended exchanges of opinions and conversa-
tions with the DOJ and the SEC. On the basis of the infor-
mation that about such exchanges and conversations was
subsequently provided by LATAM lawyers, this Board of
Directors has decided to seek and an agreement with both
such US authorities.
5. In effect, LATAM lawyers recommended as of this date
to this Board of Directors to reach an agreement with both
such authorities that would consider the following terms
and conditions:
a) With respect to the DOJ, the agreement would primar-
ily consider: (i) executing a contract denominated De-
ferred Prosecution Agreement (“DPA”), which is a public
contract by means of which the DOJ would publicly file
charges alleging violation of the regulations regarding
FCPA accounting records; LATAM would not be obligated
to respond such charges, the DOJ would not prosecute
such charges for a 3-year period and would dismiss the
charges upon the expiration of such deadline assum-
ing that LATAM met all DPA terms; the foregoing, in ex-
change for LATAM’s admission of a number of negotiat-
ed facts to be described in the DPA and that it agrees to
pay the negotiated fine mentioned herein below as well
as the other conditions mentioned in such agreement;
(ii) clauses by means of which LATAM would admit that
the accounting of the payments made to the consultant
in Argentina was incorrect and that, at the time when
such payments were made (years 2006-2007), it lacked
adequate internal controls; (iii) the acceptance by LATAM
of an external consultant, for 27 months, whose func-
tion would be to monitor, evaluate and report to the DOJ
about the efficacy of LATAM’s compliance program, and
also the acceptance by LATAM to continue, for 9 months
after completing the work of the external consultant,
evaluating and directly informing the DOJ regarding the
efficacy of the referred compliance program; and, (iv)
pay an estimated fine of US$ 12,500,000 as it may be
agreed to in the DPA.
b) With respect to the SEC, the agreement would primarily
consider: (i) executing a contract that would contain what
is denominated a Cease and Desist Order, which is an SEC
administrative resolution to close an investigation, by
means of which LATAM would undertake certain obliga-
tions and statement of facts that would be described in
the document; (ii) a reproduction of the obligations with
respect to the consultant mentioned under the preced-
ing number 5(a)(iii); and, (iii) and to pay the approximate
amount of US$ 6,500,000 plus interest.
6. The documents to be included in such agreements be-
tween LATAM and the DOJ and the SEC are yet undergoing
negotiations; and it is relevant, for the purpose of deter-
mining whether or not final agreements will be executed, to
review and agree each one of the facts to be described and
the obligations to be undertaken in each of the documents
that must be ultimately executed.
7. Considering that such negotiations are still pending, it
is not possible at this time to state with certainty if final
agreements will be eventually agreed to. Nevertheless, the
Board has instructed the lawyers to continue their nego-
tiations under the terms and conditions described in this
instrument and to be kept duly apprised of same through
the Company’s Legal Department.
8. It is estimated that the information regarding this Es-
sential and Reserved Fact will remain so for an approximate
period of 60 days.
With the attendance of Board Members, Messrs. Henri
Philippe Reichstul, Georges Antoine de Bourguignon Arndt,
Ricardo J. Caballero Gibbons, Ramón Eblen Kadis, Carlos
Alberto Heller Solari, Juan Gerardo Jofré Miranda and Juan
José Cueto Plaza, the Board of Directors has instructed to
issue this information in a reserved manner, since it refers
to pending negotiations whose disclosure at this time might
damage the interests of the Company, among other rea-
sons, because the same US authorities that conduct the
investigation have stated their objection to disclosing the
contents of an eventual agreement for as long as negotia-
tions remain pending.
Finally, we hereby inform that the following persons have
been apprised of the resolution of this Board of Directors
reported hereunder: the above-mentioned LATAM Board
Members are: LATAM’s General Manager, Mr. Enrique Miguel
Cueto Plaza; the CEO of LAN Airlines S.A. Mr. Ignacio Cueto
Plaza; LATAM’s Senior Vice-president of Finance, Mr. Andrés
Osorio Hermansen; the Senior Board Member of Investor Re-
lations, Ms. Gisela Escobar Koch; LATAM’s Vice-president for
Corporate Affairs, Mr. Gonzalo Undurraga Pellegrini; LATAMs
Senior Legal Vice-president Mr. Juan Carlos Menció; LATAM’s
Legal Vice-president, Mr. Cristián Toro Cañas; and the exter-
nal legal consultants, Messrs. Roger Witten, Claudio Salas,
Cristóbal Eyzaguirre Baeza, José Miguel Huerta Molina, Juan
Pablo Celis Morgan and Tomás Ignacio Kreft Carreño.
OCTOBER 5 / PLACEMENT OF SECURITIES IN
INTERNATIONAL AND/OR DOMESTIC MARKETS
(a) LATAM Airlines Group S.A. (“LATAM” or the “Company”),
has announced its intention to issue and place in the inter-
national markets, non-guaranteed long-term bonds under
the aegis of Norm 144-A and Regulation S of the securities
laws of the United States of America (the “144-A Bonds”
or the “Issue”) ;
108
(b) In order to materialized such bond Issue, a special invest-
ment vehicle has been incorporated, denominated Latam
Finance Limited (“LATAM Finance”), a legal entity incorpo-
rated in the Cayman Islands 100% owned by LATAM, which
shall be the issuer of the 144A Bonds and whose obliga-
tions, assumed by virtue of the Issue, shall be guaranteed
by LATAM, all of which has been duly approved by the Com-
pany’s Board of Directors.
(c) Citigroup Global Markets Inc. (the “Bidder”), by virtue of
an Offer to Purchase drafted in English as of this same
date (hereinafter, the “Bid”) and, in turn, in representation
of LATAM Finance, TAM Capital Inc. (“TK”) and TAM Capital
3 Inc. (“TK3”) (these two latter companies being TAM S.A.
subsidiaries, duly incorporated and existing pursuant to
the laws of the Cayman Islands) has announced the buy-
back, exchange and partial redemption of a portion to be
determined of the remainder (balance) of TAM Capital
Inc.’s bonds (“TK”) and TAM Capital 3 Inc. (“TK3”) (“Interme-
diated Tender Offer”), which were placed in the market as
follows: (i) TK in the year 2007 at a rate of 7.375% for an
amount of US$ 300,000,000 with original expiration in the
year 2017 (“TAM 2017”), and (ii) TK3 in the year 2011, at
a rate of 8.375% for an amount of US$ 500,000,000 with
original expiration in the year 2021 (“TAM 2021”). Both
bond issues were materialized pursuant to Norm 144-
A and Regulation S of the securities laws of the United
States of America.
It is the intention of the Bidder that all TAM 2021 Bonds and
TAM 2017 Bonds to be acquired by virtue of the referred Bid
be exchanged by the Bidder with LATAM Finance, for a por-
tion of the 144-A Bonds issued and placed by LATAM Finance
by virtue of the Issue. Therefore, the objective of placing the
144-Bonds shall be: (i) to finance in part the buy-back, ex-
change and redemption of the TAM 2021 Bonds and TAM 2017
Bonds; and, (ii) should there be any remaining (residual) bonds,
to finance other general corporate ends.
Such buy-back, exchange and partial redemption Bid for the
TAM 2021 Bonds and the TAM 2017 Bonds shall be executed
in a staggered manner; the TAM 2021 Bonds first in a por-
tion to be determined and decided by the Company, and, af-
terwards, depending on the outcome of the Issue, the TAM
2021 Bonds in an amount to be determined and decided by
the Company.
Pursuant to the provisions of Circular Letter N° 988 of the
Superintendence for Securities & Insurance, we hereby report
to you that at this stage it is not possible to quantify the ef-
fects that this operation will have on LATAM’s income position,
should it be materialized.
Finally, we hereby state for the record that LATAM Airlines
Group S.A. will issue, as information of market interest, the
press releases that are attached to the present Essential
Fact in order to provide further background information
with respect to the operations regarding the issuance of
the 144-A Bonds and the buy-back, exchange and partial
redemption of the TAM 2021 Bonds and TAM 2017, to be
distributed in the relevant markets in which such operations
are to take place.
OCTOBER 6 / OTHERS
In a manner complementary to the Essential Fact reported
by LATAM to that Superintendence on October 5, 2016, we
hereby attach the press releases issued by way of market
interest information.
OCTOBER 20 / PLACEMENT OF SECURITIES IN
INTERNATIONAL AND/OR DOMESTIC MARKETS
LATAM Airlines Group S.A. (the “Company”) has decided not
to pursue the purchasing bid submitted via Citigroup Global
Markets Inc. on October 5, 2016, denominated “Offer to Pur-
chase”, whose objective was to buy-back, exchange and re-
deem a portion of the remaining (residual) bonds issued by
TAM Capital Inc. and TAM Capital 3 Inc., both of them subsid-
iary companies of TAM S.A., legally incorporated pursuant to
the laws of the Cayman Islands, whose expiration had been
set for the years 2017 and 2021, respectively (hereinafter,
MANAGEMENT 2016 | Material Facts
the “Bid”), all of which was duly reported to this Superinten-
dence last October 5.
The referred Offer to Purchase included certain conditions in
order to activate the Offer, one of which was indeed not met;
which, in turn, led the Company to discontinue it and not go
forward with its intention to issue and place non-guaranteed
long-term bonds in the international market under the aegis
of Norm 144-A and Regulation S of the securities laws of
the United States of America, according to the terms and
conditions set forth in the referred Essential Fact reported
last October 5.
109
MANAGEMENT 2016 | Stock Market information
Stock Market Information
During 2016, the local share of LATAM Airlines Group
showed a positive profitability of 51.6%. Likewise, its ADR
(American Depositary Receipts) and BDR (Brazilian Deposi-
tary Receipts) also showed a positive profitability of 51.8%.
As of December 31, 2016, the Company’s stock market
capitalization amounted to US$ 4,475.2 million. Through-
out all of 2016, the share of LATAM Airlines Group showed
a profitability higher than that of the IPSA (Select Share
Price Index); an index that showed a positive profitability of
12.8% during such period. With respect to the trading of the
stock at the Santiago Stock Exchange, the LATAM Airlines
Group share had a stock market presence of 100%.
VOLUMES TRADED PER QUARTER LOCAL SHARE (Santiago Stock Exchange, SSE)
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of shares traded
Average price (CLP)
Total amount (CLP)
61,484,884
35,965,643
35,231,909
44,766,542
35,580,564
44,884,792
39,396,992
27,348,459
31,693,231
25,756,176
65,396,759
29,632,143
8,211
8,131
7,191
6,939
6,408
5,311
3,945
3,790
4,014
4,510
5,411
5,950
504,829,447,686
292,436,121,151
253,336,632,783
310,646,587,594
228,009,403,400
238,380,996,445
155,423,718,868
103,651,321,266
127,210,391,201
116,170,253,790
353,855,527,638
176,318,488,865
110
VOLUMES TRADED PER QUARTER ADR (New York Stock Exchange, NYSE)
MANAGEMENT 2016 | Stock Market information
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of shares traded
Average price (USD)
Total amount (USD)
39,001,153
37,203,364
39,309,163
35,321,250
50,592,157
58,290,119
40,747,698
27,744,021
32,739,012
33,327,301
42,231,494
30,197,724
14,9
14,7
12,4
11,6
10,2
8,5
5,8
5,5
5,8
6,6
8,2
8,9
580,445,848
545,714,297
487,095,808
409,025,594
515,359,910
497,760,607
236,597,688
152,171,620
189,108,047
220,309,082
347,459,617
268,457,766
VOLUMES TRADED PER QUARTER BDR (Sao Paulo Securities, Merchandise & Futures Exchange, BOVESPA)
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of shares traded
Average price (BRL)
Total amount (BRL)
223,600
90,000
147,600
105,600
145,600
264,900
28,200
59,700
50,500
29,700
-
-
34,7
33,1
26,9
28,5
28,3
26,1
19,9
21,4
21,7
21,3
-
-
7,765,397
2,977,950
3,966,750
3,008,393
4,125,576
6,911,535
561,627
1,279,542
1,096,860
633,798
-
-
111
Note: On July 18, 2016, LATAM received the approval of Brazil’s
CVM (Securities Commission) for a discontinuation of the Level
III Brazil Depositary Receipts (“BDR”) program, supported by the
Company’s common shares and, consequently, of the Foreign Is-
suer’s Register.
MANAGEMENT 2016 | Stock Market information
Local share (CLP)
IPSA index
7.000
6.000
5.000
4.000
3.000
01-01-16
01-02-16
01-03-16
01-04-16
01-05-16
01-06-16
01-07-16
01-08-16
01-09-16
01-10-16
01-11-16
01-12-16
Local share (CLP)
ADR (USD)
7.000
6.000
5.000
4.000
3.000
01-01-16
01-02-16
01-03-16
01-04-16
01-05-16
01-06-16
01-07-16
01-08-16
01-09-16
01-10-16
01-11-16
01-12-16
7.000
6.000
5.000
4.000
3.000
Local share (CLP)
BDR (BRL)
01-01-16
01-02-16
01-03-16
01-04-16
01-05-16
01-06-16
01-07-16
01-08-16
01-09-16
01-10-16
01-11-16
01-12-16
6.000
5.000
4.000
3.000
12,0
9,0
6,0
3,0
30,0
25,0
20,0
15,0
10,0
112
MANAGEMENT 2016| Risk factors
Risk Factors
The following important factors, and those important fac-
tors described in other reports we submit to or file with
the Securities and Exchange Commission (“SEC”), could
affect our actual results and could cause our actual results
to differ materially from those expressed in any forward-
looking statements made by us or on our behalf. In par-
ticular, as we are a non-U.S. company, there are risks as-
sociated with investing in our ADSs that are not typical
for investments in the shares of U.S. companies. Prior to
making an investment decision, you should carefully con-
sider all of the information contained in this document,
including the following risk factors.
Risk Factors Relating to our Company
LATAM does not control the voting shares or board of direc-
tors of TAM
Due to Brazilian law restrictions on foreign ownership of
Brazilian airlines, LATAM does not control the voting shares
or board of directors of TAM. As of January 31, 2017, the
ownership structure of TAM is as follows:
► Holdco I owns 100% of the TAM common shares previ-
ously outstanding;
• the Amaro family (the “Amaro Group”) own approxi-
mately 51% of the outstanding Holdco I voting shares
through TEP Chile (a Chilean entity wholly owned by
the TAM Controlling Shareholders) and LAN owns the
remainder of the voting shares;
• LATAM owns 100% of the outstanding Holdco I non-
voting shares, entitling it to substantially all of the
economic rights in respect of the TAM common shares
held by Holdco I; and
► LATAM owns 100% of the TAM preferred shares previously
outstanding.
As a result of this ownership structure:
► The Amaro Group Controlling Shareholders retain voting
and board control of TAM and each subsidiary of TAM; and
► LATAM is entitled to substantially all of the economic
rights in TAM.
LATAM Airlines Group and TEP Chile and other parties
have entered into shareholders’ agreements that establish
agreements and restrictions relating to corporate gover-
nance with respect to TAM. Certain specified actions require
supermajority approval, which in turn means they require
the prior approval of both LATAM and TEP Chile. Examples
of actions requiring supermajority approval by the board of
directors of Holdco I or TAM include, among others, enter-
ing into acquisitions or business collaborations, amending
or approving budgets, business plans, financial statements
and accounting policies, incurring indebtedness, encumber-
ing assets, entering into certain agreements, making certain
investments, modifying rights or claims, entering into set-
tlements, appointing executives, creating security interests,
issuing, redeeming or repurchasing securities and voting on
matters as a shareholder of affiliates of TAM. Actions re-
quiring supermajority shareholder approval of Holdco I or
TAM include, among others, certain changes to the by-laws
of Holdco I, TAM or TAM’s affiliates or any dissolution/liq-
uidation, corporate reorganization, payment of dividends,
issuance of securities, disposal or encumbrance of cer-
tain assets, creation of security interests or entering into
guarantees and agreements with related parties. For more
information on the shareholders’ agreements, see “Item 7.
Controlling Shareholders and Related Party Transactions—
Shareholders’ Agreements.”
Our assets include a significant amount of goodwill.
Our assets included US$2,710.4 million of goodwill as of
December 31, 2016, US$2,582.5 million of which results
from the combination of LAN and TAM. Under IFRS, good-
will is subject to an annual impairment test and may be
required to be tested more frequently if events or circum-
stances indicate a potential impairment. In 2016, mainly as
a result of the appreciation of the Brazilian real against the
113
MANAGEMENT 2016 | Risk factors
U.S. dollar, the value of our goodwill increased by 18.8% as
compared with 2015. Any impairment could result in the
recognition of a significant charge to earnings in our state-
ment of income, which could materially and adversely im-
pact our consolidated results for the period in which the
impairment occurs.
A failure to successfully implement our strategy or a fail-
ure adjusting the strategy to the current economic situation
would harm our business and the market value of our ADSs
and common shares.
We have developed a strategic plan with the goal of becom-
ing one of the best airlines in the world and renewing our
commitment to sustained profitability and superior returns
to shareholders. Our strategy requires us to identify value
propositions that are attractive to our clients, to find effi-
ciencies in our daily operations, and to transform ourselves
into a stronger and more risk-resilient company. A tenet of
our strategic plan is the adoption of a new travel model for
domestic services in the six countries where we have domes-
tic operations to address the changing dynamics of custom-
ers and the industry, and to increase our competitiveness.
The new travel model is based on a continued reduction in
air fares that makes air travel accessible to a wider audience,
and in particular to those wish to fly more frequently. This
model requires continued cost reduction efforts, and in order
to achieve this the Company is implementing a series of ini-
tiatives to reduce cost per ASK in all its domestic operations.
Difficulties in implementing our strategy may adversely af-
fect our business, results of operation and the market value
of our ADSs and common shares.
A failure to successfully transfer the value proposition of the
LAN and TAM brands to a new single brand, may adversely
affect our business and the market value of our ADSs and
common shares.
Following the combination in 2012, LAN and TAM contin-
ued to operate with their original brands. During 2016, we
began the transition of LAN and TAM into a single brand.
LAN and TAM had different value propositions, and there
can be no assurances that we will be able to fully trans-
fer the value of the original LAN and TAM brands to our
new single brand “LATAM”. Difficulties in implementing our
single brand may prevent us from consolidating as a cus-
tomer preferred carrier and may adversely affect our busi-
ness and results of operations and the market value of our
ADSs and common shares.
It may take time to combine the frequent flyer programs of
LAN and TAM.
We have integrated the separate frequent flyer programs
of LAN and TAM so that passengers can use frequent flyer
miles earned with either LAN or TAM interchangeably. Dur-
ing 2016, LAN and TAM announced their revamped frequent
flyer programs, which have new names: LATAM Pass and
LATAM Fidelidade, respectively. The change is part of the
process of consolidating the airline group’s new brand iden-
tity (LATAM) and the evolution of the programs, which en-
hances existing benefits and introduces new benefits for
program members. However, there is no guarantee that full
integration of the two plans will be completed in the near
term or at all. Even if the integration occurs, the successful
integration of these programs will involve some time and
expense. Moreover, during 2016, LATAM Pass and LATAM
Fidelidade approved changes in their mileage earning policy
which may impact the attractiveness of the programs to
passengers. Until we effectively combine these programs,
passengers may prefer frequent flyer programs offered by
other airlines, which may adversely affect our business.
Our financial results are exposed to foreign currency fluc-
tuations.
We prepare and present our consolidated financial state-
ments in U.S. dollars. LATAM and its affiliates operate in
numerous countries and face the risk of variation in foreign
currency exchange rates against the U.S. dollar or between
the currencies of these various countries. Changes in the
114
MANAGEMENT 2016 | Risk factors
exchange rate between the U.S. dollar and the currencies in
the countries in which we operate could adversely affect our
business, financial condition and results of operations.. If the
value of the Brazilian real, Chilean peso or other currencies
in which revenues are denominated declines against the U.S.
dollar, our results of operations and financial condition will be
affected. The exchange rate of the Chilean peso, Brazilian real
and other currencies against the U.S. dollar may fluctuate sig-
nificantly in the future.
Changes in Chilean, Brazilian and other governmental eco-
nomic policies affecting foreign exchange rates could also
adversely affect our business, financial condition, results of
operations and the return to our shareholders on their com-
mon shares or ADSs.
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 alliances or commercial rela-
tionships terminates.
We maintain a number of alliances and other commercial re-
lationships in many of the jurisdictions in which LATAM and its
affiliates operate. These alliances or commercial relationships
allow us to enhance our network and, in some cases, to of-
fer our customers services that we could not otherwise offer.
If any of our strategic alliances or commercial relationships,
deteriorates, or any of these agreements are terminated, our
business, financial condition and results of operations could
be adversely affected.
Our business and results of operations may suffer if we fail to
obtain and maintain routes, suitable airport access, slots and
other operating permits.
Our business depends upon our access to key routes and
airports. Bilateral aviation agreements between countries,
open skies laws and local aviation approvals frequently in-
volve political and other considerations outside of our con-
trol. Our operations could be constrained by any delay or
inability to gain access to key routes or airports, including:
• limitations on our ability to process more passengers;
• the imposition of flight capacity restrictions;
• the inability to secure or maintain route rights in local mar-
cargo products are sensitive to foreign exchange rates and,
therefore, traffic volumes could be impacted by the appre-
ciation or depreciation of local currencies.
kets or under bilateral agreements; or
• the inability to maintain our existing slots and obtain ad-
ditional slots.
Our operations are subject to fluctuations in the supply and cost
of jet fuel, which could adversely impact our business.
We operate numerous international routes, subject to bilat-
eral agreements, and also internal flights within Chile, Peru,
Brazil, Argentina, Ecuador, Colombia and other countries,
subject to local route and airport access approvals. See “Item
4. Information on the Company—B. Business Overview—
Regulation.”
There can be no assurance that existing bilateral agreements
with the countries in which our companies are based and
permits from foreign governments will continue. A modifica-
tion, suspension or revocation of one or more bilateral agree-
ments could have a material adverse effect on our business,
financial condition and results of operations. The suspension
of our permission to operate in certain airports, destinations
or slots, or the imposition of other sanctions could also have
a material adverse effect. A change in the administration of
current laws and regulations or the adoption of new laws and
regulations in any of the countries in which we operate that
restrict our route, airport or other access may have a mate-
rial adverse effect on our business, financial condition and
results of operations.
A significant portion of our cargo revenue comes from relatively
few product types and may be impacted by events affecting
their production, trade or demand.
Our cargo demand, especially from Latin American export-
ers, is concentrated in a small number of product categories,
such as exports of fish, sea products and fruits from Chile,
and asparagus from Peru, and exports of fresh flowers from
Ecuador and Colombia. Events that adversely affect the pro-
duction, trade or demand for these goods may adversely af-
fect the volume of goods that we transport and may have a
significant impact on our results of operations. Some of our
Higher jet fuel prices could have a materially adverse effect on
our business, financial condition and results of operations. Jet
fuel costs have historically accounted for a significant amount
of our operating expenses, and accounted for 23.0% of our op-
erating expenses in 2016. Both the cost and availability of fuel
are subject to many economic and political factors and events
that we can neither control nor predict. We have entered into
fuel hedging arrangements, but there can be no assurance
that such arrangements will be adequate to protect us from
an increase in fuel prices in the near future or in the long term.
Also, while these hedging arrangements are designed to limit
the effect of an increase in fuel prices, our hedging methods
may also limit our ability to take advantage of any decrease
in fuel prices, as was the case in 2015 and, to a lesser extent,
in 2016. Although we have implemented measures to pass a
portion of incremental fuel costs to our customers, our ability
to lessen the impact of any increase in fuel costs using these
types of mechanisms may be limited.
We rely on maintaining a high aircraft utilization rate to in-
crease our revenues and absorb our fixed costs, which makes us
especially vulnerable to delays.
A key element of our strategy is to maintain a high daily air-
craft utilization rate, which measures the number of flight
hours we use our aircraft per day. High daily aircraft utiliza-
tion allows us to maximize the amount of revenue we gener-
ate from our aircraft and absorb the fixed costs associated
with our fleet and is achieved, in part, by reducing turnaround
times at airports and developing schedules that enable us to
increase the average hours flown per day. Our rate of aircraft
utilization could be adversely affected by a number of differ-
ent factors that are beyond our control, including air traffic and
airport congestion, adverse weather conditions, unanticipated
115
MANAGEMENT 2016 | Risk factors
maintenance and delays by third-party service providers re-
lating to matters such as fueling and ground handling. If an
aircraft falls behind schedule, the resulting delays could cause
a disruption in our operating performance.
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.
As our fleet has grown, our reliance on Airbus and Boeing has
also grown. As of December 31, 2016, LATAM Airlines Group
has a fleet of 250 Airbus and 82 Boeing aircraft. Risks relating
to Airbus and Boeing include:
• our failure or inability to obtain Airbus or Boeing aircraft,
parts or related support services on a timely basis because
of high demand or other factors;
• the interruption of fleet service as a result of unscheduled or
unanticipated maintenance requirements for these aircraft;
• the issuance by the Chilean or other aviation authorities of
other directives restricting or prohibiting the use of our Air-
bus or Boeing aircraft, or requiring time-consuming inspec-
tions and maintenance;
• adverse public perception of a manufacturer as a result of
an accident or other negative publicity; or
• delays between the time we realize the need for new air-
craft and the time it takes us to arrange for Airbus and Boe-
ing or for a third-party provider to deliver this aircraft.
The occurrence of any one or more of these factors could re-
strict our ability to use aircraft to generate profits, respond
to increased demands, or could otherwise limit our opera-
tions and adversely affect our business.
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.
A large portion of our aircraft fleet is subject to long-term op-
erating leases. Our operating leases typically run from three to
12 years from the date of delivery. We may face more compe-
tition for, or a limited supply of, leased aircraft, making it dif-
ficult for us to negotiate on competitive terms upon expiration
of our current operating leases or to lease additional capacity
required for our targeted level of operations. If we are forced
to pay higher lease rates in the future to maintain our capacity
and the number of aircraft in our fleet, our profitability could
be adversely affected.
Our business may be adversely affected if we are unable to ser-
vice our debt or meet our future financing requirements.
We have a high degree of debt and payment obligations under
our aircraft operating leases and financial debt arrangements.
We require significant amounts of financing to meet our air-
craft capital requirements and may require additional financ-
ing to fund our other business needs. We cannot guarantee
that we will have access to or be able to arrange for financing
in the future on favorable terms. Following the combination
of LAN and TAM, Fitch Ratings Inc. and Standard and Poor’s
downgraded LATAM Airlines Group S.A.’s credit rating to levels
that are below investment grade. Any further securities rating
agencies downgrades could increase our financing costs. High-
er financing costs could affect our ability to expand or renew
our fleet, which in turn could adversely affect our business.
In addition, the majority of our property and equipment is
subject to liens securing our indebtedness. In the event that
we fail to make payments on secured indebtedness, credi-
tors’ enforcement of liens could limit or end our ability to use
the affected property and equipment to fulfill our operational
needs and thus generate revenue.
Moreover, external conditions in the financial and credit mar-
kets may limit the availability of funding at particular times
or increase its costs, which could adversely affect our profit-
ability, our competitive position and result in lower net inter-
est margins, earnings and cash flows, as well as lower returns
on shareholders’ equity and invested capital. Factors that may
affect the availability of funding or cause an increase in our
funding costs include global macro-economic crises, reduction
of our credit rating, and other potential market disruptions.
We have significant exposure to LIBOR and other floating inter-
est rates; increases in interest rates will increase our financing
costs and may have adverse effects on our financial condition
and results of operations.
We are exposed to the risk of interest rate variations, principal-
ly in relation to the U.S. dollar London Interbank Offer Rate (“LI-
BOR”). Many of our operating and financial leases are denomi-
nated in U.S. dollars and bear interest at a floating rate. 36.9%
of our outstanding consolidated debt as of December 31, 2016
bears interest at a floating rate after giving effect to interest
rate hedging agreements. Volatility in LIBOR or other reference
rates could increase our periodic interest and lease payments
and have an adverse effect on our total financing costs. We
may be unable to adequately adjust our prices to offset any
increased financing costs, which would have an adverse effect
on our revenues and our results of operations.
Increases in insurance costs and/or significant reductions in cover-
age could harm our financial condition and results of operations.
Major events affecting the aviation insurance industry (such
as terrorist attacks, hijackings or airline crashes) may result in
significant increases of airlines’ insurance premiums or in sig-
nificant decreases of insurance coverage, as occurred after the
September 11, 2001 terrorist attacks. Increases in insurance
costs and/or significant reductions in coverage could harm our
financial condition and results of operations and increases the
risk that we experience uncovered losses.
Problems with air traffic control systems or other technical fail-
ures could interrupt our operations and have a material adverse
effect on our business.
Our operations, including our ability to deliver customer ser-
vice, are dependent on the effective operation of our equip-
ment, including our aircraft, maintenance systems and res-
ervation systems. Our operations are also dependent on the
effective operation of domestic and international air traffic
control systems and the air traffic control infrastructure by
the corresponding authorities in the markets in which we op-
116
MANAGEMENT 2016 | Risk factors
erate. Equipment failures, personnel shortages, air traffic con-
trol problems and other factors that could interrupt operations
could adversely affect our operations and financial results as
well as our reputation.
We depend on a limited number of suppliers for certain aircraft
and engine parts.
We depend on a limited number of suppliers for aircraft, air-
craft engines and many aircraft and engine parts. As a result,
we are vulnerable to any problems associated with the supply
of those aircraft, parts and engines, including design defects,
mechanical problems, contractual performance by the suppli-
ers, or adverse perception by the public that would result in
customer avoidance or in actions by the aviation authorities
resulting in an inability to operate our aircraft.
Our business relies extensively on third-party service providers.
Failure of these parties to perform as expected, or interrup-
tions 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.
We have engaged a significant number of third-party service
providers to perform a large number of functions that are
integral to our business, including regional operations, opera-
tion of customer service call centers, distribution and sale
of airline seat inventory, provision of information technology
infrastructure and services, provision of aircraft maintenance
and repairs, catering, ground services, and provision of vari-
ous utilities and performance of aircraft fueling operations,
among other vital functions and services. We do not directly
control these third-party service providers, although we do
enter into agreements with many of them that define ex-
pected service performance. Any of these third-party service
providers, however, may materially fail to meet their service
performance commitments, may suffer disruptions to their
systems that could impact their services, or the agreements
with such providers may be terminated. For example, flight
reservations booked by customers and/or travel agencies via
third-party GDSs (Global Distribution Systems) may be ad-
versely affected by disruptions in our business relationships
with GDS operators. Such disruptions, including a failure to
agree upon acceptable contract terms when contracts expire
or otherwise become subject to renegotiation, may cause
the carriers’ flight information to be limited or unavailable
for display, significantly increase fees for both us and GDS
users, and impair our relationships with customers and travel
agencies. The failure of any of our third-party service provid-
ers to adequately perform their service obligations, or other
interruptions of services, may reduce our revenues and in-
crease our expenses or prevent us from operating our flights
and providing other services to our customers. In addition,
our business, financial performance and reputation could be
materially harmed if our customers believe that our services
are unreliable or unsatisfactory.
tion of our business partners. The secure operation of the
networks and systems on which this type of information is
stored, processed and maintained is critical to our business
operations and strategy. Unauthorized parties may attempt
to gain access to our systems or information through fraud or
deception. Hardware or software we develop or acquire may
contain defects that could unexpectedly compromise infor-
mation security. The compromise of our technology systems
resulting in the loss, disclosure, misappropriation of, or ac-
cess to, customers’, employees’ or business partners’ infor-
mation could result in legal claims or proceedings, liability
or regulatory penalties under laws protecting the privacy of
personal information, disruption to our operations and dam-
age to our reputation, any or all of which could adversely
affect our business.
Disruptions or security breaches of our information technology
infrastructure or systems could interfere with our operations,
compromise passenger or employee information, and expose
us to liability, possibly causing our business and reputation to
suffer.
A serious internal technology error or failure impacting sys-
tems hosted internally at our data centers or externally at
third-party locations, or large-scale interruption in technol-
ogy infrastructure we depend on, such as power, telecom-
munications or the internet, may disrupt our technology net-
work with potential impact on our operations. Our technology
systems and related data may also be vulnerable to a variety
of sources of interruption, including natural disasters, terror-
ist attacks, telecommunications failures, computer viruses,
hackers and other security issues. While we have in place,
and continue to invest in, technology security initiatives and
disaster recovery plans, these measures may not be ade-
quate or implemented properly so as to prevent a business
disruption and its adverse financial and reputational conse-
quences to our business.
In addition, as a part of our ordinary business operations,
we collect and store sensitive data, including personal in-
formation of our passengers and employees and informa-
Increases in our labor costs, which constitute a substantial
portion of our total operating expenses, could directly impact
our earnings.
Labor costs constitute a significant percentage of our total
operating expenses (21.8% in 2016) and at times in our oper-
ating history we have experienced pressure to increase wages
and benefits for our employees. A significant increase in our
labor costs could result in a material reduction in our earnings.
Our business may experience adverse consequences if we are
unable to reach satisfactory collective bargaining agreements
with our unionized employees.
As of December 31, 2016, approximately 72.9% of our em-
ployees, including administrative personnel, cabin crew, flight
attendants, pilots and maintenance technicians are members
of unions and have contracts and collective bargaining agree-
ments which expire on a regular basis. Our business, financial
condition and results of operations could be materially ad-
versely affected by a failure to reach agreement with any labor
union representing such employees or by an agreement with
a labor union that contains terms that are not in line with our
expectations or that prevent us from competing effectively
with other airlines.
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MANAGEMENT 2016 | Risk factors
Collective action by employees could cause operating disrup-
tions and adversely impact our business.
Certain employee groups such as pilots, flight attendants,
mechanics and our airport personnel have highly specialized
skills. As a consequence, actions by these groups, such as
strikes, walk-outs or stoppages, could severely disrupt our
operations and adversely impact our operating and financial
performance, as well as our image.
We may experience difficulty finding, training and retaining
employees.
Our business is labor intensive. We employ a large number of
pilots, flight attendants, maintenance technicians and other
operating and administrative personnel. The airline industry
has, from time to time, experienced a shortage of qualified
personnel, especially pilots and maintenance technicians. In
addition, as is common with most of our competitors, we
may, from time to time, face considerable turnover of our
employees. Should the turnover of employees, particularly
pilots and maintenance technicians, sharply increase, our
training costs will be significantly higher. A failure to recruit,
train and retain qualified employees at a reasonable cost
could materially adversely affect our business, financial con-
dition and results of operations.
economic growth in Chile, recession in Brazil and Argentina
and poor economic performance in certain emerging mar-
ket countries in which we operate. The occurrence of simi-
lar events in the future could adversely affect our business.
We plan to continue to expand our operations based in Latin
America and our performance will, therefore, continue to de-
pend heavily on economic conditions in the region.
Any of the following factors could adversely affect our busi-
ness, financial condition and results of operations in the coun-
tries in which we operate:
• changes in economic or other governmental policies;
• weak economic performance, including, but not limited to,
low economic growth, low consumption and/or investment
rates, and increased inflation rates; or
• other political or economic developments over which we
have no control.
No assurance can be given that capacity reductions or other
steps we may take in response to weakened demand will be
adequate to offset any future reduction in our cargo and/or
air travel demand in Brazil or in other markets in which we
operate. Sustained weakened demand may adversely impact
our revenues, results of operations or financial condition.
Risks Related to the Airline Industry and the Countries in
Which We Operate
We are exposed to increases in landing fees and other airport
service charges that could adversely affect our margin and
competitive position.
Our performance is heavily dependent on economic conditions
in the countries in which we do business. Negative economic
conditions in those countries could adversely impact our busi-
ness and results of operations and cause the market price of our
common shares and ADSs to decrease.
Passenger and cargo demand is heavily cyclical and highly
dependent on global and local economic growth, economic
expectations and foreign exchange rate variations, among
other things. In the past, our business has been adversely
affected by global economic recessionary conditions, weak
Airlines must pay fees to airport operators for the use of
airport facilities. Passenger taxes and airport charges have
increased substantially in recent years. We cannot assure
you that the airports in which we operate will not increase
or maintain high passenger taxes and service charges in the
future. Any substantial increase in airport charges could have
a material adverse impact on our results of operations. In
addition, any increase in passenger taxes could negatively
impact demand for air travel and affect our results.
Our business is highly regulated and changes in the regulato-
ry environment in which we operate may adversely affect our
business and results of operations.
Our business is highly regulated and depends substantially
upon the regulatory environment in the countries in which we
operate or intend to operate. For example, price controls on
fares may limit our ability to effectively apply customer seg-
mentation profit maximization techniques (“passenger rev-
enue management”) and adjust prices to reflect cost pres-
sures. High levels of government regulation may limit the
scope of our operations and our growth plans. The possible
failure of aviation authorities to maintain the required gov-
ernmental authorizations or our failure to comply with ap-
plicable regulations, may adversely affect our business and
results of operations.
Losses and liabilities in the event of an accident involving one or
more of our aircraft could materially affect our business.
We are exposed to potential catastrophic losses in the event
of an aircraft accident, terrorist incident or any other similar
event. There can be no assurance that, as a result of an aircraft
accident or significant incident:
• we will not need to increase our insurance coverage;
• our insurance premiums will not increase significantly;
• our insurance coverage will fully cover all of our liability; or
• we will not be forced to bear substantial losses.
Substantial claims resulting from an accident or significant in-
cident in excess of our related insurance coverage could have
a material adverse effect on our business, financial condition
and results of operations. Moreover, any aircraft accident, even
if fully insured, could cause the negative public perception that
our aircraft are less safe or reliable than those operated by
other airlines, which could have a material adverse effect on
our business, financial condition and results of operations.
Insurance premiums may also increase due to an accident or
incident affecting one of our alliance partners or other airlines.
118
MANAGEMENT 2016 | Risk factors
High levels of competition in the airline industry may adversely
affect our level of operations.
tions and financial results. In addition, failure to comply with
these regulations could adversely affect us in a variety of
ways, including adverse effects on our reputation.
Our business, financial condition and results of operations
could be adversely affected by high levels of competition
within the industry, particularly the entrance of new compet-
itors into the markets in which we operate. Airlines compete
primarily over fare levels, frequency and dependability of
service, brand recognition, passenger amenities (such as fre-
quent flyer programs) and the availability and convenience of
other passenger or cargo services. New and existing airlines
(and companies providing ground cargo or passenger trans-
portation) could enter our markets and compete with us on
any of these bases, including by offering lower prices, more
attractive services or increasing their route offerings in an ef-
fort to gain greater market share.
Some of our competitors may receive external support, which
could adversely impact our competitive position.
Some of our competitors may receive support from external
sources, such as their national governments, which may be
unavailable to us. Support may include, among others, subsi-
dies, financial aid or tax waivers. This support could place us
at a competitive disadvantage and adversely affect our opera-
tions and financial performance.
In 2016, the ICAO adopted a resolution creating the Carbon
Offsetting and Reduction Scheme for International Aviation
(CORSIA), providing a framework for a global market-based
measure to stabilize carbon dioxide (“CO2”) emissions in in-
ternational civil aviation (i.e., civil aviation flights that depart in
one country and arrive in a different country). The CORSIA will
be implemented in phases, starting with the participation of
ICAO member states on a voluntary basis during a pilot phase
(from 2021 through 2023), followed by a first phase (from
2024 through 2026) and a second phase (from 2027). Current-
ly, CORSIA focuses on defining standards for monitoring, re-
porting and verification of emissions from air operators, as well
as on defining steps to offset CO2 emissions after 2020. To the
extent most of the countries in which we operate continue to
be ICAO member states, in the future we may be affected by
regulations adopted pursuant to the CORSIA framework.
The proliferation of national regulations and taxes on CO2
emissions in the countries that we have domestic operations,
including recent enviromental regulations that the airline in-
dustry is facing in Colombia, may also affect our costs of op-
erations and our margins.
Our operations are subject to local, national and international
environmental regulations; costs of compliance with applicable
regulations, or the consequences of noncompliance, could ad-
versely 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.
Our operations are covered by environmental regulations
at local, national and international levels. These regulations
cover, among other things, emissions to the atmosphere,
disposal of solid waste and aqueous effluents, aircraft noise
and other activities incident to our business. Future opera-
tions and financial results may vary as a result of such regu-
lations. Compliance with these regulations and new or exist-
ing regulations that may be applicable to us in the future
could increase our cost base and adversely affect our opera-
Demand for air transportation may be adversely impacted by
exogenous events, such as adverse weather conditions and
natural disasters, epidemics (such as Ebola and Zika), terrorist
attacks, war or political and social instability. Situations such
as these in one or more of the markets in which we operate
could have a material impact on our business, financial condi-
tion and results of operations. Furthermore, these types of
situations could have a prolonged effect on air transportation
demand and on certain cost items.
Revenues for airlines depend on the number of passengers
carried, the fare paid by each passenger and service factors,
such as the timeliness of flight departures and arrivals. During
periods of fog, ice, low temperatures, storms or other adverse
weather conditions, some or all of our flights may be cancelled
or significantly delayed, reducing our revenues. In addition,
fuel prices and supplies, which constitute a significant cost for
us, may increase as a result of any future terrorist attacks,
a general increase in hostilities or a reduction in output of
fuel, voluntary or otherwise, by oil-producing countries. Such
increases may result in both higher airline ticket prices and
decreased demand for air travel generally, which could have
an adverse effect on our revenues and results of operations.
We are subject to risks related to litigation and administrative
proceedings that could adversely affect our business and finan-
cial performance in the event of an unfavorable ruling.
The nature of our business exposes us to litigation relating to
labor, insurance and safety matters, regulatory, tax and admin-
istrative proceedings, governmental investigations, tort claims
and contract disputes. Litigation is inherently costly and unpre-
dictable, making it difficult to accurately estimate the outcome
among other matters. Currently, as in the past, we are subject
to proceedings or investigations of actual or potential litiga-
tion. Although we establish provisions as we deem necessary,
the amounts that we reserve could vary significantly from any
amounts we actually pay due to the inherent uncertainties in
the estimation process. We cannot assure you that these or
other legal proceedings will not materially affect our business.
We are subject to anti-corruption, anti-bribery, anti-money
laundering and antitrust laws and regulations in Chile, the
United States and in the various countries we operate. Viola-
tions of any such laws or regulations could have a material
adverse impact on our reputation and results of operations
and financial condition.
We are subject to anti-corruption, anti-bribery, anti-money
laundering, antitrust and other international laws and regu-
lations and are required to comply with the applicable laws
119
MANAGEMENT 2016 | Risk factors
and regulations of Chile, the United States and certain other
jurisdictions where we operate. In addition, we are subject to
economic sanctions regulations that restrict our dealings with
certain sanctioned countries, individuals and entities. There
can be no assurance that our internal policies and procedures
will be sufficient to prevent or detect all inappropriate prac-
tices, fraud or violations of law by our affiliates, employees,
directors, officers, partners, agents and service providers or
that any such persons will not take actions in violation of our
policies and procedures. Any violations by us of anti-bribery
and anti-corruption laws or sanctions regulations could have a
material adverse effect on our business, reputation, results of
operations and financial condition.
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.
The Brazilian economy has been characterized by the sig-
nificant involvement of the Brazilian government, which often
changes monetary, credit, fiscal and other policies to influ-
ence Brazil’s economy. The Brazilian government’s actions to
control inflation and implement other policies have involved
wage and price controls, depreciation of the real, controls over
remittance of funds abroad, intervention by the Central Bank
to affect base interest rates and other measures. We have no
control over, and cannot predict what measures or policies the
Brazilian government may take in the future.
Risks Related to our Common Shares and ADSs
Our major shareholders may have interests that differ from
those of our other shareholders.
One of our major shareholder groups, the Cueto Group (the
“LATAM Controlling Shareholders”),which as of January 31,
2017, beneficially owned 28.27% of our common shares, is
entitled to elect three of the nine members of our board
of directors and is in a position to direct our management.
In addition, the LATAM Controlling Shareholders have en-
tered into a shareholders agreement with the Amaro Group,
which as of January 31, 2017, held a 3.02% of LATAM shares
through TEP Chile, in addition to the indirect stake they have
through the 21.88% interest in Costa Verde Aeronáutica S.A.,
the main legal vehicle through which the Cueto Group holds
LATAM shares, pursuant to which these two major share-
holder groups have agreed to vote together to elect individu-
als to our board of directors in accordance with their direct
and indirect shareholder interest in LATAM. Pursuant to a
shareholders’ agreement, the LATAM Controlling Sharehold-
ers and the Amaro Group have also agreed to use their good
faith efforts to reach an agreement and act jointly on all ac-
tions to be taken by our board of directors or shareholders
meeting, and if unable to reach to such agreement, to follow
the proposal made by our board of directors. Decisions by
the Company that require supermajority votes under Chilean
law are also subject to voting arrangements by the LATAM
Controlling Shareholders and theAmaro Group. In addition,
another major shareholder, Qatar Airways Investments (UK)
Ltd., which as of January 31, 2017, held 10.03%1 of paid and
subscribed shares, is entitled to appoint one individual to our
board of directors. The interests of our major shareholders
may differ from those of our other shareholders. See “Item 7.
Controlling Shareholders and Related Party Transactions—A.
Major Shareholders.”
Under the terms of the deposit agreement governing the
ADSs, if holders of ADSs do not provide JP Morgan Chase
Bank, N.A., in its capacity as depositary for the ADSs, with
timely instructions on the voting of the common shares un-
derlying their ADRs, the depositary will be deemed to have
been instructed to give a person designated by the board
of directors the discretionary right to vote those common
shares. The person designated by the board of directors to
exercise this discretionary voting right may have interests
that are aligned with our controlling shareholders, which may
differ from those of our other shareholders. Historically, our
board of directors has designated its chairman, currently
Mauricio Amaro, to serve in this role.
1. Qatar owns 9.999999918% of total issued shares of LATAM.
Trading of our ADSs and common shares in the securities mar-
kets is limited and could experience further illiquidity and price
volatility.
Our common shares are listed on the various Chilean stock
exchanges. Chilean securities markets are substantially
smaller, less liquid and more volatile than major securities
markets in the United States. In addition, Chilean securi-
ties markets may be materially affected by developments in
other emerging markets, particularly other countries in Latin
America. Accordingly, although you are entitled to withdraw
the common shares underlying the ADSs from the deposi-
tary at any time, your ability to sell the common shares un-
derlying ADSs in the amount and at the price and time of
your choice may be substantially limited. This limited trading
market may also increase the price volatility of the ADSs or
the common shares underlying the ADSs.
Holders of ADRs may be adversely affected by currency de-
valuations and foreign exchange fluctuations.
If the Chilean peso exchange rate falls relative to the U.S. dol-
lar, the value of the ADSs and any distributions made thereon
from the depositary could be adversely affected. Cash distri-
butions made in respect of the ADSs are received by the de-
positary (represented by the custodian bank in Chile) in pesos,
converted by the custodian bank into U.S. dollars at the then-
prevailing exchange rate and distributed by the depositary to
the holders of the ADRs evidencing those ADSs. In addition,
the depositary will incur foreign currency conversion costs (to
be borne by the holders of the ADRs) in connection with the
foreign currency conversion and subsequent distribution of
dividends or other payments with respect to the ADSs.
Future changes in Chilean foreign investment controls and with-
holding taxes could negatively affect non-Chilean residents that
invest in our shares.
Equity investments in Chile by non-Chilean residents have
been subject in the past to various exchange control regu-
lations that govern investment repatriation and earnings
120
thereon. Although not currently in effect, regulations of
the Central Bank of Chile have in the past required, and
could again require, foreign investors acquiring securities
in the secondary market in Chile to maintain a cash re-
serve or to pay a fee upon conversion of foreign currency
to purchase such securities. Furthermore, future changes
in withholding taxes could negatively affect non-Chilean
residents that invest in our shares.
We cannot assure you that additional Chilean restrictions
applicable to the holders of ADRs, the disposition of the
common shares underlying ADSs or the repatriation of the
proceeds from an acquisition, a disposition or a dividend
payment, will not be imposed or required in the future,
nor could we make an assessment as to the duration or
impact, were any such restrictions to be imposed or re-
quired. For further information, see “Item 10. Additional
Information—D. Exchange Controls—Foreign Investment
and Exchange Controls in Chile.”
Our ADS holders may not be able to exercise preemptive
rights in certain circumstances.
The Chilean Corporation Law provides that preemptive
rights shall be granted to all shareholders whenever a
company issues new shares for cash, giving such hold-
ers the right to purchase a sufficient number of shares to
maintain their existing ownership percentage. We will not
be able to offer shares to holders of ADSs and sharehold-
ers located in the United States pursuant to the preemp-
tive rights granted to shareholders in connection with any
future issuance of shares unless a registration statement
under the U.S. Securities Act of 1933, as amended, (the
“Securities Act”), is effective with respect to such rights
and shares, or an exemption from the registration require-
ments of the Securities Act is available. At the time of any
rights offering, we will evaluate the potential costs and
liabilities associated with any such registration statement
in light of any indirect benefit to us of enabling U.S. hold-
ers of ADRs evidencing ADSs and shareholders located in
the United States to exercise preemptive rights, as well as
MANAGEMENT 2016 | Risk factors
any other factors that may be considered appropriate at
that time, and we will then make a decision as to whether
we will file a registration statement. We cannot assure you
that we will decide to file a registration statement or that
such rights will be available to ADS holders and sharehold-
ers located in the United States.
We are not required to disclose as much information to in-
vestors 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.
The corporate disclosure requirements that apply to us
may not be equivalent to the disclosure requirements that
apply to a U.S. company and, as a result, you may receive
less information about us than you would receive from a
comparable U.S. company. We are subject to the report-
ing requirements of the Securities Exchange Act of 1934,
as amended, or the Exchange Act. The disclosure require-
ments applicable to foreign issuers under the Exchange
Act are more limited than the disclosure requirements
applicable to U.S. issuers. Publicly available information
about issuers of securities listed on Chilean stock ex-
changes also provides less detail in certain respects than
the information regularly published by listed companies in
the United States or in certain other countries. Further-
more, there is a lower level of regulation of the Chilean
securities market and of the activities of investors in such
markets as compared with the level of regulation of the
securities markets in the United States and in certain oth-
er developed countries.
121
MANAGEMENT 2016 | Additional information
Additional information
Suppliers
General casualty insurance
During the year 2016, and just like in previous years, the
main suppliers of LATAM Airlines were the aircraft manu-
facturers, Airbus and Boeing. Along with them, LATAM Air-
lines has a number of other suppliers, primarily related to
aircraft accessories, spare parts and components, such as:
Pratt & Whitney, MTU Maintenance, Rolls-Royce, Pratt and
Whitney Canada, CFM International, General Electric Com-
ercial Aviation Services Ltd., General Electric Celma, Gen-
eral Electric Engines Service, Honeywell, Israel Aerospace
Industries, Air France/KLM (engines and APU); Zodiac Seats
US, Recaro, Zodiac Seats UK (seats); Teledyne (TCS B787-
9); Honeywell y Rockwell Collins (Avionics); Air France/
KLM, LUFTHANSA Technik (MRO components); Panasonic,
Thales (On-board entertainment); SAFRAN Landing Sys-
tems (trains and brakes); UTC Aerospace (Nacelas). To
these, we must be added our fuel suppliers, such as Raízen,
World Fuel Services, YPF, Petrobras, Terpel, Repsol, Shell
and Copec, among others.
Insurance
LATAM Airlines, in consideration of all those areas that in-
volve a potential risk takes up insurance policies that can
be classified in three main categories: Aviation Insurance,
Hull and Legal Liabilities. These types of insurance cover
all the risks inherent to commercial navigation such as air-
craft, engines, spare parts and third-party civil liability in-
surance: passenger, cargo, baggage, products, airports, etc.
After the Association of LAN with TAM, the insurance poli-
cies for both companies began to be purchased by the LA-
TAM Airlines Group, generating increased trading volumes
and resulting in lower operating costs.
This insurance group permits covering all risks that may
affect the company’s equity capital, particularly its physi-
cal and financial assets; all of which are protected through
multi-risk insurance policies (which includes risks of fire,
theft, computer equipment failure, consignments of val-
ues, crystals, and others based on a comprehensive cover-
age), along with the traditional coverage of motor vehicles,
air and maritime transport, corporate civil liability, etc. plus
life and casualty insurance. This group of insurance policies
covers all company personnel: i.e. executives, employees
in general, and flight crews.
Brands and patents
The company and its subsidiaries use different trade-
marks, which are duly registered with the competent
agencies in the various countries in which they develop
their operations or that constitute their origin and/or des-
tination, with the purpose of differentiating and marketing
their products and services in such country. Among the
main brands are: LATAM Airlines, LATAM Airlines Argen-
tina, LATAM Airlines Brazil, LATAM Airlines Chile, LATAM
Airlines Colombia, LATAM Airlines Ecuador, LATAM Airlines
Peru, LATAM Cargo, LATAM PASS, LATAM Fidelidade, LATAM
Travel, among others.
Customers
The Company has no customers that individually represent
more than 10% of sales.
122
MANAGEMENT 2016 | Investment Plan
Adjusting our fleet commitments
Such reductions will improve the Company’s balance
sheet and allow a greater flexibility to better respond to
market conditions in the coming years. The benefits of
such reductions will be observed during the next couple
of years through lower lease and capital expenses, along
with lower financing needs, thus improving the genera-
tion of the company’s cash flow and strengthening its
balance sheet.
Additionally, LATAM expects to have a non-fleet CAPEX
(including intangible assets) of approximately US$ 500
million per year, including maintenance, investments in
engines and spare parts and the cost of executing the
new domestic business model, among others.
In 2012, the LATAM Group announced the execution of
a fleet renewal plan aimed at reducing the variety of
aircraft currently operating and to gradually withdraw
those deemed less efficient. As of December 2016, the
airline’s plan continued to make progress, withdrawing
a total of 23 aircraft during 2016, among which are the
latest Airbus A330; a model that was completely eradi-
cated from the fleet. Additionally, the company incor-
porated 24 new larger and more efficient aircraft, such
as the Airbus A321, Airbus A350, Boeing 787-9 and the
first Airbus A320neo’s.
During 2016, the company made significant progress
in its plan to reduce the fleet’s total assets and com-
mitments, reaching the lowest fleet commitment in LA-
TAM’s recent history for 2017 and 2018. LATAM reduced
its fleet commitments through postponements and can-
cellations; moreover, it will also reduce its current fleet
assets by returning additional aircraft as compared to
last year’s fleet plan. With this, the company achieved a
reduction of US$ 2.2 billion in fleet assets for the period
between 2016-2018; all of it in line with its previously-
announced plans to reduce its expected 2018 fleet as-
sets by US$ 2.0 to US$ 3.0 billion
123
At year end
PASSENGER AIRCRAFT
Narrow Body
Airbus A319-100
Airbus A320-200
Airbus A320 Neo
Airbus A321-200
Airbus A321 Neo
TOTAL
Wide Body
Airbus A330-200
Boeing 767-300
Airbus A350-900
Airbus A350-1000
Boeing 777-300 ER
Boeing 787-8
Boeing 787-9
TOTAL
CARGO AIRCRAFT
Boeing 777-200F
Boeing 767-300F
TOTAL FLEET
Subleases
Airbus A320-200
Airbus A350-900
Boeing 787-8
Boeing 777-200F
Boeing 767-300F
TOTAL
MANAGEMENT 2016 | Investment Plan
2015
2016
2017E
2018E
50
154
-
36
-
240
10
38
1
-
10
10
7
76
3
8
11
327
-
-
-
1
3
4
48
146
2
47
-
243
-
37
7
-
10
10
12
76
2
8
10
329
-
-
-
0
3
3
45
126
7
47
-
225
0
36
7
-
10
10
14
77
1
8
9
45
116
11
47
2
221
-
36
9
-
7
10
14
76
1
8
9
311
306
5
4
2
1
1
7
5
-
4
1
1
7
Fleet commitments (US$ million)
1.689
1.952
469
555
Note: This table does not include 4 A350-900 that will be sub-
leased to Qatar for periods of between six and 12 months during
2017 and 2018.
Does not include two B777-200F (one currently leased to a third
party), three A330 and one A320 that were reclassified from
property plant and equipment to hold for sale.
124
SUSTAINABILITY
125
SUSTAINABILITY | Sustainability Vision
Our aspiration to be more
LATAM’s commitment to the creation of shared value for
shareholders, the market, employees, clients, suppliers
and society at large, is an integral part of the company’s
business strategy and decision-making guidelines. Sus-
tainability advances, present through business practices,
constitute an important thrust forward towards the aspi-
ration of becoming one of the three largest airline groups
in the world.
In 2016, what had already become a reality in the compa-
ny’s daily operations was then elevated to the category of
company policy via the approval of LATAM’s Sustainability
Policy. This document, which was validated by the compa-
ny’s Board of Directors, the highest corporate governance
body, establishes the main guidelines and principles to be
adhered to in the development and articulation of sus-
tainable development strategies and initiatives through-
out the entire Group.
From a long-term perspective, the company’s sustainabili-
ty strategy is divided into three (3) dimensions:
► Sustainable governance:
the company established a clear and transparent po-
sition regarding its commitments and objectives, deci-
sion-making structures, execution and follow-up of re-
sults that support the application of such strategy;
► Climate change:
to balance out a risk mitigation vision and search for
new opportunities in managing the real and potential
impacts of the business, with an emphasis on the re-
duction of the carbon footprint and ecological actions;
► Corporate citizenship:
to make of LATAM’s business and value network’s rela-
tionships -with suppliers, employees, clients and soci-
ety at large- socioeconomic catalyzers of the region’s
environmental equilibrium via the development of its
employees, its social investments, the promotion of
tourism and good practices.
These dimensions group the major development objec-
tives, which are broken down into objectives and goals,
helping to systematize the continuous improvement pro-
cess and quantify the results.
In order to put the focus on our efforts to improve perfor-
mance, LATAM considers a structured process of the most
relevant sustainability topics, including the real or potential
impacts of the operation of its various stakeholders, the
public’s expectations, the company’s future outlook and
the commitments assumed, sector and international sus-
tainability drivers and global trends.
The following is the list of the organization’s most import-
ant topics:
► Climate change mitigation:
to continuously reduce the intensity of emissions and
introduce the results of new energy technologies’ re-
search;
► Efficient management:
to achieve levels of excellence in the rational use of fuel
and the management of resources;
► Noise reduction and other emissions:
to control de emission of aircraft noise in communities
near airports and the impact of emissions on air quality;
► Connectivity and customer relations:
to pay attention to technological opportunities and
trends and meet new client demands, investing in the
quality of our services and in transparent and ethical
communications;
126
► Health and safety in the air and on the ground:
to manage potential risks, including cyber risks and
guarantee the highest standards of security to our cus-
tomers, employees and the community;
► Talent and productivity management:
to improve the management of performance and of the
career in the different business units, aimed at profes-
sional growth and the maintenance of a high-perfor-
mance culture;
► Relations with the Government, healthy competi-
tion and regulatory specifications:
to pursue a continuous dialogue with governments,
local authorities and representative industry organiza-
tions, focusing on compliance and the creation of re-
sponsible solutions.
► Value chain:
to promote the suppliers’ good practices in terms of
ethics, sustainability and the ecology and promote the
development of those communities with which the
company relates;
► Economic and financial sustainability:
to look for synergies in managing costs and assets, the
planning of current and future investments focusing on
the creation of value for the company and its share-
holders.
SUSTAINABILITY | Sustainability Vision
127
SUSTAINABILITY | Sustainability Governance
Our sustainability management
LATAM’s sustainability policy, ap-
proved in 2016, considered a num-
ber of international references and
commitments, which should serve
as a guide for its activities (see ta-
ble), and it explains the correlation
between various aspects of the
business’ sustainability and man-
agement. The clearest example is
risk management: a matrix that
guides risk mitigation, including
those of the environmental, labor
and linked to the relationship and
reputation of the company with
its own public. Management is
performed in an integrated man-
ner with other types of risk, such
as the financial and operational,
among others.
In order to ensure that information
and the strategic view of the ad-
ministration are indeed aligned to
the objectives and progress of the
company’s sustainability policy,
the Management Council will an-
nually monitor the data. The new
stage of strategic validation com-
plements the supervision that was
already being carried out periodi-
cally by the Council’s Commission.
Additionally, whenever a member
joins the company’s senior man-
agement, he/she participates in
immersion activities in the busi-
ness strategy, where sustainability
management is a focus of a specif-
ic module of this process.
International references
In order to promote improvements in sustainability management, LATAM is
guided by a set of rules, standards, references and international commitments,
the most important of which are the following:
► The ISSO 26000 standard: the first international standard for Corporate So-
cial Responsibility (CSR).
► The Global Compact: is an initiative of the United Nations (UN) to promote
the adoption of social responsibility practices in the areas of human rights,
human rights at work, in the environment and in fighting corruption.
► Sustainable Development Objectives: is a worldwide development program
promoted by the UN that defines the objectives and goals related to the
eradication of poverty, food security, health, education, gender equality, the
reduction of inequalities, energy, water and sanitation, sustainable produc-
tion and consumption patterns, climate change, sustainable cities, the sus-
tainable protection and use of ecosystems and inclusive economic growth,
among other topics.
► Business-oriented Principles and Human Rights: is a kind of guide, prepared
by the Special Representative of the Secretary General of the United Na-
tions, John Ruggie, which brings together the parameters and guidelines to
ensure the protection, respect and repair of human rights in business affairs.
► The Tripartite Declaration of Principles concerning Multinational Companies
and Social Policy: it was prepared by the International Labor Organization
(ILO) and it is aimed at promoting the active participation of multinational
companies to economic and social progress, while minimizing the negative
effects of their activities.
► The Guidelines of the Organization for Cooperation and Economic Develo-
pment (OECD) for multinational companies: brings together recommenda-
tions for businesses and governments, and provides principles and voluntary
standards for a business conduct consistent with applicable laws and inter-
nationally-recognized best practices.
► The GRI methodology: is the main reference of the sustainability reports.
It was developed by the Global Reporting Initiative (GRI), a multi-sectoral
international organization that seeks to promote the standardization and
continuous improvement of sustainability management and communica-
tions in companies and organizations of different sizes and sectors around
the world.
128
SUSTAINABILITY | Sustainability Governance
Progress measurement
The company’s performance in the Dow Jones Sustainabil-
ity Index (DJSI, for its acronym in English) is the main crite-
rion of this development.
The DJSI is the main global economic, social and environ-
mental performance reference of long-term value creation.
The selection is based on a methodology known as Best in
Class, which analyzes the performance of corporate gover-
nance issues and the economic, social and environmental
practices of leading public companies in different economic
sectors. Only the leading companies make up the final list,
which is published annually. The DJSI membership selection
process is carried out by RobecoSAM, an investment con-
sulting firm specializing in sustainability.
LATAM is part of this index since its 2012 Edition, when it
was selected in the Emerging Markets segment. Ever since
the 2014 Edition, however, it is a member of the Global In-
dex, which brings together the top 10% of the best compa-
nies invited. In 2016, this index analyzed the 2,500 largest
companies (according to Standard and Poor’s Broad Market
Index) of 28 different countries, and 316 were selected.
Only two airlines appear in that group.
Transparency in the donation process
By the end of 2016, the Board of Directors approved the
LATAM Group’s donations policy. This policy applies to all
company subsidiaries and it objectively sets out donation
criteria as well as the stages and approval process, clearly
defining the various roles and responsibilities.
According to this document, company donations must
only be of services (free transport of persons or cargo),
species or money contributions.
In line with the sustainability strategy of the group, do-
nations must be aimed at projects that provoke positive
social, environmental or cultural impacts and should be
directed mainly to people of scarce resources or non-pro-
fit foundations of the region.
The donation approval process involves the Corporate,
Legal and Compliance areas so as to ensure that they
indeed meet the company’s principles of ethics, transpa-
rency and abide by the pertinent legislation.
Economic dimension
Social dimension
Environmental dimension
Total sustainability
87
86
80
74
78
82
71
64
90
90
84
76
85
85
79
72
2015
2016
2015
2016
2015
2016
2015
2016
LATAM Performance
Best in the industry
129
SUSTAINABILITY | Climate Change
Our commitment to the environment
The United Nations Framework Convention on Climate
Change defines this phenomenon as a change in the cli-
mate that alters the global atmosphere, generating signifi-
cant adverse effects on the composition, resilience or pro-
ductivity of natural ecosystems. Stabilizing and controlling
the release of greenhouse gases is our primary objective
to combat climate change. Aware as we are of the im-
pacts generated by our industry (responsible for 2% of the
greenhouse gas emissions attributable to human activity),
we developed a climate change strategy that allows us to
address initiatives in two areas: impact and profitability,
with actions directly related to the impacts of our opera-
tions, which are approached from the point of view of risk
management, and monitored and mitigated through our
management system; plus involvement and recognition,
focusing on awareness-raising initiatives, the training of
our employees and the dissemination of actions and good
environmental practices.
to participate and support the design, implementation
and certification of the IATA Environmental Assessment
(IEnvA) system. Consequently, in our international oper-
ations in Chile we are now certified at the highest level
of the system (Stage 2).
3. The Smart Fuel program allowed fuel savings of more
than 41 million gallons. This means ceasing to emit
more than 440 thousand tons of CO2, as well as noise
reduction and local air quality improvement.
4. CORSIA: Our industry achieved a milestone in 2016,
since the member states of the International Civil Avia-
tion Organization (ICAO) ratified the industry’s commit-
ment to limit the growth of CO2 emissions in interna-
tional flights beginning on 2020, thus becoming the first
industry worldwide to reach an agreement to regulate
CO2 emissions.
The LATAM Airlines Group’s Environmental Management
System aligned to ISO 14001 standards for land operations
and the IATA Environmental Assessment (IEnvA) developed
jointly with IATA by and for the airlines, especially for man-
aging their air operations, establishing efficiency programs
with respect to significant environmental aspects such as
operating controls, process optimization and the manage-
ment of associated risks and operating emissions.
In addition to in-flight fuel efficiency, we have on-land fuel
efficiency initiatives in place. Added to that, ever since
2012 in Peru and 2014 in Colombia, we offset our land
operating emissions through local reforestation programs.
The strategic challenge of the LATAM Airlines Group is to
become a worldwide leader in combating climate change,
while contributing greater efficiency and competitiveness
to the company.
During 2016 we had the following milestones:
1. We were acknowledged as Climate Strategy leaders in
the Dow Jones Sustainability Index;
2. We maintained the certification under the international
ISO14.001 standard in our Miami facilities, in addition
to making implementation progress in those coun-
tries where the company runs major operations. We
also want to emphasize that we were the first airline
LATAM is firmly committed to promoting the development
of alternative and sustainable energy sources. Since this
is very important to the air transport industry, our com-
pany is aligned with such efforts and will continue to work
toward developing the future incorporation of sustainable
alternative fuels. In turn, we call upon our region not to re-
main behind in assuming these challenges.
130
SUSTAINABILITY | Corporate Citizenship
Our commitment to the region
Corporate citizenship seeks to enrich links with custom-
ers, employees, communities, governments and suppliers
building positive relationships which, in turn, contribute to
the company, to society and to the destinations where we
operate. It allows obtaining the “Social License” to oper-
ate; namely, the vote of confidence of our stakeholders.
Corporate citizenship includes philanthropy, but expands
our framework of vision to include actions that improve
social impact.
In order to comply with this objective, LATAM relies on three
pillars that guide behavior toward providing a memorable
and differentiating service:
► Safety: at all times we guarantee our safety and security,
and that of our team and of our customers;
► Courtesy: we care about the needs and emotions of per-
sons and strive to solve their problems gently;
Our 2015-2018 Corporate Sustainability Strategy defines
four action objectives, involving both the communities
where we operate as well as persons:
► Efficiency: We endeavor to improve ourselves continu-
ously.
1. To support the company’s internal culture and the
well-being of our collaborators;
2. To incorporate social and environmental variables in
products and services that improve customer experience;
3. To contribute to the economic development of those
destinations where we operate; and
4. To contribute to the preservation of the cultural and en-
vironmental heritage of Latin America.
This outlook is aligned with two strategic company pil-
lars: “Brand and customer experience” and “Organizational
strength”; both of them essential to foster a culture where
each of our actions and decisions should consider their
impact in a balanced way, not only to our bottom line but
also over persons and customers. In order to ensure that
the differentiating experience that LATAM seeks to deliv-
er to its customers is indeed consistent over time –re-
gardless of the county of operation- the company has a
common purpose that provides direction, motivation and
mobilizes the actions of the more than 45 thousand per-
sons that comprise its human team.
The delivery services of excellence and providing a differ-
entiating experience to customers are key aspects that
explain the business success of the LATAM Group, both in
its passenger as well as in its cargo segments. We seek to
transform the experience of a traditional trip into some-
thing nimble, fast, with less waiting time at airports, less
time between connections, more on-board entertainment
options and more information in case of contingencies.
The most important project related to customers experi-
ence, is the Twist Project.
Through Twist we seek that our teams know how to prioritize
their agenda, review projects and customize the products or
services that they deliver in order to generate a new rela-
tionship with each of our customers, thereby gaining their
preference. The project ranges from how to apply company
policies to the distribution of roles and responsibilities; also
adopting tools for real-time monitoring of customer satis-
faction. A key element has been our increased collaborator
commitment given a greater decision-making autonomy.
By December 2016, the company ended up with approxi-
mately 9 thousand people working under the Twist model,
which includes all employees working in the contact cen-
ters, the airports hubs, half of the airports in Brazil and large
non-hub airports.
131
Since we operate in several countries of the region, the
scope of our impact is quite broad; affecting all the com-
munities that we operate through the connectivity generat-
ed and the local impact of our operations. This is why we
have defined, within the framework of our bond with the
communities that we will seek to contribute to the eco-
nomic development and the conservation of the cultural
and environmental heritage of Latin America. We seek to
contribute to the development of the region by promoting
sustainable tourism and by positioning ourselves as region-
al sustainability leaders.
Within the framework of sustainable tourism, since 2009,
LATAM has been carrying out the “I take care of my destina-
tion” (CMD, in its Spanish acronym) program, adding Bra-
zil to this initiative since 2015. Students and community
members work together in the recovery of public spaces of
touristic value, such as monuments or important buildings
in each city. As part of such CMD Program, students and
authorities receive training talks about tourist awareness,
environment and local culture, thus promoting responsible
tourism and the care of Latin America’s historical and cul-
tural heritage. Since its inception, the program has devel-
oped 66 times in 26 locations in Latin America, with the
participation of more than 3,500 students and volunteers
from the LATAM Airlines Group.
Finally, through our operation we seek to support Social
Investments; which we do via contributions to non-govern-
mental organizations (NGO’s) whose work positively con-
tributes toward the continent’s development, combating
poverty, ensuring environmental preservation, citizenship
participation and the protection of human rights. We also
provide support by transporting volunteers or via direct do-
nations. During 2016 were donated more than 3 thousand
airline tickets and transported 672 tons of goods to provide
support in disaster cases.
SUSTAINABILITY | Corporate Citizenship
132
SUSTAINABILITY | Relation with Groups of Interest
Relationships with stakeholders
For LATAM, relationships with different social stakehold-
ers represent an opportunity for joint construction and a
steady growth.
These categories were subdivided according to their potential
impact to the company and their relative level of influence.
Through its relationships with governmental bodies and
sector entities in the different markets in which it oper-
ates, LATAM keeps an active role on issues that have a
direct or indirect bearing on its business strategy, which
is always exercised in full compliance with the applicable
legislation and with LATAM’s rules as set forth in its Code
of Conduct and its internal policies. Over time, we have
sought to strengthen our participation in trade or indus-
try bodies representing the airline industry. We act globally
through IATA, which is a key forum to discuss new tech-
nologies, operational security and safety, as well as the
current and future challenges of the aeronautic sector. At
the regional level, we also participate in the Latin Amer-
ican and Caribbean Air Transport Association (ALTA, in its
Spanish acronym), where Mr. Enrique Cueto, CEO of the
LATAM Airlines Group, assumed as President in 2015, a cir-
cumstance that reinforces the commitment of the LATAM
Airlines Group to the aviation industry. Always defending a
legitimate and transparent dialogue, we look for joint solu-
tions with a focus on efficiency and profitability. LATAM
has teams responsible for monitoring and participating in
such debates. In Chile and in other markets, we also work
in studying routes and flights that would promote tourism,
employment and profitability in locations where we do not
currently operate, including the necessary coordination
with the communities and their local governments.
The main stakeholders of the LATAM Group were identified
in a process carried out by the Vice President of Corpo-
rate Affairs aimed at defining critical issues and system-
atizing a management model of corporate relationships
with stakeholders; identifying areas of bonding with each
stakeholder group, including indicators and monitoring;
establishing channels of communication and permanent
bonding, coordinated, transparent and defined in order to
achieve articulated and reliable relationships; and, final-
ly, to generate joint actions that would permit identifying
gaps and opportunities.
The main stakeholders thus identified are:
► Academia
► Shareholders
► Trade unions
► Risk classification (rating) agencies and market analysts
► Cargo clients
► Passenger clients
► Collaborators
► Local communities
► Airport concessionaires
► Public and regulatory entities
► Sector specialists
► Industry
► Investors
► The communications media
► NGO’s / Foundations
► International organizations
► Primary suppliers
► Secondary suppliers
► Work unions
► Third parties and subcontractors
133
FINANCIAL STATEMENTS
134
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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
CHILEAN PESO
-
- ARGENTINE PESO
- UNITED STATES DOLLAR
CLP
ARS
US$
THUS$ -
COP
-
BRL/R$ -
THR$
MXN - MEXICAN PESO
VEF
- STRONG BOLIVAR
THOUSANDS OF UNITED STATES DOLLARS
COLOMBIAN PESO
BRAZILIAN REAL
- THOUSANDS OF BRAZILIAN REAL
135
REPORT OF INDEPENDENT AUDITORS
(Free translation from the original in Spanish)
Santiago, March 15, 2017
To the Board of Directors and Shareholders
Latam Airlines Group S.A.
We have audited the accompanying consolidated financial statements of Latam Airlines Group S.A. and
subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2016
and 2015 and the related statements of income, comprehensive income, changes in equity and cash flows
for the years then ended, and the corresponding notes to the consolidated financial statements.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with the International Financial Reporting Standards (IFRS). This
responsibility includes the design, implementation and maintenance of a relevant internal control for
the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Chilean generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. As a consequence we do not
express that kind of opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
FINANCIAL STATEMENTS | Financial Statements
Santiago, March 15, 2017
Latam Airlines Group S.A.
2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects the financial
position of Latam Airlines Group S.A. and subsidiaries as at December 31, 2016 and 2015, and the results
of operations and cash flows for the years then ended in accordance with the International Financial
Reporting Standards (IFRS).
Jonathan Yeomans Gibbons
RUT: 13.473.972-K
136
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 .................................................................................. 7
2.1. Basis of Preparation ................................................................................................................. 7
2.2. Basis of Consolidation ........................................................................................................... 11
2.3. Foreign currency transactions ................................................................................................ 12
2.4. Property, plant and equipment ............................................................................................... 13
2.5. Intangible assets other than goodwill ..................................................................................... 13
2.6. Goodwill ................................................................................................................................. 14
2.7. Borrowing costs ..................................................................................................................... 14
2.8. Losses for impairment of non-financial assets ....................................................................... 14
2.9. Financial assets ....................................................................................................................... 15
2.10. Derivative financial instruments and hedging activities ...................................................... 15
2.11. Inventories ............................................................................................................................ 17
2.12. Trade and other accounts receivable .................................................................................... 17
2.13. Cash and cash equivalents .................................................................................................... 17
2.14. Capital .................................................................................................................................. 17
2.15. Trade and other accounts payables ....................................................................................... 17
2.16. Interest-bearing loans ........................................................................................................... 18
2.17. Current and deferred taxes ................................................................................................... 18
2.18. Employee benefits ................................................................................................................ 18
2.19. Provisions ............................................................................................................................. 19
2.20. Revenue recognition ............................................................................................................. 19
2.21. Leases ................................................................................................................................... 20
2.22. Non-current assets (or disposal groups) classified as held for sale ...................................... 20
2.23. Maintenance ......................................................................................................................... 20
2.24. Environmental costs ............................................................................................................. 21
3 - Financial risk management .......................................................................................................... 21
3.1. Financial risk factors .............................................................................................................. 21
3.2. Capital risk management ........................................................................................................ 35
3.3. Estimates of fair value ............................................................................................................ 35
4 - Accounting estimates and judgments ........................................................................................... 38
5 - Segmental information ................................................................................................................. 41
6 - Cash and cash equivalents ........................................................................................................... 43
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 - Non-current assets and disposal group classified as held for sale ............................................. 55
14 - Investments in subsidiaries ........................................................................................................ 56
FINANCIAL STATEMENTS | Financial Statements
15 - Intangible assets other than goodwill ......................................................................................... 59
16 - Goodwill .................................................................................................................................... 60
17 - Property, plant and equipment ................................................................................................... 62
18 - Current and deferred tax ............................................................................................................ 68
19 - Other financial liabilities ............................................................................................................ 74
20 - Trade and other accounts payables ............................................................................................ 81
21 - Other provisions ......................................................................................................................... 83
22 - Other non-financial liabilities .................................................................................................... 85
23 - Employee benefits ...................................................................................................................... 86
24 - Accounts payable, non-current .................................................................................................. 88
25 - Equity ......................................................................................................................................... 88
26 - Revenue ..................................................................................................................................... 93
27 - Costs and expenses by nature .................................................................................................... 94
28 - Other income, by function ......................................................................................................... 95
29 - Foreign currency and exchange rate differences ........................................................................ 96
30 - Earnings per share .................................................................................................................... 104
31 - Contingencies ........................................................................................................................... 105
32 - Commitments ........................................................................................................................... 113
33 - Transactions with related parties ............................................................................................. 118
34 - Share based payments .............................................................................................................. 119
35 - Statement of cash flows ........................................................................................................... 123
36 - The environment ...................................................................................................................... 124
37 - Events subsequent to the date of the financial statements ....................................................... 125
137
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Other non-financial assets
Trade and other accounts receivable
Accounts receivable from related entities
Inventories
Tax assets
Total current assets other than non-current assets
(or disposal groups) classified as held for sale or as held
for distribution to owners
Non-current assets (or disposal groups) classified as
Note
6 - 7
7 - 11
12
7 - 8
7 - 9
10
18
As of
As of
December 31,
December 31,
2016
ThUS$
2015
ThUS$
949,327
712,828
212,242
1,107,889
554
241,363
65,377
753,497
651,348
330,016
796,974
183
224,908
64,015
3,289,580
2,820,941
held for sale or as held for distribution to owners
13
337,195
1,960
Total current assets
Non-current assets
Other financial assets
Other non-financial assets
Accounts receivable
Intangible assets other than goodwill
Goodwill
Property, plant and equipment
Tax assets
Deferred tax assets
Total non-current assets
Total assets
7 - 11
12
7 - 8
15
16
17
18
18
3,626,775
2,822,901
102,125
237,344
8,254
1,610,313
2,710,382
89,458
235,463
10,715
1,321,425
2,280,575
10,498,149
10,938,657
20,272
384,580
25,629
376,595
15,571,419
15,278,517
19,198,194
18,101,418
LIABILITIES AND EQUITY
LIABILITIES
Current liabilities
Other financial liabilities
Trade and other accounts payables
Accounts payable to related entities
Other provisions
Tax liabilities
Other non-financial liabilities
Liabilities included in disposal groups
classified as held for sale
Total current liabilities
Non-current liabilities
Other financial liabilities
Accounts payable
Other provisions
Deferred tax liabilities
Employee benefits
Other non-financial liabilities
Total non-current liabilities
Total liabilities
EQUITY
Share capital
Retained earnings
Treasury Shares
Other reserves
Parent's ownership interest
Non-controlling interest
Total equity
Total liabilities and equity
Note
7 - 19
7 - 20
7 - 9
21
18
22
7 - 19
7 - 24
21
18
23
22
25
25
25
14
As of
As of
December 31,
December 31,
2016
ThUS$
1,839,528
1,593,068
269
2,643
14,286
2015
ThUS$
1,644,235
1,483,957
447
2,922
19,378
2,762,245
2,490,033
6,212,039
5,640,972
10,152
-
6,222,191
5,640,972
6,796,952
7,532,385
359,391
422,494
915,759
82,322
213,781
8,790,699
15,012,890
417,050
424,497
811,565
65,271
272,130
9,522,898
15,163,870
3,149,564
2,545,705
366,404
(178)
580,870
4,096,660
88,644
4,185,304
317,950
(178)
(6,942)
2,856,535
81,013
2,937,548
19,198,194
18,101,418
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
138
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME BY FUNCTION
Revenue
Cost of sales
Gross margin
Other income
Distribution costs
Administrative expenses
Other expenses
Other gains/(losses)
Income from operation activities
Financial income
Financial costs
Share of profit of investments accounted
for using the equity method
Foreign exchange gains/(losses)
Result of indexation units
Income (loss) before taxes
Income (loss) tax expense / benefit
NET INCOM E (LOSS) FOR THE PERIOD
Income (loss) attributable to owners
of the parent
Income (loss) attributable to
non-controlling interest
Net income (loss) for the year
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)
Diluted earnings (losses) per share (US$)
Note
For the period ended
December 31,
2016
ThUS$
2015
ThUS$
26
28
27
29
18
14
30
30
8,988,340
(6,967,037)
9,740,045
(7,636,709)
2,021,303
2,103,336
538,748
(747,426)
(872,954)
(373,738)
(72,634)
493,299
74,949
(416,336)
-
121,651
311
273,874
(163,204)
385,781
(783,304)
(878,006)
(323,987)
(55,280)
448,540
75,080
(413,357)
37
(467,896)
481
(357,115)
178,383
110,670
(178,732)
69,220
(219,274)
41,450
40,542
110,670
(178,732)
0.12665
0.12665
(0.40193)
(0.40193)
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NET INCOME (LOSS)
Components of other comprehensive income
that will not be reclassified to income before taxes
Other comprehensive income, before taxes,
gains (losses) by new measurements
on defined benefit plans
T otal other comprehensive income
Note
For the period ended
December 31,
2016
T hUS$
110,670
2015
T hUS$
(178,732)
25
(3,105)
(14,631)
that will not be reclassified to income before taxes
(3,105)
(14,631)
Components of other comprehensive income
that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax
29
494,362
(1,409,439)
Other comprehensive income, before taxes,
currency translation differences
Cash flow hedges
494,362
(1,409,439)
Gains (losses) on cash flow hedges before taxes
19
127,390
80,387
Other comprehensive income (losses),
before taxes, cash flow hedges
T otal other comprehensive income
that will be reclassified to income before taxes
Other components of other comprehensive
income (loss), before taxes
Income tax relating to other comprehensive income
that will not be reclassified to income
Income tax relating to new measurements
on defined benefit plans
Accumulate income tax relating
to other comprehensive income
that will not be reclassified to income
Income tax relating to other comprehensive income
that will be reclassified to income
Income tax related to cash flow hedges in other
comprehensive income
Income taxes related to components of other
comprehensive incomethat will be reclassified to income
T otal Other comprehensive income
T otal comprehensive income (loss)
Comprehensive income (loss) attributable to
owners of the parent
Comprehensive income (loss) attributable to
non-controlling interests
T OT AL COMPREHENSIVE INCOME (LOSS)
127,390
80,387
621,752
(1,329,052)
618,647
(1,343,683)
18
921
3,911
921
3,911
(34,695)
(21,103)
(34,695)
(21,103)
584,873
(1,360,875)
695,543
(1,539,607)
648,539
(1,551,331)
47,004
11,724
695,543
(1,539,607)
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
139
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. Y FILIALES
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
ESTADO DE CAMBIOS EN EL PATRIMONIO
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
P a trim o nio a tribuible a la c o ntro la do ra
C a m bio s e n o tra s re s e rva s
Attributa ble to o wne rs o f the pa re nt
R e s e rva s de
C ha nge in o the r re s e rve s
ga na nc ia s o
pé rdida s
Ac tua ria l ga ins o r
a c tua ria le s e n
lo s s e s o n de fine d
pla ne s de
be ne fit pla ns
be ne fic io s
de finido s
R e s e rva s
de pa go s
ba s a do s
S ha re s ba s e d
e n
pa ym e nts
a c c io ne s
re s e rve
R e s e rva s
de flujo de
c o be rtura s
de flujo de
e fe c tivo
re s e rve
Ac c io ne s
pro pia s
C urre nc y
e n
tra ns la tio n
c a rte ra
re s e rve
R e s e rva s de
dife re nc ia s
de c a m bio
e n
c o nve rs io ne s
C a s h flo w
he dging
re s e rve
C a pita l
Tre a s ury
s ha re s
e m itido
Otra s
Othe r
re s e rva s
s undry
va ria s
re s e rve
To ta l
To ta l
o tra s
o the r
re s e rva s
re s e rve
Ga na nc ia s
R e ta ine d
a c um ula da s
e a rnings
P a trim o nio
a tribuible a
lo s
pro pie ta rio s
P a re nt's
de la
o wne rs hip
c o ntro la do ra
inte re s t
P a rtic ipa c io ne s
No n-
no
c o ntro lling
c o ntro la do ra s
inte re s t
P a trim o nio
To ta l
to ta l
e quity
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
ThUS $
M US $
No te
S ha re
c a pita l
No ta
ThUS $
Equity a s o f J a nua ry 1, 2016
P a trim o nio
To ta l inc re a s e (de c re a s e ) in e quity
1 de e ne ro de 2016
C o m pre he ns ive inc o m e
C a m bio s e n pa trim o nio
2,545,705
(178)
(2,576,041)
(90,510)
(10,717)
35,647
2,634,679
(6,942)
317,950
2,856,535
81,013
2,937,548
2.545.705
(178)
(2.576.041)
(90.510)
(10.717)
35.647
2.634.679
(6.942)
317.950
2.856.535
81.013
2.937.548
R e s ulta do inte gra l
Ga in (lo s s e s )
Ga na nc ia (pé rdida )
Othe r c o m pre he ns ive inc o m e
Otro re s ulta do inte gra l
25
To ta l c o m pre he ns ive inc o m e
To ta l re s ulta do inte gra l
Tra ns a c tio ns with s ha re ho lde rs
Tra ns a c c io ne s c o n lo s a c c io nis ta s
25
-
-
-
-
-
-
Equity is s ue
Em is ió n de pa trim o nio
25-34
25-34
608,496
608.496
Divide ns
Divide ndo s
Inc re m e nto (dis m inuc ió n)
25
25
-
-
Inc re a s e (de c re a s e ) thro ugh
po r tra ns fe re nc ia s y o tro s
c a m bio s , pa trim o nio
tra ns fe rs a nd o the r c ha nge s , e quity
25-34
25-34
(4,637)
To ta l tra ns a c c io ne s c o n lo s a c c io nis ta s
To ta l tra ns a c tio ns with s ha re ho lde rs
603,859
(4.637)
603.859
-
-
-
-
-
-
-
S a ldo s a l 31 de dic ie m bre de 2016
3.149.564
(178)
-
-
489,486
-
-
-
92,016
489.486
-
92.016
489,486
-
489.486
92,016
92.016
-
-
-
-
-
-
-
-
-
-
-
-
(2.086.555)
-
-
-
-
-
-
-
-
1.506
-
-
(2,183)
(2.183)
(2,183)
(2.183)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
579,319
579.319
69,220
69.220
69,220
69.220
-
-
579,319
579.319
579,319
579.319
69.220
69,220
648,539
648.539
41,450
41.450
5,554
5.554
47,004
47.004
110,670
110.670
584,873
584.873
695,543
695.543
-
-
-
-
-
-
608.496
608,496
(20.766)
(20,766)
(20.766)
(20,766)
-
-
-
-
608.496
608,496
(20.766)
(20,766)
-
-
-
-
(12.900)
2.891
2,891
2.891
2,891
38.538
5.602
5,602
5.602
5,602
2.640.281
8.493
8,493
8.493
8,493
-
-
(20.766)
(20,766)
3.856
3,856
591.586
591,586
580.870
366.404
4.096.660
(39.373)
(39,373)
(39.373)
(39,373)
88.644
(35.517)
(35,517)
552.213
552,213
4.185.304
C lo s ing ba la nc e a s o f
De c e m be r 31, 2016
3,149,564
(178)
(2,086,555)
1,506
(12,900)
38,538
2,640,281
580,870
366,404
4,096,660
88,644
4,185,304
Las Notas adjuntas números 1 a 37 forman parte integral de estos estados financieros consolidados.
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
140
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributa ble to o wne rs o f the pa re nt
C ha nge in o the r re s e rve s
No te
S ha re
c a pita l
ThUS $
Tre a s ury
s ha re s
C urre nc y
tra ns la tio n
re s e rve
C a s h flo w
he dging
re s e rve
ThUS $
ThUS $
ThUS $
Ac tua ria l ga ins o r
lo s s e s o n de fine d
be ne fit pla ns
re s e rve
ThUS $
S ha re s ba s e d
pa ym e nts
re s e rve
ThUS $
Othe r
s undry
re s e rve
ThUS $
To ta l
o the r
re s e rve
ThUS $
R e ta ine d
e a rnings
P a re nt's
o wne rs hip
inte re s t
No n-
c o ntro lling
inte re s t
ThUS $
ThUS $
ThUS $
To ta l
e quity
ThUS $
Equity a s o f J a nua ry 1, 2015
2,545,705
(178)
(1,193,871)
(151,340)
To ta l inc re a s e (de c re a s e ) in e quity
C o m pre he ns ive inc o m e
Ga in (lo s s e s )
25
Othe r c o m pre he ns ive inc o m e
To ta l c o m pre he ns ive inc o m e
Tra ns a c tio ns with s ha re ho lde rs
Inc re a s e (de c re a s e ) thro ugh
tra ns fe rs a nd o the r c ha nge s , e quity
25-34
To ta l tra ns a c tio ns with s ha re ho lde rs
C lo s ing ba la nc e a s o f
De c e m be r 31, 2015
-
(1,382,170)
(1,382,170)
-
60,830
60,830
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,005
6,005
(1,069)
(1,069)
4,936
4,936
1,034
1,034
5,970
(32,510)
(26,540)
5,970
(32,510)
(26,540)
2,545,705
(178)
(2,576,041)
(90,510)
(10,717)
35,647
2,634,679
(6,942)
317,950
2,856,535
81,013
2,937,548
-
-
(10,717)
(10,717)
29,642
2,635,748
1,320,179
536,190
4,401,896
101,799
4,503,695
-
-
-
-
-
-
(219,274)
(219,274)
40,542
(178,732)
(1,332,057)
-
(1,332,057)
(28,818)
(1,360,875)
(1,332,057)
(219,274)
(1,551,331)
11,724
(1,539,607)
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
141
FINANCIAL STATEMENTS | Financial Statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services
Other cash receipts from operating activities
Payments for operating activities
Payments to suppliers for goods and services
Payments to and on behalf of employees
Other payments for operating activities
Interest received
Income taxes refunded (paid)
Other cash inflows (outflows)
Net cash flows from operating activities
Cash flows used in investing activities
Other cash receipts from sales of equity or debt
instruments of other entities
Other payments to acquire equity
or debt instruments of other entities
Amounts raised from sale of property, plant and equipment
Purchases of property, plant and equipment
Amounts raised from sale of intangible assets
Purchases of intangible assets
Other cash inflows (outflows)
Net cash flow from (used in) investing activities
Cash flows from (used in) financing activities
Amounts raised from issuance of shares
Amounts raised from long-term loans
Amounts raised from short-term loans
Loans repayments
Payments of finance lease liabilities
Dividends paid
Interest paid
Other cash inflows (outflows)
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
before effect of exchanges rate change
Effects of variation in the exchange rate on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENT S AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENT S AT END OF PERIOD
For the periods ended
December 31,
Note
2016
2015
T hUS$
T hUS$
9,918,589
70,359
11,372,397
88,237
(6,756,121)
(1,820,279)
(162,839)
11,242
(59,556)
(209,269)
(7,029,582)
(2,165,184)
(351,177)
43,374
(57,963)
(184,627)
992,126
1,715,475
2,969,731
519,460
(2,706,733)
76,084
(694,370)
1
(88,587)
843
(704,115)
57,117
(1,569,749)
91
(52,449)
10,576
(443,031)
(1,739,069)
608,496
1,820,016
279,593
(2,121,130)
(314,580)
(41,223)
(398,288)
(229,163)
-
1,791,484
205,000
(1,263,793)
(342,614)
(35,032)
(383,648)
(99,757)
(396,279)
(128,360)
152,816
43,014
195,830
753,497
949,327
(151,954)
(83,945)
(235,899)
989,396
753,497
35
35
35
35
35
6
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016
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”).
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.
On July 18, 2016, LATAM received the approval by Comissão de Valores Mobiliários (“CVM”)
for a discontinuation of Brazilian LATAM depositary receipts-BDRS level III ("BDRs"), supported
by common shares of the Company and, consequently, our registration of the foreign issuer. On
May 24, 2016, the Company reported as an Essential Fact the maturity date May 23, 2016 deadline
for holders of BDRs to express their option to keep the shares and the blockade by
BM&FBOVESPA with the same date of the respective balances of shares of the holders of BDRs
who chose to adhere to the procedure for sale of shares through the procedure called Sale Facility
and assigned for this purpose a theoretical value of sales in the Santiago Stock Exchange. On June
9, 2016, the Company reported that BTG Pactual Chile S.A. Stockbrokers ("BTG Pactual Chile"), a
chilean institution contracted by the Company, made the sale on the Santiago Stock Exchange of the
shares of the respective holders who adhered to Sale Facility procedure.
As of December 31, 2015, the Company's subscribed and paid capital was represented by
545,558,101 commons shares, without par value. On August 18, 2016, the Company held an
extraordinary shareholders' meeting in which it was approved to increase the capital by issuing
61,316,424 shares of payment, all of them commons shares, without par value. As of December 31,
2016, 60,849,592 shares, equivalent to this increase, had been placed, so at that date the number of
shares subscribed and paid by the Company amounted to 606,407,693 shares.
142
FINANCIAL STATEMENTS | Financial Statements
2
5
At December 31, 2016, the Company's capital stock is represented by 608,374,525 shares, all
common shares, without par value, which is divided into: (a) the 606,407,693 subscribed and paid
shares mentioned above; And (b) 1,966,832 shares pending of subscription and payment, of which:
(i) 1,500,000 shares are allocated to compensation stock option plan; And (ii) 466,832 correspond
to the balance of shares pending of placement of the last capital increase.
It should be noted that the Company's capital stock was expressed in 613,164,243 shares, all
ordinary shares, without nominal value. However, on December 21, 2016, the deadline for the
subscription and payment of 4,789,718 shares that were also destined to compensation plans for the
workers expired, so the Company's capital stock was fully reduced to the already mentioned
608.374.525 shares.
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, Costa Verde Aeronáutica Tres 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, Inversiones La Espasa Dos y Cía. Ltda. and Inversiones Mineras del Cantábrico S.A.
owns 28.27% of the shares issued by the Company, and therefore is the controlling shareholder of
the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the
Securities Market Law, given that there is a decisive influence on its administration.
As of December 31, 2016, the Company had a total of 1,566 registered shareholders. At that date
approximately 4.69 % of the Company’s share capital was in the form of ADRs.
For the period ended December 31, 2016, the Company had an average of 48,336 employees,
ending this period with a total of 45,916 employees, spread over 8,010 Administrative employees,
4,895 in Maintenance, 15,924 in Operations, 8,970 in Cabin Crew, 3,882 in Controls Crew, and
4,235 in Sales.
The main subsidiaries included in these consolidated financial statements are as follows:
a)
Participation rate
Tax No .
Co mp any
9 6 .518 .8 6 0 -6
Latam Travel Chile S.A. and Sub s id ary (*)
9 6 .76 3 .9 0 0 -1 Inmo b iliaria Aero náutica S.A.
9 6 .9 6 9 .6 8 0 -0 Lan Pax Gro up S.A. and Sub s id iaries
Co untry
o f o rig in
Chile
Chile
Chile
Peru
Fo reig n
Fo reig n
Lan Perú S.A.
Lan Chile Inves tments Limited and Sub s id iary
Cayman Ins land
9 3 .3 8 3 .0 0 0 -4 Lan Carg o S.A.
Fo reig n
Fo reig n
Co nnecta Co rp o ratio n
Prime Airp o rt Services Inc. and Sub s id ary
9 6 .9 51.2 8 0 -7 Trans p o rte Aéreo S.A.
Fo reig n
Aircraft Internatio nal Leas ing Limited
9 6 .6 3 1.52 0 -2
Fas t Air Almacenes d e Carg a S.A.
Chile
U.S.A.
U.S.A.
Chile
U.S.A.
Chile
Fo reig n
Fo reig n
Las er Carg o S.R.L.
Arg entina
Lan Carg o Overs eas Limited and Sub s id iaries
Bahamas
9 6 .9 6 9 .6 9 0 -8 Lan Carg o Invers io nes S.A. and Sub s id ary
9 6 .575.8 10 -0
Invers io nes Lan S.A. and Sub s id iaries
59 .0 6 8 .9 2 0 -3 Technical Trainning LATAM S.A.
Fo reig n
TAM S.A. and Sub s id iaries (**)
Chile
Chile
Chile
Brazil
As Decemb er 3 1, 2 0 16
As Decemb er 3 1, 2 0 15
Functio nal
Currency
Direct
Ind irect
To tal
Direct
Ind irect
To tal
%
%
%
%
%
%
9 9 .9 9 0 0
0 .0 10 0
10 0 .0 0 0 0
9 9 .9 9 0 0
0 .0 10 0
10 0 .0 0 0 0
9 9 .0 10 0
0 .9 9 0 0
10 0 .0 0 0 0
9 9 .0 10 0
0 .9 9 0 0
10 0 .0 0 0 0
9 9 .8 3 6 1
0 .16 3 9
10 0 .0 0 0 0
9 9 .8 3 6 1
0 .16 3 9
10 0 .0 0 0 0
4 9 .0 0 0 0
2 1.0 0 0 0
70 .0 0 0 0
4 9 .0 0 0 0
2 1.0 0 0 0
70 .0 0 0 0
0 .0 0 0 0
0 .0 0 0 0
0 .0 0 0 0
9 9 .9 9 0 0
0 .0 10 0
10 0 .0 0 0 0
9 9 .8 9 3 9
0 .0 0 4 1
9 9 .8 9 8 0
9 9 .8 9 3 9
0 .0 0 4 1
9 9 .8 9 8 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
0 .0 0 0 0
0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
0 .0 0 0 0
10 0 .0 0 0 0
10 0 .0 0 0 0
9 9 .710 0
0 .2 9 0 0
10 0 .0 0 0 0
9 9 .710 0
0 .2 9 0 0
10 0 .0 0 0 0
9 9 .8 3 0 0
0 .170 0
10 0 .0 0 0 0
9 9 .8 3 0 0
0 .170 0
10 0 .0 0 0 0
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
CLP
ARS
US$
US$
US$
CLP
BRL
6 3 .0 9 0 1
3 6 .9 0 9 9
10 0 .0 0 0 0
6 3 .0 9 0 1
3 6 .9 0 9 9
10 0 .0 0 0 0
(*) Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel Chile S.A.
(**) As of December 31, 2016, indirect ownership participation on TAM S.A and subsidiaries is
from Holdco I S.A., LATAM is entitled to 99,9983% of the economic rights and 49% of the
rights politicians product of provisional measure No. 714 of the Brazilian government that
allows foreign capital to have up to 49% of the property.
Thus, since April 2016, LATAM Airlines Group S.A. owns 901 voting shares of Holdco I
S.A., equivalent to 49% of the total shares with voting rights of said company and TEP Chile
S.A. owns 938 voting shares of Holdco I S.A., equivalent to 51% of the total voting shares of
that company.
143
FINANCIAL STATEMENTS | Financial Statements
6
7
b)
Statement of financial position
S ta te m e nt o f fina nc ia l po s itio n
Ne t Inc o m e
As o f De c e m be r 31, 2016
As o f De c e m be r 31, 2015
F o r the pe rio ds e nde d
De c e m be r 31,
2016
2015
Ta x No .
C o m pa ny
As s e ts
Lia bilitie s
Equity
As s e ts
Lia bilitie s
Equity
Ga in /(lo s s )
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
96.518.860-6
La ta m Tra ve l C hile S .A. a nd S ubs ida ry (*)
96.763.900-1 Inm o bilia ria Ae ro ná utic a S .A.
5,468
36,756
2,727
8,843
2,741
27,913
5,613
39,302
5,522
14,832
91
24,470
96.969.680-0 La n P a x Gro up S .A. a nd S ubs idia rie s (**)
475,763
1,045,761
(561,472)
519,663
1,049,232
(521,907)
306,111
294,912
11,199
255,691
240,938
14,753
2,650
3,443
(36,331)
(2,164)
2,341
1,404
(35,187)
5,068
F o re ign
F o re ign
F o re ign
La n P e rú S .A.
La n C hile Inve s tm e nts Lim ite d
a nd S ubs idia ry (**)
-
-
-
2,015
13
2,002
23
(13)
93.383.000-4 La n C a rgo S .A.
480,908
239,728
241,180
483,033
217,037
265,966
(24,813)
(74,408)
F o re ign
F o re ign
C o nne c ta C o rpo ra tio n
P rim e Airpo rt S e rvic e s Inc . a nd S ubs ida ry (**)
96.951.280-7 Tra ns po rte Aé re o S .A.
F o re ign
Airc ra ft Inte rna tio na l Le a s ing Lim ite d
96.631.520-2 F a s t Air Alm a c e ne s de C a rga S .A.
F o re ign
F o re ign
La s e r C a rgo S .R .L.
La n C a rgo Ove rs e a s Lim ite d
a nd S ubs idia rie s (**)
96.969.690-8 La n C a rgo Inve rs io ne s S .A. a nd S ubs ida ry (**)
96.575.810-0 Inve rs io ne s La n S .A. a nd S ubs idia rie s (**)
59.068.920-3 Te c hnic a l Tra inning LATAM S .A.
31,981
7,385
23,525
11,294
340,940
124,805
-
10,023
21
54,092
80,644
10,971
1,745
-
3,645
32
35,178
95,747
6,452
284
8,456
(3,909)
216,135
-
6,378
(11)
15,737
(13,506)
4,452
1,461
37,070
6,683
331,117
-
8,985
27
62,406
54,179
16,512
1,527
38,298
11,180
(1,228)
(4,497)
122,666
208,451
4
4,641
39
43,759
68,220
14,676
266
(4)
4,344
(12)
15,563
(12,601)
1,828
1,261
9,684
588
8,206
9
1,717
(1)
176
(910)
2,549
73
TAM S .A. a nd S ubs idia rie s (**)
F o re ign
(*) Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel Chile S.A.
5,287,286
4,969,553
4,710,308
4,199,223
495,562
423,190
2,107
194
279
5,878
(4)
1,811
69
3,344
113
2,772
(72)
(183,581)
(**)
The Equity reported corresponds to Equity attributable to owners of the parent, does not
include Non-controlling interest.
Additionally, we have proceeded to consolidate the following special purpose entities: 1. JOL
(Japanese Operating Lease) created in order to finance the purchase of certain aircraft; 2. Chercán
Leasing Limited created to finance the pre-delivery payments on aircraft; 3. Guanay Finance
Limited created to issue a bond collateralized with future credit card receivables; 4. Private
investment funds and 5. Avoceta Leasing Limited created to finance the pre-delivery payments on
aircraft. These companies have been consolidated as required by IFRS 10.
All the entities controlled have been included in the consolidation.
Changes in the scope of consolidation between January 1, 2015 and December 31, 2016, are
detailed below:
(1)
Incorporation or acquisition of companies
-
On October 2015, Rampas Airport Services S.A., subsidiary of Lan Pax Group S.A.
increases its capital and paid in the amount of ThUS$ 6,000 by issuing new shares, changing
the property of the company as follows: Lan Pax Group S.A. increased its share to
99.99738%, Inversiones Lan S.A. decreased its stake to 0.00002% and Aerolane Líneas
Aéreas Nacionales del Ecuador S.A. acquires stake for 0.0026%.
-
-
-
On January 2016 it was registered at the Public Registry of Commerce, the Increase in Share
Capital and statutory modification for the purpose of creating a new class of shares of Lan
Argentina S.A., subsidiary of Lan Pax Group S.A., for a total of 90,000,000 Class "C" shares
registered non-endorsable and non-voting. Lan Pax Group S.A. participated in this capital
increase, changing its ownership to 4.87%, consequently, the indirect participation of
LATAM Airlines Group S.A. increases to 95.85660%
On April 1, 2016, Multiplus Corretora de Seguros Ltda. was created, the ownership of which
corresponds to 99.99% of Multiplus S.A. direct subsidiary of TAM S.A.
During period 2016, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A.,
acquired 4,767 shares of Aerovías de Integración Regional Aires S.A. a non-controlling
shareholder, equivalent to 0.0914%, consequently, the indirect participation of LATAM
Airlines Group S.A. increases to 99.19061%
(2) Dissolution of companies
-
-
In July 2015, the Company Ladeco Cargo S.A., subsidiary of Lan Cargo S.A., was dissolved.
During the period 2016, Lan Chile Investments Limited, subsidiary of LATAM Airlines
S.A.; and Aircraft International Leasing Limited, subsidiary of Lan Cargo S.A., were
dissolved.
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. for the period ended
December 31, 2016, have been prepared 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 October 17, 2014, the SVS issued Circular No. 856, instructing the audited entities to record in
the year 2014, against equity the differences in assets and liabilities for deferred taxes produced by
direct effect of the increase in the rate of First class taxes introduced by Law No. 20,780, which,
considering that such treatment differs from those established by IAS 12, and, therefore, the
preparation framework represented a change And presentation of financial information that had
been adopted up to that date.
Considering that what was expressed in the previous paragraph represented a specific and
temporary diversion of IFRS, starting in 2016 and in accordance with paragraph 4A of IFRS 1, the
Company has decided to retroactively apply IFRS, in accordance with IAS 8 "Accounting policies,
changes in accounting estimates and errors" as if it had never failed to apply such IFRS.
144
FINANCIAL STATEMENTS | Financial Statements
8
9
As mentioned in the previous paragraph does not modify any of the accounts presented in the
statements of financial position as of December 31, 2016 and 2015, as well as at
December 31, 2015 and 2014, as expressed in paragraph 40A of IAS 1 "Presentation of Financial
Statements", it is not necessary to present the statement of financial position as of January 1, 2015
(third column).
The consolidated financial statements have been prepared under the historic-cost criterion, although
modified by the valuation at fair value of certain financial instruments.
The preparation of the consolidated financial statements in accordance with IFRS requires the use
of certain critical accounting estimates. It also requires management to use its judgment in applying
the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment
or complexity or the areas where the assumptions and estimates are significant to the consolidated
financial statements.
During 2016 the Company recorded out of period adjustments resulting in an aggregate net
decrease of US$ 18.2 million to "Net income (loss) for the period" for the year ended December 31,
2016. These adjustments include US$ 39.5 million (loss) resulting from an account reconciliation
process initiated after the Company's afiliate TAM S.A. and its subsidiaries completed the
implementation of the SAP system. A further US$ 11.0 million (loss) reflect adjustments related to
foreign exchange differences, also relating to the Company's subsidiaries in Brazil. The balance of
US$ 32.3 million (gain) includes principally the adjustment of unclaimed fees for expired tickets
for the Company and its affiliates outside Brazil. Management of TAM S.A. has concluded that the
out of period adjustments that have been identified are material to the 2015 financial statements of
TAM S.A., which should therefore require a restatement in Brazil. However, Management of
LATAM has evaluated the impact of all out of period adjustments, both individually and in the
aggregate, and concluded that due to their relative size and to qualitative factors they are not
material to the annual consolidated financial statements for 2016 of Latam Airlines Group S.A. or
to any previously reported consolidated financial statements, therefore no restatement or revision is
necessary.
(a)
Accounting pronouncements with implementation effective from January 1, 2016:
(i)
Standards and amendments
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
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
Amendment IAS 1: Presentation of Financial Statements.
December 2014
01/01/2016
Amendment to IFRS 10: Consolidated financial statements,
IFRS 12: Disclosure of interests in other entities and IAS 28:
Investments in associates and joint ventures.
December 2014
01/01/2016
(ii)
Improvements
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
01/01/2016
Improvements to International Financial Reporting Standards
(2012-2014 cycle ): IFRS 5 Non-current assets held for sale and
discontinued operations;
instruments:
Disclosures; IAS 19 Employee benefits and IAS 34 Interim
financial reporting.
IFRS 7 Financial
September 2014
The application of standards, amendments, interpretations and improvements had no material
impact on the consolidated financial statements of the Company.
(b)
on January 1, 2016 and which has not been effected early adoption
Accounting pronouncements not yet
force
in
for
financial years beginning
(i)
Standards and amendments
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
Amendment to IAS 7: Statement of Cash Flows.
January 2016
01/01/2017
Amendment to IAS 12: Income Taxes.
January 2016
01/01/2017
IFRS 9: Financial instruments.
December 2009
01/01/2018
Amendment to IFRS 9: Financial instruments.
November 2013
01/01/2018
IFRS 15: Revenue from contracts with customers (1).
May 2014
01/01/2018
Amendment
customers.
to IFRS 15: Revenue from contracts with
April 2016
01/01/2018
Amendment to IFRS 2: Share-based payments
June 2016
01/01/2018
Amendment to IFRS 4: Insurance contracts.
September 2016
01/01/2018
Amendment to IAS 40: Investment property
December 2016
01/01/2018
IFRS 16: Leases (2).
January 2016
01/01/2019
Amendment to IFRS 10: Consolidated financial statements and
IAS 28 Investments in associates and joint ventures.
September 2014
To be determined
145
FINANCIAL STATEMENTS | Financial Statements
10
11
(ii)
Improvements
Improvements to International Financial Reporting Standards.
(cycle 2012-2014) IFRS 1: First-time adoption of international
financial reporting standards; IFRS 12 Disclosure of interests in
other entities and IAS 28 investments in associates and joint
ventures.
Date of issue
December 2016
Mandatory
Application:
Annual periods
beginning on or after
01/01/2017
(improvements
IFRS 12)
01/01/2018
(improvements
IFRS 1 and IAS 28)
(iii)
Interpretations
IFRIC 22: Foreign currency
consideration
transactions and advance
December 2016
01/01/2018
The Company’s management believes that the adoption of the standards, amendments and
interpretations described above but not yet effective would not have a significant impact on the
Company’s consolidated financial statements in the year of their first application, except for
IFRS 15 and IFRS 16:
(1)
IFRS 15 Revenue from Contracts with Customers supersedes actual standard for revenue
recognition that actually uses the Company, as IAS 18 Revenue and IFRIC 13 Customer
Loyalty Programmes. The core principle of IFRS 15 is that an entity recognizes revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or
services. This standards supersedes IFRS 15 supersedes, IAS 11 Construction Contracts, IAS
18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers; and SIC-31
Revenue - Barter Transactions Involving Advertising Services.
We are currently evaluating how the adoption of the revenue recognition standard will impact
our Consolidated Financial Statements. Interpretations are on-going and could have a
significant impact on our implementation. We currently believe the adoption will not have a
significant impact on passenger and cargo revenue recognition. However, the impact in
revenue and liability for frequent flyer program are still being analyzed.
(2) The IFRS 16 Leases add important changes in the accounting for lessees by introducing a
similar treatment to financial leases for all operating leases with a term of more than 12
months. This mean, in general terms, that an asset should be recognized for the right to use
the underlying leased assets and a liability representing its present value of payments
associate to the agreement. Monthly leases payments will be replace by the asset depreciation
and a financial cost in the income statement.
We are currently evaluating how the adoption of the leases recognition standard will impact
our Consolidated Financial Statements. Interpretations are on-going and could have a
material impact on our implementation. Currently, we expect that the adoption of the new
lease standard will have a material impact on our consolidated balance sheet due to the
recognition of right-of-use assets and lease liabilities principally for certain leases currently
accounted for as operating leases.
LATAM Airlines Group S.A. and subsidiaries are still assessing these standard to determinate the
effect on their Financial Statements, covenants and other financial indicators.
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.
Balances, transactions 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.
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 is
subsequently accounted using the equity method.
146
FINANCIAL STATEMENTS | Financial Statements
12
13
(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.
(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.
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.
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)
Airport slots and Loyalty program
Airport slots and the 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
(See Note 16)
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.
147
FINANCIAL STATEMENTS | Financial Statements
14
15
(b)
Computer software
2.9.
Financial assets
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
between 3 and 10 years.
the Company has been defined useful
lives, for which
lives
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.
(c)
Brands
The Brands were acquired in the business combination with TAM S.A. And Subsidiaries and
recognized at fair value under IFRS. During the year 2016, the estimated useful life of the brands
change from an indefinite useful life to a five-year period, the period in which the value of the
brands will be amortized (See Note 15).
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
or each time that there is evidence of impairment. Gains and losses on the sale of an entity include
the book amount of the goodwill related to the entity sold.
2.7.
Borrowing costs
Interest costs incurred for the construction of any qualified asset are capitalized over the time
necessary for completing and preparing the asset for its intended use. Other interest costs are
recognized in the consolidated income statement when they are 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.
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
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);
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FINANCIAL STATEMENTS | Financial Statements
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Hedge of an identified risk associated with a recognized liability or an expected
(b)
highly- Probable transaction (cash-flow hedge), 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 that do not qualify for hedge accounting.
(c)
Derivatives not booked as a hedge
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.
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
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.
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.
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FINANCIAL STATEMENTS | Financial Statements
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19
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.
they become irrevocable, for the plans considered as cash settled award the fair value, updated as of
the closing date of each reporting period, is recorded as a liability with charge to remuneration.
(c) Post-employment and other long-term benefits
Provisions are made for these obligations by applying the method of the projected unit credit
method, 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.
2.17. Current and deferred taxes
(d)
Incentives
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.
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 based on the shares of the Company are recognized in the
consolidated financial statements in accordance with IFRS 2: Share-based payments, for plans
based on the granting of options, the effect of fair value is recorded in equity with a charge to
remuneration in a linear manner between the date of grant of said options and the date on which
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;
(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)
(i)
Rendering of services
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 non - 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
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FINANCIAL STATEMENTS | Financial Statements
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21
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) Dividend income
Dividend income is booked when the right to receive the payment is established.
2.21. Leases
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 a contractual obligation with the lessor to
return the aircraft on agreed terms of maintenance levels exists. 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, the recovery
is requested to the lessor. At the end of the contract period, there is comparison between the
reserves that have been paid and required return conditions, and compensation between the parties
are made if applicable.
The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to
results as incurred.
(a) When the Company is the lessee – financial lease
2.24. Environmental costs
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.
Disbursements related to environmental protection are charged to results when incurred.
NOTE 3 - FINANCIAL RISK MANAGEMENT
3.1.
Financial risk factors
The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and
(c) liquidity risk. The program overall risk management of the Company aims to minimize the
adverse effects of financial risks affecting the company.
(a) Market risk
Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price
risk, (ii) exchange -rate risk, and (iii) interest -rate risk.
The Company has developed policies and procedures for managing market risk, which aim to
identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned
above.
For this, the Administration monitors the evolution of price levels and rates, and quantifies their risk
exposures (Value at Risk), and develops and implements hedging strategies.
(i)
Fuel-price risk:
Exposition:
For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54 USGC,
which is subject to the fluctuations of international fuel prices.
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FINANCIAL STATEMENTS | Financial Statements
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23
Mitigation:
To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and
options) whose underlying assets may be different from Jet Fuel, being possible use 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.
Fuel Hedging Results:
the period ended at December 31, 2016,
During
of US$ 48.0 million on fuel derivative. During the same period of 2015, the Company recognized
losses of US$ 239.4 million for the same reason.
the Company
recognized
losses
At December 31, 2016, the market value of its fuel positions amounted to US$ 8.1 million
(positive). At December 31, 2015, this market value was US$ 56.4 million (negative).
The following tables show the level of hedge for different periods:
Positions as of December 31, 2016 (*)
Maturities
Q117
Q217
Percentage of the hedge of expected consumption value
21%
16%
Total
18%
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
Positions as of December 31, 2015 (*)
Percentage of the hedge of expected consumption value
Q116
63%
Maturities
Q216
27%
Q316
Q416
27%
11%
Total
32%
(*) 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, also
negatively affects contracted positions as these are acquired to protect the Company against the risk
of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be
competitive in the event of a drop in price.
The 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 September 2016 and the end of
December, 2015.
Benchmark price
(US$ per barrel)
Positions as of December 31, 2016
effect on equity
(millions of US$)
Positions as of December 31, 2015
effect on equity
(millions of US$)
+5
-5
+3.12
- 4.78
+5.41
-2.78
Given the fuel hedge structure during the year 2016, which considers a hedge-free portion, a
vertical fall by 5 dollars in the JET benchmark price (the monthly daily average), would have meant
an impact of approximately US$ 116.3 million in the cost of total fuel consumption for the same
period. For the year 2016, a vertical rise by 5 dollars in the JET benchmark price (the monthly daily
average) would have meant an impact of approximately US$ 114.5 million of increased fuel costs.
(ii)
Foreign exchange rate risk:
Exposition:
The functional and presentation currency of the Financial Statements of the Parent Company is the
United States dollar, so the risk of Transactional exchange rate and Conversion arises mainly from
its own operating activities of the business, strategic and accounting of the Company are
denominated in a different currency than the functional currency.
LATAM Subsidiaries are also exposed to currency risk that impacts the consolidated results of the
Company.
Most currency exposure of LATAM comes from the concentration of business in Brazil, which are
mostly denominated in Brazilian Real (BRL), being actively managed by the company.
Additionally, the company manages the economic exposure to operating revenues in Pound Sterling
(GBP).
In lower concentrations the Company is therefore exposed to fluctuations in others currencies, such
as: Euro, Australian Dollar, Colombian Peso, Chilean Peso, Argentine Peso, Paraguayan Guaraní,
Mexican Peso, Peruvian Sol and New Zealand Dollar.
The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel
price has an impact on the Company’s net equity.
Mitigation:
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 last
quarter of 2017.
The Company mitigates currency risk exposures by contracting derivative instruments or through
natural hedges or execution of internal operations.
FX Hedging Results:
With the aim of reducing exposure to exchange rate risk on operating cash flows in 2016 and 2017,
and secure the operating margin, LATAM and TAM conduct hedging through FX derivatives.
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FINANCIAL STATEMENTS | Financial Statements
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At December 31, 2016, the market value of its FX positions amounted to US$ 1.1 million
(negative). At end of December 2015 the market value was of US$ 8.0 million (positive).
During the period ended at December 31, 2016 the Company recognized losses of US$ 40.3 million
on hedging FX. During the same period of 2015 the Company recognized gains of US$ 19.0 million
on hedging FX.
At end of December 2016, the Company has contracted FX derivatives for US$ 60 million
to BRL and US$ 10 million to GBP. At end of December 2015, the Company had contracted FX for
US$ 270 million to BRL, US$ 30 million to EUR and US$ 15 million to GBP.
Sensitivity analysis:
A depreciation of exchange rate R$/ US$ and US$/GBP, affects negatively the Company for a rise
of its costs in US$, however, it also affects positively the value of contracted derivate positions.
The FX derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange
rate has an impact on the market value of derivatives, whose changes impact on the Company’s net
equity.
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 quarter of 2017:
Appreciation (depreciation)*
of R$ /GBP
Effect at December 31, 2016
Millions of US$
Effect at December 31, 2015
Millions of US$
-10%
+10%
-1.02
+3.44
-21.28
+16.71
In the case of TAM S.A. which operates with the Brazilian Real as its functional currency, a large
proportion of the company’s assets 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 contracted hedging derivatives 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, 2016
Millons of US$
Effect at December 31, 2015
Millons of US$
-10%
+10%
+119.2
-119.2
+67.6
-67.6
(*) Appreciation (depreciation) of US$ regard to the covered currencies.
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 19).
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, 2016
Millions of US$
Effect at December 31, 2015
Millions of US$
-10%
+10%
+351.04
-287.22
+296.41
-242.52
(iii)
Interest -rate risk:
Exposition:
The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of
the assets, and current and future financial liabilities.
The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate
(“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate
("ILC"), and the Interest Rate Term of Brazil ("TJLP").
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FINANCIAL STATEMENTS | Financial Statements
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27
Mitigation:
(b)
Credit risk
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 63% (71% at December 31, 2015) of the debt is fixed to
fluctuations in interest rate.
Rate Hedging Results:
At December 31, 2016, the market value of the positions of interest rate derivatives amounted to
US$ 17.2 million
US$ 39.8 million (negative).
(negative). At end of December 2015
this market value was
Sensitivity analysis:
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 each date.
Increase (decrease)
futures curve
in libor 3 months
Positions as of December 31, 2016
effect on profit or loss before tax
(millions of US$)
Positions as of December 31, 2015
effect on profit or loss before tax
(millions of US$)
+100 basis points
-100 basis points
-32.16
+32.16
-26.70
+26.70
Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation
in the exchange rate has an impact on the market value of derivatives, whose changes impact on the
Company’s net equity.
The calculations were made increasing (decreasing) vertically 100 basis points of the three-month
Libor futures curve, being both reasonably possible scenarios according to historical market
conditions.
Increase (decrease)
futures curve
in libor 3 months
Positions as of December 31, 2016
effect on equity
(millions of US$)
Positions as of December 31, 2015
effect on equity
(millions of US$)
+100 basis points
-100 basis points
+3.93
-4.03
+8.71
-9.02
The assumptions of sensitivity calculation must assume that forward curves of interest rates do not
necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates
is dynamic over time.
During the periods presented, the Company has no registered amounts by ineffectiveness in
consolidated statement of income for this kind of hedging.
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.
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.
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28
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.
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 sufficient 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, the
Company requires liquid funds, defined as cash and cash equivalents plus other short term financial
assets, to meet its payment obligations.
The liquid funds, the future cash generation and the capacity to obtain additional funding, through
bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its
investment and financing future commitments.
The liquid funds balance as of December 31, 2016 is US$ 1,486 million (US$ 1,360 million at
December 31, 2015), invested in short term instruments through financial high credit rating levels
entities.
In addition to the liquid funds, the Company has access to short term credit line. As of
December 31, 2016, LATAM has working capital credit lines with multiple banks and additionally
has a US$ 325 million undrawn committed credit line (US$ 130 million at December 31, 2015).
FINANCIAL STATEMENTS | Financial Statements
155
FINANCIAL STATEMENTS | Financial Statements
Amort iz a t ion
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
Qua rt e rly
S e mia nnua l
Qua rt e rly
Qua rt e rly
Effe c t ive
ra t e
%
Nomina l
ra t e
%
1.85
5.23
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
1.85
4.43
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
Clas s o f liab ility fo r the analys is o f liq uid ity ris k o rd ered b y d ate o f maturity as o f Decemb er 3 1, 2 0 16
Deb to r: LATAM Airlines Gro up S.A. and Sub s id iaries , Tax No . 8 9 .8 6 2 .2 0 0 -2 Chile.
29
Cre dit or
c ount ry
Curre nc y
Up t o
90
da ys
ThUS $
More t ha n
90 da ys
t o one
ye a r
ThUS $
More t ha n
one t o
t hre e
ye a rs
ThUS $
More t ha n
t hre e t o
five
ye a rs
ThUS $
More t ha n
five
ye a rs
ThUS $
Tot a l
ThUS $
Nomina l
va lue
ThUS $
Ta x No.
Cre dit or
Lo ans to exp o rters
97.032.000-8
97.032.000-8
97.036.000-K
97.030.000-7
97.003.000-K
97.951.000-4
BBVA
BBVA
S ANTANDER
ES TADO
BANCO DO BRAS IL
HS BC
Ob lig atio ns with the p ub lic
97.023.000-9
0-E
0-E
97.036.000-K
CORP BANCA
BLADEX
DVB BANK S E
S ANTANDER
Ob lig atio ns with the p ub lic
0-E
BANK OF NEW YORK
Guaranteed o b lig atio ns
0-E
0-E
0-E
0-E
0-E
97.036.000-K
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
CREDIT AGRICOLE
BNP P ARIBAS
WELLS FARGO
WILMINGTON TRUS T COMP ANY
CITIBANK
S ANTANDER
BTMU
AP P LE BANK
US BANK
DEUTS CHE BANK
NATIXIS
P K AirFina nc e
KFW IP EX-BANK
AIRBUS FINANCIAL
INVES TEC
Ot he r gua ra nt e e d obliga t ions
0-E
CREDIT AGRICOLE
Financial leas es
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
ING
CREDIT AGRICOLE
CITIBANK
P EFCO
BNP P ARIBAS
WELLS FARGO
DVB BANK S E
RRP F ENGINE
Other lo ans
0-E
0-E
BOEING
CITIBANK (*)
Hed g ing d erivatives
-
OTHERS
Tot a l
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S .A.
U.S .A.
Chile
U.S .A.
Fra nc e
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Chile
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Fra nc e
U.S .A.
Ge rma ny
U.S .A.
Engla nd
Fra nc e
U.S .A.
Fra nc e
U.S .A.
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Engla nd
U.S .A.
U.S .A.
-
US $
UF
US $
US $
US $
US $
UF
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
75,212
-
30,193
40,191
72,151
12,054
20,808
-
145
1,497
-
52,675
-
-
-
-
61,112
14,579
199
4,308
-
-
-
-
-
-
-
-
-
-
-
-
63,188
31,949
28,911
160,556
16,529
-
-
-
-
36,250
72,500
518,125
-
-
-
-
-
-
-
-
-
-
-
75,212
52,675
30,193
40,191
72,151
12,054
161,637
46,528
29,255
166,361
75,000
50,381
30,000
40,000
70,000
12,000
153,355
42,500
28,911
158,194
626,875
500,000
At Expira t ion
7.77
7.25
11,728
13,805
35,896
25,833
20,224
5,857
3,163
1,551
18,563
6,147
14,779
2,265
2,503
1,982
1,880
30,916
56,324
107,830
79,043
61,020
17,697
9,568
4,712
55,592
18,599
44,826
6,980
7,587
5,972
10,703
65,008
142,178
287,878
206,952
164,077
47,519
25,752
12,693
147,357
31,640
116,809
19,836
18,772
16,056
25,369
33,062
141,965
288,338
200,674
166,165
48,024
26,117
12,891
146,045
31,833
96,087
25,610
9,178
7,766
25,569
3,760
376,894
411,076
733,080
184,053
26,448
27,270
13,857
230,747
48,197
206,036
3,153
-
-
23,880
144,474
731,166
1,131,018
1,245,582
595,539
145,545
91,870
45,704
598,304
136,416
478,537
57,844
38,040
31,776
87,401
138,417
628,118
1,056,345
967,336
548,168
138,574
85,990
42,754
532,608
117,263
422,851
54,787
36,191
30,199
72,202
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Mont hly
Qua rt e rly
Mont hly
S e mia nnua l
2.21
2.97
2.37
4.25
2.72
1.98
2.31
2.29
3.99
3.86
2.60
2.40
2.55
2.49
5.67
1.81
2.96
1.68
4.25
1.96
1.44
1.72
1.69
2.81
3.86
2.57
2.40
2.55
2.49
5.67
1,501
4,892
268,922
-
-
275,315
256,860
At Expira t ion
2.85
2.85
5,889
1,788
6,083
17,558
13,744
5,591
4,773
-
17,671
5,457
18,250
50,593
41,508
16,751
9,541
-
34,067
-
48,667
67,095
79,165
44,615
-
8,248
12,134
-
14,262
3,899
22,474
44,514
-
8,248
163
25,802
320
77,795
26,214
207,001
-
103,341
7,364
15,479
7,846
-
-
-
-
-
-
1,880
-
12,716
-
-
-
69,761
7,245
87,262
139,145
156,891
113,351
14,314
29,212
26,697
413,939
63,698
7,157
78,249
130,811
149,119
103,326
14,127
25,274
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Mont hly
26,214
370,389
At Expira t ion
Qua rt e rly
5.62
1.85
6.40
5.39
3.69
3.98
2.57
2.35
2.35
6.00
4.96
1.85
5.67
4.79
3.26
3.54
2.57
2.35
2.35
6.00
30,689
-
-
-
-
508,683
944,749
2,476,840
2,002,850
2,303,047
8,236,169
7,257,368
(*) Securitized b o nd with the future flo ws fro m the s ales with cred it card in United States and Canad a.
156
FINANCIAL STATEMENTS | Financial Statements
30
Cla ss of lia bilit y for t he a na lysis of liquidit y risk orde re d by da t e of ma t urit y a s of De c e mbe r 31, 2016
De bt or: TAM S .A. a nd S ubsidia rie s, Ta x No. 02.012.862/ 0001-60, Bra z il.
Ta x No.
Cre dit or
Cre dit or
c ount ry
Curre nc y
Ba nk loa ns
0-E
0-E
NEDERLANDS CHE
CREDIETVERZEKERING MAATS CHAP P IJ Holla nd
CITIBANK
U.S .A.
Obliga t ion wit h t he public
0-E
THE BANK OF NEW YORK
U.S .A.
Fina nc ia l le a se s
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
AFS INVES TMENT IX LLC
DVB BANK S E
GENERAL ELECTRIC CAP ITAL
CORP ORATION
KFW IP EX-BANK
NATIXIS
WACAP OU LEAS ING S .A.
U.S .A.
U.S .A.
U.S .A.
Ge rma ny
Fra nc e
Luxe mburg
S OCIÉTÉ GÉNÉRALE MILAN BRANCH
It a ly
BANCO IBM S .A
HP FINANCIAL S ERVICE
S OCIÉTÉ GÉNÉRALE
Tot a l
Bra z il
Bra z il
Fra nc e
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
BRL
BRL
BRL
Up t o
90
da ys
ThUS $
More t ha n
90 da ys
t o one
ye a r
ThUS $
More t ha n
one t o
t hre e
ye a rs
ThUS $
More t ha n
t hre e t o
five
ye a rs
ThUS $
More t ha n
five
ye a rs
ThUS $
Tot a l
ThUS $
Nomina l
va lue
ThUS $
Amort iz a t ion
Effe c t ive
ra t e
%
Nomina l
ra t e
%
179
1,528
493
203,150
1,315
-
1,314
-
-
352,938
83,750
562,813
2,733
120
3,852
592
4,290
833
11,875
380
225
146
7,698
165
5,098
1,552
7,837
2,385
32,116
1,161
-
465
20,522
-
-
-
22,834
6,457
85,995
35
-
176
8,548
-
-
-
40,968
6,542
171,553
-
-
-
54
-
-
-
-
-
-
41,834
-
-
-
-
-
3,355
204,678
2,882
200,000
Mont hly
At Expira t ion
6.01
3.39
6.01
3.14
999,501
800,000
At Expira t ion
8.17
8.00
39,501
285
8,950
2,144
117,763
16,217
301,539
1,576
225
787
35,448
282
8,846
2,123
Mont hly
Mont hly
Mont hly
Mont hly/ Qua rt e rly
107,443
Qua rt e rly/ S e mia nnua l
14,754
279,335
1,031
222
519
Qua rt e rly
Qua rt e rly
Mont hly
Mont hly
Mont hly
1.25
2.50
2.30
2.80
4.90
3.00
4.18
13.63
10.02
13.63
1.25
2.50
2.30
2.80
4.90
3.00
4.11
13.63
10.02
13.63
26,753
615,058
221,084
791,738
41,888
1,696,521
1,452,885
157
31
Clas s o f liab ility fo r the analys is o f liq uid ity ris k o rd ered b y d ate o f maturity as o f Decemb er 3 1, 2 0 16
Deb to r: LATAM Airlines Gro up S.A. and Sub s id iaries , Tax No . 8 9 .8 6 2 .2 0 0 -2 , Chile.
Tax No .
Cred ito r
Trad e and o ther acco unts p ayab les
Cred ito r
co untry
Currency
Up to
9 0
d ays
ThUS$
M o re than
9 0 d ays
to o ne
year
ThUS$
M o re than
o ne to
three
years
ThUS$
M o re than
three to
five
years
ThUS$
M o re than
five
years
ThUS$
-
OTHERS
OTHERS
Co ns ulto ría Ad minis trativa Pro fes io nal S.A. d e C.V. M exico
Acco unts p ayab le to related p arties currents
0 -E
78 .9 9 7.0 6 0 -2 Viajes Falab ella Ltd a.
0 -E
6 5.2 16 .0 0 0 -K Co munid ad M ujer
78 .59 1.3 70 -1 Bethia S.A. y Filiales
79 .773 .4 4 0 -3 Trans p o rtes San Felip e S:A.
0 -E
Invers o ra Aero náutica Arg entina
TAM Aviação Executiva e Taxi Aéreo S.A.
Chile
Brazil
Chile
Chile
Chile
Arg entina
US$
CLP
BRL
Other currencies
54 9 ,8 9 7
4 8 ,8 4 2
3 4 6 ,0 3 7
14 0 ,4 71
2 1,2 15
(3 0 )
2 7
11,4 6 7
M XN
CLP
BRL
CLP
CLP
CLP
US$
170
4 6
2 8
13
6
4
2
-
-
-
-
-
-
-
To tal
1,0 8 5,516
3 2 ,6 79
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FINANCIAL STATEMENTS | Financial Statements
To tal
ThUS$
571,112
4 8 ,8 12
3 4 6 ,0 6 4
151,9 3 8
170
4 6
2 8
13
6
4
2
No minal
value
ThUS$
Amo rtizatio n
Effective No minal
rate
%
rate
%
571,112
4 8 ,8 12
3 4 6 ,0 6 4
151,9 3 8
170
4 6
2 8
13
6
4
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,118 ,19 5
1,118 ,19 5
To tal co ns o lid ated
1,6 2 0 ,9 52
1,59 2 ,4 8 6
2 ,6 9 7,9 2 4
2 ,79 4 ,58 8
2 ,3 4 4 ,9 3 5
11,0 50 ,8 8 5
9 ,8 2 8 ,4 4 8
158
FINANCIAL STATEMENTS | Financial Statements
To tal
ThUS$
10 0 ,2 53
10 0 ,3 6 3
55,172
50 ,0 59
70 ,13 3
12 ,0 2 0
2 2 6 ,4 8 5
55,74 2
154 ,6 3 7
2 2 7,76 5
No minal
value
ThUS$
10 0 ,0 0 0
10 0 ,0 0 0
55,0 0 0
50 ,0 0 0
70 ,0 0 0
12 ,0 0 0
2 11,13 5
50 ,0 0 0
153 ,514
2 2 6 ,712
Amo rtizatio n
At Exp iratio n
At Exp iratio n
At Exp iratio n
At Exp iratio n
At Exp iratio n
At Exp iratio n
Quarterly
Semiannual
Quarterly
Quarterly
Effective
rate
%
No minal
rate
%
1.0 0
1.4 4
1.0 5
1.4 2
1.18
0 .6 6
4 .18
4 .58
1.6 7
2 .2 4
1.0 0
1.4 4
1.0 5
1.4 2
1.18
0 .6 6
4 .18
4 .58
1.6 7
2 .2 4
6 6 3 ,12 5
50 0 ,0 0 0
At Exp iratio n
7.77
7.2 5
32
Clas s o f liab ility fo r the analys is o f liq uid ity ris k o rd ered b y d ate o f maturity as o f Decemb er 3 1, 2 0 15
Deb to r: LATAM Airlines Gro up S.A. and Sub s id iaries , Tax No . 8 9 .8 6 2 .2 0 0 -2 Chile.
Tax No .
Cred ito r
Lo ans to exp o rters
Cred ito r
co untry
Currency
Up to
9 0
d ays
ThUS$
M o re than
9 0 d ays
to o ne
year
ThUS$
M o re than
o ne to
three
years
ThUS$
M o re than
three to
five
years
ThUS$
M o re than
five
years
ThUS$
10 0 ,2 53
10 0 ,3 6 3
55,172
50 ,0 59
70 ,13 3
12 ,0 2 0
19 ,8 73
-
14 6
1,0 53
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
58 ,4 0 7
9 ,70 2
4 3 0
-
112 ,2 52
3 0 ,52 6
154 ,0 6 1
2 2 6 ,712
3 5,9 53
15,514
-
-
-
3 6 ,2 50
72 ,50 0
554 ,3 75
-
-
-
-
-
-
-
-
-
-
-
BBVA
9 7.0 3 2 .0 0 0 -8
9 7.0 3 6 .0 0 0 -K SANTANDER
9 7.0 3 0 .0 0 0 -7
9 7.0 0 4 .0 0 0 -5
9 7.0 0 3 .0 0 0 -K BANCO DO BRASIL
HSBC
9 7.9 51.0 0 0 -4
ESTADO
BANCO DE CHILE
Bank lo ans
9 7.0 2 3 .0 0 0 -9
0 -E
0 -E
9 7.0 3 6 .0 0 0 -K SANTANDER
CORPBANCA
BANCO BLADEX
DVB BANK SE
Ob lig atio ns with the p ub lic
0 -E
BANK OF NEW YORK
Guaranteed o b lig atio ns
CREDIT AGRICOLE
BNP PARIBAS
WELLS FARGO
WILM INGTON TRUST
CITIBANK
0 -E
0 -E
0 -E
0 -E
0 -E
9 7.0 3 6 .0 0 0 -K SANTANDER
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
BTM U
APPLE BANK
US BANK
DEUTSCHE BANK
NATIXIS
HSBC
PK AirFinance
KFW IPEX-BANK
Other g uaranteed o b lig atio ns
0 -E
DVB BANK SE
Financial leas es
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
ING
CREDIT AGRICOLE
CITIBANK
PEFCO
BNP PARIBAS
WELLS FARGO
DVB BANK SE
BANC OF AM ERICA
Other lo ans
0 -E
0 -E
Hed g ing d erivatives
BOEING
CITIBANK (*)
-
OTROS
To tal
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
U.S.A.
Chile
U.S.A.
Francia
U.S.A.
U.S.A.
U.S.A.
U.S.A.
Chile
U.S.A.
U.S.A.
U.S.A.
U.S.A.
France
U.S.A.
U.S.A.
Germany
U.S.A.
U.S.A.
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
-
US$
US$
US$
US$
US$
US$
UF
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
3 1,8 13
9 ,8 9 9
3 5,6 3 6
6 ,110
19 ,4 78
5,58 5
2 ,9 9 2
1,4 71
18 ,6 4 3
5,9 2 3
13 ,74 0
1,59 0
2 ,172
72 8
9 2 ,16 7
2 9 ,9 75
10 6 ,9 9 0
6 9 ,2 3 2
58 ,74 1
16 ,8 4 8
9 ,0 3 5
4 ,4 4 5
55,8 2 4
17,8 8 1
4 1,73 0
4 ,79 0
6 ,6 75
2 ,2 3 2
2 10 ,54 1
8 2 ,0 9 4
2 8 5,9 6 7
13 5,3 3 4
158 ,9 57
4 5,6 53
2 4 ,54 1
12 ,0 79
14 7,9 9 4
3 9 ,18 5
115,0 2 6
12 ,9 0 8
18 ,9 2 8
5,6 8 4
55,3 8 1
8 3 ,4 2 7
2 8 6 ,9 59
13 3 ,3 6 3
16 2 ,4 59
4 6 ,74 0
2 5,2 14
12 ,4 3 1
14 6 ,70 9
3 0 ,72 9
10 0 ,6 17
13 ,112
2 0 ,8 12
4 ,13 1
12 ,6 77
14 8 ,9 0 4
554 ,6 16
53 9 ,0 19
2 6 6 ,2 73
50 ,12 4
3 9 ,9 3 0
2 0 ,0 9 9
3 0 3 ,6 0 0
6 3 ,2 6 8
2 4 9 ,19 4
2 5,175
18 ,10 4
1,6 58
4 0 2 ,579
3 54 ,2 9 9
1,2 70 ,16 8
8 8 3 ,0 58
6 6 5,9 0 8
16 4 ,9 50
10 1,712
50 ,52 5
6 72 ,770
156 ,9 8 6
52 0 ,3 0 7
57,575
6 6 ,6 9 1
14 ,4 3 3
3 8 9 ,0 2 7
3 19 ,3 9 7
1,18 0 ,751
6 75,6 9 6
6 17,0 0 2
159 ,6 6 9
9 6 ,9 54
4 8 ,14 2
59 1,0 3 9
13 6 ,6 9 8
4 6 9 ,4 2 3
53 ,58 3
6 2 ,514
13 ,59 3
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
M o nthly
Quarterly
1.8 3
2 .2 9
2 .2 7
4 .2 5
2 .4 0
1.4 7
1.8 2
1.72
3 .9 9
3 .4 0
2 .0 8
2 .4 0
2 .0 4
2 .4 5
1.6 6
2 .2 2
1.57
4 .2 5
1.6 4
0 .9 3
1.2 2
1.12
2 .8 1
3 .4 0
2 .0 5
1.59
2 .0 4
2 .4 5
8 ,2 2 5
2 4 ,6 9 5
-
-
-
3 2 ,9 2 0
3 2 ,4 9 2
Quarterly
2 .3 2
2 .3 2
9 ,2 14
1,711
6 ,0 8 3
17,556
11,3 6 8
5,59 4
4 ,73 2
70 3
2 6 ,0 54
5,2 3 6
18 ,2 50
52 ,6 74
3 4 ,2 9 2
16 ,76 8
14 ,2 2 5
2 ,756
4 1,52 7
7,2 16
4 8 ,6 6 7
115,9 3 4
8 6 ,2 0 6
4 4 ,6 6 3
14 ,2 6 9
-
2 8 ,2 3 4
-
3 8 ,59 6
2 3 ,2 11
3 1,78 2
4 4 ,56 5
-
-
6 55
2 5,8 2 0
53 3
77,8 50
151,3 6 2
2 0 7,19 0
-
2 0 6 ,74 9
12 ,2 3 2
3 3 ,0 6 1
4 0 ,9 8 6
3 ,6 8 8
-
-
-
-
-
2 4 ,12 5
-
-
-
-
16
10 5,0 2 9
14 ,16 3
111,59 6
2 0 9 ,3 75
16 3 ,6 4 8
13 5,715
3 3 ,2 2 6
3 ,4 59
152 ,550
517,6 0 9
9 4 ,9 9 8
13 ,9 55
9 7,3 8 3
19 2 ,9 14
153 ,10 7
12 1,6 2 8
3 2 ,56 7
2 ,770
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
M o nthly
151,3 6 2
4 50 ,0 0 0
At Exp iratio n
Quarterly
5.13
1.2 8
6 .4 0
5.3 7
4 .0 8
3 .9 8
2 .0 6
1.4 1
1.8 0
6 .0 0
4 .57
1.2 8
5.6 7
4 .77
3 .6 4
3 .54
2 .0 6
1.4 1
1.8 0
6 .0 0
8 9 ,9 8 3
8 5,6 53
-
-
-
6 6 8 ,74 5
9 2 7,74 8
2 ,6 4 8 ,9 6 2
2 ,10 4 ,751
2 ,3 16 ,78 2
8 ,6 6 6 ,9 8 8
7,770 ,6 78
(*) Securitized b o nd with the future flo ws fro m the s ales with cred it card in United States and Canad a.
159
FINANCIAL STATEMENTS | Financial Statements
Clas s o f liab ility fo r the analys is o f liq uid ity ris k o rd ered b y d ate o f maturity as o f Decemb er 3 1, 2 0 15
Deb to r: TAM S.A. and Sub s id iaries , Tax No . 0 2 .0 12 .8 6 2 /0 0 0 1-6 0 , Brazil.
33
Tax No .
Cred ito r
Bank lo ans
0 -E
NEDERLANDSCHE
CREDIETVERZEKERING M AATSCHAPPIJ
Ob lig atio n with the p ub lic
0 -E
BANK OF NEW YORK
Financial leas es
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
0 -E
AFS INVESTM ENT IX LLC
AIRBUS FINANCIAL
CREDIT AGRICOLE -CIB
DVB BANK SE
GENERAL ELECTRIC CAPITAL
CORPORATION
KFW IPEX-BANK
NATIXIS
PK AIRFINANCE US, INC.
WACAPOU LEASING S.A.
SOCIÉTÉ GÉNÉRALE M ILAN BRANCH
BANCO IBM S.A
HP FINANCIAL SERVICE
SOCIÉTÉ GÉNÉRALE
To tal
Cred ito r
co untry
Currency
Up to
9 0
d ays
ThUS$
M o re than
9 0 d ays
to o ne
year
ThUS$
M o re than
o ne to
three
years
ThUS$
M o re than
three to
five
years
ThUS$
M o re than
five
years
ThUS$
To tal
ThUS$
No minal
value
ThUS$
Amo rtizatio n
Effective
rate
%
No minal
rate
%
Ho lland
U.S.A.
U.S.A.
U.S.A.
France
U.S.A.
U.S.A.
Germany
France
U.S.A.
Luxemb urg
Italy
Brazil
Brazil
France
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
BRL
BRL
BRL
18 1
4 9 3
1,3 15
1,3 14
712
4 ,0 15
3 ,3 53
M o nthly
6 .0 1
6 .0 1
4 4 0
6 5,3 2 1
3 9 7,78 5
8 6 ,59 0
52 1,72 7
1,0 71,8 6 3
8 0 0 ,0 0 0
At Exp iratio n
8 .17
8 .0 0
2 ,771
3 ,715
4 ,54 2
12 3
3 ,8 3 4
3 ,3 4 5
4 ,3 3 8
1,4 2 8
52 0
11,9 9 3
2 6 7
18 8
10 4
7,70 0
11,0 54
-
3 6 1
11,4 3 7
6 ,8 79
7,8 12
2 1,9 9 2
1,3 8 6
3 1,8 74
8 4 6
56 4
3 3 0
2 0 ,52 7
2 1,8 3 0
-
2 8 4
9 ,0 50
15,9 73
2 2 ,6 3 5
-
3 ,19 8
8 5,6 9 5
1,2 3 0
18 8
6 2 6
18 ,8 0 8
15,73 0
-
-
-
12 ,4 2 9
2 3 ,0 3 0
-
14 ,56 7
2 14 ,6 12
-
-
-
-
-
-
-
-
-
70 ,9 2 5
-
-
-
-
-
-
4 9 ,8 0 6
52 ,3 2 9
4 ,54 2
76 8
2 4 ,3 2 1
3 8 ,6 2 6
12 8 ,74 0
2 3 ,4 2 0
19 ,6 71
3 4 4 ,174
2 ,3 4 3
9 4 0
1,0 6 0
4 3 ,50 5
4 9 ,9 9 5
M o nthly
M o nthly
4 ,50 0 Quarterly/Semiannual
755
M o nthly
M o nthly
M o nthly/Quarterly
2 3 ,76 1
3 6 ,8 9 9
115,0 2 0 Quarterly/Semiannual
2 3 ,0 4 5
18 ,3 6 8
3 12 ,4 8 6
1,72 8
8 8 2
775
M o nthly
Quarterly
Quarterly
M o nthly
M o nthly
M o nthly
3 7,78 9
16 8 ,0 4 9
58 0 ,3 3 6
3 8 7,0 8 0
59 3 ,3 6 4
1,76 6 ,6 18
1,4 3 5,0 72
1.2 5
1.4 3
3 .2 5
1.6 4
1.2 5
1.72
3 .8 5
1.75
2 .0 0
3 .6 3
14 .14
10 .0 2
14 .14
1.2 5
1.4 3
3 .2 5
1.6 4
1.2 5
1.72
3 .8 5
1.75
2 .0 0
3 .55
14 .14
10 .0 2
14 .14
160
34
Clas s o f liab ility fo r the analys is o f liq uid ity ris k o rd ered b y d ate o f maturity as o f Decemb er 3 1, 2 0 15
Deb to r: LATAM Airlines Gro up S.A. and Sub s id iaries , Tax No . 8 9 .8 6 2 .2 0 0 -2 , Chile.
Cred ito r
co untry
Currency
Up to
9 0
d ays
ThUS$
M o re than
9 0 d ays
to o ne
year
ThUS$
M o re than
o ne to
three
years
ThUS$
M o re than
three to
five
years
ThUS$
M o re than
five
years
ThUS$
Tax No .
Cred ito r
Trad e and o ther acco unts p ayab les
-
OTHERS
OTHERS
US$
CLP
BRL
Others currencies
4 4 2 ,3 2 0
3 9 ,8 2 3
3 0 1,56 9
2 18 ,3 4 7
14 ,3 6 9
114
16
9 ,0 16
Acco unts p ayab le to related p arties currents
6 5.2 16 .0 0 0 -K COM UNIDAD M UJ ER
78 .59 1.3 70 -1 BETHIA S.A. Y FILIALES
78 .9 9 7.0 6 0 -2 Viajes Falab ella Ltd a.
0 -E
0 -E
Co ns ulto ría Ad minis trativa Pro fes io nal
INVERSORA AERONÁUTICA ARGENTINA
Chile
Chile
Chile
M exico
Arg entina
CLP
CLP
CLP
M XN
US$
To tal
To tal co ns o lid ated
10
5
6 8
3 4 2
2 2
-
-
-
-
1,0 0 2 ,50 6
2 3 ,515
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FINANCIAL STATEMENTS | Financial Statements
To tal
ThUS$
4 56 ,6 8 9
3 9 ,9 3 7
3 0 1,58 5
2 2 7,3 6 3
10
5
6 8
3 4 2
2 2
No minal
value
ThUS$
4 56 ,6 8 9
3 9 ,9 3 7
3 0 1,58 5
2 2 7,3 6 3
10
5
6 8
3 4 2
2 2
1,0 2 6 ,0 2 1
1,0 2 6 ,0 2 1
Amo rtizatio n
Effective No minal
rate
%
rate
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,70 9 ,0 4 0
1,119 ,3 12
3 ,2 2 9 ,2 9 8
2 ,4 9 1,8 3 1
2 ,9 10 ,14 6
11,4 59 ,6 2 7
10 ,2 3 1,771
161
FINANCIAL STATEMENTS | Financial Statements
35
36
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 2015, the Company provided US$ 49.6 million in derivative margin guarantees, for
cash and stand-by letters of credit. At December 31, 2016, the Company had provided
US$ 30.2 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The
decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and
iii) changes in fuel prices, exchange rate and interest rates.
3.2.
Capital risk management
The Company’s objectives, with respect to the management of capital, are (i) to comply with the
restrictions of minimum equity and (ii) to maintain an optimal capital structure.
The Company monitors its contractual obligations and the regulatory limitations in the different
countries where the entities of the group are domiciled to assure they meet the limit of minimum net
equity, where the most restrictive limitation is to maintain a positive net equity.
Additionally, the Company periodically monitors the short and long term cash flow projections to
assure the Company has adequate sources of funding to generate the cash requirement to face its
investment and funding future commitments.
The Company international credit rating is the consequence of the Company capacity to face its
long terms financing commitments. As of December 31, 2016 the Company has an international
long term credit rating of BB- with negative outlook by Standard & Poor’s, a B+ rating with
negative outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.
3.3. Estimates of fair value.
At December 31, 2016, 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),
Private investment funds.
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.
The following table shows the classification of financial instruments at fair value, depending on the
level of information used in the assessment:
As o f De c e m be r 31, 2016
F a ir va lue m e a s ure m e nts us ing va lue s
c o ns ide re d a s
Le ve l II
Le ve l III
Le ve l I
F a ir va lue
As o f De c e m be r 31, 2015
F a ir va lue m e a s ure m e nts us ing
c o ns ide re d a s
F a ir
Le ve l I
Le ve l II
Le ve l III
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
As s e ts
C a s h a nd c a s h e quiva le nts
S ho rt-te rm m utua l funds
Othe r fina nc ia l a s s e ts , c urre nt
F a ir va lue o f fue l de riva tive s
F a ir va lue o f fo re ign c urre nc y de riva tive s
Inte re s t a c c rue d s inc e the la s t pa ym e nt
da te o f C ro s s C urre nc y S wa p
P riva te inve s tm e nt funds
Do m e s tic a nd fo re ign bo nds
Lia bilitie s
Othe r fina nc ia l lia bilitie s , c urre nt
F a ir va lue o f inte re s t ra te de riva tive s
F a ir va lue o f fue l de riva tive s
F a ir va lue o f fo re ign c urre nc y de riva tive s
Inte re s t a c c rue d s inc e the la s t pa ym e nt
da te o f C urre nc y S wa p
Inte re s t ra te de riva tive s no t re c o gnize d
a s a he dge
Othe r fina nc ia l lia bilitie s , no n c urre nt
F a ir va lue o f inte re s t ra te de riva tive s
15,522
15,522
548,402
10,088
1,259
64
536,991
-
24,881
9,579
-
13,155
2,147
-
6,679
6,679
15,522
15,522
536,991
-
-
-
536,991
-
-
-
-
-
-
-
-
-
-
-
11,411
10,088
1,259
64
-
-
24,881
9,579
-
13,155
-
-
-
-
-
-
-
-
-
-
-
-
26,600
26,600
622,963
6,293
9,888
397
448,810
157,575
134,089
33,518
39,818
56,424
2,147
-
4,329
-
-
6,679
6,679
-
-
-
16,128
16,128
26,600
26,600
606,385
-
-
-
448,810
157,575
-
-
-
-
-
-
-
-
16,578
6,293
9,888
397
-
-
134,089
33,518
39,818
56,424
-
-
-
-
-
-
-
-
-
-
-
4,329
-
-
16,128
16,128
-
-
162
FINANCIAL STATEMENTS | Financial Statements
37
38
Additionally, at December 31, 2016, 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:
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
As of December 31, 2016
As of December 31, 2015
Book
value
Fair
value
Book
value
Fair
value
ThUS$
ThUS$
ThUS$
ThUS$
933,805
8,630
255,746
295,060
374,369
164,426
164,426
1,107,889
554
102,125
8,254
1,814,647
1,593,068
269
6,790,273
359,391
933,805
8,630
255,746
295,060
374,369
164,426
164,426
1,107,889
554
102,125
8,254
2,022,290
1,593,068
269
6,970,375
359,391
726,897
10,656
255,421
267,764
193,056
28,385
28,385
796,974
183
89,458
10,715
1,510,146
1,483,957
447
7,516,257
417,050
726,897
10,656
255,421
267,764
193,056
28,385
28,385
796,974
183
89,458
10,715
1,873,552
1,483,957
447
7,382,221
417,050
Cash and cash equivalents
Cash on hand
Bank balance
Overnight
Time deposits
Other financial assets, current
Other financial assets
Trade and other accounts receivable current
Accounts receivable from related entities
Other financial assets, non current
Accounts receivable
Other financial liabilities, current
Trade and other accounts payables
Accounts payable to related entities
Other financial liabilities, non current
Accounts payable, non-current
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 (Level II). In the case of
Other financial assets, the valuation was performed according to market prices at period end.
The Company has used estimates to value and record certain assets, liabilities, revenue,
expenditure, and commitments. Basically, these estimates relate to:
(a) Evaluation of possible losses through impairment of goodwill and intangible assets with an
indefinite useful life.
As of December 31, 2016 goodwill amounted to ThUS$ 2,710,382 (ThUS$ 2,280,575 at
December 31, 2015), while intangible assets with an indefinite useful life comprised airport slots
for ThUS$ 978,849 (ThUS$ 816,987 at December 31, 2015), Loyalty Program for ThUS$ 326,262
(ThUS$ 272,312 at December 31, 2015) and Trademarks (*) for ThUS$ 52.981 at December 31,
2015.
At least once per year the Company verifies whether goodwill and intangible assets with an
indefinite useful life have suffered any losses through impairment. For the purposes of this
evaluation, the Company has identified two cash-generating units (CGUs): “Air transport” and
“Multiplus loyalty and coalition program.” The book value of goodwill assigned to each CGU as of
December 31, 2016, amounted to ThUS$ 2,176,634 and ThUS$ 533,748 (ThUS$ 1,835,088 and
ThUS$ 445,487 at December 31, 2015), which included intangible assets with undefined useful
life:
Air Transport
CGU
Coalition and loyalty
Program Multiplus CGU
As of
December 31,
2016
ThUS$
As of
December 31,
2015
ThUS$
As of
December 31,
2016
ThUS$
As of
December 31,
2015
ThUS$
Airport Slots
Trade marks (*)
Loyalty program
978,849
-
-
816,987
52,981
-
-
-
326,262
-
-
272,312
(*) At December 31, 2016, the Company has changed the estimated useful life of the brands from
an indefinite useful life to a five-year period (See Note 15).
The recoverable value of these cash-generating units (CGUs) has been determined based on
calculations of their value in use. The principal assumptions used by the management include:
growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The
estimation of these assumptions requires significant judgment by the management, as these
variables feature inherent uncertainty; however, the assumptions used are consistent with
Company’s internal planning. Therefore, management evaluates and updates the estimates on an
annual basis, in light of conditions that affect these variables. The mainly assumptions used as well
as, the corresponding sensitivity analyses are showed in Note 16.
163
FINANCIAL STATEMENTS | Financial Statements
39
40
(b) Useful life, residual value, and impairment of property, plant, and equipment
The depreciation of assets is calculated based on the linear model, except for certain technical
components depreciated on cycles and hours flown. These useful lives are reviewed on an annual
basis according with the Company’s future economic benefits associated with them.
Changes in circumstances such as: technological advances, business model, planned use of assets or
capital strategy may render the useful life different to the lifespan estimated. When it is determined
that the useful life of property, plant, and equipment must be reduced, as may occur in line with
changes in planned usage of assets, the difference between the net book value and estimated
recoverable value is depreciated, in accordance with the revised remaining useful life.
Residual values are estimated in accordance with the market value that these assets will have at the
end of their useful life. The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, once a year. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).
(c) Recoverability of deferred tax assets
Deferred taxes are calculated in accordance with the liability method, applied over temporary
differences that arise between the fiscal based of assets and liabilities, and their book value.
Deferred tax assets for tax losses are recognized to the extent that the realization of the related tax
benefit through future taxable profits is probable. The Company makes tax and financial
projections to evaluate the realization of deferred tax asset over the course of time. Additionally,
these projections are ensured to be consistent with those used to measure other long term assets. As
of December 31, 2016 the company recognized deferred tax assets amounting to ThUS$ 384,580
(ThUS$ 376,595 at December 31, 2015), and had ceased to recognize deferred tax assets for tax
losses amounting to ThUS$ 115,801 (ThUS$ 15,513 at December 31, 2015) (Note 18).
(d) Air tickets sold that are not actually used.
The Company advance sales of tickets as deferred revenue. Revenue from ticket sales is recognized
in the income statement when the service is provided or when the tickets expires unused, reducing
the corresponding deferred revenue. The Company evaluates monthly the probability that tickets
expiry unused, based on the history of used tickets. Changes in the exchange probability would
have an impact our revenue in the year in which the change occurs and in future years. As of
December 31, 2016, deferred revenue associated with air
ThUS$ 1,535,229 (ThUS$ 1,223,886 as of December 31, 2015). An hypothetical change of 1% in
passenger behavior regarding to the ticket usage, - that is, if during the next six months after sells
probability of used were 89% rather than 90%, as we consider, it would lead to a change in the
expiry period from six to seven months, which, as of December 31, 2016, would have an impact of
up to ThUS$ 20,000.
tickets sold amounted
to
(e) Valuation of loyalty points and kilometers granted to loyalty program members, pending
usage.
As of December 31, 2016 and December 31, 2015, the Company operated the following loyalty
programs: LATAM Pass, LATAM Fidelidade and Multiplus, with the objective of enhancing
customer loyalty by offering points or kilometers (see Note 22).
When kilometers and points are redeemed for products and services other than the services
provided by the Company, revenue is recognized immediately; when they are redeemed for air
tickets on airlines from to LATAM Airlines Group S.A. and subsidiaries, revenue is deferred until
the transport service is provided or the corresponding tickets expired.
Deferred revenue from loyalty programs at the closing date corresponds to the valuation of points
and kilometers granted to loyalty program members, pending of use, and the probability to be
redeemed.
According to IFRIC-13, kilometers and points value that the Company estimate are not likely to be
redeemed (“breakage”), they recognize the associated value proportionally during the period in
which the remaining kilometers or points are expected to be redeemed. The Company uses
statistical models to estimate the breakage, based on historical redemption patterns Changes in the
breakage would have a significant impact on our revenue in the year in which the change occurs
and in future years.
As of December 31, 2016, deferred revenue associated with the LATAM Pass loyalty program
amounted to ThUS$ 896,190 (ThUS$ 973,264 at December 31, 2015). As of December 31, 2016 a
hypothetical change of 1% in the probability of usage would result in an impact of approximately
ThUS$ 30,632 and ThUS$ 30,000 at the same period of 2015. Meanwhile, deferred revenue
associated with
ThUS$ 392,107 (ThUS$ 452,264 at December 31, 2015). As of December 31, 2016 a hypothetical
change of 2% in the probability of usage would result in an impact of approximately ThUS$ 14,639
and ThUS$ 11,755 at the same period of 2015.
the LATAM Fidelidade and Multiplus
loyalty programs amounted
to
The fair value of kilometers is determined by the Company based in its best estimate of the price at
which they have been sold in the past. As of December 31, 2016 a hypothetical change of 1% in
the fair value of the unused kilometers would result in an impact of approximately ThUS$ 8,400
and ThUS$ 8,800 at the same period of 2015.
(f) Provisions needs, and their valuation when required
Known contingencies are recognized when: the Company has a present legal or constructive
obligation as a result of past events; it is probable that an outflow of resources will be required to
settle the obligation and the amount has been reliably estimated. The Company applies professional
judgment, experience, and knowledge to use available information to determine these values, in
light of the specific characteristics of known risks. This process facilitates the early assessment and
valuation of potential risks in individual cases or in the development of contingent eventualities.
(g)
Investment in subsidiary (TAM)
The management has applied its judgment in determining that LATAM Airlines Group S.A.
controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the
financial statements.
164
41
The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority
of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did
not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all
economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks
relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all
of its shareholders, including the controlling shareholders of TAM, thus insuring that the
shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that
would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions
necessary of the operation of the airlines require votes in favor by the controlling shareholders of
both LATAM and TAM.
Since the integration of LAN and TAM operations, the most critical airline operations in Brazil
have been managed by the CEO of TAM while global activities have been managed by the CEO of
LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the
LATAM Board.
The CEO of LATAM also evaluates the performance of LATAM Group executives and, together
with the LATAM Board, determines compensation. Although Brazilian law currently imposes
restrictions on the percentages of voting rights that may be held by foreign investors, LATAM
believes that the economic basis of these agreements meets the requirements of accounting
standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.
These estimates were made based on the best information available relating to the matters analyzed.
In any case, it is possible that events that may take place in the future could lead to their
modification in future reporting periods, which would be made in a prospective manner.
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 LATAM Pass and LATAM 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 16.5 million of members, along with being a
regulated entity with a separately business and not directly related to air transport.
FINANCIAL STATEMENTS | Financial Statements
165
FINANCIAL STATEMENTS | Financial Statements
42
For the periods ended
Income from ordinary activities from
external customers (*)
LAN passenger
T AM passenger
Freight
Income from ordinary activities from
transactions with other operating segments
Other operating income
Interest income
Interest expense
Air
transportation
At December 31,
2016
2015
Coalition and
loyalty program
Multiplus
At December 31,
2015
2016
Eliminations
At December 31,
2016
2015
T hUS$
T hUS$
T hUS$
T hUS$
T hUS$
T hUS$
Consolidated
At December 31,
2016
T hUS$
2015
T hUS$
8,587,772
9,278,041
400,568
462,004
4,104,348
3,372,799
1,110,625
4,241,918
3,706,692
1,329,431
-
400,568
-
-
462,004
-
-
-
-
-
-
-
-
-
8,988,340
9,740,045
4,104,348
3,773,367
1,110,625
4,241,918
4,168,696
1,329,431
400,568
364,551
27,287
(427,054)
462,004
65,969
67,826
(466,537)
(529,830)
-
-
230,823
174,197
154,958
-
-
538,748
385,781
21,818
(423,742)
58,380
-
63,647
-
(10,718)
10,718
(10,385)
10,385
74,949
(416,336)
75,080
(413,357)
T otal net interest expense
(399,767)
(401,924)
58,380
63,647
Depreciation and amortization
(952,285)
(923,311)
(8,043)
(11,095)
Material non-cash items other than
depreciation and amortization
Disposal of fixed assets and inventory losses
Doubtful accounts
Exchange differences
Result of indexation units
10,069
(507,921)
(82,734)
(29,674)
122,129
348
(20,932)
(18,292)
(469,178)
481
(991)
-
(476)
(478)
(37)
1,893
-
611
1,282
-
Income (loss) atributable to owners of the parents
(83,653)
(356,039)
152,873
136,765
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Participation of the entity in
the income of associates
Expenses for income tax
Segment profit / (loss)
Assets of segment
Amount of non-current asset additions
Property, plant and equipment
Intangibles other than goodwill
-
(92,476)
(42,203)
17,805,749
1,481,090
1,390,730
90,360
37
249,090
(315,497)
16,924,200
1,492,281
1,439,057
53,224
-
(70,728)
152,873
1,400,432
-
-
(70,707)
136,765
1,182,111
-
-
-
-
-
-
-
-
(7,987)
-
-
-
-
-
-
(4,893)
-
-
-
Segment liabilities
Purchase of non-monetary assets of segment
14,469,505
782,957
14,700,072
1,622,198
572,065
-
490,076
-
(28,680)
-
(26,278)
-
(341,387)
(338,277)
(960,328)
(934,406)
9,078
(506,028)
(82,734)
(30,150)
121,651
311
69,220
-
(163,204)
110,670
19,198,194
1,481,090
1,390,730
90,360
15,012,890
782,957
(20,932)
(17,681)
(467,896)
481
(219,274)
37
178,383
(178,732)
18,101,418
1,492,281
1,439,057
53,224
15,163,870
1,622,198
(*) The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.
166
FINANCIAL STATEMENTS | Financial Statements
43
44
The Company’s revenues by geographic area are as follows:
Cash and cash equivalents are denominated in the following currencies:
Currency
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Strong bolivar (*)
Other currencies
T otal
As of
December 31,
2016
T hUS$
As of
December 31,
2015
T hUS$
7,871
97,401
30,758
4,336
1,695
780,124
61
27,081
949,327
18,733
106,219
17,978
14,601
10,663
564,214
2,986
18,103
753,497
(*) At December 31, 2015, the Company reflected an exchange rate loss of ThUS$ 40,968
consequence change in the SICAD rate of Venezuela (13.5 VEF/US$) at the SIMADI rate
equivalent to 198.70 VEF/US$.
As of December 31, 2016, the DICOM rate, which replaces SIMADI (February 2016), and to this
date is 673.76 VEF/US$, Applied to cash and cash equivalents in VEF, represented a balance of
ThUS$ 61 (ThUS$ 2,986 at December 31, 2015)
For the period ended
At December 31,
2016
ThUS$
627,215
1,030,973
933,130
714,436
343,001
2,974,234
198,171
1,512,570
654,610
8,988,340
538,748
2015
ThUS$
681,340
979,324
1,025,475
723,062
353,007
3,464,297
238,500
1,575,519
699,521
9,740,045
385,781
Peru
Argentina
U.S.A.
Europe
Colombia
Brazil
Ecuador
Chili
Asia Pacific and rest of Latin America
Income from ordinary activities
Other operating income
The Company allocates revenues by geographic area based on the point of sale of the passenger
ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are
used throughout the different countries, so it is not possible to assign a geographic area.
The Company has no customers that individually represent more than 10% of sales.
NOTE 6 - CASH AND CASH EQUIVALENTS
Cash on hand
Bank balances
Overnight
T otal Cash
Cash equivalents
T ime deposits
Mutual funds
T otal cash equivalents
T otal cash and cash equivalents
As of
December 31,
2016
T hUS$
As of
December 31,
2015
T hUS$
8,630
255,746
295,060
559,436
374,369
15,522
389,891
949,327
10,656
255,421
267,764
533,841
193,056
26,600
219,656
753,497
167
FINANCIAL STATEMENTS | Financial Statements
45
46
NOTE 7 - FINANCIAL INSTRUMENTS
7.1.
Financial instruments by category
As of December 31, 2016
Assets
Cash and cash equivalents
Other financial assets, current (*)
Trade and others
Loans
and
receivables
ThUS$
933,805
164,426
Hedge
derivatives
ThUS$
-
11,411
accounts receivable, current
1,107,889
Accounts receivable from
related entities, current
Other financial assets,
non current (*)
Accounts receivable, non current
Total
Liabilities
554
101,603
8,254
2,316,531
-
-
-
-
11,411
Other liabilities, current
Trade and others accounts payable, current
Accounts payable to related entities, current
Other financial liabilities, non-current
Accounts payable, non-current
Total
Held
for
trading
ThUS$
-
-
-
-
522
-
522
Other
financial
liabilities
ThUS$
1,814,647
1,593,068
269
6,790,273
359,391
10,557,648
Initial designation
as fair value
through
profit and loss
ThUS$
15,522
536,991
-
-
-
-
552,513
Held
Hedge
derivatives
ThUS$
24,881
-
-
6,679
-
31,560
Total
ThUS$
949,327
712,828
1,107,889
554
102,125
8,254
2,880,977
Total
ThUS$
1,839,528
1,593,068
269
6,796,952
359,391
10,589,208
(*) 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.
As of December 31, 2015
Assets
Cash and cash equivalents
Other financial assets, current (*)
Trade and others
accounts receivable, current
Accounts receivable from
related entities, current
Other financial assets,
non current (*)
Accounts receivable, non current
Total
Liabilities
Other liabilities, current
Trade and others accounts payable, current
Accounts payable to related entities, current
Other financial liabilities, non-current
Accounts payable, non-current
Total
Loans
and
receivables
ThUS$
726,897
28,385
796,974
183
88,820
10,715
1,651,974
Hedge
derivatives
ThUS$
-
16,578
-
-
Held
for
trading
ThUS$
-
157,575
-
-
-
-
16,578
638
-
158,213
Initial designation
as fair value
through
profit and loss
ThUS$
26,600
448,810
-
-
-
-
475,410
Held
Hedge
derivatives
ThUS$
134,089
-
-
16,128
-
150,217
Total
ThUS$
753,497
651,348
796,974
183
89,458
10,715
2,302,175
Total
ThUS$
1,644,235
1,483,957
447
7,532,385
417,050
11,078,074
Other
financial
liabilities
ThUS$
1,510,146
1,483,957
447
7,516,257
417,050
10,927,857
(*) 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.
168
FINANCIAL STATEMENTS | Financial Statements
47
48
7.2.
Financial instruments by currency
As o f
As o f
De c e m be r 31,
De c e m be r 31,
a) Assets
C a s h a nd c a s h e quiva le nts
Arge ntine pe s o
B ra zilia n re a l
C hile a n pe s o
C o lo m bia n pe s o
Euro
US Do lla r
S tro ng bo liva r
Othe r c urre nc ie s
Othe r fina nc ia l a s s e ts (c urre nt a nd no n-c urre nt)
Arge ntine pe s o
B ra zilia n re a l
C hile a n pe s o
C o lo m bia n pe s o
Euro
US Do lla r
S tro ng bo liva r
Othe r c urre nc ie s
Tra de a nd o the r a c c o unts re c e iva ble , c urre nt
Arge ntine pe s o
B ra zilia n re a l
C hile a n pe s o
C o lo m bia n pe s o
Euro
US Do lla r
S tro ng bo liva r
Othe r c urre nc ie s (*)
Ac c o unts re c e iva ble , no n-c urre nt
B ra zilia n re a l
C hile a n pe s o
US Do lla r
Othe r c urre nc ie s (*)
Ac c o unts re c e iva ble fro m re la te d e ntitie s , c urre nt
B ra zilia n re a l
C hile a n pe s o
To ta l a s s e ts
Arge ntine pe s o
B ra zilia n re a l
C hile a n pe s o
C o lo m bia n pe s o
Euro
US Do lla r
S tro ng bo liva r
Othe r c urre nc ie s
2016
ThUS $
949,327
7,871
97,401
30,758
4,336
1,695
780,124
61
27,081
814,953
337
686,501
668
1,023
6,966
117,346
76
2,036
1,107,889
82,770
551,260
92,791
16,454
21,923
312,394
43
30,254
8,254
4
8,250
-
-
554
-
554
2,880,977
90,978
1,335,166
133,021
21,813
30,584
1,209,864
180
59,371
2015
ThUS $
753,497
18,733
106,219
17,978
14,601
10,663
564,214
2,986
18,103
740,806
157,281
449,934
640
1,670
614
128,620
22
2,025
796,974
71,438
191,037
57,755
13,208
30,006
344,153
7,225
82,152
10,715
521
5,041
5,000
153
183
2
181
2,302,175
247,452
747,713
81,595
29,479
41,283
1,041,987
10,233
102,433
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.
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT,
AND NON-CURRENT ACCOUNTS RECEIVABLE
Trade accounts receivable
Other accounts receivable
Total trade and other accounts receivable
Less: Allowance for impairment loss
Total net trade and accounts receivable
Less: non-current portion – accounts receivable
Trade and other accounts receivable, current
As of
As of
December 31,
December 31,
2016
ThUS$
1,022,933
170,264
1,193,197
(77,054)
1,116,143
(8,254)
1,107,889
2015
ThUS$
685,733
182,028
867,761
(60,072)
807,689
(10,715)
796,974
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:
Fully performing
M atured accounts receivable, but not impaired
Expired from 1 to 90 days
Expired from 91 to 180 days
M ore than 180 days overdue (*)
Total matured accounts receivable, but not impaired
M atured accounts receivable and impaired
As of
As of
December 31,
December 31,
2016
ThUS$
2015
ThUS$
896,040
577,902
38,969
9,303
1,567
49,839
28,717
10,995
8,047
47,759
Judicial, pre-judicial collection and protested documents
34,909
24,304
Debtor under pre-judicial collection process and
portfolio sensitization
Total matured accounts receivable and impaired
Total
42,145
77,054
1,022,933
35,768
60,072
685,733
(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their
ability to recover, therefore not requiring a provision.
169
FINANCIAL STATEMENTS | Financial Statements
49
50
Currency balances that make up the Trade and other accounts receivable and non-current accounts
receivable are the following:
Movement in the allowance for impairment loss of Trade and other accounts receivables are the
following:
Currency
Argentine Peso
Brazilian Real
Chilean Peso
Colombian peso
Euro
US Dollar
Strong bolivar
Other currency (*)
Total
(*) Other currencies
Australian Dollar
Chinese Yuan
Danish Krone
Pound Sterling
Indian Rupee
Japanese Yen
Norwegian Kroner
Swiss Franc
Korean Won
New Taiwanese Dollar
Other currencies
Total
As of
December 31,
2016
As of
December 31,
2015
ThUS$
ThUS$
82,770
551,264
101,041
16,454
21,923
312,394
43
30,254
1,116,143
5,487
271
151
3,904
303
2,601
184
1,512
4,241
662
10,938
30,254
71,438
191,558
62,796
13,208
30,006
349,153
7,225
82,305
807,689
26,185
4,282
164
7,228
3,070
4,343
221
1,919
4,462
3,690
26,741
82,305
Periods
From January 1 to December 31, 2015
From January 1 to December 31, 2016
Opening
balance
T hUS$
(71,042)
(60,072)
Write-offs
T hUS$
10,120
20,910
(Increase)
Decrease
T hUS$
850
(37,892)
Closing
balance
T hUS$
(60,072)
(77,054)
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.
As of December 31, 2016
As of December 31, 2015
Gross exposure
according to
balance
T hUS$
Gross
impaired
exposure
T hUS$
Exposure net
of risk
concentrations
Gross exposure
according to
balance
T hUS$
T hUS$
Gross
Impaired
exposure
T hUS$
Exposure net
of risk
concentrations
T hUS$
T rade accounts receivable
Other accounts
receivable
1,022,933
(77,054)
945,879
685,733
(60,072)
625,661
170,264
-
170,264
182,028
-
182,028
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.
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.
Maturity
Judicial and pre-judicial collection assets
Over 1 year
Between 6 and 12 months
Impairment
100%
100%
50%
170
FINANCIAL STATEMENTS | Financial Statements
51
52
NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
NOTE 10 -INVENTORIES
(a)
Accounts Receivable
T ax No.
Related party
Relationship
of origin
Currency
2016
2016
Country
As of
December 31,
As of
December 31,
78.591.370-1 Bethia S.A. and Subsidiaries
Related director
87.752.000-5 Granja Marina T ornagaleones S.A.
Common shareholder
Chile
Chile
CLP
CLP
96.810.370-9 Inversiones Costa Verde
Ltda. y CPA.
Controller
Chile
CLP
Foreign
T AM Aviação Executiva
e T axi Aéreo S.A.
Related director
Brazil
BRL
T otal current assets
(b)
Accounts payable
T hUS$
T hUS$
538
14
2
-
554
167
14
-
2
183
T ax No.
Related party
Relationship
of origin
Currency
2016
2015
Country
December 31,
December 31,
As of
As of
Foreign
Consultoría Administrativa
Profesional S.A. de C.V.
Associate
65.216.000-K Viajes Falabella Ltda.
Related director
Mexico
Chile
MXN
CLP
79.773.440-3
T AM Aviação Executiva
e T axi Aéreo S.A.
65.216.000-K Comunidad Mujer
78.591.370-1 Bethia S.A. and Subsidiaries
Related director
Related director
Related director
79.773.440-3
T ransportes San Felipe S.A
Common property
Brazil
Chile
Chile
Chile
Foreign
Inversora Aeronaútica Argentina
Related director
Argentina
BRL
CLP
CLP
CLP
US$
T hUS$
T hUS$
170
46
28
13
6
4
2
342
68
-
10
5
-
22
T otal current liabilities
269
447
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.
The composition of Inventories is as follows:
Technical stock
Non-technical stock
Total
As of
December 31,
2016
As of
December 31,
2015
ThUS$
191,864
49,499
241,363
ThUS$
192,930
31,978
224,908
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, as per the following detail:
Provision for obsolescence Technical stock
Provision for obsolescenceNon-technical stock
Total
As of
December 31,
2016
ThUS$
31,647
3,429
35,076
As of
December 31,
2015
ThUS$
13,303
2,589
15,892
As of December 31, 2016, the Company recorded ThUS$ 167,365 (ThUS$ 160,030 at
December 31, 2015) within the income statement, mainly due to in-flight consumption and
maintenance, which forms part of Cost of sales.
171
FINANCIAL STATEMENTS | Financial Statements
53
54
NOTE 11 - OTHER FINANCIAL ASSETS
The composition of Other financial assets is as follows:
C urre nt As s e ts
No n-c urre nt a s s e ts
To ta l As s e ts
As o f
As o f
As o f
As o f
As o f
As o f
De c e m be r 31,
2016
De c e m be r 31,
2015
De c e m be r 31,
2016
De c e m be r 31,
2015
De c e m be r 31,
2016
De c e m be r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
(a ) Othe r fina nc ia l a s s e ts
P riva te inve s tm e nt funds
De po s its in gua ra nte e (a irc ra ft)
Gua ra nte e s fo r m a rgins o f de riva tive s
Othe r inve s tm e nts
Do m e s tic a nd fo re ign bo nds
Othe r gua ra nte e s give n
Othe r
S ubto ta l o f o the r fina nc ia l a s s e ts
(b) He dging a s s e ts
Inte re s t a c c rue d s inc e the la s t pa ym e nt da te
o f C ro s s c urre nc y s wa p
F a ir va lue o f fo re ign c urre nc y de riva tive s (*)
F a ir va lue o f fue l pric e de riva tive s
S ubto ta l o f he dging a s s e ts
To ta l Othe r F ina nc ia l As s e ts
536,991
16,819
939
-
-
140,733
5,935
701,417
64
1,259
10,088
11,411
712,828
448,810
16,532
4,456
-
157,575
6,160
1,237
634,770
397
9,888
6,293
16,578
651,348
-
56,846
-
522
-
44,757
-
102,125
-
-
-
-
-
58,483
-
638
-
30,337
-
89,458
-
-
-
-
536,991
73,665
939
522
-
185,490
5,935
448,810
75,015
4,456
638
157,575
36,497
1,237
803,542
724,228
64
1,259
10,088
11,411
397
9,888
6,293
16,578
102,125
89,458
814,953
740,806
(*) The foreign currency derivatives correspond to forward and combination of options.
The types of derivative hedging contracts maintained by the Company at the end of each period are
described in Note 19.
NOTE 12 - OTHER NON-FINANCIAL ASSETS
The composition of Other non-financial assets is as follows:
C urre nt a s s e ts
As o f
As o f
No n-c urre nt a s s e ts
As o f
As o f
De c e m be r 31, De c e m be r 31,
De c e m be r 31, De c e m be r 31,
2016
2015
2016
2015
To ta l As s e ts
As o f
De c e m be r 31,
2016
As o f
De c e m be r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
(a ) Adva nc e pa ym e nts
Airc ra ft le a s e s
Airc ra ft ins ura nc e a nd o the r
Othe rs
S ubto ta l a dva nc e pa ym e nts
(b) Othe r a s s e ts
Airc ra ft m a inte na nc e re s e rve (*)
S a le s ta x
Othe r ta xe s
C o ntributio ns to S o c ié té Inte rna tio na le
de Té lé c o m m unic a tio ns Aé ro na utique s ("S ITA")
J udic ia l de po s its
Othe rs
S ubto ta l o the r a s s e ts
To ta l Othe r No n - F ina nc ia l As s e ts
37,560
14,717
4,521
56,798
51,576
102,351
500
406
-
611
155,444
212,242
33,305
12,408
16,256
61,969
99,112
158,134
4,295
505
-
6,001
268,047
330,016
14,065
-
1,573
15,638
90,175
40,232
-
591
90,604
104
221,706
237,344
22,569
-
33,781
56,350
64,366
45,061
-
547
67,980
1,159
179,113
235,463
51,625
14,717
6,094
72,436
141,751
142,583
500
997
90,604
715
377,150
449,586
55,874
12,408
50,037
118,319
163,478
203,195
4,295
1,052
67,980
7,160
447,160
565,479
(*) 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
paid 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 (five 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, 2016, LATAM had ThUS$ 141,751 in maintenance reserves (ThUS$ 163,478
at December 31, 2015), corresponding to two aircraft with contracts that establish periodic
payments and whose expiration date is in 2017 and 21 aircraft that maintains remaining balances,
which will be liquidated in the next maintenance or return.
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)
172
FINANCIAL STATEMENTS | Financial Statements
55
56
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR
SALE
The detail of fleet classified as non-current assets or groups of assets for disposal classified as held
for sale is the following:
Non-current assets and
December 31, 2015 are detailed below:
in disposal groups held for sale at December 31, 2016 and
Current assets
Aircraft
Engines and rotables
Other assets
T otal
Current liabilities
Other liabilities
T otal
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
281,158
29,083
26,954
337,195
10,152
10,152
263
1,697
-
1,960
-
-
The balances are presented at the lower of book value and fair value less cost to sell. The fair value
of these assets were determined based on quoted prices in active markets for similar assets or
liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There
were no transfers between levels for recurring fair value measurements during the year.
(a)
Assets reclassified from Property, plant and equipment to Non-current assets or groups of
assets for disposal classified as held for sale
In the period ended December 31, 2016, two Airbus A319 aircraft, two Airbus A320 aircraft, six
Airbus A330 aircraft, two Boeing 777 aircraft, eight A330 spare engines, A330 rotables and two
buildings were reclassified from Property, plant and equipment to Non-current assets or groups of
assets for disposal classified as held for sale.
During the period ended December 31, 2016, two Airbus A319 aircraft, one Airbus A320 aircraft
and two Airbus A330 aircraft were sold. Additionally an A330 spare engine and D200 rotables were
sold.
As a result, an adjustment of US $ 55 million was recorded to write down these assets to their net
As of
As of
December 31, December 31,
2016
2015
Aircraft
Boeing 777 Freighter
Airbus A330-200
Airbus A320-200
ATR42-300
Total
(*)
2
4
1
1
8
-
-
-
1
1
(*) One aircraft leased to DHL.
NOTE 14 - 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.
Detail of significant subsidiaries and summarized financial information:
Name of significant subsidiary
Country of
Functional
incorporation
currency
Ownership
As of
December 31,
As of
December 31,
2016
%
2015
%
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
T ransporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.
Aerovías de Integración Regional, AIRES S.A.
T AM S.A.
Peru
Chile
Argentina
Chile
Ecuador
Colombia
Brazil
US$
US$
ARS
US$
US$
COP
BRL
70.00000
99.89803
95.85660
99.89804
100.00000
99.19056
99.99938
70.00000
99.89803
94.99055
99.89804
100.00000
99.01646
99.99938
The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.
173
FINANCIAL STATEMENTS | Financial Statements
57
Summary financial information of significant subsidiaries
Name of significant subsidiary
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
T ransporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales
del Ecuador S.A.
Aerovías de Integración Regional,
AIRES S.A.
T AM S.A. (*)
Name of significant subsidiary
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
T ransporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales
del Ecuador S.A.
Aerovías de Integración Regional,
AIRES S.A.
T AM S.A. (*)
Statement of financial position as of December 31, 2016
T otal
Assets
T hUS$
306,111
480,908
216,331
340,940
Current
Assets
T hUS$
283,691
144,309
194,306
36,986
Non-current
Assets
T otal
Liabilities
T hUS$
T hUS$
Current
Liabilities
T hUS$
Non-current
Liabilities
T hUS$
22,420
336,599
22,025
303,954
294,912
239,728
200,172
124,805
293,602
211,395
197,330
59,668
1,310
28,333
2,842
65,137
Results for the period
ended December 31, 2016
Revenue
T hUS$
967,787
266,296
371,896
297,247
Net
Income
T hUS$
(2,164)
(24,813)
(29,572)
8,206
89,667
56,064
33,603
81,101
75,985
5,116
219,676
(1,281)
129,734
5,287,286
55,132
1,794,189
74,602
3,493,097
85,288
4,710,308
74,160
2,837,620
11,128
1,872,688
277,503
4,145,951
(13,675)
2,107
Statement of financial position as of December 31, 2015
T otal
Assets
T hUS$
255,691
483,033
195,756
331,117
Current
Assets
T hUS$
232,547
159,294
180,558
41,756
Non-current
Assets
T otal
Liabilities
T hUS$
T hUS$
Current
Liabilities
T hUS$
Non-current
Liabilities
T hUS$
23,144
323,739
15,198
289,361
240,938
217,037
170,384
122,666
239,521
147,423
168,126
44,495
1,417
69,614
2,258
78,171
Results for the period
ended December 31, 2015
Revenue
T hUS$
1,078,992
278,117
443,317
324,464
Net
Income
T hUS$
5,068
(74,408)
9,432
5,878
126,001
80,641
45,360
116,153
111,245
4,908
246,402
(1,278)
130,039
62,937
67,102
75,003
64,829
10,174
4,711,316
1,350,377
3,360,939
4,199,223
1,963,400
2,235,823
291,354
4,597,611
(34,079)
(183,812)
(*) Corresond to consolidated information of TAM S.A. and Subsidiaries.
174
FINANCIAL STATEMENTS | Financial Statements
58
(b) Non-controlling interest
Equity
Ta x No.
Country
of origin
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
%
%
ThUS $
ThUS $
La n P e rú S .A
La n Ca rgo S .A. a nd S ubs idia rie s
P romotora Aé re a La tinoa me ric a na S .A. a nd S ubs idia rie s
Inve rs ora Cordille ra S .A. a nd S ubs idia rie s
La n Arge ntina S .A.
Ame ric ons ult de Gua te ma la S .A.
Ame ric ons ult Cos ta Ric a S .A.
Line a Aé re a Ca rgue ra de Colombia na S .A.
Ae rolíne a s Re giona le s de Inte gra c ión Aire s S .A.
Tra ns porte s Ae re os de l Me rc os ur S .A.
Multiplus S .A.
0- E
93.383.000- 4
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
P e ru
Chile
Me xic o
Arge ntina
Arge ntina
Gua te ma la
Cos ta Ric a
Colombia
Colombia
P a ra gua y
Bra zil
30.00000
0.10196
51.00000
0.70422
0.13440
1.00000
1.00000
10.00000
0.80944
5.02000
27.26000
30.00000
0.10605
51.00000
0.70422
1.00000
1.00000
1.00000
10.00000
0.98307
5.02000
27.26000
Tota l
Inc ome s
Ta x No.
Country
of origin
As of
De c e mbe r 31,
2016
%
As of
De c e mbe r 31,
2015
%
La n P e rú S .A
La n Ca rgo S .A. a nd S ubs idia rie s
P romotora Ae re a La tinoa me ric a na S .A. a nd S ubs idia rie s
Inve rs ora Cordille ra S .A. a nd S ubs idia rie s
La n Arge ntina S .A.
Ame ric ons ult de Gua te ma la S .A.
Ame ric ons ult Cos ta Ric a S .A.
Line a Aé re a Ca rgue ra de Colombia na S .A.
Ae rolíne a s Re giona le s de Inte gra c ión Aire s S .A.
Tra ns porte s Ae re os de l Me rc os ur S .A.
Multiplus S .A.
0- E
93.383.000- 4
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
P e ru
Chile
Me xic o
Arge ntina
Arge ntina
Gua te ma la
Cos ta Ric a
Colombia
Colombia
P a ra gua y
Bra zil
30.00000
0.10196
51.00000
0.70422
0.13440
1.00000
1.00000
10.00000
0.80944
5.02000
27.26000
30.00000
0.10605
51.00000
0.70422
1.00000
1.00000
1.00000
10.00000
0.98307
5.02000
27.26000
Tota l
3,360
957
3,162
515
(311)
1
12
(905)
436
1,104
80,313
88,644
4,426
974
3,084
(1,386)
29
5
12
(811)
540
1,256
72,884
81,013
For the pe riod e nde d
De c e mbe r 31,
2016
ThUS $
(649)
(7)
96
364
77
(4)
-
(106)
(140)
146
41,673
41,450
2015
ThUS $
1,521
(69)
1,349
281
61
1
5
14
(335)
431
37,283
40,542
175
FINANCIAL STATEMENTS | Financial Statements
59
60
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
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, 2016 amounts
to ThUS$ 270,041 (ThUS$ 220,593 at December 31, 2015).
C la s s e s o f inta ngible a s s e ts
(ne t)
As o f
De c e m be r 31,
2016
As o f
De c e m be r 31,
2015
C la s s e s o f inta ngible a s s e ts
(gro s s )
As o f
De c e m be r 31,
2016
As o f
De c e m be r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
978,849
326,262
157,016
91,053
57,133
-
1,610,313
816,987
272,312
104,258
74,887
52,981
-
978,849
326,262
419,652
91,053
63,730
808
816,987
272,312
324,043
74,887
52,981
808
1,321,425
1,880,354
1,542,018
Airpo rt s lo ts
Lo ya lty pro gra m
C o m pute r s o ftwa re
De ve lo ping s o ftwa re
Tra de m a rks (1)
Othe r a s s e ts
To ta l
Movement in Intangible assets other than goodwill:
Ope ning ba la nc e a s o f J a nua ry 1, 2015
Additio ns
Withdra wa ls
Tra ns fe r s o ftwa re
F o re ing e xc ha nge
Am o rtiza tio n
C lo s ing ba la nc e a s o f
De c e m be r 31, 2015
Ope ning ba la nc e a s o f J a nua ry 1, 2016
Additio ns
Withdra wa ls
Tra ns fe r s o ftwa re
F o re ing e xc ha nge
Am o rtiza tio n
C lo s ing ba la nc e a s o f
De c e m be r 31, 2016
C o m pute r
s o ftwa re
Ne t
De ve lo ping
s o ftwa re
Airpo rt
s lo ts (2)
Tra de m a rks
a nd lo ya lty
pro gra m (1) (2)
Othe r
a s s e ts
Ne t
To ta l
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
126,797
4,954
(4,612)
28,726
(14,871)
(36,736)
74,050
48,270
(162)
(30,426)
(16,845)
-
1,201,028
-
-
-
(384,041)
-
478,204
-
(1)
-
(152,910)
-
104,258
74,887
816,987
325,293
104,258
6,688
(736)
85,029
5,689
(43,912)
74,887
83,672
(191)
(74,376)
7,061
-
816,987
-
-
-
161,862
-
325,293
-
-
-
64,447
(6,345)
157,016
91,053
978,849
383,395
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,880,079
53,224
(4,775)
(1,700)
(568,667)
(36,736)
1,321,425
1,321,425
90,360
(927)
10,653
239,059
(50,257)
1,610,313
(1) After the extensive integration work following the combination between LAN and TAM,
during which there has been solid progress in the homologation of the optimization processes
of its air connections, in addition to the restructuring and modernization of the fleet of aircraft,
the Company has resolved adopt a unique name and identity, and announce that the brand of
the group will be LATAM ", which would unite all companies under a single image.
Given the above, we have proceeded to review the brands useful life, concluding that these
should go from an indefinite to defined useful life. The estimated new useful life is 5 years,
equivalent to the period for finishing all the image changes necessary.
(2) See Note 2.5
NOTE 16 – GOODWILL
The Goodwill amount at December 31, 2016 is ThUS$ 2,710,382 (ThUS$ 2,280,575 at
December 31, 2015). Movement of Goodwill separated by CGU it includes the following:
Movement of Goodwill, separated by CGU:
Opening balance as of January 1, 2015
Increase (decrease) due to exchange rate differences
Closing balance as of December 31, 2015
Opening balance as of January 1, 2016
Increase (decrease) due to exchange rate differences
Others
Closing balance as of December 31, 2016
Coalition
and loyalty
program
Multiplus
T hUS$
654,898
(209,411)
445,487
445,487
88,261
-
533,748
Air
T ransport
T hUS$
2,658,503
(823,415)
1,835,088
1,835,088
341,813
(267)
2,176,634
T otal
T hUS$
3,313,401
(1,032,826)
2,280,575
2,280,575
430,074
(267)
2,710,382
The Company has two cash- generating units (CGUs), “Air transportation” and, “Coalition and
loyalty program Multiplus”. The CGU "Air transport" considers the transport of passengers and
cargo, 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, while
the CGU "Coalition and loyalty program Multiplus” works with an integrated network associated
companies in Brazil.
The recoverable amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of expected cash flows, 5 years after tax, which are
based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated
using the estimated growth rates, which do not exceed the average rates of long-term growth.
Management establish rates for annual growth, discount, inflation and exchange for each cash
generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based
on past performance and management's expectations over market developments in each country
where it operates. The discount rates used are in American Dollars for the CGU "Air transportation"
and Brazilian Reals for CGU "Program coalition loyalty Multiplus", both of them before tax and
reflect specific risks related to each country where the Company operates. Inflation and exchange
rates are based on available data for each country and the information provided by the Central Bank
of each country, and the fuel price is determined based on estimated production levels, competitive
environment market in which they operate and its business strategy.
176
61
As of December 31, 2016 the recoverable values were determined using the following assumptions
presented below:
Annual growth rate (T erminal)
Exchange rate (1)
Discount rate based on the weighted average
cost of capital (WACC)
Discount rate based on cost of equity (Ke)
Fuel Price from futures price curves
Air transportation
CGU
Coalition and loyalty
program Multiplus CGU (2)
%
R$/US$
%
%
1.0 - 2.0
3.9 - 4.4
8.27 - 9.27
-
4.0 - 5.0
3.9 - 4.4
-
12.3 - 13.3
commodities markets
US$/barril
61-76
-
(1) In line with the expectations of the Central Bank of Brazil
(2) T he flow, as well as annual growth rte and discount, are denominated in real.
The result of the impairment test, which includes a sensitivity analysis of the main variables,
showed that the estimated recoverable amount is higher than carrying value of the book value of net
assets allocated to the cash generating unit, and therefore impairment was not detected.
CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity
analysis included the individual impact of changes in estimates critical in determining the
recoverable amounts, namely:
Air transportation CGU
Coalition and loyalty program M ultiplus CGU
Increase
M aximum
WACC
%
9.27
-
Increase
M aximum
Ke
%
-
13.3
Decrease
M inimum
terminal
growth rate
%
1.0
4.0
In none of the previous cases impairment in the cash- generating unit was presented.
FINANCIAL STATEMENTS | Financial Statements
177
FINANCIAL STATEMENTS | Financial Statements
62
NOTE 17 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and equipment is as follows:
Gross Book Value
Acumulated depreciation
Net Book Value
As of
As of
As of
As of
As of
As of
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2016
ThUS$
470,065
50,148
190,771
10,099,587
9,436,684
662,903
39,246
163,695
178,363
96,808
192,100
3,005,981
2,905,556
100,425
2015
ThUS$
1,142,812
45,313
131,816
9,683,764
9,118,396
565,368
36,569
154,093
179,026
99,997
124,307
3,279,902
3,151,405
128,497
2016
ThUS$
2015
ThUS$
-
-
(60,552)
(2,350,045)
(2,123,025)
(227,020)
(26,821)
(123,981)
(94,451)
(67,855)
(87,559)
(1,177,351)
(1,152,190)
(25,161)
-
-
(40,325)
(2,392,463)
(2,198,682)
(193,781)
(21,220)
(110,204)
(90,068)
(64,047)
(70,219)
(1,150,396)
(1,120,682)
(29,714)
2016
ThUS$
470,065
50,148
130,219
7,749,542
7,313,659
435,883
12,425
39,714
83,912
28,953
104,541
1,828,630
1,753,366
75,264
2015
ThUS$
1,142,812
45,313
91,491
7,291,301
6,919,714
371,587
15,349
43,889
88,958
35,950
54,088
2,129,506
2,030,723
98,783
Construction in progress (*)
Land
Buildings
Plant and equipment
Own aircraft
Other (**)
M achinery
Information technology equipment
Fixed installations and accessories
M otor vehicles
Leasehold improvements
Other property, plants and equipment
Financial leasing aircraft
Other
Total
14,486,764
14,877,599
(3,988,615)
(3,938,942)
10,498,149
10,938,657
(*) It includes pre-delivery payments to aircraft manufacturers for ThUS$ 434,250 (ThUS$ 1,016,007 as of December 31, 2015)
(**) Mainly considers rotable and tools.
178
FINANCIAL STATEMENTS | Financial Statements
(a) Movement in the different categories of Property, plant and equipment:
63
C o ns truc tio n
in pro gre s s
ThUS $
La nd
ThUS $
B uildings
ne t
P la nt a nd
e quipm e nt
ne t
Info rm a tio n
te c hno lo gy
e quipm e nt
ne t
F ixe d
ins ta lla tio ns
& a c c e s s o rie s
ne t
ThUS $
ThUS $
ThUS $
ThUS $
M o to r
ve hic le s
ne t
ThUS $
Le a s e ho ld
im pro ve m e nts
ne t
ThUS $
937,279
39,711
-
(1,262)
-
(932)
168,016
205,533
1,142,812
1,142,812
14,481
-
(284)
-
5,081
(692,025)
(672,747)
470,065
57,988
-
-
-
-
(11,786)
(889)
(12,675)
45,313
45,313
-
-
-
-
4,835
-
4,835
167,006
6,954,089
439
(500)
(956)
(7,161)
(18,248)
(49,089)
(75,515)
(1)
1,304,199
(76,675)
(38,240)
(521,688)
(129,933)
(150,677)
386,986
91,491
7,341,075
91,491
7,341,075
272
-
(68)
(6,234)
2,538
42,220
38,728
1,301,093
(16,918)
(39,816)
(562,131)
51,770
(285,198)
448,800
(2)
(3)
50,148
130,219
7,789,875
51,009
15,322
(27)
(104)
(16,196)
(6,126)
11
(7,120)
43,889
43,889
7,392
(59)
(55)
(14,909)
2,924
532
(4,175)
39,714
43,783
1,692
-
(476)
(11,649)
(13,269)
68,877
45,175
88,958
88,958
292
-
(1,258)
(13,664)
9,384
200
(5,046)
83,912
1,965
280
(8)
(4)
(378)
(638)
308
(440)
1,525
1,525
6
(32)
-
(293)
223
(384)
(480)
1,045
56,523
13,188
-
-
(13,973)
(1,659)
9
(2,435)
54,088
54,088
54,181
-
-
(23,283)
2,849
16,706
50,453
104,541
Othe r
pro pe rty,
pla nt a nd
e quipm e nt
ne t
ThUS $
P ro pe rty,
P la nt a nd
e quipm e nt
ne t
ThUS $
2,503,434
10,773,076
64,226
(11)
(8,902)
(174,474)
(252,709)
(2,058)
(373,928)
2,129,506
2,129,506
13,013
(2,972)
(2,604)
(124,038)
93,383
(277,658)
(300,876)
1,828,630
1,439,057
(77,221)
(49,944)
(745,519)
(435,300)
34,508
165,581
10,938,657
10,938,657
1,390,730
(19,981)
(44,085)
(744,552)
172,987
(1,195,607)
(440,508)
10,498,149
Ope ning ba la nc e a s o f J a nua ry 1, 2015
Additio ns
Dis po s a ls
R e tire m e nts
De pre c ia tio n e xpe ns e s
F o re ing e xc ha nge
Othe r inc re a s e s (de c re a s e s )
C ha nge s , to ta l
C lo s ing ba la nc e a s o f De c e m be r 31, 2015
Ope ning ba la nc e a s o f J a nua ry 1, 2016
Additio ns
Dis po s a ls
R e tire m e nts
De pre c ia tio n e xpe ns e s
F o re ing e xc ha nge
Othe r inc re a s e s (de c re a s e s )
C ha nge s , to ta l
C lo s ing ba la nc e a s o f De c e m be r 31, 2016
(1) During the first half of 2015 three Airbus A340 aircraft were sold.
During the second half of 2015 seven Dash-200 aircraft were sold.
During the second half of 2015 two Airbus A319 aircraft were sold.
(2) During the first quarter of 2016 one Airbus A330 aircraft were sold.
(3) During 2016 two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 and two Boeing 777 aircraft were reclassified to non-current assets and disposal group classified as held for sale (See
Note 13).
179
FINANCIAL STATEMENTS | Financial Statements
64
65
(b)
Composition of the fleet:
Airc ra ft inc lude d
in P rope rty,
pla nt a nd e quipme nt
Ope ra ting
le a s e s
Tota l
fle e t
Airc ra ft
Mode l
De c e mbe r 31, De c e mbe r 31,
De c e mbe r 31, De c e mbe r 31,
De c e mbe r 31, De c e mbe r 31,
As of
As of
As of
As of
As of
As of
2016
2015
2016
2015
2016
2015
Boe ing 767
Boe ing 767
Boe ing 777
Boe ing 777
Boe ing 787
Boe ing 787
Airbus A319
Airbus A320
Airbus A320
Airbus A321
Airbus A330
Airbus A350
Tota l
300ER
300F
300ER
Fre ighte r
800
900
100
200
NEO
200
200
900
(1) Thre e a irc ra ft le a s e d to FEDEX
(2) One a irc ra ft le a s e d to DHL
(1)
34
8
4
-
6
4
36
93
1
30
-
5
(1)
(2 )
34
8
4
2
6
3
38
95
-
26
8
1
221
225
3
3
6
2
4
8
12
53
1
17
-
2
111
4
3
6
2
4
4
12
59
-
10
2
-
106
(1)
37
11
10
2
10
12
48
146
2
47
-
7
332
(1)
(2 )
38
11
10
4
10
7
50
154
-
36
10
1
331
(c)Method used for the depreciation of Property, plant and equipment:
Method
Useful life (years)
minimum maximum
Buildings
Plant and equipment
Information technology
equipment
Fixed installations and accessories
Motor vehicle
Leasehold improvements
Other property, plant
and equipment
Straight line without residual value
Straight line with residual value of 20% in the
short-haul fleet and 36% in the long-haul fleet. (*)
Straight line without residual value
Straight line without residual value
Straight line without residual value
Straight line without residual value
Straight line with residual value of 20% in the
short-haul fleet and 36% in the long-haul fleet. (*)
20
5
5
10
10
5
10
50
23
10
10
10
5
23
(*) Except for the Boeing 767 300ER and Boeing 767 300F fleets which consider a lower
residual value due to the extension of their useful life to 22 and 23 years respectively. Additionally
certain technical components, which are depreciated based 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$ 744,552 (ThUS$ 745,519 at December 31, 2015). Depreciation
charges for the year are recognized in Cost of sales and administrative expenses in the consolidated
statement of income.
(d) Additional information regarding Property, plant and equipment:
(i) Property, plant and equipment pledged as guarantee:
In the period ended December 31, 2016, direct guarantees by five Airbus A319-100 aircraft, two
Airbus A320-200 aircraft, one Airbus A320 NEO aircraft, four Airbus A321-200 aircraft, four
Airbus A350-900 aircraft and one Boeing 787-9 aircraft were added.
Description of Property, plant and equipment pledged as guarantee:
C re dito r o f
gua ra nte e
As s e ts
c o m m itte d
F le e t
Wilm ingto n
Trus t C o m pa ny
Airc ra ft a nd e ngine s
Airbus A321 / A350
B o e ing 767
B o e ing 787
B a nc o S a nta nde r S .A.
Airc ra ft a nd e ngine s
B NP P a riba s
Airc ra ft a nd e ngine s
C re dit Agric o le
Airc ra ft a nd e ngine s
J P M o rga n
We lls F a rgo
B a nk o f Uta h
Na tixis
Airc ra ft a nd e ngine s
Airc ra ft a nd e ngine s
Airc ra ft a nd e ngine s
C itiba nk N. A.
Airc ra ft a nd e ngine s
HS B C
KfW IP EX-B a nk
Airc ra ft a nd e ngine s
Airc ra ft a nd e ngine s
Airbus F ina nc ia l S e rvic e s
Airc ra ft a nd e ngine s
P K AirF ina nc e US , Inc . Airc ra ft a nd e ngine s
B a nc o B B VA
La nd a nd buildings
Airbus A319
Airbus A320
Airbus A321
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A321
B o e ing 777
Airbus A320
Airbus A320
Airbus A321
Airbus A320
Airbus A321
Airbus A320
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airc ra ft a nd e ngine s
Airbus A320 / A350
As o f
De c e m be r 31,
2016
As o f
De c e m be r 31,
2015
Exis ting
De bt
ThUS $
B o o k
Va lue
ThUS $
Exis ting
De bt
ThUS $
B o o k
Va lue
ThUS $
596,224
811,723
739,031
50,671
462,950
32,853
134,346
128,173
26,014
71,794
40,609 -
-
252,428
670,826
45,748
377,104
111,243
42,867
-
7,494
28,696
30,199
54,786
50,381
722,979
1,164,364
899,445
91,889
709,788
44,227
228,384
181,838
37,389
144,157
93,110
-
333,419
709,280
66,738
514,625
166,370
70,166
-
6,360
36,066
33,823
46,341
69,498
374,619
907,356
712,059
58,527
524,682
36,334
154,828
145,506
37,755
115,339
50,591
215,265
279,478
240,094
56,223
413,201
127,135
49,464
53,583
-
13,593
-
62,514
-
478,667
1,220,541
834,567
95,387
749,192
45,380
229,798
192,957
84,129
214,726
97,257
-
263,366
348,271
312,573
81,355
542,594
172,918
73,122
64,241
-
16,838
-
48,691
-
To ta l dire c t gua ra nte e
4,766,160
6,370,256
4,628,146
6,166,570
The amounts of existing debt are presented at nominal value. Book value corresponds to the
carrying value of the goods provided as guarantees.
Additionally, there are indirect guarantees related to assets recorded in Property, plant and
equipment whose
(ThUS$ 1,311,088 at December 31, 2015). The book value of assets with indirect guarantees as of
December 31, 2016 amounts to ThUS$ 1,740,815 (ThUS$ 2,001,605 as of December 31, 2015).
total debt at December 31, 2016 amounted
to ThUS$ 913,494
180
FINANCIAL STATEMENTS | Financial Statements
66
67
(ii)
Commitments and others
The approximate amount, according to the manufacturer's price list, is ThUS$ 2,700,000.
Fully depreciated assets and commitments for future purchases are as follows:
(iii)
Capitalized interest costs with respect to Property, plant and equipment.
As of
December 31,
2016
ThUS$
As of
December 31,
2015
ThUS$
Gross book value of fully depreciated property,
116,386
129,766
plant and equipment still in use
Commitments for the acquisition of aircraft (*)
15,100,000
19,800,000
(*) Acording to the manufacturer’s price list.
Purchase commitment of aircraft
For the periods ended
December 31,
2016
2015
Average rate of capitalization of
capitalized interest costs
Costs of capitalized interest
%
ThUS$
3.54
(696)
2.79
22,551
(iv) Financial leases
The detail of the main financial leases is as follows:
Manufacturer
2017
2018
Year of delivery
2020
2019
2021
2022
T otal
Lessor
Aircraft
Model
As of
December 31,
2016
As of
December 31,
2015
Airbus S.A.S.
A320-NEO
A321
A321-NEO
A350-1000
A350-900
T he Boeing Company
Boeing 777
Boeing 787-9
T otal
5
5
-
-
-
1
-
1
6
16
5
1
6
-
4
-
-
-
16
14
8
-
2
2
2
6
2
4
20
16
8
-
6
2
-
2
-
2
18
21
8
-
5
8
-
2
-
2
23
2
-
-
-
2
-
-
-
-
2
74
34
1
19
14
6
11
2
9
85
In April 2015 the change of eight Boeing 787-8 aircraft for eight Boeing 787-8 aircraft was signed.
In September 2015 the change of six Airbus A350-900 aircraft for six Airbus A350-1000 aircraft
was signed. Additionally, in November 2015 the change of six Airbus A350-900 aircraft to six
Airbus A350-1000 aircraft was signed. In April 2016 the change of four Airbus A320 NEO aircraft
to four Airbus A321 NEO aircraft was signed. In August 2016 a cancellation of 12 Airbus A320
NEO aircraft and the change of two Airbus A350-900 to two Airbus A350-1000 were signed.
As of December 31, 2016, as a result of the different aircraft purchase agreements signed with
Airbus S.A.S., 54 aircraft Airbus A320 family, with deliveries between 2017 and 2021, and 20
Airbus aircraft A350 family with deliveries between 2017 and 2022 remain to be received.
The approximate amount is ThUS$ 12,400,000, according to the manufacturer’s price list.
Additionally, the Company has valid purchase options for 4 Airbus A350 aircraft.
In May 2016 the change of four Boeing 787-8 aircraft for four Boeing 787-9 aircraft was signed.
As of December 31, 2016, and as a result of different aircraft purchase contracts signed with The
Boeing Company, a total of nine Boeing 787 Dreamliner aircraft, with delivery dates between 2017
and 2021, and two Boeing 777 with delivery expected for 2019 remain to be received.
Agonandra Statutory T rust
Airbus A320
Becacina Leasing LLC
Boeing 767
Caiquen Leasing LLC
Boeing 767
Cernicalo Leasing LLC
Boeing 767
Chirihue Leasing T rust
Boeing 767
Cisne Leasing LLC
Boeing 767
Airbus A319
Codorniz Leasing Limited
Airbus A320
Conure Leasing Limited
Flamenco Leasing LLC
Boeing 767
Boeing 777
FLYAFI 1 S.R.L.
Boeing 777
FLYAFI 2 S.R.L.
FLYAFI 3 S.R.L.
Boeing 777
Forderum Holding B.V. (GECAS)
Airbus A320
Garza Leasing LLC
Boeing 767
Airbus A330
General Electric Capital Corporation
Airbus A320
Intraelo BET A Corpotation (KFW)
Juliana Leasing Limited
Airbus A320
Loica Leasing Limited
Airbus A319
Loica Leasing Limited
Airbus A320
Mirlo Leasing LLC
Boeing 767
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM) Airbus A320
NBB São Paulo Lease CO. Limited (BBAM)
Airbus A321
Osprey Leasing Limited
Airbus A319
Petrel Leasing LLC
Boeing 767
Airbus A320
Pilpilen Leasing Limited
Pochard Leasing LLC
Boeing 767
Quetro Leasing LLC
Boeing 767
Boeing 777
SG Infraestructure Italia S.R.L.
Airbus A320
SL Alcyone LT D (Showa)
Airbus A330
T MF Interlease Aviation B.V.
Airbus A319
T MF Interlease Aviation II B.V.
Airbus A320
T MF Interlease Aviation II B.V.
T ricahue Leasing LLC
Boeing 767
Wacapou Leasing S.A
Airbus A320
200
300ER
300F
300F
300F
300ER
100
200
300ER
300ER
300ER
300ER
200
300ER
200
200
200
100
200
300ER
200
200
100
300ER
200
300ER
300ER
300ER
200
200
100
200
300ER
200
-
1
1
2
-
2
2
2
1
1
1
1
-
1
3
1
-
2
2
1
1
1
8
1
4
2
3
1
1
-
-
-
3
1
2
1
1
2
2
2
2
2
1
1
1
1
2
1
3
1
2
2
2
1
1
1
8
1
4
2
3
1
1
1
5
2
3
1
T otal
50
66
181
FINANCIAL STATEMENTS | Financial Statements
68
69
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 aircrafts, perform maintenance on the aircrafts 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, 2016
December 31, 2015).
the Company had fifty aircrafts (sixty six aircraft as of
As of December 31, 2016, as a result of the transfer plan fleet of TAM Linhas Aéreas S.A. to
LATAM Airlines Group S.A., the Company declined its number of aircraft leasing in five Airbus
A319-100, eight Airbus A320-200 and one Airbus A330-200 aircraft.
The book value of assets under financial leases as of December 31, 2016 amounts to
ThUS$ 1,753,366 (ThUS$ 2,030,723 at December 31, 2015).
The minimum payments under financial leases are as follows:
As o f De c e m be r 31, 2016
As o f De c e m be r 31, 2015
Gro s s
Va lue
ThUS $
Inte re s t
ThUS $
P re s e nt
Va lue
ThUS $
Gro s s
Va lue
ThUS $
Inte re s t
ThUS $
P re s e nt
Va lue
ThUS $
No la te r tha n o ne ye a r
B e twe e n o ne a nd five ye a rs
Ove r five ye a rs
285,168
(32,365)
252,803
360,862
(47,492)
313,370
704,822
(43,146)
43,713
(120)
661,676
43,593
1,003,237
(75,363)
927,874
95,050
(1,406)
93,644
To ta l
1,033,703
(75,631)
958,072
1,459,149
(124,261)
1,334,888
NOTE 18 - CURRENT AND DEFERRED TAXES
In the period ended December 31, 2016, the income tax provision was calculated for such period,
applying the rate of 24% for the business year 2016, in accordance with the 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 was taken in the last quarter of 2016.
On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899)
stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to
mandatorily choose the "Partially Integrated Taxation System"(*) and could not elect to use the
other system.
Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities,
always correspond to the same entity and tax authority.
(*) The Partially Integrated Taxation System 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:
Curre nt a s s e ts
Non- c urre nt a s s e ts
Tota l a s s e ts
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
P rovis iona l monthly
pa yme nts (a dva nc e s )
Othe r re c ove ra ble c re dits
Tota l a s s e ts by c urre nt ta x
43,821
21,556
65,377
43,935
20,080
64,015
-
20,272
20,272
-
25,629
25,629
43,821
41,828
85,649
43,935
45,709
89,644
(a.2) The composition of the current tax liabilities are as follows:
Curre nt lia bilitie s
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
Non- c urre nt lia bilitie s
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
Tota l lia bilitie s
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
Inc ome ta x provis ion
Additiona l ta x provis ion
9,632
4,654
Tota l lia bilitie s by c urre nt ta x
14,286
19,001
3 7 7
19,378
-
-
-
-
-
-
9,632
4,654
14,286
19,001
3 7 7
19,378
182
FINANCIAL STATEMENTS | Financial Statements
70
71
(b) Deferred taxes
The balances of deferred tax are the following:
Concept
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial instruments
T ax losses
Intangibles
Others
T otal
Assets
Liabilities
As of
December 31,
2016
As of
December 31,
2015
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
T hUS$
T hUS$
11,735
(35,922)
(15,820)
222,253
-
202,536
-
(202)
384,580
(14,243)
(25,299)
(5,748)
210,992
709
212,067
-
(1,883)
376,595
1,387,760
203,836
61,660
(59,096)
(3,223)
(1,126,200)
430,705
20,317
915,759
1,116,748
226,003
65,416
(167,545)
(7,575)
(797,715)
364,314
11,919
811,565
The balance of deferred tax assets and liabilities are composed primarily of temporary differences to
be reversed in the long term.
Movements of Deferred tax assets and liabilities
(a)
From January 1 to December 31, 2015
Ope ning
R e c o gnize d in
R e c o gnize d in
Exc ha nge
ba la nc e
c o ns o lida te d
c o m pre he ns ive
ra te
Ending
ba la nc e
As s e ts /(lia bilitie s )
inc o m e
ThUS $
(871,640)
(185,775)
(160,100)
351,077
12,806
722,749
(523,275)
9,587
ThUS $
(267,891)
(73,330)
84,330
150,362
19,760
320,397
(8,362)
45,638
inc o m e
ThUS $
va ria tio n
Othe rs
As s e t (lia bility)
ThUS $
ThUS $
ThUS $
-
-
-
3,911
(21,103)
-
-
-
8,540
7,803
4,606
(126,813)
(3,179)
(33,364)
167,323
(62,182)
-
-
-
-
-
-
-
(6,845)
(1,130,991)
(251,302)
(71,164)
378,537
8,284
1,009,782
(364,314)
(13,802)
De pre c ia tio n
Le a s e d a s s e ts
Am o rtiza tio n
P ro vis io ns
R e va lua tio n o f fina nc ia l ins trum e nts
Ta x lo s s e s (*)
Inta ngible s
Othe rs
To ta l
(644,571)
270,904
(17,192)
(37,266)
(6,845)
(434,970)
(b)
From January 1 to December 31, 2016
Ope ning
R e c o gnize d in
R e c o gnize d in
Exc ha nge
ba la nc e
c o ns o lida te d
c o m pre he ns ive
ra te
Ending
ba la nc e
As s e ts /(lia bilitie s )
inc o m e
ThUS $
ThUS $
inc o m e
ThUS $
va ria tio n
Othe rs
As s e t (lia bility)
ThUS $
ThUS $
ThUS $
De pre c ia tio n
Le a s e d a s s e ts
Am o rtiza tio n
P ro vis io ns
R e va lua tio n o f fina nc ia l ins trum e nts
Ta x lo s s e s (*)
Inta ngible s
Othe rs
(1,130,991)
(251,302)
(71,164)
378,537
8,284
1,009,782
(364,314)
(13,802)
(241,435)
14,833
(4,375)
(149,969)
28,294
304,892
4,131
(30,185)
-
-
-
921
(34,695)
-
-
-
(3,599)
(3,289)
(1,941)
53,448
1,340
14,062
(70,522)
22,234
-
-
-
(1,568)
-
-
-
1,214
(1,376,025)
(239,758)
(77,480)
281,369
3,223
1,328,736
(430,705)
(20,539)
To ta l
(434,970)
(73,814)
(33,774)
11,733
(354)
(531,179)
Deferred tax assets not recognized:
Tax losses
Total Deferred tax assets not recognized
As of
December 31,
2016
As of
December 31,
2015
ThUS$
ThUS$
115,801
115,801
15,513
15,513
Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization
of future tax benefit By the above at December 31, 2016, the Company has not recognized deferred
tax assets of ThUS$ 115,801 (ThUS$ 15,513 at December 31, 2015) according with a loss of
ThUS$ 340,591 (ThUS$ 45,628 at December 31, 2015).
183
FINANCIAL STATEMENTS | Financial Statements
72
73
Deferred tax expense and current income taxes:
Profit before tax by the legal tax rate in Chile (24% and 22.5% at December 31, 2016 and 2015,
respectively)
For the period ended
December 31,
2016
ThUS$
2015
ThUS$
87,307
2,083
89,390
92,916
(395)
92,521
Current tax expense
Current tax expense
Adjustment to previous period’s current tax
Total current tax expense, net
Deferred tax expense
Deferred expense for taxes related to the
creation and reversal of temporary differences
73,814
(270,904)
Total deferred tax expense, net
73,814
(270,904)
Income tax expense
163,204
(178,383)
Composition of income tax expense (income):
Current tax expense, net, foreign
Current tax expense, net, Chile
Total current tax expense, net
Deferred tax expense, net, foreign
Deferred tax expense, net, Chile
Deferred tax expense, net, total
Income tax expense
For the period ended
December 31,
2016
ThUS$
80,600
8,790
89,390
119,175
(45,361)
73,814
163,204
2015
ThUS$
89,460
3,061
92,521
(280,445)
9,541
(270,904)
(178,383)
For the period ended
December 31,
For the period ended
December 31,
2016
T hUS$
2015
T hUS$
T ax expense using the legal rate (*)
65,449
(89,472)
T ax effect of rates in other jurisdictions
16,333
(21,803)
2016
%
24.00
5.99
T ax effect of non-taxable operating revenues
(62,419)
(106,381)
(22.89)
T ax effect of disallowable expenses
Other increases (decreases) in legal tax charge
132,469
11,372
38,677
596
T otal adjustments to tax expense using the legal rate
97,755
(88,911)
T ax expense using the effective rate
163,204
(178,383)
48.58
4.17
35.85
59.85
2015
%
22.50
5.48
26.75
(9.73)
(0.15)
22.35
44.85
(*) 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 this law contains, the First- Category Tax rate is
gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.
Thus, at December 31, 2016 the Company presents the reconciliation of income tax expense and
legal tax rate considering the rate increase.
Deferred taxes related to items charged to net equity:
Aggregate deferred taxation of components
of other comprehensive income
Aggregate deferred taxation related to
items charged to net equity
For the period ended
December 31,
2016
ThUS$
2015
ThUS$
(33,774)
(17,192)
(807)
(992)
184
FINANCIAL STATEMENTS | Financial Statements
74
75
NOTE 19 - OTHER FINANCIAL LIABILITIES
The composition of Other financial liabilities is as follows:
Current
(a) Interest bearing loans
(b) Hedge derivatives
Total current
Non-current
(a) Interest bearing loans
(b) Hedge derivatives
Total non-current
(a)
Interest bearing loans
Obligations with credit institutions and debt instruments:
Current
Loans to exporters
Bank loans (1)
Guaranteed obligations
Other guaranteed obligations
Obligation with the public
Financial leases
Other loans
T otal current
Non-current
Bank loans
Guaranteed obligations
Other guaranteed obligations
Subtotal bank loans
Obligation with the public (2)
Financial leases
Other loans
T otal non-current
T otal obligations with financial institutions
As of
December 31,
2016
ThUS$
As of
December 31,
2015
ThUS$
1,814,647
24,881
1,839,528
6,790,273
6,679
6,796,952
1,510,146
134,089
1,644,235
7,516,257
16,128
7,532,385
As of
December 31,
2016
T hUS$
As of
December 31,
2015
T hUS$
278,164
290,810
578,014
1,908
387,409
80,188
591,148
32,513
312,043
268,040
85,668
10,999
324,859
83,030
1,814,647
1,510,146
294,477
4,180,538
254,512
4,729,527
997,302
754,321
309,123
6,790,273
8,604,920
564,128
4,122,995
-
4,687,123
1,294,882
1,015,779
518,473
7,516,257
9,026,403
Subtotal bank loans
1,148,896
1,091,258
(1) On September 29, 2016 TAM Linhas Aéreas S.A. obtained financing for US $ 200 million,
guaranteed with 18% of the shares of Multiplus S.A., percentage adjustable depending on the shares
price. Additionally, TAM obtained a Cross Currency Swap for the same amount and period, in
order to convert the commitment currency from US$ to BRL.
(2) On June 9, 2015 LATAM Airlines Group S.A. has issued and placed on the international
market under Rule 144-A and Regulation S of the securities laws of the United States of America,
unsecured long-term bonds in the amount of US$ 500,000,000, maturing 2020, interest rate of
7.25% per annum.
As reported in the Essential Matter of May 20 and June 5, 2015, the Issuance and placement of the
Bonds 144-A shall be: (i) finance the repurchase, conversion and redemption of secured long-term
bonds issued by the company TAM Capital 2 Inc., under Rule 144-A and Regulation S of the
securities laws of the United States of America, maturing 2020; (ii) in the event there is any
remnant fund other general corporate purposes. The aforementioned bonds TAM Capital 2 Inc.
were redeemed in whole (US$ 300,000,000) through a process of exchange for new bonds
dated June 9, 2015 and then the remaining bonds were redeemed by running the prepay dated
June 18, 2015.
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:
Currency
Brazilian real
Chilean peso (U.F.)
US Dollar
Total
As of
December 31,
2016
ThUS$
1,253
203,194
8,400,473
8,604,920
As of
December 31,
2015
ThUS$
3,387
210,423
8,812,593
9,026,403
185
FINANCIAL STATEMENTS | Financial Statements
To t al
acco unt ing
value
ThUS$
Amo rt izat io n
Effect ive
rat e
%
No minal
rat e
%
Int e r e st - be a r ing loa ns due in inst a llme nt s t o De c e mbe r 31, 2016
De bt or : LATAM Air line s Gr oup S .A. a nd S ubsidia r ie s, Ta x No. 89.862.200- 2, Chile .
No minal values
Acco unt ing values
76
Cred it o r
co unt ry
Currency
Up t o
9 0
d ays
M o re t hanM o re t han M o re t han
o ne t o
t hree
years
ThUS$
9 0 d ays
t o o ne
year
five
years
ThUS$
ThUS$ ThUS$
t hree t o M o re t han
Up t o
9 0
d ays
M o re t hanM o re t hanM o re t han
o ne t o
t hree
years
ThUS$
9 0 d ays
t o o ne
year
five
years
ThUS$
ThUS$ ThUS$
five
years
ThUS$
t hree t o M o re t han
Tax No .
Cred it o r
Loa ns t o e xpor t e r s
97.032.000- 8
97.032.000- 8
97.036.000- K
97.030.000- 7
97.003.000- K
97.951.000- 4
Ba nk loa ns
97.023.000- 9
0- E
0- E
97.036.000- K
BBVA
BBVA
S ANTANDER
ES TADO
BANCO DO BRAS IL
HS BC
CORP BANCA
BLADEX
DVB BANK S E
S ANTANDER
Obliga t ions wit h t he public
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S .A.
U.S .A.
Chile
US $
UF
US $
US $
US $
US $
UF
US $
US $
US $
75,000
-
30,000
40,000
70,000
12,000
-
50,381
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,229
-
-
-
57,686
12,500
-
-
60,186
30,000
28,911
158,194
16,254
-
-
-
75,234
-
30,183
40,098
70,323
12,002
-
50,324
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,819
-
3
542
57,686
12,667
-
-
59,176
29,625
28,911
158,194
16,189
-
-
-
-
-
-
-
-
-
-
-
-
-
75,234
50,324
30,183
40,098
70,323
12,002
At Expir a t ion
At Expir a t ion
At Expir a t ion
At Expir a t ion
At Expir a t ion
At Expir a t ion
152,870
42,292
28,914
158,736
Qua r t e r ly
S e mia nnua l
Qua r t e r ly
Qua r t e r ly
1.85
5.23
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
1.85
4.43
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
five
years
ThUS$
-
-
-
-
-
-
-
-
-
-
To t al
no minal
value
ThUS$
75,000
50,381
30,000
40,000
70,000
12,000
153,355
42,500
28,911
158,194
0- E
BANK OF NEW YORK
U.S .A.
US $
-
-
-
500,000
-
500,000
2,291
-
-
489,885
-
492,176
At Expir a t ion
7.77
7.25
Gua r a nt e e d obliga t ions
0- E
0- E
0- E
0- E
0- E
97.036.000- K
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
-
CREDIT AGRICOLE
BNP P ARIBAS
WELLS FARGO
WILMINGTON TRUS T
CITIBANK
S ANTANDER
BTMU
AP P LE BANK
US BANK
DEUTS CHE BANK
NATIXIS
P K AIRFINANCE
KFW IP EX- BANK
AIRBUS FINANCIAL
INVES TEC
S WAP Avione s lle ga dos
Ot he r gua r a nt e e d obliga t ions
Fr a nc e
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Chile
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Fr a nc e
U.S .A.
Ge r ma ny
U.S .A.
Engla nd
-
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
11,073
10,496
31,448
15,554
17,495
5,347
2,787
1,364
14,817
4,992
12,289
2,018
2,288
1,797
1,298
403
29,252
42,401
95,186
49,236
53,162
16,204
8,470
4,167
44,958
15,365
37,388
6,268
7,015
5,476
7,526
1,067
62,209
111,962
260,112
135,254
146,932
44,472
23,393
11,516
123,705
24,725
98,873
18,413
17,869
15,262
19,290
1,658
32,172
118,181
269,512
140,848
154,774
46,386
24,635
12,146
129,462
26,984
82,066
24,944
9,019
7,664
21,667
158
3,711
345,078
400,087
626,444
175,805
26,165
26,705
13,561
219,666
45,197
192,235
3,144
-
-
22,421
-
138,417
628,118
1,056,345
967,336
548,168
138,574
85,990
42,754
532,608
117,263
422,851
54,787
36,191
30,199
72,202
3,286
11,454
12,792
35,211
20,997
19,059
5,680
3,001
1,538
17,298
5,570
13,038
2,071
2,319
1,841
1,771
403
29,252
43,023
95,186
49,236
53,162
16,204
8,470
4,166
44,958
15,365
37,388
6,269
7,015
5,477
7,733
1,067
60,781
108,271
233,012
130,792
138,257
42,707
22,132
10,889
104,709
24,023
97,469
18,412
17,869
15,261
18,533
1,658
31,221
116,067
257,387
138,455
150,891
45,815
24,149
11,902
120,509
26,515
81,130
24,944
9,019
7,664
21,368
158
3,631
341,481
391,253
622,153
172,087
26,063
26,519
13,464
211,895
44,522
190,048
3,144
-
-
22,309
-
136,339
621,634
1,012,049
961,633
533,456
136,469
84,271
41,959
499,369
115,995
419,073
54,840
36,222
30,243
71,714
3,286
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Mont hly
Qua r t e r ly
Mont hly
S e mia nnua l
Qua r t e r ly
2.21
2.97
2.37
4.25
2.72
1.98
2.31
2.29
3.99
3.86
2.60
2.40
2.55
2.49
5.67
-
1.81
2.96
1.68
4.25
1.96
1.44
1.72
1.69
2.81
3.86
2.57
2.40
2.55
2.49
5.67
-
0- E
CREDIT AGRICOLE
Fr a nc e
US $
-
-
256,860
-
-
256,860
1,908
-
254,512
-
-
256,420
Qua r t e r ly
2.85
2.85
Fina nc ia l le a se s
0- E
0- E
0- E
0- E
0- E
0- E
0- E
0- E
ING
CREDIT AGRICOLE
CITIBANK
P EFCO
BNP P ARIBAS
WELLS FARGO
DVB BANK S E
RRP ENGINE
Ot he r loa ns
0- E
0- E
BOEING
CITIBANK ( *)
Tot a l
U.S .A.
Fr a nc e
U.S .A.
U.S .A.
U.S .A.
U.S .A.
U.S .A.
Engla nd
U.S .A.
U.S .A.
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
5,089
1,754
4,956
15,979
12,520
4,678
4,680
15,653
5,403
15,312
47,048
38,494
14,261
9,447
-
-
31,151
-
44,177
63,957
75,958
39,862
-
6,402
11,805
-
13,804
3,827
22,147
42,663
-
6,955
-
-
-
-
-
1,862
-
63,698
7,157
78,249
130,811
149,119
103,326
14,127
5,641
1,780
5,622
16,852
13,122
5,018
4,713
15,652
5,403
15,312
47,048
38,494
14,260
9,448
30,577
-
43,413
63,072
74,776
38,834
-
11,917
25,274
-
-
6,402
11,771
-
13,762
3,819
22,079
42,430
-
6,955
-
-
-
-
-
1,861
-
63,641
7,183
78,109
130,791
148,471
102,403
14,161
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
Qua r t e r ly
11,917
25,274
Mont hly
-
20,555
-
63,942
26,214
184,866
-
101,026
-
-
26,214
370,389
185
21,541
-
63,942
26,214
182,043
-
100,866
-
-
26,399
368,392
At Expir a t ion
Qua r t e r ly
451,906
753,268
2,122,383
1,819,099
2,113,998
7,260,654
480,920 754,207 2,040,524 1,774,950 2,082,347
7,132,948
5.62
1.85
6.40
5.39
3.69
3.98
2.57
2.35
2.35
6.00
4.96
1.85
5.67
4.79
3.26
3.54
2.57
2.35
2.35
6.00
(*) Securit ized b o nd wit h t he fut ure flo ws fro m t he s ales wit h cred it card in Unit ed St at es and Canad a.
186
FINANCIAL STATEMENTS | Financial Statements
77
Int e re st -be a ring loa ns due in inst a llme nt s t o De c e mbe r 31, 2016
De bt or: TAM S .A. a nd S ubsidia rie s, Ta x No. 02.012.862/ 0001-60, Bra z il.
Ta x No.
Cre dit or
Ba nk loa ns
0-E
0-E
NEDERLANDS CHE
CREDIETVERZEKERING MAATS CHAP P IJ
CITIBANK
Obliga t ion wit h t he public
Nomina l va lue s
Ac c ount ing va lue s
More t ha n More t ha n More t ha n
More t ha n More t ha n More t ha n
Cre dit or
c ount ry
Curre nc y
Up t o
90
da ys
ThUS $
90 da ys
t o one
ye a r
ThUS $
one t o
t hre e
ye a rs
ThUS $
t hre e t o More t ha n
five
ye a rs
ThUS $
five
ye a rs
ThUS $
Tot a l
nomina l
va lue
ThUS $
Up t o
90
da ys
ThUS $
90 da ys
t o one
ye a r
ThUS $
one t o
t hre e
ye a rs
ThUS $
t hre e t o
five
ye a rs
ThUS $
More t ha n
five
ye a rs
ThUS $
Tot a l
a c c ount ing
va lue
ThUS $
Amort iz a t ion
Effe c t ive Nomina l
ra t e
%
ra t e
%
Holla nd
U.S .A
US $
US $
122
-
378
200,000
1,094
-
1,234
-
54
-
2,882
200,000
137
(151)
378
199,729
1,094
-
1,233
-
55
-
2,897
199,578
Mont hly
At Expira t ion
6.01
3.39
6.01
3.14
0-E
THE BANK OF NEW YORK
U.S .A
US $
-
300,000
-
500,000
-
800,000
8,173
301,579
4,119
503,298
-
817,169
At Expira t ion
8.17
8.00
Fina nc ia l le a se s
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
U.S .A
AFS INVES TMENT IX LLC
DVB BANK S E
U.S .A
GENERAL ELECTRIC CAP ITAL CORP ORATION U.S .A
KFW IP EX-BANK
NATIXIS
WACAP OU LEAS ING S .A.
S OCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S .A
HP FINANCIAL S ERVICE
S OCIETE GENERALE
Ge rma ny
Fra nc e
Luxe mburg
It a ly
Bra z il
Bra z il
Fra nc e
US $
US $
US $
US $
US $
US $
US $
BRL
BRL
BRL
2,086
118
3,771
579
2,675
668
8,547
260
222
102
6,437
164
5,075
1,544
5,732
2,038
26,275
749
-
307
18,556
-
-
-
18,485
5,768
74,783
22
-
110
8,369
-
-
-
38,820
6,280
169,730
-
-
-
-
-
-
-
41,731
-
-
-
-
-
35,448
282
8,846
2,123
107,443
14,754
279,335
1,031
222
519
2,253
119
3,794
583
3,533
709
9,779
260
222
102
6,437
164
5,075
1,544
5,732
2,038
26,275
749
-
307
18,556
-
-
-
18,485
5,768
74,783
21
-
110
8,369
-
-
-
38,820
6,280
169,730
-
-
-
-
-
-
-
41,731
-
-
-
-
-
35,615
283
8,869
2,127
Mont hly
Mont hly
Mont hly
Mont hly/ Qua rt e rly
108,301 Qua rt e rly/ S e mia nnua l
14,795
280,567
1,030
222
519
Qua rt e rly
Qua rt e rly
Mont hly
Mont hly
Mont hly
1.25
2.50
2.30
2.80
4.90
3.00
4.18
13.63
10.02
13.63
1.25
2.50
2.30
2.80
4.90
3.00
4.11
13.63
10.02
13.63
Tot a l
Tot a l c onsolida t e d
19,150
548,699
118,818
724,433
41,785
1,452,885
29,513
550,007
122,936
727,730
41,786
1,471,972
471,056
1,301,967
2,241,201
2,543,532
2,155,783
8,713,539
510,433
1,304,214
2,163,460
2,502,680
2,124,133
8,604,920
187
FINANCIAL STATEMENTS | Financial Statements
M o re than
five
years
ThUS$
To tal
acco unting
value
ThUS$
Amo rtizatio n
Effective No minal
rate
%
rate
%
-
-
-
-
-
-
-
-
-
-
-
100,183
100,067
55,088
50,006
70,051
12,014
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
At Expira t ion
210,422
49,634
153,528
227,362
Qua rt e rly
S e mia nnua l
Qua rt e rly
Qua rt e rly
1.00
1.44
1.05
1.42
1.18
0.66
4.18
4.58
1.67
2.24
1.00
1.44
1.05
1.42
1.18
0.66
4.18
4.58
1.67
2.24
489,345
At Expira t ion
7.77
7.25
78
Int e re st -be a ring loa ns due in inst a llme nt s t o De c e mbe r 31, 2015
De bt or: LATAM Airline s Group S .A. a nd S ubsidia rie s, Ta x No. 89.862.200-2, Chile .
No minal values
Acco unting values
M o re than M o re than M o re than
o ne to
three
years
ThUS$
9 0 d ays
to o ne
year
ThUS$
five
years
ThUS$
three to M o re than
Up to
9 0
d ays
ThUS$
100,000
100,000
55,000
50,000
70,000
12,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,631
-
-
-
52,893
7,500
-
-
105,837
27,500
153,514
226,712
34,774
15,000
-
-
-
-
-
500,000
To tal
no minal
value
ThUS$
100,000
100,000
55,000
50,000
70,000
12,000
211,135
50,000
153,514
226,712
Up to
9 0
d ays
ThUS$
100,183
100,067
55,088
50,006
70,051
12,014
M o re than M o re than M o re than
o ne to
three
years
ThUS$
9 0 d ays
to o ne
year
ThUS$
three to
five
years
ThUS$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,510
134
14
650
52,892
7,500
-
-
104,385
27,125
153,514
226,712
34,635
14,875
-
-
500,000
2,383
-
-
486,962
five
years
ThUS$
-
-
-
-
-
-
-
-
-
-
-
Tax No .
Cred ito r
Cred ito r
co untry
Currency
Loa ns t o e xport e rs
97.032.000-8
97.036.000-K
97.030.000-7
97.004.000-5
97,003,000-K
97.951.000-4
BBVA
S ANTANDER
ES TADO
CHILE
BANCO DO BRAS IL
HS BC
Ba nk loa ns
97.023.000-9
0-E
0-E
97.036.000-K
CORP BANCA
BLADEX
DVB BANK S E
S ANTANDER
Obliga t ions wit h t he public
0-E
BANK OF YORK
Gua ra nt e e d obliga t ions
0-E
0-E
0-E
0-E
0-E
97.036.000-K
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
-
CREDIT AGRICOLE
BNP P ARIBAS
WELLS FARGO
WILMINGTON TRUS T
CITIBANK
S ANTANDER
BTMU
AP P LE BANK
US BANK
DEUTS CHE BANK
NATIXIS
HS BC
P K AIRFINANCE
KFW IP EX-BANK
S WAP Avione s lle ga dos
Ot he r gua ra nt e e d obliga t ions
0-E
DVB BANK S E
Fina nc ia l le a se s
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
Ot he r loa ns
0-E
0-E
ING
CREDIT AGRICOLE
CITIBANK
P EFCO
BNP P ARIBAS
WELLS FARGO
DVB BANK S E
BANC OF AMERICA
BOEING
CITIBANK (*)
Tot a l
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
U.S.A.
Chile
U.S.A.
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
Chile
U.S.A.
U.S.A.
U.S.A.
U.S.A.
France
U.S.A.
U.S.A.
Germany
-
U.S.A.
U.S.A.
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
US $
US $
US $
US $
US $
US $
UF
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
29,633
8,162
30,895
-
17,042
5,233
2,714
1,333
14,483
4,767
11,698
1,374
1,882
653
502
88,188
25,012
93,511
48,264
51,792
15,862
8,250
4,055
43,948
14,667
35,914
4,180
5,846
2,028
1,360
204,722
70,785
255,536
85,183
143,168
43,552
22,801
11,211
120,924
32,449
97,434
11,533
17,171
5,314
2,521
54,074
75,028
264,770
90,694
150,792
45,416
24,007
11,828
126,550
25,826
83,289
12,112
19,744
3,958
765
12,410
140,410
536,039
451,555
254,208
49,606
39,182
19,715
285,134
58,989
241,088
24,384
17,871
1,640
-
389,027
319,397
1,180,751
675,696
617,002
159,669
96,954
48,142
591,039
136,698
469,423
53,583
62,514
13,593
5,148
30,447
9,243
34,933
5,691
18,545
5,514
2,897
1,478
17,232
5,342
12,351
1,504
1,937
655
502
88,189
25,012
93,511
48,263
51,792
15,862
8,250
4,056
43,948
14,666
35,914
4,180
5,846
2,028
1,360
203,286
70,335
227,704
81,867
133,740
41,434
21,336
10,483
102,607
32,448
97,434
11,533
17,171
5,314
2,521
54,074
74,917
252,054
88,977
146,362
44,599
23,376
11,513
117,968
25,826
83,289
12,112
19,744
3,958
765
12,410
140,407
525,257
448,016
249,406
49,281
38,789
19,515
277,195
58,989
241,088
24,384
17,871
1,640
-
388,406
319,914
1,133,459
672,814
599,845
156,690
94,648
47,045
558,950
137,271
470,076
53,713
62,569
13,595
5,148
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Mont hly
Qua rt e rly
Qua rt e rly
1.83
2.29
2.27
4.25
2.40
1.47
1.82
1.72
3.99
3.40
2.08
2.40
2.04
2.45
-
1.66
2.22
1.57
4.25
1.64
0.93
1.22
1.12
2.81
3.40
2.05
1.59
2.04
2.45
-
8,054
24,438
-
-
-
32,492
8,075
24,438
-
-
-
32,513
Qua rt e rly
2.32
2.32
8,108
1,666
4,687
15,246
9,956
4,519
4,567
674
23,191
5,131
14,447
46,858
30,678
13,784
13,873
2,096
36,868
7,158
41,726
108,403
81,373
38,531
14,127
-
26,831
-
36,523
22,407
31,100
41,238
-
-
-
-
-
-
-
23,556
-
-
94,998
13,955
97,383
192,914
153,107
121,628
32,567
2,770
8,894
1,700
5,509
16,536
10,494
4,919
4,625
676
23,191
5,131
14,447
46,858
30,678
13,784
13,873
2,096
36,066
7,158
40,684
106,757
79,983
37,247
14,127
-
26,682
-
36,330
22,324
30,958
40,819
-
-
-
-
-
-
-
23,486
-
-
94,833
13,989
96,970
192,475
152,113
120,255
32,625
2,772
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Qua rt e rly
Mont hly
-
19,361
-
60,251
151,362
174,178
-
196,210
-
-
151,362
450,000
2,294
20,485
-
60,251
151,363
174,178
-
192,932
-
-
153,657
447,846
At Expira t ion
Qua rt e rly
611,840
738,017
2,291,593
1,892,936
2,155,787
7,690,173
641,578
738,016
2,218,512
1,846,051
2,127,734
7,571,891
5.13
1.28
6.40
5.37
4.08
3.98
2.06
1.41
1.80
6.00
4.57
1.28
5.67
4.77
3.64
3.54
2.06
1.41
1.80
6.00
(*) Securitized b o nd with the future flo ws fro m the s ales with cred it card in United States and Canad a.
188
FINANCIAL STATEMENTS | Financial Statements
79
Int e re st -be a ring loa ns due in inst a llme nt s t o De c e mbe r 31, 2015
De bt or: TAM S .A. a nd S ubsidia rie s, Ta x No. 02.012.862/ 0001-60, Bra z il.
Ta x No.
Cre dit or
Ba nk loa ns
0-E
NEDERLANDS CHE
CREDIETVERZEKERING MAATS CHAP P IJ
Obliga t ions wit h t he public
Nomina l va lue s
Ac c ount ing va lue s
Cre dit or
c ount ry
Curre nc y
Up t o
90
da ys
ThUS $
More t ha n More t ha n More t ha n
t hre e t o
one t o
five
t hre e
ye a rs
ye a rs
ThUS $
ThUS $
90 da ys
t o one
ye a r
ThUS $
More t ha n
five
ye a rs
ThUS $
Tot a l
nomina l
va lue
ThUS $
Up t o
90
da ys
ThUS $
More t ha n More t ha n More t ha n
t hre e t o
one t o
five
t hre e
ye a rs
ye a rs
ThUS $
ThUS $
90 da ys
t o one
ye a r
ThUS $
More t ha n
five
ye a rs
ThUS $
Tot a l
a c c ount ing
va lue
ThUS $
Amort iz a t ion
Effe c t ive Nomina l
ra t e
%
ra t e
%
Holla nd
US $
115
356
1,031
1,162
689
3,353
132
356
1,031
1,162
689
3,370
Mont hly
6.01
6.01
0-E
THE BANK OF NEW YORK
U.S .A.
US $
-
-
300,000
-
500,000
800,000
7,506
1,110
301,722
5,171
501,027
816,536
At Expira t ion
8.17
8.00
Fina nc ia l le a se s
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
AFS INVES TMENT IX LLC
U.S .A.
US $
U.S .A.
AIRBUS FINANCIAL
U.S .A.
CREDIT AGRICOLE-CIB
DVB BANK S E
U.S .A.
GENERAL ELECTRIC CAP ITAL CORP ORATION U.S .A.
KFW IP EX-BANK
NATIXIS
P K AIRFINANCE US , INC.
WACAP OU LEAS ING S .A.
S OCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S .A
HP FINANCIAL S ERVICE
S OCIETE GENERALE
US $
US $
US $
US $
US $
Ge rma ny
US $
Fra nc e
U.S .A.
US $
Luxe mburg US $
US $
It a ly
BRL
Bra z il
BRL
Bra z il
BRL
Fra nc e
1,972
3,370
4,500
118
3,654
3,097
2,505
1,276
383
8,148
217
168
85
6,085
10,397
-
355
11,137
6,401
5,387
21,769
1,101
25,003
651
529
256
17,540
20,812
-
282
8,970
15,186
17,359
-
2,617
71,311
860
185
434
17,908
15,416
-
-
-
12,215
19,682
-
14,267
208,024
-
-
-
-
-
-
-
-
-
70,087
-
-
-
-
-
-
43,505
49,995
4,500
755
23,761
36,899
115,020
23,045
18,368
312,486
1,728
882
775
2,176
3,461
4,528
120
3,697
3,163
3,476
1,316
418
9,552
217
169
85
6,085
10,396
-
355
11,137
6,401
5,387
21,769
1,101
25,003
651
529
256
17,540
20,813
-
282
8,970
15,186
17,360
-
2,617
71,311
860
185
434
17,908
15,416
-
-
-
12,215
19,682
-
14,267
208,024
-
-
-
-
-
-
-
-
-
70,088
-
-
-
-
-
-
43,709
50,086
4,528
757
23,804
36,965
115,993
23,085
18,403
313,890
1,728
883
775
Mont hly
Mont hly
Qua rt e rly
Mont hly
Mont hly
Mont hly/ Qua rt e rly
Qua rt e rly/ S e mia nnua l
Mont hly
Qua rt e rly
Qua rt e rly
Mont hly
Mont hly
Mont hly
1.25
1.43
3.25
1.64
1.25
1.72
3.85
1.75
2.00
3.63
14.14
10.02
14.14
1.25
1.43
3.25
1.64
1.25
1.72
3.85
1.75
2.00
3.55
14.14
10.02
14.14
Tot a l
Tot a l c onsolida t e d
29,608
89,427
456,587
288,674
570,776
1,435,072
40,016
90,536
458,311
293,845
571,804
1,454,512
641,448
827,444
2,748,180
2,181,610
2,726,563
9,125,245
681,594
828,552
2,676,823
2,139,896
2,699,538
9,026,403
189
FINANCIAL STATEMENTS | Financial Statements
80
81
(b) Hedge derivatives
Curre nt lia bilitie s
Non- c urre nt lia bilitie s
Tota l he dge
de riva tive s
As of
As of
As of
As of
As of
As of
De c e mbe r 31, De c e mbe r 31,
De c e mbe r 31, De c e mbe r 31,
2016
2015
De c e mbe r 31,
2016
De c e mbe r 31,
2015
Ac c rue d inte re s t from the la s t da te
of inte re s t ra te s wa p
Fa ir va lue of inte re s t ra te de riva tive s
Fa ir va lue of fue l de riva tive s
Fa ir va lue of fore ign c urre nc y de riva tive s
Tota l he dge de riva tive s
2016
ThUS $
2015
ThUS $
2,148
9,578
-
13,155
24,881
4,329
33,518
56,424
39,818
134,089
ThUS $
ThUS $
ThUS $
ThUS $
-
6,679
-
-
-
16,128
-
-
6,679
16,128
2,148
16,257
-
13,155
31,560
4,329
49,646
56,424
39,818
150,217
The foreign currency derivatives exchanges are FX forward and cross currency swap.
Hedging operation
The fair values of net assets/ (liabilities), by type of derivative, of the contracts held as hedging
instruments are presented below:
Cross currency swaps (CCS) (1)
Interest rate swaps (2)
Fuel options (3)
Currency forward - options US$/GBP$ (4)
Currency forward - options US$/EUR$ (4)
Currency options R$/US$ (4)
Currency options CLP/US$ (4)
As of
December 31,
2016
T hUS$
As of
December 31,
2015
T hUS$
(12,286)
(16,926)
10,088
618
109
(1,752)
-
(49,311)
(44,085)
(50,131)
7,432
1,438
933
85
(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 US$/UF and US$/BRL 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
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.
(3) 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.
(4) Covers the foreign exchange risk exposure of operating cash flows caused mainly by
fluctuations in the exchange rate R$/US$ and US$/GBP. These contracts are recorded as cash
flow hedges.
During the periods presented, the Company only maintains cash flow hedges and fair value (in the
case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will impact results
in the next six months from the consolidated statement of financial position date, meanwhile in the
case of interest rate hedging, the hedges will impact results over the life of the related loans, which
are valid initially for 12 years. The hedges on investments will impact results continuously
throughout the life of the investment, while the cash flows occur at the maturity of the investment.
In the case of currency hedges through a CCS, are generated two types of hedge accounting, a cash
flow component by US$/UF and US$/BRL, and other fair value by US$ floating rate component.
During the periods presented, no hedging operations of future highly probable transaction that have
not been realized have occurred.
Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the
result of the derivatives recognized in equity was transferred to the initial value of such assets.
The amounts recognized in comprehensive income during the period and transferred from net
equity to income are as follows:
Debit (credit) recognized in comprehensive
income during the period
Debit (credit) transferred from net equity to
income during the period
For the period ended
December 31,
2016
T hUS$
2015
T hUS$
127,390
80,387
(113,403)
(151,244)
NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES
The composition of Trade and other accounts payables is as follows:
Current
(a) Trade and other accounts payables
(b) Accrued liabilities at the reporting date
Total trade and other accounts payables
As of
As of
December 31,
December 31,
2016
ThUS$
2015
ThUS$
1,117,926
475,142
1,593,068
1,025,574
458,383
1,483,957
190
FINANCIAL STATEMENTS | Financial Statements
82
83
(a)
Trade and other accounts payable:
(b) Liabilities accrued:
Trade creditors
Leasing obligation
Other accounts payable
Total
The details of Trade and other accounts payables are as follows:
Aircraft Fuel
Boarding Fee
Airport charges and overflight
Handling and ground handling
Other personnel expenses
Professional services and advisory
Land services
Marketing
Services on board
Leases, maintenance and IT services
Suppliers' technical purchases
Crew
Maintenance
Achievement of goals
Distribution system
Airlines
Aircraft and engines leasing
Aviation insurance
Communications
SEC agreement (*)
Others
As of
December 31,
2016
ThUS$
868,833
10,446
238,647
As of
December 31,
2015
ThUS$
758,783
18,784
248,007
1,117,926
1,025,574
As of
As of
December 31,
December 31,
2016
T hUS$
188,276
149,880
90,327
87,406
81,632
79,270
74,260
61,053
44,589
44,287
40,305
29,074
25,962
17,801
15,710
13,264
10,446
7,694
7,500
4,719
44,471
2015
T hUS$
148,612
175,900
94,139
88,629
72,591
63,302
80,387
45,997
32,993
25,558
52,160
23,834
18,573
15,386
17,531
3,890
19,146
7,655
6,731
-
32,560
T otal trade and other accounts payables
1,117,926
1,025,574
(*) Provision made for payments of fines, on July 25, 2016 LATAM reached agreements with the
U.S. Department of Justice ("DOJ") U.S. and the Securities and Exchange Commission ("SEC")
both authorities of the United States of America, in force as of this date, regarding the investigation
on payments by LAN Airlines S.A. made in 2006-2007 to a consultant who advised on the
resolution of labor matters in Argentina. The amount to the SEC agreement is ThUS$ 6,744 plus
interests of ThUS$ 2,694.
As of December 31, the balance payable to the SEC is ThUS $ 4,719.
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
244,949
113,785
89,523
26,885
475,142
246,454
108,058
81,368
22,503
458,383
Aircraft and engine maintenance
Accrued personnel expenses
Accounts payable to personnel (*)
Others accrued liabilities
T otal accrued liabilities
(*) Profits and bonds participation (Note 23 letter b)
NOTE 21 - OTHER PROVISIONS
Other provisions:
Current liabilities
Non-current liabilities
T otal Liabilities
As of
As of
As of
As of
December 31, December 31,
December 31, December 31,
2016
T hUS$
2015
T hUS$
2016
T hUS$
2015
T hUS$
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
Provision for contingencies (1)
T ax contingencies
Civil contingencies
Labor contingencies
Other
Provision for European
Commision investigation (2)
T otal other provisions (3)
1,425
993
225
-
-
2,643
1,297
1,476
149
-
-
2,922
313,064
56,413
29,307
15,046
350,418
37,555
15,648
11,910
314,489
57,406
29,532
15,046
351,715
39,031
15,797
11,910
8,664
8,966
8,664
8,966
422,494
424,497
425,137
427,419
(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.
191
FINANCIAL STATEMENTS | Financial Statements
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85
(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, 2016, and at December 31, 2015, 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.
Movement of provisions:
Opening balance as of January 1, 2015
Increase in provisions
Provision used
Difference by subsidiaries conversion
Reversal of provision
Exchange difference
Closing balance as of December 31, 2015
Opening balance as of January 1, 2016
Increase in provisions
Provision used
Difference by subsidiaries conversion
Reversal of provision
Exchange difference
Closing balance as of December 31, 2016
Legal
claims (1)
European
Commission
Investigation (2)
T hUS$
T hUS$
705,552
54,675
(19,522)
(220,266)
(100,740)
(1,246)
418,453
418,453
141,797
(21,997)
79,396
(201,425)
249
416,473
9,999
-
-
-
-
(1,033)
8,966
8,966
-
-
-
-
(302)
8,664
T otal
T hUS$
715,551
54,675
(19,522)
(220,266)
(100,740)
(2,279)
427,419
427,419
141,797
(21,997)
79,396
(201,425)
(53)
425,137
(1) The accumulated balance includes US$ 115 million as judicial deposit granted as guarantee,
related to the “Fundo Aeroviário” (FA). This deposit was made with the purpose of
suspending the application of the tax credit. The company is discussing over the Tribunal the
constitutionality about the requirement made by FA in a legal action. Initially it was covered
by the effects of a precautionary measure, meaning that, the company was not the obligation
to collect the tax as long as there no judicial decision in this regard. However, the decision
taken by a judge in the first instance was publicized in an unfavorable published, reversing
the precautionary measure. As the legal claim is still in progress (TAM appealed this first
decision), the company needed to make the judicial deposit for the suspension of the
enforceability of the tax credit; it deposit was classified in this category deducting the
existing provision for that purpose. Finally, if the final decision is favorable to the company,
the deposit already made will return 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, 2016 is disclosed in Note 31 in the case
role N° 2001.51.01.012530-0.
(2) European Commission Provision:
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 that began in December 2007
regarding possible unfair competition on the air cargo market. This was a joint
investigation done by the European and U.S.A. authorities. 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. The General Direction of
Competition 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 you can find
LATAM A irlines Group S.A. and Lan Cargo S.A. 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. 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. On December 16, 2015 The European Commission does not appeal the sentence, but
can issue a new decision correcting the failures specified in the Judgment and it has a period
of 5 years which is fulfilled in 2021 the Court European resolved the appeal and annulled
the European Commission. The procedural stage at December 31, 2016 is disclosed in
Note 31, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries.
NOTE 22 - OTHER NON-FINANCIAL LIABILITIES
Curre nt lia bilitie s
Non- c urre nt lia bilitie s
Tota l Lia bilitie s
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
As of
De c e mbe r 31,
2016
As of
De c e mbe r 31,
2015
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
ThUS $
(*)
De fe rre d re ve nue s
S a le s ta x
Re te ntions
Othe rs ta xe s
Divide nds
Othe r s undry lia bilitie s
2,655,086
19,402
45,542
7,465
25,518
9,232
Tota l othe r non- fina nc ia l lia bilitie s
2,762,245
2,423,703
10,379
33,125
11,211
3,980
7,635
2,490,033
213,781
-
-
-
-
-
213,781
272,130
-
-
-
-
-
272,130
2,868,867
19,402
45,542
7,465
25,518
9,232
2,976,026
2,695,833
10,379
33,125
11,211
3,980
7,635
2,762,163
(*)
Note 2.20.
The balance comprises, mainly, deferred income by services not yet rendered and programs
such as: LATAM Pass, LATAM Fidelidade y Multiplus:
LATAM Pass is the frequent flyer program created by LAN to reward the preference and
loyalty of 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 LATAM Pass kilometers every time they fly with LAN,
TAM, in companies that are members of oneworld® and other airlines associated with the
program, as well as when they buy on the stores or use the services of a vast network of
companies that have an agreement with the program around the world.
192
FINANCIAL STATEMENTS | Financial Statements
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87
Thinking on people who travel constantly, TAM created the program LATAM 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 programs, aiming to operate activities of accumulation
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.
NOTE 23 - EMPLOYEE BENEFITS
Retirements payments
Resignation payments
Other obligations
T otal liability for employee benefits
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
49,680
10,097
22,545
82,322
42,117
8,858
14,296
65,271
(a) The movement in retirements and resignation payments and other obligations:
Opening
balance
T hUS$
Increase (decrease)
current service
provision
Benefits
paid
Change
of model
Actuarial
(gains)
losses
Currency
translation
T hUS$
T hUS$
T hUS$
T hUS$
T hUS$
Closing
balance
T hUS$
From January 1 to
December 31, 2015
74,102
(13,609)
(3,824)
From January 1 to
December 31, 2016
65,271
19,900
(4,536)
-
-
14,631
(6,029)
65,271
1,687
-
82,322
The principal assumptions used in the calculation to the provision in Chile are presented below:
Assumptions
2016
2015
As of
December 31,
Discount rate
Expected rate of salary increase
Rate of turnover
M ortality rate
Inflation rate
Retirement age of women
Retirement age of men
4.54%
4.50%
6.16%
RV-2009
2.86%
60
65
4.84%
4.50%
6.16%
RV-2009
2.92%
60
65
The discount rate is determined by reference to free risk 20 years Central Bank of Chile BCP bond.
Mortality table RV – 2009, established by Chilean Superintendency of Securities and Insurance and
inflation rate performance curve of Central Bank of Chile instruments long term BCU and BCP.
The obligation is determined based on the actuarial value of the accrued cost of the benefit and it is
sensibility to main actuarial assumptions used for the calculation. The Following is a sensitivity
analysis based on increased (decreased) on the discount rate, increased wages, rotation and
inflation:
Effect on the liability
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.
Change in the accrued liability an closing for decrease of 100 p.b.
(5,665)
5,952
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.
Change in the accrued liability an closing for decrease of 100 p.b.
6,334
(5,644)
(4,669)
5,345
5,309
(4,725)
(b) The liability for short-term:
As of
As of
December 31,
December 31,
2016
T hUS$
2015
T hUS$
Profit-sharing and bonuses (*)
89,523
81,368
(*) Accounts payables to employees (Note 20 letter b)
193
FINANCIAL STATEMENTS | Financial Statements
88
89
The participation in profits and bonuses correspond to an annual incentives plan for achievement of
objectives.
(*) Include a deduction for issuance costs ThUS$ 4,793 and adjustment by 10,282 placement shares
for ThUS$ 156.
(c)
Employment expenses are detailed below:
(b)
Subscribed and paid shares
Salaries and wages
Short-term employee benefits
T ermination benefits
Other personnel expenses
T otal
For the periods ended
December 31,
2016
T hUS$
2015
T hUS$
1,549,402
1,631,320
132,436
171,366
79,062
51,684
190,233
218,435
1,951,133
2,072,805
NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT
Aircraft and engine maintenance
Fleet financing (JOL)
Provision for vacations and bonuses
Other sundry liabilities
Total accounts payable, non-current
NOTE 25 - EQUITY
(a)
Capital
As of
As of
December 31,
December 31,
2016
ThUS$
347,085
-
12,080
226
359,391
2015
ThUS$
371,419
35,042
10,365
224
417,050
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 paid capital of the Company at December 31, 2016 amounts to ThUS$ 3,149,564 (*) divided
into 606,407,693 common stock of a same series (ThUS$ 2,545,705, divided into 545,547,819
shares as of December 31, 2015), a single series nominative, ordinary character with 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.
As of December 31, 2015, the Company's subscribed and paid-in capital was represented by
545,558,101 shares, all common shares, without par value.
On August 18, 2016, the Company held an extraordinary meeting of shareholders in which it was
approved to increase the capital by issuing 61,316,424 shares of payment, all ordinary shares,
without par value. As of December 31, 2016, 60,849,592 shares had been placed against this
increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the
end of the preferred subscription period, which expired on, December 2016, raising the equivalent
of US$ 304,996,850; And (b) 30,349,907 additional shares subscribed on December 28, 2016,
earning the equivalent of US $ 303,499,070.
As a result of the last placement, as of December 31, 2016, the number Company shares subscribed
and paid amounts to 606,407,693.
At December 31, 2016, the Company's capital stock is represented by 608,374,525 shares, all
common shares, without no par value, which is divided into: (a) the 606,407,693 subscribed and
paid shares mentioned above; And (b) 1,966,832 shares pending subscription and payment, of
which: (i) 1,500,000 shares are allocated to compensation stock option plans; And (ii) 466,832
correspond to the balance of shares pending placement of the last capital increase.
It should be noted that during the year the Company's capital stock was expressed in 613,164,243
shares, all ordinary shares, without nominal value, that is, 551,847,819 shares already authorized at
the beginning of the year and 61,316,424 shares authorized in the last Capital increase dated August
18, 2016. However, on December 21, 2016, the deadline for the subscription and payment of
4,789,718 shares that were destined to compensation plans for workers expired, so that the
Company's capital stock was reduced to 608,374,525 shares.
The following table shows the movement of the authorized and fully paid shares described above:
Movement of authorized shares
Autorized shares as of January 1, 2015
No movement of autorized shares during 2015
Authorized shares as of December 31, 2015
Autorized shares as of January 1, 2016
Increase capital approved at Extraordinary Shareholders
meeting dated August 18, 2016
Full capital decrease due to maturity of the subscription and payment period
of the compensation plan 2011, December 21, 2016 (*)
Authorized shares as of December 31, 2016
(*) See Note 34 (a.1)
Nro. Of
shares
551,847,819
-
551,847,819
551,847,819
61,316,424
(4,789,718)
608,374,525
194
FINANCIAL STATEMENTS | Financial Statements
90
91
Movement fully paid shares
increase (decrease) through transfers and other changes
N° of
shares
Movement
value
of shares
(1)
T hUS$
Cost of issuance
and placement
of shares (2)
T hUS$
Paid- in
Capital
T hUS$
Paid shares as of January 1, 2015
No movement of paid shares
during 2015
545,547,819
2,552,066
(6,361)
2,545,705
-
-
-
-
Paid shares as of December 31, 2015
545,547,819
2,552,066
(6,361)
2,545,705
Paid shares as of January 1, 2016
Placement capital increase
Approved at Extraordinary Shereholders
meeting dated August 18, 2016
Capital reserve
Increase (decrease) by transfers
and other changes (4)
545,547,819
2,552,066
(6,361)
2,545,705
60,849,592
-
608,496
-
-
(4,793)
608,496
(4,793)
10,282
156
-
156
Paid shares as of December 31, 2016
606,407,693
(3)
3,160,718
(11,154)
3,149,564
(1)
Amounts reported represent only those arising from the payment of the shares subscribed.
(2)
Decrease of capital by capitalization of reserves for cost of issuance and placement of
shares established according to Extraordinary Shareholder´s Meetings, where such decreases were
authorized.
(3)
At December 31, 2016, the difference between authorized shares and fully paid shares are
1,966,832 shares, of which 1,500,000 correspond to compensation plans for executives of LATAM
Airlines Group S.A. and subsidiaries (see Note 34(a.1)) and 466,832 correspond to the shares issued
and unsubscribed from the capital increase approved at the Extraordinary Shareholders' Meeting
held on August 18, 2016.
In Janury 2014, these 10,282 shares were placed and charged to the Compensation
(4)
plan 2011 (See Note 34 (a.1))
(c)
Treasury stock
At December 31, 2016, 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 which held in its portfolio.
(d)
Reserve of share- based payments
Movement of Reserves of share- based payments:
Periods
Opening
balance
T hUS$
Stock
option
plan
T hUS$
Deferred
tax
Net movement
of the period
T hUS$
T hUS$
From January 1 to December 31, 2015
From January 1 to December 31, 2016
29,642
35,647
8,924
3,698
(2,919)
(807)
6,005
2,891
Closing
balance
T hUS$
35,647
38,538
These reserves are related to the “Share-based payments” explained in Note 34.
(e)
Other sundry reserves
Movement of Other sundry reserves:
Periods
Opening
balance
T hUS$
From January 1 to December 31, 2015
From January 1 to December 31, 2016
2,635,748
2,634,679
Legal
reserves
T hUS$
(1,069)
5,602
Closing
balance
T hUS$
2,634,679
2,640,281
Balance of Other sundry reserves comprises the following:
Higher value for TAM S.A. share exchange (1)
Reserve for the adjustment to the value of fixed assets (2)
Transactions with non-controlling interest (3)
Cost of issuance and placement of shares
Others
As of
As of
December 31,
2016
December 31,
2015
ThUS$
ThUS$
2,665,692
2,620
(25,911)
9
(2,129)
2,665,692
2,620
(25,891)
(4,793)
(2,949)
Total
2,640,281
2,634,679
(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 N° 1529. 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, 2016, correspond to the loss generated by the participation of
Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de
Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition
195
FINANCIAL STATEMENTS | Financial Statements
92
93
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).
(f)
Reserves with effect in other comprehensive income.
Movement of Reserves with effect in other comprehensive income:
Currency
translation
reserve
ThUS$
Opening balance as of January 1, 2015
(1,193,871)
Derivatives valuation gains (losses)
Deferred tax
Actuarial reserves
by employee benefit plans
Deferred tax actuarial IAS
by employee benefit plans
-
-
-
-
Difference by subsidiaries conversion
(1,382,170)
Cash flow
hedging
reserve
ThUS$
(151,340)
82,730
(21,900)
-
-
-
Actuarial gain
or loss on defined
benefit plans
reserve
ThUS$
-
-
-
Total
ThUS$
(1,345,211)
82,730
(21,900)
(14,627)
(14,627)
3,910
-
3,910
(1,382,170)
Opening balance as of January 1, 2016
(2,576,041)
Derivatives valuation gains (losses)
Deferred tax
Actuarial reserves
by employee benefit plans
Deferred tax actuarial IAS
by employee benefit plans
-
-
-
-
Difference by subsidiaries conversion
489,486
(90,510)
126,360
(34,344)
(10,717)
(2,677,268)
-
-
126,360
(34,344)
-
-
-
(3,104)
(3,104)
921
-
921
489,486
Closing balance as of December 31, 2016
(2,086,555)
1,506
(12,900)
(2,097,949)
(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.
Closing balance as of December 31, 2015
(2,576,041)
(90,510)
(10,717)
(2,677,268)
Description of dividend
(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.
(g)
Retained earnings
Movement of Retained earnings:
Periods
From January 1 to December 31, 2015
From January 1 to December 31, 2016
(h)
Dividends per share
Date of dividend
Amount of the dividend (ThUS$)
Number of shares among which the
dividend is distributed
Dividend per share (US$)
Opening
balance
ThUS$
536,190
317,950
Result
for the
period
ThUS$
Other
increase
(decreases)
Dividends
ThUS$
ThUS$
(219,274)
69,220
-
(20,766)
1,034
-
Closing
balance
ThUS$
317,950
366,404
Minimum mandatory
dividend
2016
Final dividend
dividend
2015
12-31-2016
20,766
606,407,693
0.0342
12-31-2015
-
545,547,819
-
As of December 31, 2016 and 2015, the Company has not been paid dividends.
NOTE 26 - REVENUE
The detail of revenues is as follows:
Passengers LAN
Passengers TAM
Cargo
Total
For the periods ended
December 31,
2016
ThUS$
4,104,348
3,773,367
1,110,625
8,988,340
2015
ThUS$
4,241,918
4,168,696
1,329,431
9,740,045
196
94
NOTE 27 - COSTS AND EXPENSES BY NATURE
(a) Costs and operating expenses
The main operating costs and administrative expenses are detailed below:
Aircraft fuel
Other rentals and landing fees
Aircraft rentals
Aircraft maintenance
Comissions
Passenger services
Other operating expenses
Total
For the periods ended
December 31,
2016
2015
ThUS$
ThUS$
2,056,643
1,077,407
2,651,067
1,109,826
568,979
366,153
269,296
286,621
525,134
437,235
302,774
295,439
1,424,595
1,293,320
6,049,694
6,614,795
(b) Depreciation and amortization
Depreciation and amortization are detailed below:
Depreciation (*)
Amortization
Total
For the period ended
December 31,
2016
ThUS$
910,071
50,257
960,328
2015
ThUS$
897,670
36,736
934,406
(*) 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, 2016 is ThUS$ 345,651 and ThUS$ 345,192 for the same period of 2015.
(c) Personnel expenses
The costs for personnel expenses are disclosed in Note 23 liability for employee benefits.
(d) Financial costs
The detail of financial costs is as follows:
FINANCIAL STATEMENTS | Financial Statements
95
For the period ended
December 31,
2016
ThUS$
352,405
32,573
31,358
416,336
2015
ThUS$
331,511
42,855
38,991
413,357
Bank loan interest
Financial leases
Other financial instruments
Total
Costs and expenses by nature presented in this note plus the Employee expenses disclosed in
Note 23, 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 reviewing its fleet plan, in December 2015 the company
recognized a negative impact on results of US$ 80 million before tax associated with the output of
the rest of the A330 fleet, including engines and technical materials is recognized. These expenses
are recognized at “Other Gain and Loses” of the Consolidated Statement of Income by Function.
NOTE 28 - OTHER INCOME, BY FUNCTION
Other income by function is as follows:
Coalition and loyalty program M ultiplus
Tours
Aircraft leasing
Customs and warehousing
M aintenance
Duty free
Other miscellaneous income
Total
For the period ended
December 31,
2016
ThUS$
2015
ThUS$
174,197
133,575
65,011
24,548
17,090
11,141
113,186
538,748
154,958
113,225
46,547
25,457
11,669
16,408
17,517
385,781
197
FINANCIAL STATEMENTS | Financial Statements
96
97
NOTE 29 - 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 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.
(a)
Foreign currency
The foreign currency detail of balances of monetary items in current and non-current assets is as
follows:
Current assets
Cash and cash equivalents
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Other financial assets, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
U.S. dollar
Strong bolivar
Other currency
As of
As of
December 31,
December 31,
2016
ThUS$
201,416
4,438
9,705
30,221
1,137
1,695
128,694
61
25,465
14,573
12
734
585
-
12,879
76
287
2015
ThUS$
182,089
11,611
8,810
17,739
1,829
10,663
112,422
2,986
16,029
124,042
108,592
1,263
563
1,167
12,128
22
307
Current assets
Other non - financial assets, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Trade and other accounts receivable, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Accounts receivable from related entities, current
Chilean peso
Tax current assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Peruvian sol
Other currency
Total current assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. Dollar
Strong bolivar
Other currency
As of
As of
December 31,
December 31,
2016
ThUS$
107,789
16,086
20,158
1,619
713
1,563
50,157
3
17,490
251,204
54,356
30,675
90,482
9,720
21,923
14,086
43
29,919
554
554
28,198
1,798
2,462
6,333
1,418
273
177
14,387
1,350
603,734
76,690
63,734
129,794
12,988
25,454
205,993
183
88,898
2015
ThUS$
126,130
14,719
15,387
10,265
486
1,983
61,577
-
21,713
247,229
30,563
11,136
55,169
1,195
30,006
29,937
7,225
81,998
181
181
22,717
2,371
5
3,615
1,275
14
1,394
12,572
1,471
702,388
167,856
36,601
87,532
5,952
42,666
217,458
10,233
134,090
198
FINANCIAL STATEMENTS | Financial Statements
98
99
Non-current assets
Other financial assets, non-current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Other non - financial assets, non-current
Argentine peso
Brazilian real
U.S. dollar
Other currency
Accounts receivable, non-current
Chilean peso
U.S. dollar
Other currency
Deferred tax assets
Colombian peso
Other currency
Total non-current assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
As of
December 31,
2016
ThUS$
As of
December 31,
2015
ThUS$
26,772
-
2,769
83
285
6,966
14,920
1,749
19,069
142
6,029
8,309
4,589
7,356
7,356
-
-
2,110
117
1,993
55,307
142
8,798
7,439
402
6,966
23,229
8,331
20,767
22
1,478
77
162
614
16,696
1,718
60,215
169
4,454
50,108
5,484
9,404
4,251
5,000
153
2,632
336
2,296
93,018
191
5,932
4,328
498
614
71,804
9,651
The foreign currency detail of balances of monetary items in current liabilities and non-current is as
follows:
Current liabilities
Other financial liabilities, current
Chilean peso
U.S. dollar
T rade and other accounts
payables, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Peruvian sol
Mexican peso
Pound sterling
Uruguayan peso
Other currency
Accounts payable to related entities, current
Chilean peso
U.S. dollar
Other currency
Other provisions, current
Chilean peso
Other currency
T ax liabilities, current
Argentine peso
Brazilian real
Chilean peso
U.S. dollar
Other currency
Up to 90 days
91 days to 1 year
As of
December 31,
2016
As of
December 31,
2015
As of
December 31,
2016
As of
December 31,
2015
T hUS$
T hUS$
T hUS$
T hUS$
287,175
55,962
231,213
585,149
20,838
40,740
60,701
9,049
23,445
374,431
761
33,701
1,535
1,769
6,899
11,280
220
23
8
189
-
-
-
(145)
-
(3)
-
-
(142)
94,199
54,655
39,544
482,402
20,772
37,572
40,219
5,271
5,275
310,565
2,627
28,293
15,248
7,819
6,005
2,736
447
83
22
342
-
-
-
36
-
-
-
27
9
455,086
108,010
347,076
(*)
141,992
52,892
89,100
16,097
907
27
12,255
578
5
962
-
1,093
-
246
-
24
-
-
-
-
511
28
483
2,442
2,501
-
(25)
-
(34)
14,981
2,072
16
10,951
155
618
839
-
87
225
-
-
18
-
-
-
-
457
21
436
9,037
9,036
-
-
-
1
199
100
Current liabilities
December 31,
December 31,
December 31,
December 31,
Up to 90 days
91 days to 1 year
As of
As of
As of
As of
2016
ThUS$
2015
ThUS$
2016
ThUS$
2015
ThUS$
Other non-financial
liabilities, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Total current liabilities
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
(*) See Note 19.a (2)
33,439
13,463
430
14,999
578
168
684
2
3,115
905,838
34,301
41,167
131,685
9,627
23,613
606,336
763
58,346
40,432
(2,387)
4,297
32,228
145
2,706
(3,238)
2,490
4,191
617,516
18,385
41,869
127,185
5,416
7,981
346,920
5,117
64,643
-
-
-
-
-
-
-
-
-
474,136
3,408
27
120,268
578
5
-
-
-
-
-
-
-
-
-
166,467
11,108
16
63,864
155
618
348,038
89,939
-
1,812
-
767
FINANCIAL STATEMENTS | Financial Statements
200
FINANCIAL STATEMENTS | Financial Statements
101
Non-current liabilities
Other financial liabilities, non-current
Chilean peso
U.S. dollar
Accounts payable, non-current
Chilean peso
U.S. dollar
Other currency
Other provisions, non-current
Argentine peso
Brazillian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Provisions for
employees benefits, non-current
Brazilian real
Chilean peso
U.S. dollar
Other non-financial liabilities, non-current
Colombian peso
T otal non-current liabilities
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
More than 1 to 3 years
More than 3 to 5 years
More than 5 years
As of
December 31,
2016
As of
December 31,
2015
As of
December 31,
2016
As of
December 31,
2015
As of
December 31,
2016
As of
December 31,
2015
T hUS$
178,793
59,177
119,616
195,333
10,178
183,904
1,251
39,513
635
23,541
38
569
8,664
6,066
68,774
28
68,380
366
3
3
482,416
635
23,569
137,773
572
8,664
309,952
1,251
T hUS$
561,217
104,385
456,832
239,029
8,058
229,005
1,966
27,780
797
11,009
-
198
8,966
6,810
56,306
-
56,306
-
-
-
884,332
797
11,009
168,749
198
8,966
692,647
1,966
T hUS$
747,218
16,189
731,029
268
268
-
-
T hUS$
328,480
34,635
293,845
168
168
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
T hUS$
41,785
-
41,785
T hUS$
571,804
-
571,804
28
28
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
747,486
-
-
16,457
-
-
731,029
-
328,648
-
-
34,803
-
-
293,845
-
41,813
-
-
28
-
-
41,785
-
571,812
-
-
8
-
-
571,804
-
201
FINANCIAL STATEMENTS | Financial Statements
102
103
General summary of foreign currency:
As of
As of
December 31,
December 31,
Total assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
2016
ThUS$
659,041
76,832
72,532
137,233
13,390
32,420
229,222
183
97,229
2015
ThUS$
795,406
168,047
42,533
91,860
6,450
43,280
289,262
10,233
143,741
Total liabilities
2,651,689
2,568,775
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
Net position
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Strong bolivar
Other currency
38,344
64,763
406,211
10,777
32,282
30,290
52,894
394,609
5,769
17,565
2,037,140
1,995,155
763
61,409
38,488
7,769
(268,978)
2,613
138
5,117
67,376
137,757
(10,361)
(302,749)
681
25,715
(1,807,918)
(1,705,893)
(580)
35,820
5,116
76,365
(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, 2016 and 2015,
generated a debit of ThUS$ 121,651 and a charge ThUS$ 467,896, respectively.
Exchange differences recognized in equity as reserves for currency translation differences for the
period ended December 31, 2016 and 2015, represented a debit of ThUS$ 494,362 and a charge
ThUS$ 1,409,439, respectively.
The following shows the current exchange rates for the U.S. dollar, on the dates indicated:
As of December 31,
2015
2014
2016
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
Strong bolivar
Australian dollar
Boliviano
Mexican peso
New Zealand dollar
Peruvian Sol
Uruguayan peso
15.84
3.25
669.47
3,000.25
0.95
673.76
1.38
6.86
20.63
1.44
3.35
29.28
12.97
3.98
710.16
3,183.00
0.92
198.70
1.37
6.85
17.34
1.46
3.41
29.88
8.55
2.66
606.75
2,389.50
0.82
12.00
1.22
6.86
14.74
1.28
2.99
24.25
202
104
NOTE 30 - EARNINGS / (LOSS) PER SHARE
Basic earnings / (loss) per share
Earnings / (loss) attributable to
For the period ended
December 31,
2016
2015
owners of the parent (ThUS$)
69,220
(219,274)
Weighted average number
of shares, basic
546,559,599
545,547,819
Basic earnings / (loss) per share (US$)
0.12665
(0.40193)
Diluted earnings / (loss) per share
Earnings / (loss) attributable to
For the period ended
December 31,
2016
2015
owners of the parent (ThUS$)
69,220
(219,274)
Weighted average number
of shares, basic
Weighted average number
of shares, diluted
546,559,599
545,547,819
546,559,599
545,547,819
Diluted earnings / (loss) per share (US$)
0.12665
(0.40193)
In the calculation of diluted earnings per share have not been considered the compensation plan
disclosed in Note 33 (a.1), because the average market price is lower than the price of options.
FINANCIAL STATEMENTS | Financial Statements
203
FINANCIAL STATEMENTS | Financial Statements
NOTE 31 – CONTINGENCIES
I. Lawsuits
1) Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries
105
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
Lan
Argentina S.A.
National
Administrative Court.
36337/13
Atlantic Aviation Investments LLC. ("AAI"),
indirect subsidiary LATAM Airlines
an
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
the
contracts
law. These
acceleration of the loans in the event of sale
of the original debtor, VRG Linhas Aéreas
S.A.
establish
in Switzerland,
implementation stage
the embargo of Variglog
In
the
conviction stated that Variglog should pay the
principal, interest and costs in favor of AAI. It
keeps
in
Switzerland with AAI. In Brazil a Settlement
Agreement was signed and it is awaiting for
approval from the Bankruptcy Court of that
country and Variglog has asked Switzerland to
recognize the judgment that declared the state of
judicial recovery and subsequent bankruptcy.
funds
ORSNA Resolution No. 123 which directs
Lan Argentina to vacate the hangar located in
the
Aeroparque
Metropolitano Jorge Newberry, Argentina.
Airport
named
The court agreed, so
On February 25, 2016, Lan Argentina S.A. and
ORSNA informed the Court of their decision to
put an end to the lawsuit and guarantee use of the
hangar by Lan. The parties agreed to maintain the
precautionary measure in effect allowing Lan to
use the hangar indefinitely until the parties reach a
the
final agreement.
precautionary measure was extended indefinitely.
Resolution 112/2016 of the National Airport
Regulatory Agency (ORSNA) was published on
December 30, 2016, which terminated the hangar
dispute.
the
previous resolution, 123/16, that ordered vacation
of the LAN hangar at AEP.
Consequently, the legal structure created by the
ORSNA through the 2012 Resolution was left
without any effect in 2016. Apart from the matter
now having been resolved both materially and
judicially, this resolution puts a definitive end to
the hangar dispute.
latest resolution repealed
This
Amounts
Committe
d (*)
ThUS$
17,100
Plus
interests
and costs
-0-
204
FINANCIAL STATEMENTS | Financial Statements
2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries
106
Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed (*)
ThUS$
LATAM Airlines
Group S.A. y Lan
Cargo S.A.
European Commission.
-
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
including Lan Cargo S.A., for
airlines,
alleged breaches of competition in the air
cargo market
the
in Europe, especially
alleged fixed fuel surcharge and freight.
On April 14th, 2008, the notification of the
8,664
replied.
four
Commission was
European
The appeal was filed on January 24,
2011.
On May 11, 2015, we attended a hearing at
which we petitioned for the vacation of the
Decision based on discrepancies in the
Decision between the operating section,
which mentions
infringements
(depending on the routes involved) but
refers to LATAM in only one of those four
routes; and
the ruling section (which
mentions one single conjoint infraction).
On November 9th, 2010,
the General
Directorate for Competition of the European
Commission notified Lan Cargo S.A. and
LATAM Airlines Group S.A. the imposition
of a fine in the amount of THUS$ 8,664.
(8.220.000 Euros)
This fine is being appealed by Lan Cargo
S.A. and LATAM Airlines Group S.A. On
December 16, 2015, the European Court of
Justice revoked the Commission’s decision
because of discrepancies. The European
Commission did not appeal the resolution, but
rather confirmed, on May 20, 2016, that it
will issue a new decision curing the rulings
specified in the Decision. It has a period of 5
years to do this, or until 2021.
205
FINANCIAL STATEMENTS | Financial Statements
Company
Court
Case Number
Lan Cargo S.A. y
LATAM Airlines
Group S.A.
-
In the High Court of
Chancery
Justice
División
(England)
Ovre Romerike District
y
Court
(Norway)
Directie
Juridische
Zaken Afdeling Ceveil
Recht (Netherlands)
,
Cologne Regional Court
Köln
(Landgerich
Germany).
Aerolinhas
Brasileiras S.A.
Federal Justice.
0008285-
53.2015.403.6105
107
Origin
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 Germany.
in England, Norway,
An action seeking to quash a decision and
petioning for early protection in order to
obgain a revocation of the penalty imposed
by the Brazilian Competition Authority
(CADE) in the investigation of cargo
airlines alleged fair trade violations, in
particular the fuel surcharge.
Stage of trial
Amounts
Committed (*)
ThUS$
Cases are in the uncovering evidence stage.
-0-
10,438
This action was filed by presenting a
guaranty – policy – in order to suspend the
effects of the CADE’s decision regarding
the payment of the following fines: (i)
(ii) Norberto
ABSA: ThUS$10,438;
Jochmann: ThUS$201;
(iii) Hernan
Merino: ThUS$ 102; (iv) Felipe Meyer
:ThUS$ 102. The action also deals with the
affirmative obligation required by
the
CADE consisting of the duty to publish the
condemnation
in a widely circulating
newspaper. This obligation had also been
stayed by the court of federal justice in this
process. Awaiting CADE’s statement.
Aerolinhas
Brasileiras S.A.
Federal Justice.
0001872-
58.2014.4.03.6105
An annulment action with a motion for
preliminary
filed on
injunction, was
28/02/2014, in order to cancel tax debts of
PIS, CONFINS, IPI and II, connected with
the
process
10831.005704/2006.43.
administrative
We have been waiting since August 21,
2015 for a statement by Serasa on TAM’s
letter of indemnity and a statement by the
Union. The statement was authenticated
on January 29, 2016. A petition on
evidence and replications were filed on
June 20, 2016.
11,140
206
FINANCIAL STATEMENTS | Financial Statements
108
Company
Court
Case Number
Origin
Stage of trial
Tam Linhas
Aéreas S.A.
Department of Federal
Revenue of Brazil
19515.722556/2012-21
Alleged irregularities in the SAT
payments for the periods 01/2009 to
13/2009.
A judgment by the Administrative Council
of Tax Appeals (CARF) has been pending
since February 27, 2015.
Amounts
Committed (*)
ThUS$
2,151
Tam Linhas
Aéreas S.A.
Department of Federal
Revenue of Brazil
19515.721155/2014-15
Alleged irregularities in the SAT
payments for the periods 01/2010 to
13/2010.
A decision was rendered in favor of Tam
Linhas Aéreas S.A. on August 22, 2016.
The Attorney General has said it will not
appeal.
25,515
Tam Linhas
Aéreas S.A.
Department of Federal
Revenue of Brazil
19515.720476/2015-83
Tam Linhas
Aéreas S.A.
Court of the Second
Region.
2001.51.01.012530-0
Alleged irregularities in the SAT
payments for the periods 01/2011 to
12/2012
Ordinary judicial action brought for
the purpose of declaring
the
nonexistence of legal relationship
obligating the company to collect
the Air Fund.
A judgment by CARF is pending since
52,414
April 12, 2016.
115,265
in
court decision
Unfavorable
first
instance. Currently expecting the ruling on
the appeal filed by the company.
In order to suspend chargeability of Tax
Credit a Guaranty Deposit to the Court was
delivered for MUS$115.
The court decision requesting that the
Expert make all clarifications requested by
the parties in a period of 30 days was
published on March 29, 2016.
The
plaintiffs’ submitted a petition on June 21,
2016 requesting acceptance of the opinion
of their consultant and an urgent ruling on
the dispute. No amount additional to the
deposit that has already been made is
required if this case is lost.
Tam Linhas
Aéreas S.A.
Administrative
Council of Tax
Appeals
19.515.002963/2009-12,
19515.722555/2012-86,
19515.721154/2014-71,
19515.720475/2015-39
Collection of contributions to the
Aviation Fund for the periods from
01/2004 to 12/2004, from 12/2006
to
to 12/2008,
from 01/2009
to
12/2010, and from 01/2011
10/2012.
A judgment is pending by CARF since
65,788
February 5, 2016.
207
FINANCIAL STATEMENTS | Financial Statements
Company
Court
Case Number
Origin
Stage of trial
109
Tam Linhas
Aéreas S.A.
Internal Revenue
Service of Brazil.
16643.000087/2009-36
Tam Linhas
Aéreas S.A.
Internal Revenue
Service of Brazil.
10880.725950/2011-05
Aerovías de
Integración
Regional,
AIRES S.A.
United States Court of
Appeals for the
Eleventh Circuit,
Florida, U.S.A.
2013-20319 CA 01
This
is an administrative proceeding
arising from an infraction notice issued on
15.12.2009, by which the authority aims to
request social contribution on net income
(CSL) on base periods 2004 to 2007, due to
the deduction of expenses related
to
suspended taxes.
Compensation credits of
the Social
Integration Program (PIS) and Contribution
for Social Security Financing (COFINS)
Declared on DCOMPs.
The July 30th , 2012 LAN COLOMBIA
AIRLINES initiated a legal process in
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.
The appeal filed by the company was
dismissed in 2010. In 2012 the voluntary
appeal was also dismissed. Consequently,
the special appeal filed by the company
awaits judgment of admissibility, since
2012.
objection
(manifestação
The
de
inconformidade) filed by the company was
rejected, which is why the voluntary appeal
was filed. The case was assigned to the 1st
Ordinary Group of Brazil’s Administrative
Council of Tax Appeals (CARF) on June
8, 2015. TAM’s appeal was included in
the CARF session held August 25, 2016.
This case is being heard by the 45th Civil
Court of the Bogota Circuit. In an interim
decree issued August 16, 2016, the hearing
under article 101 was set for February 2,
2017, this hearing was postponed at request
of the parties and the Judge must resolve
on a new date. When a reconciliation will
be attempted, facts of the case will be set,
the parties will conduct depositions and
evidence will be decreed.
The Federal Court of the State of Florida
decided on March 26, 2016 to approve Lan
Colombia Airlines’s request to suspend the
proceedings in the USA until the claim
under way in Colombia is decided. The
U.S. Court judge also closed the case
administratively. The Federal Court of
Appeal ratified the case closing in the
U.S.A. on April 1, 2015. On October 1,
2015, Regional One petitioned that the
U.S. court reopen the case. Lan Colombia
Airlines presented its arguments and the
Court sustained them on August 23, 2016,
ratifying the closing of the case in the
United States, so it continues to be closed.
Amounts
Committed (*)
ThUS$
22,225
43,341
12,443
208
FINANCIAL STATEMENTS | Financial Statements
110
Company
Court
Case Number
Origin
Stage of trial
Tam Linhas
Aéreas S.A.
Internal
Service of Brazil
Revenue
10880.722.355/2014-52
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.
An administrative objection was filed on
September 17th, 2014. A first-instance
ruling was rendered on June 1, 2016 that
was partially favorable. The separate fine
was revoked. A voluntary appeal was filed
on June 30, 2016, which is pending a
decision by CARF.
Tam Viagens S.A.
Department of
Finance to the
municipality of São
Paulo.
67.168.795 / 67.168.833 /
67.168.884 / 67.168.906 /
67.168.914 / 67.168.965
A claim was filed alleging infraction and
seeking a fine because of a deficient basis
for calculation of the service tax (ISS)
because the company supposedly made
incorrect deductions.
Tam Linhas
Aéreas S.A.
Labor Court of São
Paulo.
0001734-
78.2014.5.02.0045
TAM S.A.
Conselho
Administrativo de
Recursos Fiscais.
13855.720077/2014-02
Action filed by the Ministry of Labor,
which
compliance with
legislation on breaks, extra hours and
others.
requires
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.
We received notice of the petition on
December 22, 2015. The objection was
filed on January 19, 2016. The company
was notified on November 23, 2016 of the
decision that partially sustained the interim
infringement ruling. An ordinary appeal
was filed on December 19, 2016 before the
Municipal Tax Council of Sao Paulo and a
judgment is pending.
Early stage. Eventually could affect the
operations and control of working hours of
employees. The company won in the first
instance, but an appeal by the Union is
expected.
appeal
the object of
On January 12, 2014, it was filed an appeal
against
the notice of
infringement. Currently, the company is
waiting for the court judgment regarding
the Conselho
the
Administrativo
Fiscais
(CARF) The case will be put into the
system again for re-assignment for hearing
and reporting because of the departure of
Eduardo de Andrade, a CARF council
member.
de Recursos
filed
in
Amounts
Committed (*)
ThUS$
53,967
89,624
16,211
104,423
209
FINANCIAL STATEMENTS | Financial Statements
Company
Court
Case Number
Tam Linhas
Aereas S.A.
1° Civil Court of
Comarca of Bauru/SP.
0049304-
37.2009.8.26.0071/1
111
Origin
Stage of trial
Currently under the enforcement phase of
the sentence. ThUS$4.770 in cash was
deposited
in guarantee. A procedural
agreement was made for 23 million reals
(ThUS$7,057) on September 23, 2016.
is
filed by
That action
the current
complainants against the defendant, TAM
Linhas Aéreas S
/ A, for receiving
for material and moral
compensation
damages suffered as a result of an accident
with one of its aircraft, which landed on
adjacent
the Bauru airport,
impacting the vehicle of Ms. Savi Gisele
Marie de Seixas Pinto and William Savi de
Seixas Pinto, causing their death. The first
was
the
the wife and mother of
complainants and the second, son and
brother, respectively.
lands
to
Amounts
Committed (*)
ThUS$
7,057
Aerolinhas
Brasileiras S.A.
Labor Court of
Campinas.
0010498-
37.2014.5.15.0095
Lawsuit filed by the National Union of
aeronauts, requiring weekly rest payment
(DSR) scheduled stopovers, displacement
and moral damage.
An agreement
for ThUS$2,732 was
reached with the Union on August 2, 2016.
Payment is now being made.
TAM Linhas
Aéreas S.A.
Sao Paulo Labor
Court, Sao Paulo
0000009-
45.2016.5.02.090
The Ministry of Labor filed an action
seeking that the company adapt the
ergonomics and comfort of seats.
The case will be closed next month
because the Ministry of Labor withdrew its
complaint.
16.365
15,917
-
In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2016, 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 21.
- The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.
(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the
possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
210
FINANCIAL STATEMENTS | Financial Statements
112
113
II. Governmental Investigations.
1) On July 25, 2016, LATAM reached agreements with the U.S. Department of Justice
(“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) regarding the
investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a
consultant advising it in the resolution of labor matters in Argentina.
The purpose of the investigation was to determine whether these payments violated the
U.S. Foreign Corrupt Practices Act (“FCPA”) that: (i) forbids bribery of foreign
government authorities in order to obtain a commercial advantage; and (ii) requires the
companies that must abide by the FCPA to keep appropriate accounting records and
implant an adequate internal control system. The FCPA is applicable to LATAM
because of its ADR program in effect on the U.S. securities market.
After an exhaustive investigation, the DOJ and SEC concluded that there was no
violation of the bribery provisions of the FCPA, which is consistent with the results of
LATAM’s internal investigation. However, the DOJ and SEC consider that LAN
accounted for these payments incorrectly and, consequently, infringed the part of the
FCPA requiring companies to keep accurate accounting records. These authorities also
consider that LAN’s internal controls in 2006-2007 were weak, so LAN would have
also violated the provisions in the FCPA requiring it to maintain an adequate internal
control system.
The agreements signed, included the following:
(a) The agreement with the DOJ involves: (i) entering into a Deferred Prosecution
Agreement (“DPA”), which is a public contract under which the DOJ files public
charges alleging an infringement of the FCPA accounting regulations. LATAM is not
obligated to answer these charges, the DOJ will not pursue them for a period of 3 years,
and the DOJ will dismiss the charges after expiration of that 3-year period provided
LATAM complies with all terms of the DPA. In exchange, LATAM admitted events
described in the DOJ charges for infringement to the FCPA rules on accounting records
and agreed to pay the negotiated fine explained below and abide by other terms
stipulated in the agreement; (ii) clauses in which LATAM admits that the payments to
the consultant in Argentina were incorrectly accounted for and that at the time those
payments were made (2006-2007), it did not have adequate internal controls in place;
(iii) LATAM’s agreement to have an outside consultant monitor, evaluate and report to
the DOJ on the effectiveness of LATAM’s compliance program for a period of 27
months; and LATAM’s agreement to continue evaluating and reporting directly to the
DOJ on the effectiveness of its compliance program for a period of 9 months after the
consultant’s work concludes; and (iv) paying a fine estimated to total approximately
ThUS$ 12,750.
(b) The agreement with the SEC involves: (i) accepting a Cease and Desist Order,
which is an administrative resolution of the SEC closing the investigation, in which
LATAM will accept certain obligations and statements of fact that are described in the
document; (ii) accepting the same obligations regarding the consultant mentioned
above; and (iii) paying the sum of ThUS$ 6,744, plus interest of ThUS$ 2,694.
As at December 31, 2016, a balance of ThUS$ 4,719 was payable to the SEC, as
reported in Note 20 - Trade payables and other payables.
2) LATAM Airlines Ecuador was given notice on August 26, 2016 of an investigation
of LATAM Airlines Ecuador and two other airlines begun, at its own initiative, by one
of the Investigative Departments of the Ecuadoran Market Power Control Commission,
limited to alleged signs of conscious parallelism in relation to specific fares on one
domestic route in Ecuador from August 2012 to February 2013. The Investigative
Department had 180 days (due February 21, 2017) extendable for another 180 days, to
resolve on whether to close the investigation or file charges against two or more of the
parties involved, only event in which a process will be opened. On February 21, 2017,
the period of 180 days was extended for another 180 days requesting additional
information. LATAM Airlines Ecuador is cooperating with the authority and has hired
a law firm and an economist expert in the subject to advise the company during this
process.
3) LATAM received two Information Requests from the Central-North Metropolitan
Region Prosecutor’s Office, one on October 25, 2016 and
November 11, 2016, requesting information relating to the investigation of payments
made by Lan Airlines S.A. to a consultant advising it on the solution to labor matters in
Argentina in the years 2006-2007. The information requested in both Requests has
been provided.
the other on
NOTE 32 - COMMITMENTS
(a)
Loan covenants
With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F
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.
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.
On March 30, 2016, LATAM structured a Revolving Credit Facility granted by with aircraft,
engines, spare parts and supplies for a total amount available of US$ 325 million, this line includes
restrictions minimum liquidity level as the consolidated company and individual level as for
companies LATAM Airlines Group S.A. and TAM Linhas Aereas S.A.
At December 31, 2016, the Company is in compliance with all indicators detailed above.
211
FINANCIAL STATEMENTS | Financial Statements
114
115
(b)
Commitments under operating leases as lessee
Details of the main operating leases are as follows:
Lessor
Aircraft 76B-26329 Inc.
Aircraft 76B-27615 Inc.
Aircraft 76B-28206 Inc.
Aviación Centaurus, A.I.E.
Aviación Centaurus, A.I.E.
Aviación Real A.I.E.
Aviación Real A.I.E.
Aviación Tritón A.I.E.
Avolon Aerospace AOE 19 Limited
Avolon Aerospace AOE 20 Limited
Avolon Aerospace AOE 6 Limited
Avolon Aerospace AOE 62 Limited
AWAS 5125 Trust
AWAS 5178 Limited
AWAS 5234 Trust
Baker & Spice Aviation Limited
Bank of America
CIT Aerospace International
ECAF I 1215 DAC
ECAF I 2838 DAC
ECAF I 40589 DAC
Eden Irish Aircr Leasing M SN 1459
GECAS Sverige Aircraft Leasing Worldwide AB
GFL Aircraft Leasing Netherlands B.V.
IC Airlease One Limited
International Lease Finance Corporation
JSA Aircraft 38484, LLC
JSA Aircraft 7126, LLC
JSA Aircraft 7128, LLC
JSA Aircraft 7239, LLC
JSA Aircraft 7298, LLC
M acquarie Aerospace Finance 5125-2 Trust
M acquarie Aerospace Finance 5178 Limited
M agix Airlease Limited
M ASL Sweden (1) AB
M ASL Sweden (2) AB
Aircraft
Boeing 767
Boeing 767
Boeing 767
Airbus A319
Airbus A321
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A320
Boeing 777
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A321
Airbus A320
Airbus A320
Airbus A320
Boeing 777
Airbus A320
Airbus A320
Airbus A320
Airbus A321
Boeing 767
Boeing 787
Airbus A320
Airbus A321
Airbus A321
Airbus A321
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
As of
December 31,
2016
As of
December 31,
2015
1
1
1
3
1
1
1
3
1
1
1
1
-
-
1
1
2
2
1
1
1
1
1
1
1
-
1
1
1
1
1
1
1
1
-
-
1
1
1
3
1
1
1
3
1
1
1
1
1
1
1
1
3
2
1
1
1
1
3
1
-
1
1
-
-
-
-
-
-
2
1
1
Lessor
MASL Sweden (7) AB
MASL Sweden (8) AB
Merlin Aviation Leasing (Ireland) 18 Limited
NBB Cuckoo Co., Ltd
NBB Grosbeak Co., Ltd
NBB Redstart Co. Ltd
NBB-6658 Lease Partnership
NBB-6670 Lease Partnership
Orix Aviation Systems Limited
PAAL Aquila Company Limited
PAAL Gemini Company Limited
SASOF II (J) Aviation Ireland Limited
Shenton Aircraft Leasing Limited
SKY HIGH V LEASING COMPANY LIMIT ED
Sky High XXIV Leasing Company Limited
Sky High XXV Leasing Company Limited
SMBC Aviation Capital Limited
SMBC Aviation Capital Limited
Sunflower Aircraft Leasing Limited
T C-CIT Aviation Ireland Limited
Volito Aviation August 2007 AB
Volito Aviation November 2006 AB
Volito November 2006 AB
Wells Fargo Bank North National Association
Wells Fargo Bank North National Association
Wells Fargo Bank Northwest National Association
Wells Fargo Bank Northwest National Association
Wells Fargo Bank Northwest National Association
Wells Fargo Bank Northwest National Association
Wells Fargo Bank Northwest National Association
Wells Fargo Bank Northwest National Association
Wilmington T rust Company
T otal
Aircraft
Airbus A320
Airbus A320
Airbus A320
Airbus A321
Airbus A321
Airbus A321
Airbus A321
Airbus A321
Airbus A320
Airbus A321
Airbus A321
Airbus A319
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A321
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A330
Boeing 767
Boeing 777
Boeing 787
Airbus A350
Airbus A319
As of
December 31,
2016
As of
December 31,
2015
-
1
1
1
1
1
1
1
5
2
1
1
1
-
5
2
6
2
-
1
2
2
2
3
2
7
-
3
6
11
2
1
1
1
-
1
1
-
1
1
2
-
-
1
1
1
5
2
7
2
2
1
2
2
2
3
2
7
2
3
6
7
-
1
111
106
The rentals are shown in results for the period for which they are incurred.
212
FINANCIAL STATEMENTS | Financial Statements
116
117
The minimum future lease payments not yet payable are the following:
At December 31, 2016 the Company has existing letters of credit related to operating leasing as
follows:
No later than one year
Between one and five years
Over five years
T otal
As of
As of
December 31,
December 31,
2016
T hUS$
533,319
1,459,362
1,262,509
2015
T hUS$
513,748
1,281,454
858,095
3,255,190
2,653,297
The minimum lease payments charged to income are the following:
M inimum operating lease payments
Total
For the period ended
December 31,
2016
ThUS$
568,979
568,979
2015
ThUS$
525,134
525,134
In the first quarter of 2015, two Boeing 787-9 aircraft were leased for a period of twelve years each.
On the other hand, two Airbus A320-200 aircraft were returned. In the second quarter of 2015, two
Airbus A321-200 aircraft and one Boeing 787-9 aircraft were leased for a period of twelve years
each. On the other hand, one Airbus A320-200 aircraft and two Airbus A330-200 aircraft were
returned. In the third quarter of 2015, five Airbus A321-200 aircraft and one Boeing 787-9 aircraft
were leased for a period of twelve years each. On the other hand, one Airbus A330-200 aircraft was
returned. In the fourth quarter of 2015, one Airbus A330-200 aircraft was returned.
In the first quarter of 2016, two Boeing 787-9 aircraft were leased for a period of twelve years each.
On the other hand and one Airbus A320-200 aircraft was returned. In the second quarter of 2016,
three Airbus A321-200 aircraft were leased for a period of ten years each and two Boeing 787-9
aircraft were leased for a period of twelve years each. On the other hand, one Airbus A320-200
aircraft and one Boeing 767-300ER aircraft were returned. In the third quarter of 2016, three Airbus
A321-200 aircraft and one Airbus A320- NEO aircraft were leased for a period of ten years each,
and one Airbus A350-900 aircraft was leased for a period of twelve years. On the other hand and
one Airbus A320-200 aircraft was returned. In the fourth quarter of 2016, one Airbus A350-900
aircraft was leased for a period of twelve years and one Airbus A321-200 aircraft was leased for a
period of ten years. On the other hand, three Airbus A320-200 aircraft and two Airbus A330-200
aircraft were returned.
The operating lease agreements signed by the Company and its subsidiaries state that maintenance
of the aircraft should be done according to the manufacturer’s technical instructions and within the
margins agreed in the leasing agreements, a cost that must be assumed by the lessee. The lessee
should also contract insurance for each aircraft to cover associated risks and the amounts of these
assets. Regarding rental payments, these are unrestricted and may not be netted against other
accounts receivable or payable between the lessor and lessee.
Creditor Guarantee
Debtor
T ype
GE Capital Aviation Services Limited
Wells Fargo Bank North N.A.
Bank of America
Engine Lease Finance Corporation
GE Capital Aviation Services Ltd.
International Lease Finance Corp
ORIX Aviation Systems Limited
SMBC Aviation Capital Ltd.
Wells Fargo Bank
CIT Aerospace International
RBS Aerospace Limited
Wells Fargo Bank North N.A.
Lan Cargo S.A.
Lan Cargo S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
LAT AM Airlines Group S.A.
T am Linhas Aéreas S.A.
T am Linhas Aéreas S.A.
T am Linhas Aéreas S.A.
T wo letter of credit
One letter of credit
T hree letter of credit
One letter of credit
Eight letter of credit
T hree letter of credit
One letter of credit
T wo letter of credit
Nine letter of credit
One letter of credit
One letter of credit
One letter of credit
Value
T hUS$
7,530
5,000
1,044
4,750
34,665
1,450
3,255
13,569
15,160
6,000
13,096
5,500
111,019
Release
date
Sep 17, 2017
May 25, 2017
Jul 2, 2017
Oct 8, 2017
Feb 7, 2017
Feb 4, 2017
Aug 31, 2017
Aug 14, 2017
Feb 8, 2017
Oct 25, 2017
Jan 29, 2017
Jul 14, 2017
(c) Other commitments
At December 31, 2016 the Company has existing letters of credit, certificates of deposits and
warranty insurance policies as follows:
Cre d ito r Gu a ra n te e
De b to r
Typ e
Va lu e
Th US $
Re le a s e
d a te
S e rvic io Na c io n a l d e Ad u a n a d e l
Ec u a d o r
Lín e a s Aé re a s Na c io n a le s
d e l Ec u a d o r S .A.
Fo u r le tte r o f c re d it
1,7 0 5
Au g 5 , 2 0 17
Co rp o ra c ió n P e ru a n a d e Ae ro p u e rto s
y Avia c ió n Co me rc ia l
Lima Airp o rt P a rtn e rs S .R.L.
S u p e rin te n d e n c ia Na c io n a l d e Ad u a n a s
y d e Ad min is tra c ió n Trib u ta ria
Ae n a Ae ro p u e rto s S .A.
Ame ric a n Alte rn a tive In s u ra n c e
Co rp o ra tio n
De u ts c h e Ba n k A.G.
Dire c c ió n Ge n e ra l d e Ae ro n á u tic a Civil
Emp re s a P ú b lic a d e Hid ro c a rb u ro s
d e l Ec u a d o r EP P e tro e c u a d o r
J P Mo rg a n Ch a s e
Me tro p o lita n Da d e Co u n ty
Th e Ro ya l Ba n k o f S c o tla n d p lc
4 ª Va ra Mis ta d e Ba ye u x
6 ª Va ra Fe d e ra l d a S u b s e ç ã o
8 ª Va ra Fe d e ra l d a S u b s e ç ã o
d e Ca mp in a s S P
Co n s e lh o Ad min is tra tivo d e Co n s e lh o s
La n P e rú S .A.
La n P e rú S .A.
S ix le tte r o f c re d it
Twe n ty two le tte r o f c re d it
3 ,8 13
3 ,8 0 5
J a n 3 1, 2 0 17
Ma r 3 , 2 0 17
La n P e rú S .A.
LATAM Airlin e s Gro u p S .A.
Fo u r le tte r o f c re d it
Fo u r le tte r o f c re d it
LATAM Airlin e s Gro u p S .A.
LATAM Airlin e s Gro u p S .A.
LATAM Airlin e s Gro u p S .A.
S ix le tte r o f c re d it
On e le tte r o f c re d it
Fifty two le tte r o f c re d it
LATAM Airlin e s Gro u p S .A.
LATAM Airlin e s Gro u p S .A.
LATAM Airlin e s Gro u p S .A.
LATAM Airlin e s Gro u p S .A.
Ta m Lin h a s Aé re a s S .A.
Ta m Lin h a s Aé re a s S .A.
On e le tte r o f c re d it
On e le tte r o f c re d it
Te n le tte r o f c re d it
On e le tte r o f c re d it
On e in s u ra n c e p o lic ie s g u a ra n te e
Two in s u ra n c e p o lic ie s g u a ra n te e
3 3 ,5 0 0
2 ,0 14
3 ,4 9 0
3 0 ,0 0 0
18 ,4 7 7
5 ,5 0 0
10 ,0 0 0
2 ,5 5 3
5 ,0 0 0
1,0 6 0
2 4 ,9 6 9
Ma r 2 0 , 2 0 17
No v 15 , 2 0 17
Ap r 5 , 2 0 17
Ma r 3 1, 2 0 17
J a n 3 1, 2 0 17
J u n 17 , 2 0 17
J u n 17 , 2 0 17
Ma r 13 , 2 0 17
Ma y 2 0 , 2 0 17
Ma r 2 5 , 2 0 2 1
J a n 4 , 2 0 18
Ta m Lin h a s Aé re a s S .A.
On e in s u ra n c e p o lic ie s g u a ra n te e
12 ,8 9 4
Ma y 19 , 2 0 2 0
Fe d e ra is
Ta m Lin h a s Aé re a s S .A.
On e in s u ra n c e p o lic ie s g u a ra n te e
6 ,7 0 4
Oc t 2 0 , 2 0 2 1
Fu n d a ç ã o d e P ro te ã o d e De fe s a d o
Co n s u mid o r P ro c o n
Un iã o Fe d e ra l Va ra Co ma rc a d e DF
Un iã o Fe d e ra l Va ra Co ma rc a d e S P
Ta m Lin h a s Aé re a s S .A.
Ta m Lin h a s Aé re a s S .A.
Ta m Lin h a s Aé re a s S .A.
Two in s u ra n c e p o lic ie s g u a ra n te e
Two in s u ra n c e p o lic ie s g u a ra n te e
On e in s u ra n c e p o lic ie s g u a ra n te e
3 ,2 7 6
2 ,6 9 6
19 ,5 5 7
19 1,0 13
J a n 2 1, 2 0 2 1
No v 9 , 2 0 2 0
Fe b 2 2 , 2 0 2 1
213
FINANCIAL STATEMENTS | Financial Statements
118
NOTE 33 - TRANSACTIONS WITH RELATED PARTIES
(a) Details of transactions with related parties as follows:
T ax No.
Related party
96.810.370-9
Inversiones Costa Verde
Ltda. y CPA.
65.216.000-K
Comunidad Mujer
Nature of
relationship with
related parties
Country
of origin
Nature of
related parties
transactions
Related director
Related director
Chile
Chile
T ickets sales
Services provided for advertising
T ickets sales
Currency
CLP
CLP
CLP
78.591.370-1 Bethia S.A and subsidiaries
Related director
Chile
Services received of cargo transport
Services received from National and International
CLP
65.216.000-K Viajes Falabella Ltda.
Related director
79.773.440-3
T ransportes San Felipe S.A
Related director
Chile
Chile
Courier
Services provided of cargo transport
Sales commissions
Services received of transfer of passengers
T ickets sales
87.752.000-5
Granja Marina T ornagaleones
Common shareholder
Chile
T ickets sales
Foreign
Consultoría Administrativa
Profesional S.A. de C.V.
Associate
Mexico
Professional counseling services received
Foreign
Inversora Aeronáutica Argentina
Related director
Argentina
Foreign
T AM Aviação Executiva
e T axi Aéreo S/A
Related director
Brazil
Leases as lessor
Revenue billboard advertising maintaining
Services provided by sale of tickets
Services proviived of cargo transport
Services received at airports
CLP
CLP
CLP
CLP
CLP
CLP
MXN
ARS
US$
BRL
BRL
BRL
T ransaction amount
with related parties
As of December 31,
2016
2015
T hUS$
T hUS$
6
(12)
9
(394)
(285)
192
(727)
(84)
3
76
15
(10)
2
(259)
(227)
30
(50)
(127)
7
117
(2,563)
(1,191)
(264)
-
2
(122)
7
(269)
1
2
(63)
5
214
FINANCIAL STATEMENTS | Financial Statements
119
120
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 (Senior).
For the period ended
December 31,
2016
ThUS$
2015
ThUS$
16,514
17,185
556
778
23,459
8,085
49,392
547
864
19,814
10,811
49,221
Remuneration
M anagement fees
Non-monetary benefits
Short-term benefits
Share-based payments
Total
NOTE 34 - SHARE-BASED PAYMENTS
(a)
Compensation plan for increase of capital
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
On December 21, 2016, the subscription and payment period of the 4,800,000 shares corresponding
to the compensation plan approved at the Extraordinary Shareholders' Meeting held on December
21, 2011, expired.
Of the total shares allocated to the 2011 Compensation Plan, only 10,282 shares were subscribed
and paid, having been placed on the market in January 2014. In view of the above, at the expiration
date, the 2011 Compensation Plan had a balance of 4,789,718 shares pending of subscription and
payment, which was deducted from the authorized capital of the Company.
Share options in agreements of share- based payments,
as of January 1, 2015
Share options granted
Share options cancelled
Share options in agreements of share- based payments,
as of December 31, 2015
Share options in agreements of share- based payments,
as of January 1, 2016
Executives resinged options (*)
Share options expired
Share options in agreements of share- based payments,
as of December 31, 2016
Number
of share
options
4,202,000
406,000
(90,000)
4,518,000
4,518,000
(4,172,000)
(346,000)
-
These options was valued and recorded at fair value at the grant date, determined by the "Black-
Scholes-Merton”. The effect on income to December 2016 corresponds to ThUS$ 2,989
(ThUS$ 10,811 at December 31, 2015).
(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. With regard to this compensation, a
defined date for implementation does not exist.
(b) Compensation plan 2016-2018
The company implemented a retention plan long-term for executives, which lasts until December
2018, with a vesting period between October 2018 and March 2019, which consists of an
extraordinary bonus whose calculation formula is based on the variation the value to experience the
action of LATAM Airlines Group S.A. for a period of time.
This benefit is recognized in accordance with the provisions of IFRS 2 "Share-based Payments" and
has been considered as cash settled award and therefore recorded at fair value as a liability, which is
updated to the closing date of each financial statement with effect on profit or loss.
Units bases,
balance at December 31, 2016
Unit bases
granted
4,719,720
215
FINANCIAL STATEMENTS | Financial Statements
121
122
The fair value has been determined on the basis of the best estimate of the future value of the
Company share multiplied by the number of units granted bases.
At December 31, 2016, the carrying amount of ThUS$ 4,442, is classified under "Administrative
expenses" in the Consolidated Statement of Income by Function.
(c)
Subsidiaries compensation plans
(c.1) Stock Options
TAM Linhas Aereas S.A. and Multiplus S.A., both subsidiaries of TAM S.A., have outstanding
stock options at December 31, 2016, which amounted to 96,675 shares and 394,698 shares,
respectively (at December 31, 2015, the distribution of outstanding stock options amounted to
394,698 for Multiplus S.A. and 96,675 shares TAM Linhas Aéreas S.A.).
T AM Linhas Aéreas S.A.
Description
05-28-2010
T otal
Outstanding option number as December 31, 2015
Outstanding option number as December 31, 2016
96,675
96,675
96,675
96,675
4th Grant
Multiplus S.A.
3rd Grant
4th Grant
4nd Extraordinary
Grant
Description
03-21-2012
04-03-2013
11-20-2013
T otal
Outstanding option number as December 31, 2015
102,621
Outstanding option number as December 31, 2016
84,249
255,995
173,399
159,891
518,507
137,050
394,698
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:
Number of shares
Accrued options
Number of shares
Non accrued options
Company
As of
December 31,
2016
As of
December 31,
2015
As of
December 31,
2016
As of
December 31,
2015
T AM Linhas Aéreas S.A.
Multiplus S.A.
-
-
-
-
96,675
394,698
96,675
518,507
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-Merton” method, where the cases
were updated with information LATAM Airlines Group S.A. There is no value recorded in
liabilities and in income at December 31, 2016 (at December 31, 2015 not exist value recorded in
liabilities and in incomes).
(c.2) Payments based on restricted stock
In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted
stock, a total of 91,103 ordinary, registered book entry securities with no face value, issued by the
Company to beneficiaries.
The quantity of restricted stock units was calculated based on employees’ expected remunerations
divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in
the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to
the restricted stock when the following conditions have been met:
Compliance with the performance goal defined by this Council as return on Capital
a.
Invested.
The Beneficiary must remain as an administrator or employee of the Company for the
b.
period running from the date of issue to the following dates described, in order to obtain rights over
the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third)
after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.
216
FINANCIAL STATEMENTS | Financial Statements
123
124
Number shares in circulation
(c)
Dividends:
Opening
balance
Granted
Exercised
Not acquired due
to breach of employment
retention conditions
Closing
balance
From January 1
to December 31, 2015
91,103
119,731
-
(34,924)
175,910
From January 1
to December 31, 2016
175,910
138,282
(15,811)
(60,525)
237,856
NOTE 35 - STATEMENT OF CASH FLOWS
The Company has done significant non-cash transactions mainly with financial leases,
(a)
which are detailed in Note 17 letter (d), additional information in numeral (iv) Financial leases.
(b)
Other inflows (outflows) of cash:
For the periods ended
December 31,
Guarantees
Fuel hedge
Currency hedge
Court deposits
Change reservation systems
DOJ fine
T ax paid on bank transaction
Fuel derivatives premiums
SEC agreement
Bank commissions, taxes paid and other
Hedging margin guarantees
Others
2016
T hUS$
(51,559)
(50,029)
(39,534)
(33,635)
-
(12,750)
(10,668)
(6,840)
(4,719)
(769)
1,184
50
T otal Other inflows (outflows) Operation flow
(209,269)
Recovery loans convertible into shares
Certificate of bank deposits
T ax paid on bank transaction
Others
8,896
-
(3,716)
(4,337)
2015
T hUS$
(2,125)
(243,587)
1,802
(6,314)
11,000
-
(7,176)
(20,932)
-
(5,137)
87,842
-
(184,627)
20,000
3,497
(12,921)
-
T otal Other inflows (outflows) Investment flow
843
10,576
Aircraft Financing advances
Loan guarantee
Settlement of derivative contracts
Credit card loan manager
Early redemption of bonds T AM 2020
Guarantees bonds emission
Others
T otal Other inflows (outflows) Financing flow
(125,149)
(74,186)
(29,828)
-
-
-
-
(229,163)
(28,144)
-
(35,891)
3,227
(15,328)
(26,111)
2,490
(99,757)
For the periods ended
December 31,
2016
ThUS$
(40,823)
(400)
(41,223)
2015
ThUS$
(34,632)
(400)
(35,032)
M ultiplus S.A
Lan Perú S.A
Total dividends paid
(*)
(*) Dividends paid to minority shareholders
NOTE 36 - THE ENVIRONMENT
LATAM Airlines Group S.A. manages environmental issues at the corporate level, centralized in
Environmental Management. There is a commitment to the highest level to monitor the company
and minimize their impact on the environment, where continuous improvement and contribute to
the solution of global climate change problems, 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 called Climate Change Strategy and it is
based on the aim of being a world leader in Climate Change and Eco-efficiency, which is
implemented under the following pillars:
i. Carbon Footprint
ii. Eco-Efficiency
iii. Sustainable Alternative Energy
iv. Standards and Certifications
For 2016, were established the following topics:
1. Advance in the implementation of an Environmental Management System;
2. Manage the Carbon Footprint of our emissions by ground operations;
3. Corporate Risk Management;
4. Corporate strategy to meet the global target of aviation to have a carbon neutral growth
by 2020.
Thus, during 2016, we have worked in the following initiatives:
- Advance in the implementation of an Environmental Management System for main operations
of the Company, with an emphasis on Santiago. It is highlighted that the company during 2016
has recertified a certified management system, under ISO 14.001 at its facility in Miami.
217
125
- Certification of stage 2 of IATA Environmental Assestment (IEnvA), the most advanced of
-
this certification, been the third airline in the world to achieve this certification.
Preparation of the environmental chapter for reporting sustainability of the Company, to
measure progress on environmental issues.
- Answer to the Dow Jones Sustainability Index 2016 questionnaire, which the company
responds annually.
- Measurement and external verification of the Corporate Carbon Footprint.
It is highlighted that in the 2016 LATAM Airlines Group maintained its selection in the index Dow
Jones Sustainability in the global category, being the only two airlines that belong to this select
group.
NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS
On January 18, 2017, the Company was notified of a civil suit filed by Inversiones Ranco Tres S.A.,
represented by Mr. Jorge Enrique Said Yarur against LATAM Airlines Group S.A., for supposed
non-compliance of contractual obligations from the social contract of the Company, as well as the
directors Ramón Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza and main executives of
the Company, Enrique Cueto Plaza and Ignacio Cueto Plaza, for the supposed noncompliance of
their duties as directors and main executives of the Company. LATAM has hired specialist lawyers
to answer the lawsuit. On March 10, 2017, the Court rejected the dilatory exceptions presented by
LATAM.
On March 8th, 2017, LATAM received a third Requirement of Information from the Central-North
Metropolitan Region Prosecutor’s Office requesting information relating to the investigation of
payments made by Lan Airlines S.A. to a consultant advising it on the solution to labor matters in
Argentina in the years 2006-2007.
Subsequent at December 31, 2016 until the date of issuance of these financial statements, there is no
knowledge of financial facts or otherwise, that could significantly affect the balances or
interpretation thereof.
LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at
December 31, 2016, have been approved by the Board of Director’s in an extraordinary meeting
held on March 15, 2017.
FINANCIAL STATEMENTS | Financial Statements
218
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Filiales y Coligadas
LATAM AIRLINES GROUP S.A
Name: LATAM Airlines Group S.A., R.U.T. 89.862.200-2
of January 14, 2012. The effective date of the change of
name was June 22, 2012.
Legal incorporation: It is legally incorporated as a limited
liability company, by virtue of public deed dated December
30, 1983, executed at the Notary Public’s Office of Eduardo
Avello Arellano, having registered an abstract of it in the
Santiago Register of Commerce on sheet 20,341 number
11,248 of the year 1983 and published in the Official Ga-
zette of December 31, 1983.
By public deed dated August 20, 1985, executed at the No-
tary Public’s Office of Miguel Garay Figueroa, the company
was transformed into a stock company (corporation), under
the name of Línea Aérea Nacional Chile S.A. (nowadays,
LATAM Airlines Group S.A.); which, by express provision of
Law N°18,400, is the legal continuation of the public state
company created in the year 1929 under the name of Línea
Aérea Nacional de Chile, with respect to aeronautic con-
cessions and radio communications, traffic rights and other
administrative concessions.
The Extraordinary Shareholders’ Meeting of Lan Chile S.A.
held on July 23, 2004 agreed to change the company’s
name to “Lan Airlines S.A.” An abstract of the public deed
with the abridged Minutes of such Meeting was registered
in the Register of Commerce of the Registrar of Lands on
sheet 25,128, number 18,764 corresponding to the year
2004 and that was published in the Official Gazette of Au-
gust 21, 2004. The effective date of the change of name
was September 8, 2004.
LATAM Airlines Group S.A. is governed by the regulations
applicable to open stock companies, for which purposes it
is registered under Nº 0306 of January 22, 1987 in the Se-
curities Register of the Superintendence for Securities and
Insurance Companies.
Note: The financial statements of the subsidiaries are shown
in this report in a summarized manner. The complete infor-
mation is available to the public in our offices and at the Su-
perintendence for Securities and Insurance Companies.
TAM S.A. Y FILIALES
Legal incorporation: Stock company incorporated in Brazil
in Mayo of the year 1997.
Object:
To participate as shareholder in other companies, especially
in companies that develop scheduled air transport services
domestically and internationally and in other related ac-
tivities either related or complementary to scheduled air
transport services.
Subscribed and paid capital: MUS$ 2,304,021
Year’s income: MUS$ 43,925
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 3.01%
The Extraordinary Shareholders’ Meeting of Lan Airlines
S.A. of December 21, 2011 agreed to change the com-
pany name to “LATAM Airlines Group S.A.” An abstract of
the public deed with the abridged Minutes of such Meeting
was registered in the Register of Commerce of the Regis-
trar of Lands on sheet 4,238 NUBER 2,921 corresponding
to the year 2012 and was published in the Official Gazette
Chairman of the board:
Claudia Sender Ramirez
Board members:
Ruy Antonio Mendes Amparo
Federico Herman Germani
219
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
TAM S.A.’s subsidiary companies
► TAM Linhas Aereas S.A. and subsidiaries
► ABSA: Aerolinhas Brasileiras S.A. and subsidiary
► Multiplus S.A.
Identification: Stock company incorporated in Brazil.
Identification: Stock company incorporated in Brazil
Identification: Stock company incorporated in Brazil.
Object: (a) development of scheduled air transport passen-
gers services, cargo or mailbags, in accordance to the legis-
lation in force; (b) development of complementary activities
of air transport services for passengers, cargo and mailbags;
(c) provision of maintenance services, aircraft repair, of own
or third parties, engines, spare parts and pieces; (d) provision
of hangarage (hangar space) for aircraft; (e) provision of patio
and runway services, flight attendant services and cleaning of
aircraft; (f) provision of engineering services, technical assis-
tance and other activities related to the aeronautic industry;
(g) conducting of education and training related to aeronauti-
cal activities; (h) analysis and development of programs and
systems; (i) the purchase and sale of parts, accessories and
aircraft equipment; (j) development and implementation of
other connected or complementary activities related to air
transport, in addition to those expressly listed above; (k) im-
port and export of finished lubricating oil; and (l) development
of correspondent banking services.
Subscribed and paid capital: MUS$ 1.839.233
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.49377%
Chairman of the board:
Cláudia Sender Ramirez
Board members:
Ruy Antonio Mendes Amparo
Daniel Levy
Object: (a) development of scheduled air transport services
of passengers, cargo or postal bags, domestic or international,
according to the legislation in force; (b) development of ancil-
lary air transport activities, such as attendance, cleaning and
towing of aircraft, cargo monitoring, flight dispatch, check-in
and check-out, and other services contemplated in its own
bylaws; (c) leasing and operating aircraft and chartering; (d)
development of maintenance services and marketing of spare
parts, aircraft parts and equipment; and (e) development and
implementation of other connected or complementary ac-
tivities related to air transport, in addition to those expressly
listed above.
Object: i. development and management of customer loyalty
programs according related to the consumption of goods and
services offered by the partners of the company; ii. the mar-
keting of rights of redemption of awards under the customer
loyalty program; iii. the creation of databases of individuals
and legal entities; iv. the obtaining and processing of transac-
tional information relating to consumption habits; v. the repre-
sentation of other companies Brazilian or foreign companies;
and vi. providing ancillary services to the trading of goods and
products, including, but not limited to, imports and exports,
in addition to the acquisition of items and related products,
directly and indirectly, resulting from the activities described
above.
Subscribed and paid capital: MUS$ 62,752
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.15770%
Chairman of the board:
Luis Quintiliano
Board members:
Dario Matsuguma
Daniel Levy
Subscribed and paid capital: MUS$ 32,923
2016 Shareholding: 72.40%
Year-to-year variation: 0.00%
% over parent company’s assets: 1.11628%
Chairman of the board:
Roberto José Maris DE Medeiros
Board members:
Ronald Domingues
Ricardo Gazetta
Ricardo Birtel Mendes de Freitas
220
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Transportes Aereos del Mercosur S.A.
► Corsair Participações Ltda
Identification: Stock company incorporated in Paraguay
Identification: Stock company incorporated in Brazil.
Object: It has a broad business object that includes aeronau-
tic, commercial, touristic, service, financing, representation
and investment activities with an emphasis on scheduled and
non-scheduled airline transportation services, domestic and
international of persons, things and/or correspondence, among
others, commercial and for delivering maintenance services
and technical assistance for all types of aircraft, equipment,
accessories and air navigation materials, among others.
Subscribed and paid capital: MUS$ 17.251
2016 Shareholding: 94.98%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.12835%
Chairman of the board
Gustavo Lopegui
Board members
Enrique Alcaide Hidalgo
Darío Maciel Martínez
Hernán Pablo Morosuk (Interim)
Management:
Enrique Alcaide Hidalgo
Esteban Burt Artaza
Hernan Pablo Morosuk
Gabriela Terrazas Domaniczky
Maria Emiliana Duarte León
General manager
Rosario Altgelt
Object: (i) participating in other civil or commercial compa-
nies, as shareholder or stockholder; and (ii) managing its own
assets.
Subscribed and paid capital: MUS$ 59
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00135%
Chairman of the board:
Ruy Antonio Mendes Amparo
Board members:
Euzébio Angelotti Neto
► TP Franchising Limited
Identification: Limited liability company incorporated in Bra-
zil.
Object: (a) the granting of franchises; (b) temporary assign-
ments, free of charge or for valuable consideration, to its
franchisees, of rights to use trademarks, systems, knowledge,
methods, patents, technology and any other rights, interests
or property, movable or immovable, tangible or intangible, of
our company, that either is or will be a licensee, related to
the development, execution, operation or management of the
franchises to be granted; (c) the development of any activities
necessary to ensure, as far as possible, the maintenance and
continuous improvement of the standards of operation of its
franchise network; (d) the development of models of execu-
tion, operation and management of the network of franchises
and its transmission to the franchisees; and (e) the distribu-
tion, sale and marketing of airline tickets and related products,
as well as of any related business or accessories toward its
main objective, entitled to participate in other companies as
a partner or shareholder, in Brazil or abroad, or in consortia,
as well as undertaking its own projects, or join the projects of
third parties, including those for the purpose of benefiting of
tax incentives, in accordance with the legislation in force.
Subscribed and paid capital: MUS$ 9
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00478%
Management:
Cláudia Sender Ramirez
Marcelo Eduardo Guzzi Dezem
Daniel Levy
► TAM Capital Inc
Identification: Stock company incorporated in Brazil.
Object: The company is entitled to exercise any activity not
contrary to the law.
Subscribed and paid capital: MUS$ 133,139
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.0%
Board members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
221
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► TAM Capital 2 Inc.
LAN CARGO S.A AND SUBSIDIARIES
Identification: Stock company incorporated in Brazil.
Object: The company is entitled to exercise any activity not
contrary to the law.
Subscribed and paid capital: MUS$ 94,614
2016 Shareholding 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.0%
Board members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
► TAM Capital 3 Inc.
Identification: Stock company incorporated in Brazil.
Object: The company is entitled to exercise any activity not
contrary to the law.
Subscribed and paid capital: MUS$ 213,734
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.96502%
Board members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
Legal incorporation: Incorporated as a closely-held stock
company by virtue of public deed dated May 22, 1970, ex-
ecuted before the Notary Public’s Office of Sergio Rodríguez
Garcés; a legal incorporation that was materialized with the
contribution of assets and liabilities of the company Línea
Aérea del Cobre Limitada (Ladeco Limitada), in turn incorpo-
rated on September 3, 1958 at the Public Notary’s Office of
Jaime García Palazuelos. The company has experienced sever-
al forms, the last of which is recorded in the public deed dated
November 20, 1998, whose abstract was registered on sheet
30,091 number 24,117 of the Santiago Register of Commerce
and published in the Official Gazette of December 3, 1998, by
virtue of which Ladeco S.A. was merged by incorporation into
the Lan Chile S.A. subsidiary denominated Fast Air Carrier S.A.
Via public deed dated October 22, 2001 with the abridgement
of the minutes of the Extraordinary Shareholders’ Meeting
of Ladeco S.A. of such same date, the business name was
changed to “Lan Chile Cargo S.A.” An abstract of such pub-
lic deed was registered in the Register of Commerce of the
Santiago Registrar of Lands on sheet 27,746 number 22,624
corresponding to the year 2001 and was published in the Of-
ficial Gazette of November 5, 2001. The name change became
effective on December 10, 2001.
By virtue of the public deed August 23, 2004, into which
were abridged the minutes of the Extraordinary Sharehold-
ers’ Meeting of Lan Chile Cargo S.A. of August 17, 2004, the
company’s business name was changed to “Lan Cargo S.A.” An
abstract of such public deed was registered in the Register of
Commerce of the Santiago Registrar of Lands on sheet 26.994
number 20.082 corresponding to the year 2004 and was pub-
lished in the Official Gazette August 30, 2004.
Object: To carry out and develop, either on its own or with third
parties: the transport, in general and in any of its forms and,
particularly, the air transport of passengers, cargo and cor-
respondence, inside and outside the country; tourist and ho-
tel industry activities and activities complementary to them,
in any of their forms, inside and outside of the country; the
purchase, sale, manufacture and/or integration, maintenance,
lease or any other form of usufruct, either on its own or with
third parties, of aircraft, aeronautic spare parts and equip-
ment, and their development in any capacity whatsoever; to
provide all kinds of services and consulting services related
to transportation in general and, particularly, to air transport
in any of its forms, whether of land support, maintenance,
technical advisory or of another kind, inside and outside of
the country, and all kinds of activities and services related to
the tourist and hotel industry and other above-referred goods
and services, inside and outside of the country. In compliance
with the preceding objectives, the company may materialize
investments or participate as partner in other companies, ei-
ther acquiring shares or rights or interests in any other type of
association, be that in existing ones or in those to be created
in the future and, in general, to execute all acts and subscribe
all contracts necessary and pertinent toward attaining the in-
dicated objectives.
Subscribed and paid capital: MUS$ 83,226
Year’s income: MUS$ (7,705)
2016 Shareholding: 99.898%
Year-to-year variation: 0.00%
% over parent company’s assets: 1.90%
Board members:
Juan José Cueto Plaza (Board Member LATAM)
Cristián Ureta Larraín (Managers LATAM)
Ignacio Cueto Plaza (Managers LATAM)
Enrique Cueto Plaza (Managers LATAM)
Ramiro Alfonsín Balza (Managers LATAM)
General manager:
Alvaro Carril Muñoz
222
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Subsidiary companies of Lan Cargo S.A
► Laser Cargo S.R.L.
Identification: Limited liability company incorporated in Ar-
gentina.
Object: To provide, on its own or with third parties, services
as agent of air and sea cargo, operate air and sea containers,
control the loading and unloading of conventional aircraft,
freight, conventional ships and container ships, consolida-
tion and deconsolidation, operations and contracts with
transportation companies, of distribution and promotion of
air cargo, sea, river and land and related activities and ser-
vices, imports and exports: such operations are to be car-
ried out in the manner stipulated by the laws of the country
and the regulations governing these professions and activi-
ties, the customs provisions and regulations of Argentina’s
Naval Prefecture (PNA), Argentina’s Air Force, as well as by
entrusting third parties to carry out tasks assigned by the
current legislation to freight forwarders; also, the deposit and
transport by its own account and/or via third parties of fruit,
products, basic products, merchandise in general and all type
of documentation: the packing of goods or merchandise in
general, on its own account and/or via third parties. In the
performance of these functions, the company may register
as maritime agent, air, importer and exporter, contractor and
maritime and air supplier before the competent authorities.
At the same time, it will develop postal activities aimed at
the admission, classification, transportation, distribution and
delivery of correspondence, letters, portals, parcel posts up
to 50 kilograms all of it within the Republic of Argentina and
to/from overseas destinations. This activity includes those
developed by de so-called couriers or courier companies and
any other assimilated or assimilable activities pursuant to
Art. 4 of Executive Decree 1187/93. The company shall be
also entitled to develop the logistics process consisting in the
transfer, storage, assembly, fractioning, packing, preparation
of merchandise in general for its subsequent transportation
and distribution to the end customer jointly with the manag-
ing of the information pertinent to the compliance with this
objective; namely, from the logistics process of intaking raw
materials from suppliers up to the delivery of the finished
products to clients, including the regulation of information to
guarantee the efficiency of this process.
Board members:
Juan José Cueto Plaza (Board Member LATAM)
Ramiro Alfonsín Balza (Managers LATAM)
Andrés del Valle Eitel (Managers LATAM)
Enrique Elsaca Hirmas (Managers LATAM)
Subscribed and paid capital: MUS$ 68
2016 Shareholding: 99.99%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.0000%
General manager:
Javier Cáceres Celia
Board members:
Esteban Bojanich
Management:
Esteban Bojanich,
Rosario Altgelt
María Marta Forcada,
Facundo Rocha
Gonzalo Perez Corral
Nicolás Obejero
Norberto Díaz
► Fast Air Almacenes de Carga S.A.
Identification: Stock company incorporated in Chile.
► Prime Airport Services Inc. and subsidiary
Identification: Stock Company (corporation) legally incorpo-
rated in the United States of America.
Object: To carry out and develop the operation or manage-
ment of stores or customs deposit facilities, in which to store
any good or merchandise up until their they are picked up, for
import, export or other custom destination, pursuant to the
terms and conditions set forth in the Customs Ordinance, its
regulations and other pertinent norms.
Subscribed and paid capital: MUS$ 2
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00000%
Object: To carry out and develop the operation or manage-
ment of stores or customs deposit facilities, in which to store
any good or merchandise up until their they are picked up, for
import, export or other custom destination, pursuant to the
terms and conditions set forth in the Customs Ordinance, its
regulations and other pertinent norms.
Board members:
Carlos Larraín
General manager:
Rene Pascua
Subscribed and paid capital: MUS$ 6.741
2016 Shareholding: 99.89%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.03322%
223
► Lan Cargo Overseas Limited and subsidiaries
Identification: Limited Liability Company incorporated in Ba-
hamas.
Object: To participate in any act or activity not expressly pro-
hibited by any law currently in effect in The Bahamas.
Subscribed and paid capital: MUS$ 1,183
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.08198%
Board members:
Andres del Valle Eitel (Managers LATAM)
Cristian Toro (Managers LATAM)
Management:
Andres del Valle Eitel (Managers LATAM)
Cristian Toro (Managers LATAM
► Transporte Aéreo S.A.
Identification: Stock company incorporated in Chile.
Object: To participate in any act or activity not expressly pro-
hibited by any law currently in effect in The Bahamas.
Board members:
Esteban Bojanich
Management:
Esteban Bojanich
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Management:
Ramiro Alfonsín Balza
Roberto Alvo Milosawlewitsch
Enrique Elsaca Hirmas
participation in all kinds of investments, both in Chile as well
as abroad, on subject matters directly or indirectly related to
aeronautic affairs and/or to any of its other business objec-
tives; and, e) the development and operation of any activity
derived from the business objective and/or linked, connected,
coadjuvating or complementary to the same.
► Consorcio Fast Air Almacenes de Carga S.A. - Laser Cargo
S.R.L.
Identification: Temporary union of companies legally incor-
porated in Argentina.
Subscribed and paid capital: MUS$ 125
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00000%
Object: To submit a bid before the National and International
Bidding Contest N° 11/2000, aimed at awarding a Use Permit
toward the installation and operation of a Fiscal Deposit Area
at the Rosario International Airport.
Board members:
Ignacio Cueto Plaza (Managers LATAM)
Ramiro Alfonsín Balza (Managers LATAM)
Roberto Alvo Milosawlewitsch (Managers LATAM)
Subscribed and paid capital: MUS$ 132
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00021%
► Connecta Corporation
Identification: Stock Company (corporation) legally incorpo-
rated in the United States of America.
Object: Property ownership, operating lease and subleasing of
aircraft.
Subscribed and paid capital: MUS$ 1
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00000%
Subscribed and paid capital: MUS$ 11,800
2016 Shareholding: 99.99%
Year-to-year variation: 0.00%
% over parent company’s assets: 1.12581%
Board members:
Ramiro Alfonsín Balza
Roberto Alvo Milosawlewitsch
Enrique Elsaca Hirmas
General manager:
Enrique Elsaca Hirmas
► Lan Cargo Inversiones S.A. y filial
Identification: Stock company incorporated in Chile
General manager:
Ernesto Ramirez
Object: a) To perform commercial air transportation activities
in any of its forms, either of passengers, mail and/or cargo
and everything that might be directly or indirectly related to
such activity, inside or outside of the country, by its own ac-
count or with third parties; b) to provide services related to the
maintenance and repair of aircraft, of its own or of third par-
ties; c) commerce and development of activities related to the
travel, tourism and hotel business; d) the development and/or
224
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Línea Aérea Carguera de Colombia (Subsidiary of LAN Car-
go Inversiones)
► Mas Investment Limited (Subsidiary of LAN Overseas Lim-
ited)
Identification: Stock company incorporated in Colombia
Identification: Limited Liability Company incorporated in Ba-
hamas.
Object: To provide public commercial air transport services
of cargo and mail inside and outside of the territory of the
Republic of Colombia, and to/from Colombia. As secondary
objective, the company shall be entitled to provide mainte-
nance services to itself and to third parties; run its own school
of operations and provide practical and theoretical instruction
services and training to aeronautic personnel of its own or of
third parties in its different modalities and specialties; import
for itself or for third parties any spare parts and pieces related
to the aeronautic activity; provide airport services to third par-
ties, represent or act as agent on behalf of national or foreign
airlines for passengers or cargo and, in general, to any com-
pany providing services in the aeronautic sector.
Subscribed and paid capital: MUS$ 774
2016 Shareholding: 90.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.03758%
Board members:
Alberto Davila Suarez
Pablo Canales
Jaime Antonio Gongora Esguerra
Fernando García Poitevin (Interim)
Jorge Nicolas Cortazar Cardoso (Interim)
Management:
Jaime Antonio Gongora Esguerra
Erika Zarante Bahamon (Interim)
Object: To participate in any act or activity not expressly pro-
hibited by any law currently in effect in The Bahamas and, spe-
cifically, to own property (stakes) in other LAN subsidiaries.
Subscribed and paid capital: MUS$1,446
2016 Shareholding: 100,000
Year-to-year variation: 0.00%
% over parent company’s assets: 0.03482%
Board members:
J. Richard Evans
Carlton Mortimer
Charlene Y. Wels
Geoffrey D. Andrews.
► Promotora Aérea Latinoamérica S.A and subsidiaries (Sub-
sidiary of Mas Investment Limited)
Identification: Variable Equity Stock Company incorporated in
México.
Object: To promote, incorporate, organize, operate and take
participation in the capital and equity of all kinds of commer-
cial companies, civilian, industrial associations or companies,
commercial, of service or of any other nature, both domestic
and foreign, as well as to participate in their management or
liquidation.
* The acquisition, sale and in general the negotiation with any
type of shares, social (company) parties, and of any title or
value permitted by law...* To provide or hire technical, consult-
ing and advisory services, as well as to execute contracts or
agreements toward the achievement of these objectives.
Subscribed and paid capital: MUS$ 2,216
2016 Shareholding: 49.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.02456%
Management:
Luis Ignacio Sierra Arriola
► Inversiones Áreas S.A (Subsidiary of Mas Investment
Limited)
Identification: Stock company incorporated in Peru.
Object: To promote, incorporate, organize, operate and take
participation in the capital and equity of all kinds of commer-
cial companies, civilian, industrial associations or companies,
commercial, of service or of any other nature, both domestic
and foreign, as well as to participate in their management or
liquidation.
* The acquisition, sale and in general the negotiation with any
type of shares, social (company) parties, and of any title or
value permitted by law...* To provide or hire technical, consult-
ing and advisory services, as well as to execute contracts or
agreements toward the achievement of these objectives.
Subscribed and paid capital: MUS$ 428
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.02922%
Board members:
Andrés Enrique del Valle Eitel
Cristian Eduardo Toro Cañas
General manager:
Carlos Schacht Rotter
225
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Americonsul S.A de C.V. (Subsidiary of Promotora Aérea
Latinoamérica S.A and subsidiaries)
Board members:
Carlos Fernando Pellecer Valenzuela
LAN PERÚ S.A
Identification: Variable Equity Stock Company incorporated in
México.
Management:
Carlos Fernando Pellecer Valenzuela
Object: To provide and receive all kinds of technical, manage-
ment and advisory services to/from industrial, commercial and
service companies; promote, organize, manage, supervise, is-
sue and direct personnel training courses; to carry out all kinds
of studies, plans, projects and research jobs; hire the neces-
sary professional and technical personnel.
► Americonsult de Costa Rica S.A. (Subsidiary of Americonsul
S.A de C.V)
Legal incorporation: Stock company incorporated in Costa
Rica.
Object: General commerce in industry, agriculture and live-
stock.
Subscribed and paid capital: MUS$ 20
2016 Shareholding: 99.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.00615%
Management:
Luis Ignacio Sierra Arriola
Treasurer: Alejandro Fernández Espinoza
Luis Miguel Renguel López
Tomás Nassar Pérez
Marjorie Hernández Valverde.
Subscribed and paid capital: MUS$ 5
2016 Shareholding: 49.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.00000%
Management:
Luis Ignacio Sierra Arriola
► Americonsult de Guatemala S.A. (Subsidiary of Americon-
sul S.A de C.V)
Identification: Stock company incorporated in Guatemala.
Object: Powers to represent, intermediate, negotiate and
commercialize; develop all kinds of commercial and industrial
activities; all type of commerce, in general. Broad business
objective that permits all kinds of operations in the country.
Subscribed and paid capital: MUS$ 76
2016 Shareholding: 99.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.00068%
Chairman of the board:
Luis Ignacio Sierra Arriola
Legal incorporation: Stock Company incorporated in Peru el
February 14, 1997.
Object: To provide air passenger transportation services, cargo
and mail, at the national and international level, pursuant to
the civil aeronautics legislation.
Subscribed and paid capital: MUS$ 4,341
Year’s income: MUS$ (2,164)
2016 Shareholding: 70.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.06%
Chairman of the board:
Emilio Rodríguez Larraín Salinas
Board members:
César Emilio Rodríguez Larraín Salinas
Ignacio Cueto Plaza (LATAM Executive)
Enrique Cueto Plaza (LATAM Executive)
Jorge Harten Costa
Alejandro García Vargas
Emilio Rodríguez Larraín Miró Quesada
Armando Valdivieso Montes (LATAM Executive)
General manager:
Félix Antelo
INVERSIONES LAN S.A Y FILIALES
Legal incorporation: Incorporated as a closely-held stock
company by virtue of public deed dated January 23, 1990, ex-
ecuted at the Notary Public’s Office of Humberto Quezada M.,
registered in the Santiago Register of Commerce on fs. (sheet)
3,462 N° 1,833 of the year 1990 and published in the Official
Gazette of February 2, 1990.
226
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Object: To invest in all kinds of assets, either movable (per-
sonal) or immovable (real estate), tangible or intangible. Ad-
ditionally, the company shall be entitled to form other type of
companies, of any nature; acquire rights in already incorporat-
ed companies, manage them amend them or liquidate them.
Subscribed and paid capital: MUS$ 2
2016 Shareholding: 98.00%
Year-to-year variation: 0.00%
% over parent company’s assets: 0.01747%
Subscribed and paid capital: MUS$ 458
Year’s income: MUS$ 2,607
2016 Shareholding: 100.00%
Year-to-year variation: 0.0%
% over the parent company’s assets: 0.02%
Board members:
Enrique Cueto Plaza (LATAM Executive)
Ignacio Cueto Plaza (LATAM Executive)
Ramiro Alfonsín Balza (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Enrique Elsaca Hirmas (LATAM Executive)
General manager:
Juan Pablo Arias (LATAM Executive)
Subsidiary companies of Inversiones Lan S.A. and sharehol-
ding
► Andes Airport Services S.A.
Identification: Stock company incorporated in Chile.
Object: Comprehensive business consulting and services to
third parties such as cargo, ground handling, staffing and any
other as might be required. To that effect, the company will
perform its functions via personnel especially-hired by the
company or via third parties. In general, the company will be
entitled to develop any activity directly or indirectly related to
its specific business consulting and services objective.
Board members:
Enrique Cueto Plaza (LATAM Executive)
Ignacio Cueto Plaza (LATAM Executive)
Ramiro Alfonsín Balza (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Enrique Elsaca Hirmas (LATAM Executive)
INMOBILIARIA AERONAUTICA S.A
Legal incorporation: Incorporated as a closely-held stock
company by virtue of public deed dated August 1, 1995, ex-
ecuted at the Notary Public’s Office of Gonzalo Cuadra Fabres
and registered in the Santiago Register of Commerce on fs.
(sheet) 2, .690 under N° 17,549 of the year 1995 and pub-
lished in the Official Gazette of September 14, 1995.
Object: To acquire and sell real estate properties and any
rights over them; develop, plan, sell and build real estate prop-
erties and real estate development projects; lease, manage
and any other form of operating with real estate properties,
either on its own behalf or on behalf of third parties.
Subscribed and paid capital: MUS$ 1,147
Year’s income: MUS$ 3,443
2016 Shareholding: 100.00%
Year-to-year variation: 0.0%
% over the parent company’s assets: 0.15%
Board members:
Enrique Cueto Plaza (LATAM Executive)
Ramiro Alfonsín Balza (LATAM Executive)
Armando Valdivieso Montes (LATAM Executive)
LATAM TRAVEL CHILE S.A Y FILIAL
Legal incorporation: Incorporated as a closely-held stock
company by virtue of public deed dated June 22, 1987, ex-
ecuted at the Santiago Notary Public’s Office of Raúl Undur-
raga Laso, registered in the Santiago Register of Commerce
on fs. (sheet) 13,139 N°8,495 of the year 1987 and published
in the Official Gazette of July 2, 1987. The company has un-
dergone several reforms, the last of which is stated for the
record in public deed dated August 24, 1999 executed at the
Notary Public’s Office of Eduardo Pinto Peralta and registered
in the Santiago Register of Commerce on fs. (sheet) 21.042
N°16.759 of the year 1999 and published in the Official Ga-
zette of September 8, 1999.
Object: The operation, management and representation of
national or international companies engaged in hotel, shipping,
airline, hotel and tourism activities; operating on behalf of it-
self or on behalf of third parties, car leasing, imports, exports,
production, marketing and distribution all by itself or with third
parties, in national and international markets, of all kinds of
merchandise, either raw materials, material ingredients (input)
or finished products.
Subscribed and paid capital: MUS$ 235
Year’s income: MUS$ 2,650
2016 Shareholding: 100.00%
Year-to-year variation: 0.0%
% over the parent company’s assets: 0.01%
Board members:
Andrés del Valle Eitel (LATAM Executive)
Armando Valdivieso Montes (LATAM Executive)
General manager:
Sandra Espinoza Gerard
227
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Subsidiary company of Latam Travel Chile S.A. and share-
holding
LAN PAX GROUP S.A.
Subsidiary companies of Lan Pax Group S.A. and shareholding
► Latam Travel Chile II S.A.
Identification: Stock Company incorporated in Chile.
Object: The operation, management and representation of
companies or businesses, national or foreign, engaged in ship-
ping, airlines, hotel and tourism activities; the intermediation
of touristic services such as: (a) seat and ticket reservations
in all kinds of means of transportation; (b) the reservation,
acquisition and sale of accommodation and tourist services,
tickets or passes to all kinds of events, museums, monuments
and protected areas of the country; (c) the organization, pro-
motion and sale of so-called tourist packages, understanding
as such the set of tourist services (maintenance, transporta-
tion, accommodation, customized or projected at the request
of clients, at a pre-established price, for operation within the
national territory; (d) air, land, sea and fluvial tourism trans-
portation within the national territory; (e) leasing and charter-
ing aircraft, ships, trains and other means of transportation in
order to provide tourist services; (f) any other service directly
or indirectly related to the delivery of the services previously
described.
Subscribed and paid capital: MUS$ 235
2016 Shareholding: 99.99%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.01428%
Board members:
Armando Valdivieso Montes (Managers LATAM)
Andrés del Valle Eitel (Managers LATAM)
General manager:
Sandra Espinoza Gerard
Legal incorporation: It was incorporated as a closely-held
stock company by virtue of public deed dated September 27,
2001, executed before the Notary Public’s Office of Mr. Patri-
cio Zaldivar Mackenna, registered in the Register of Commerce
on fs. (sheet) 25,636 N° 20,794 of October 4, 2001 and pub-
lished in the Official Gazette of October 6, 2001.
Object: To invest in all kinds of assets, whether movable
(personal) or immovable (real estate), tangible or intangible.
Within the scope of its line of business, it shall be entitled to
create all kinds of companies, of any nature whatsoever; ac-
quire rights (stakes) in already-incorporated companies, man-
age them, amend them or liquidate them. In general, it may
acquire or sell any types of assets and develop them, either on
its own behalf or on behalf of third parties, as well as perform
all kinds of acts and execute all kinds of contracts conducive
to its purposes. To develop and operate any other activity de-
rived from the company’s business objective and/or linked,
connected, coadjuvating or complementary to the same.
► Inversora Cordillera S.A. and subsidiaries
Identification: Stock company incorporated in Argentina
Object: To invest on its own account or on account of third par-
ties or associated to third parties, in other companies for shares,
whichever their object, incorporated or to be incorporated, inside
or outside of the national territory of the Republic of Argentina,
via the acquisition, legal incorporation or sale of shareholdings
(participations, stakes), shares, quotas, bonds, options, nego-
tiable obligations, convertible or not, other securities or other
forms of investments permitted pursuant to the regulations
currently in effect at that moment, whether that be with the
purpose of keeping them in portfolio or to sell them totally or
partially, as the case might be. To that effect, the company shall
be entitled to perform all such operations not prohibited by law
toward complying with its Object and it shall be legally empow-
ered to acquire rights, undertake obligations and exercise acts
not prohibited by the laws of by its own bylaws.
Subscribed and paid capital: MUS$ 424
Year’s income: MUS$ (35,917)
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.00%
Board members:
Ignacio Cueto Plaza (LATAM Executive)
Andrés del Valle (LATAM Executive)
Enrique Elsaca Hirmas (LATAM Executive)
General manager:
Andrés del Valle Eitel (LATAM Executive)
Subscribed and paid capital: MUS$ 136,703
2016 Shareholding: 95.78%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.07281%
Board members:
Manuel Maria Benites
Jorge Luis Perez Alati
Ignacio Cueto Plaza
Management:
Manuel María Benites
Jorge Luis Perez Alati
Rosario Altgelt
María Marta Forcada
Facundo Rocha Gonzalo Perez Corral
Nicolás Obejero
Norberto Díaz
228
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Lantours S.A.
Identification: Stock company incorporated in Argentina
Object: To carry out on its own behalf or on behalf of third
parties and/or in association with third parties, in the country
and/or abroad, the following activities and operations:
A) COMMERCIAL SERVICES: To carry out, intervene, develop
or design all kinds of operations and activities that involve the
sale of air, land, river or sea tickets for passengers, both na-
tionally as well as internationally, or any other services related
to the tourist industry in general. The above-mentioned ser-
vices may be performed on account of and on behalf of third
parties by mandate, commission, or via the employment of
such systems or methods considered convenient to that ef-
fect, whether such methods are manual, mechanic, electronic,
telephonic, or the internet or of any other kind or technol-
ogy deemed suitable to that effect. The company may carry
out concurrent or connected activities toward the described
object, such as buying and selling, importing, exporting, re-
exporting, licensing and representing all types of goods, ser-
vices, know-how and technology, linked directly or indirectly
to the above-described object; market through any means or
concept the technology that it might create or whose license
or patent it might acquire or manage; develop, distribute, pro-
mote and market all kinds of contents for any kind of com-
munications media
B) TOURISTIC SERVICES: By means of carrying out all kinds
of activities linked to the tourist and hotel industries, as re-
sponsible operator or third-party services operator or as travel
agent. Via the preparation of exchange programs, tourism, ex-
cursions and tours; the intermediation or reservation and loca-
tion of services on any means of transportation in the country
or abroad and the sale of tickets; intermediation in the hir-
ing of hotel services in the country or abroad; reservations of
hotels, motels, tourist apartments and other tourist facilities;
organizing travels and tourism either for individuals or collec-
tive groups, excursions or similar in the country or abroad; the
reception and assistance of tourists during their trips and their
permanence in the country, and providing tour guide services
and baggage dispatch services to the same; the representa-
tion of other travel and tourist agencies, companies, enterpris-
es or tourist institutions both national as well as international
in order to provide in their name any of such services.
C) REPRESENTATION SERVICES: Via the acceptance, perfor-
mance and granting of representations, concessions, commis-
sions, agencies and mandates (powers of attorney) in general.
D) CONSULTING SERVICES: To perform consulting services,
advisory and management, in all matters related to the or-
ganization, installation, attention, development, support and
promotion of companies related to the aeronautic activity,
without excluding the latter activity, in the fields of industrial,
commercial, technical, and advertising management, all of
which shall be provided, when the nature of the subject mat-
ter so requires it, by competent and certified professionals
according to the corresponding regulations, and the delivery
of organizational and management systems of care, mainte-
nance, vigilance and suitable and especially-prepared person-
nel as might be required to perform such tasks.
E) FINANCIAL SERVICES: Via the participation in other created
or to-be-created companies, either by means of acquiring
shares in incorporated companies or by means of the legal
incorporation of companies, by means of granting and ob-
taining credits, loans, money advances with or without real or
personal guarantee; granting warranties or sureties in favor of
third parties, gratuitously or at onerous title; placing funds in
foreign currency, gold or currency or in bank deposits of any
type. To that effect, the company is fully entitled to legally
exercise all such acts that are not expressly forbidden by the
laws or by its own bylaws, whereas it is also authorized to un-
dertake borrowing operations in a public or private manner via
the issuance of debentures or negotiable obligations and via
the performance of all kinds of financial operations, with the
exception of those comprised under Law 21,526 or any other
that might require public tender.
Subscribed and paid capital: MUS$ 891
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.00000%
Board members:
Nicolas Obejero
Diego Alejandro Martínez
Management:
Rosario Altgelt
María Marta Forcada
Facundo Rocha
Gonzalo Perez Corral
Nicolás Obejero
Norberto Díaz
► Atlantic Aviation Investments LLC
Identification: Limited Liability Company incorporated in the
United States of America.
Object: Any licit business that the company is entitled to pur-
sue.
Subscribed and paid capital: MUS$ 1
2016 Shareholding: 99.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.05965%
Board members:
Andrés del Valle Eitel
Management:
Andrés del Valle (Managers LATAM)
229
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Akemi Holdings S.A.
► Saipan Holdings S.A.
► Aerolane, Líneas Aéreas Nacionales del Ecuador S.A.
Identification: Stock company incorporated in Panamá.
Identification: Stock company incorporated in Panama.
Identification: Stock company incorporated in Ecuador.
Object: The business purposes toward which the company is
organized are to establish, process and carry out the business
affairs of an investor company anywhere in the world, buy-
ing, selling and negotiating all kinds of consumer articles, eq-
uity capital shares, bonds and securities of all kinds, buy, sell,
lease or otherwise acquire or dispose of movable (personal)
or immovable (real estate) properties, invest in industrial or
commercial business either as the main shareholder, receiving
and giving money on loan, with or without guarantee, covenant
(agree), comply and perform all kinds of contracts, become
the guarantor or guarantee compliance and observance of any
and all contracts, engage in any licit business not forbidden to
a stock company (corporation), and execute any of the pre-
ceding acts as principals, agents or in any other representative
capacity whatsoever.
Object: The business purposes toward which the company is
organized are to establish, process and carry out the business
affairs of an investor company anywhere in the world, buy-
ing, selling and negotiating all kinds of consumer articles, eq-
uity capital shares, bonds and securities of all kinds, buy, sell,
lease or otherwise acquire or dispose of movable (personal)
or immovable (real estate) properties, invest in industrial or
commercial business either as the main shareholder, receiving
and giving money on loan, with or without guarantee, covenant
(agree), comply and perform all kinds of contracts, become
the guarantor or guarantee compliance and observance of any
and all contracts, engage in any licit business not forbidden to
a stock company (corporation), and execute any of the pre-
ceding acts as principals, agents or in any other representative
capacity whatsoever.
Subscribed and paid capital: MUS$0
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
Subscribed and paid capital: MUS$0
2016 Shareholding: 100.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.00000%
Object: Air transport of passengers, cargo and cargo in a com-
bined manner.
Subscribed and paid capital: MUS$ 1,000
2016 Shareholding: 55.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.04462%
Board members:
Antonio Stagg
Manuel Van Oordt
Mariana Villagómez
General manager:
Maximiliano Naranjo
Management:
Maximiliano Naranjo
Javier Macías
% over the parent company’s assets: 0.00000%
► Rampas Andes Airport Services S.A. and subsidiaries
Board members:
Edith O. de Bocanegra
Barbara de Rodriguez
Luis Alberto Rodriguez
Management:
Luis Alberto Rodriguez
Barbara de Rodríguez
Board members:
Edith O. de Bocanegra
Barbara de Rodriguez
Luis Alberto Rodriguez
Management:
Luis Alberto Rodriguez
Barbara de Rodríguez
Identification: Stock company incorporated in Ecuador.
Object: Air transport of passengers, cargo and cargo in a com-
bined manner.
Subscribed and paid capital: MUS$ 6,001
2016 Shareholding: 99.875%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.04168%
Management:
Ricardo Cadena
230
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Hodco Ecuador S.A
Identification: Stock company incorporated in Chile.
Object: To make all kinds of investments with profitable ob-
jectives in tangible or intangible, movable (personal) or im-
movable (real estate) properties, whether in Chile or abroad.
Subscribed and paid capital: MUS$ 450
2016 Shareholding: 99.999%
Year-to-year variation: 0.0%
% over the parent company’s assets: 0.00000%
Board members:
Antonio Stagg
Manuel Van Oordt
Mariana Villagómez
General manager:
Cristián Toro Cañas (LATAM Executive)
► Aerovias de Integración Regional, Aires SA.
Identification: Stock company incorporated in Colombia.
Object: The business purpose of the company shall be the
development (operation) of commercial air transport services,
national or international, in any of its types or modalities and,
consequently, the subscription and execution of all kinds of
contracts for the transport of passengers, things and baggage,
mail and cargo in general, pursuant to the operating permits to
that effect issued by the Special Administrative Unit (Unidad
Administrativa Especial) of Civil Aeronautics or by the entity to
take its stead in the future, fully adhering to the provisions of
the Code of Commerce, Colombia’s Aeronautic Regulations and
to any other regulation governing the pertinent subject mat-
ter. Equally, to provide maintenance and adaptation services
of equipment related to the operation of air transport services,
inside or outside of the country. In developing this objective,
the company shall be authorized to invest in third companies,
national or foreign, with an equal, similar or complementary
object to that of the company. Toward compliance with such
business object, the company shall be entitled, among other
things, to the following: (a) To perform reviews, inspections,
maintenance and/or repair works of its own or of third-party
aircraft, as well as to their spare parts and accessories, via the
company’s Aeronautic Repair Workshop (Talleres de Repara-
ciones Aeronáuticas), carrying out to that effect such person-
nel training as deemed necessary to that end; (b) To organize,
incorporate an invest in commercial transportation companies
in Colombia or abroad, in order to develop (operate) either in-
dustrially or commercially the economic activity that consti-
tutes its business object; consequently, the company shall be
entitled to acquire under any concept such aircraft, spare parts,
pieces and accessories of all genres as deemed necessary for
public air transportation operations and to sell them, and also
to assemble and operate aircraft repair and maintenance work-
shops; (c) To execute lease, freight, code sharing, location or
any other type of contract regarding aircraft so as to carry out
its business object; (d) To develop (operate) regular passenger,
cargo, mail and securities transport airlines, as well as the ve-
hicle to enable coordinating the development of such business
objective; (e) To integrate with equal, similar or complementary
companies in order to develop (operate) their activity; (f) To
accept national or foreign representations of services of the
same or complementary lines of business; (g) To acquire mov-
able (personal) or immovable (real estate) properties toward
developing its business objectives, erect these installations
or constructions such as warehouses, depos, offices, etc. sell
them or encumber them; (h) To carry out imports and exports,
along with any foreign trade operations as might be required;
(i) To take money at interest and issue personal, real and bank
guarantees either for itself or for third parties; (j) To execute
all kinds of securities operations, as well as buying/selling ob-
ligations (liabilities) acquired by third parties when having a
beneficial economic or equity benefit for the company, and to
undertake borrowing operations via the issuance of bonds or
debt notes representative of such obligations; (k) To contract
third-party business management and operation services for
those businesses that it may organize aimed at achieving its
business objectives; (l) To execute company contracts and ac-
quire shares or stakes in those already incorporated, whether
national or foreign; to make contributions to either one of
them; (m) To merge with other companies and associate with
equal entities toward procuring the development of air trans-
port or for other trade union purposes; (n) To promote, techni-
cally assist, finance or manage companies or entities related
to the company’s business object; (ñ) To subscribe or execute
all genre of civil or commercial contracts, industrial or finan-
cial that might be necessary or merely convenient toward the
attainment of its purposes; (o) To subscribe businesses and
comply with activities that procures clientele, and obtains
from competent authorities such authorizations and licenses
as might be necessary in order to delivery its services; (p) The
development and operation of other activities derived from the
company’s business object and/or linked, connected, coadju-
vating or complementary to the same, including the delivery
of tourist services in any form permitted by the law, such as
travel agencies; (q) To endeavor in any business or licit activity,
whether commercial or not, provided it is related to its busi-
ness objective or that it would enable a more rational develop-
ment (operation) of the public services that it provides; and(r)
To make investments of any kind whatsoever and to employ
the funds and reserves to be so established pursuant to the law
and the company’s current bylaws (statutes).
Subscribed and paid capital: MUS$ 3,388
2016 Shareholding: 99.017%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.22924%
Board members:
Jorge Nicolas Cortazar Cardoso
Jaime Antonio Gongora Esguerra
Fernando García Poitevin. Interim
Jorgue Enrique Cortazar Garcia
Alberto Davila Suarez
Pablo Canales
Management:
Jorge Nicolas Cortazar
Erika Zarante Bahamon
Jaime Antonio Gongora Esguer
231
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
► Lan Argentina S.A (Subsidiary of Inversora Cordillera
S.A)
TECHNICAL TRAINING LATAM S.A.
Identification: Stock company incorporated in Argentina.
Object: To make all kinds of investments with profitable
objectives in tangible or intangible, movable (personal) or
immovable (real estate) properties, whether in Chile or
abroad.
Legal incorporation: Incorporated as Stock Company (cor-
poration) by virtue of public deed dated November 23, 1997
in Santiago, Chile and registered in the Santiago Register
of Commerce on sheet 878 number 675 of the year 1998.
Object: Its business objective is to deliver technical training
and other services related to the above.
Subscribed and paid capital: MUS$ 129,589
2016 Shareholding: 99.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.08579%
Board members:
Manuel Maria Benites
Jorge Luis Perez Alati
Ignacio Cueto Plaza (LATAM Executive)
Management:
Manuel María Benites
Jorge Luis Perez Alati
Rosario Altgelt
María Marta Forcada
Facundo Rocha
Gonzalo Perez Corral
Nicolás Obejero
Norberto Díaz
Subscribed and paid capital: MUS$ 753
Year’s income: MUS$ 73
Shareholding: 100.00%
Year-to-year variation: 0.00%
% over the parent company’s assets: 0.01%
Board members:
Enrique Elsaca (LATAM Executive)
Sebastián Acuto (LATAM Executive
Ramiro Alfonsín Balza (LATAM Executive)
General manager:
Alejandra Jara Hernández
232
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Parent Company’s Financial Statements
TAM S.A.
Statement of Classified and Consolidated Financial Position
ASSETS
Total current assets other than assets or groups of assets for disposal
Classified as maintained for sale or to be distributed to property owners
Non-current assets or asset groups for disposal
Classified as maintained for sale or to be distributed to property owners
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Non-controlled shareholdings
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
As of
Dec. 31
2016
MUS$
As of
Dec. 31
2015
MUS$
1,761,049
1,335,337
33,140
1,794,189
3,493,097
5,287,286
2,837,619
1,872,688
4,710,307
495,563
81,416
576,979
5,287,286
277
1,335,614
3,360,939
4,696,553
1,963,400
2,235,823
4,199,223
423,190
74,140
497,330
4,696,553
233
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Year’s profit (loss) attributable to:
The controller’s property owners
Non-controlled shareholdings
Year’s profit (loss)
Consolidated Integral Income Statement
YEAR’S PROFIT (LOSS)
Other integral income
Total integral income
Integral income attributable to:
The controller’s property owners
Non-controlled shareholdings
TOTAL INTEGRAL INCOME
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
4,145,951
519,223
220,677
(176,752)
43,925
2,107
41,818
43,925
4,597,612
599,784
(272,206)
126,008
(146,198)
(183,912)
37,714
(146,198)
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
43,925
69,724
113,649
88,049
25,600
113,649
(146,198)
(347,490)
(493,688)
(528,218)
34,530
(493,688)
234
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of changes in equity capital
Equity Capital January 1, 2015
Total integral income
Dividends
Other equity capital increases (decreases)
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Dividends
Other equity capital increases (decreases)
Ending balances current year, as of Dec. 31, 2016
Consolidated Cash Flow Statement - 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 cash and cash equivalent increase (decrease)
before foreign exchange rate change effects
Effects of foreign exchange rate variations
on cash and cash equivalent
Year-end cash and cash equivalent
Equity Capital
attributable to
prop, owners of the
controller
MUS$
Non-controlling
shareholdings
MUS$
Equity Capital
total
MUS$
912,639
(528,218)
-
38,769
423,190
423,290
88,049
-
(15,676)
495,563
95,530
34,530
(34,623)
(21,297)
74,140
74,140
25,600
(40,823)
22,499
81,416
1,008,169
(493,688)
(34,623)
17,472
497,330
497,330
113,649
(40,823)
6,823
576,979
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
(35,085)
78,425
(109,240)
713,435
(244,750)
(335,088)
(65,900)
133,597
43,097
197,218
(49,381)
220,021
235
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
LAN CARGO S.A.
(Closely held stock company)
Consolidated Classified Financial Statement
ASSETS
Total current assets other than assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total non-current assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current assets other than assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total non-current assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Non-controlled shareholdings
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
As of December 31
2016
MUS$
2015
MUS$
106,963
164,412
22,686
129,649
563,577
693,226
85
164,497
546,687
711,184
204,519
185,162
22,236
226,755
101,734
328,489
362,478
2,259
364,737
693,226
-
185,162
152,958
338,120
370,791
2,273
373,064
711,184
236
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Year’s profit (loss) attributable to:
The controller’s property owners
Non-controlled shareholdings
Year’s profit (loss)
Consolidated Integral Income Statement
YEAR’S PROFIT (LOSS)
Other integral income
Total integral income
Integral income attributable to:
The controller’s property owners
Non-controlled shareholdings
TOTAL INTEGRAL INCOME
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
For the years ended
as of Dec. 31
2016
MUS$
689,153
(31,274)
(6,696)
1,463
8,159
(8,145)
(14)
(8,159)
2015
MUS$
788,019
(90,201)
(88,244)
26,912
(61,332)
(62,701)
1,369
(61,332)
For the years ended
as of Dec. 31
2016
MUS$
(8,159)
(459)
(8,618)
(8,604)
14
(8,618)
2016
MUS$
(61,332)
(2,935)
(64,267)
(65,636)
1,369
(64,267)
237
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of Changes in Equity Capital
Equity Capital January 1, 2015
Total integral income
Other equity capital increases (decreases)
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Other equity capital increases (decreases)
Ending balances current year, as of Dec. 31, 2016
Equity Capital
attributable to
prop, owners of the
controller
MUS$
Non-controlling
shareholdings
MUS$
Equity Capital
total
MUS$
455,240
(65,636)
(18,813)
370,791
370,791
(8,604)
291
362,478
903
1,369
1
2,273
2,273
(14
-
2,259
456,143
(64,267)
(18,812)
373,064
373,064
(8,618)
291
364,737
Consolidated Cash Flow Statement - 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 cash and cash equivalent increase (decrease)
before foreign exchange rate change effects
Effects of foreign exchange rate variations
on cash and cash equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
92,772
(34,003)
(51,813)
6,956
76
24,678
2015
MUS$
99,073
(50,264)
(51,021)
(2,212)
(4)
17,646
238
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
LAN PERU S.A.
(Closely held stock company)
General Balance Sheet
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Non-controlled shareholdings
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
As of December 31
2015
2016
MUS$
MUS$
283,691
22,420
306,111
232,547
23,144
255,691
293,602
1,310
294,912
239,521
1,417
240,938
11,199
-
11,199
306,111
14,753
-
14,753
255,691
For the years ended
as of Dec. 31
2016
MUS$
967,787
148,635
1,289
(3,453)
(2,164)
2015
MUS$
1,078,992
180,829
7,237
(2,169)
5,068
239
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of Changes in Equity Capital
Equity Capital January 1, 2015
Total integral income
Dividends
Final balances previous year, as of Dec. 31, 2015
Equity Capital January 1, 2016
Total integral income
Dividends
Final balances previous year, as of Dec. 31, 2016
Issued
capital
MUS$
Legal
reserve
MUS$
Accumul.
profit
MUS$
Total eq.
capital
MUS$
4,341
-
-
4,341
4,341
-
-
4,341
868
-
-
868
868
-
-
868
5,866
5,068
(1,390)
9,544
11,075
5,068
(1,390)
14,753
9,544
(2,164)
(1,390)
5,990
14,753
(2,164)
(1,390)
11,199
Cash Flow Statement - 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 equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
(57,429)
(943)
5,887
(52,485)
65,892
(7,044)
(1,164)
9,099
891
118,377
240
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
INVERSIONES LAN S.A.
(Closely held stock company)
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets other than assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total non-current assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
As of December 31
2015
MUS$
2016
MUS$
7,616
6,292
-
7,616
3,355
10,971
572
6,864
9,648
16,512
5,278
1,174
6,452
4,519
4,519
10,971
13,380
1,296
14,676
1,836
1,836
16,512
241
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Year’s profit (loss) attributable to:
The controller’s property owners
Year’s profit (loss)
Consolidated Integral Income Statement
YEAR’S PROFIT (LOSS)
Other integral income
Total integral income
Integral income attributable to:
The controller’s property owners
TOTAL INTEGRAL INCOME
For the years ended
as of Dec. 31
2016
MUS$
34,059
7,406
3,526
(925)
2,601
2,601
2,601
2015
MUS$
32,366
5,371
3,200
(402)
2,798
2,798
2,798
For the years ended
as of Dec. 31
2016
MUS$
2,601
218
2,819
2015
MUS$
2,798
(177)
2,621
2,819
2,819
2,621
2,621
242
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of Changes in Equity Capital
Equity Capital January 1, 2015
Total integral income
Other equity capital increases (decreases)
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Other equity capital increases (decreases)
Ending balances current year, as of Dec. 31, 2016
Issued
capital
MUS$
Legal
capital
MUS$
Accumul.
reserve
MUS$
Total eq.
capital
MUS$
458
-
-
458
458
-
(18)
440
594
(177)
-
417
417
218
-
635
237
2,798
(2,074)
961
961
2,601
(1188)
3,444
1,289
2,621
(2,074)
1,836
1,836
2,819
(136)
4,519
Consolidated Cash Flow Statement - 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 equivalent
Effects of foreign exchange rate variations
on cash and cash equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
(21)
1,469
(1,663)
(215)
24
1,410
608
(41)
444
1,011
64
1,601
243
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
INMOBILIARIA AERONAUTICA S.A.
(Closely held stock company)
Statement of Classified Financial Position
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Statement of Integral Income
YEAR’S PROFIT (LOSS)
Total integral income
As of December 31
2015
2016
MUS$
MUS$
835
35,921
1,978
37,324
36,756
39,302
1,119
7,724
5,003
9,829
8,843
14,832
27,913
36,756
24,470
39,302
For the years ended as of Dec. 31
2016
MUS$
4,007
1,877
1,453
1,990
3,443
2015
MUS$
3,961
2,071
1,146
258
1,404
For the years ended as of Dec. 31
2016
MUS$
3,443
3,443
2015
MUS$
1,404
1,404
244
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of Changes in Equity Capital
Equity Capital January 1, 2015
Total integral income
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Ending balances current year, as of Dec. 31, 2016
Issued
capital
MUS$
1,147
-
1,147
1,147
-
1,147
Accumul.
profit
MUS$
21,919
1,404
23,323
23,323
3,443
26,766
Total eq.
capital
MUS$
23,066
1,404
24,470
24,470
3,443
27,913
Cash Flow Statement - 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 cash and cash equivalent increase (decrease)
before foreign exchange rate change effects
Effects of variation of foreign exchange rate on
cash and cash equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
(201)
-
-
(201)
-
748
2016
MUS$
3,596
(41)
(2,586)
969
(20)
949
245
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
LATAM TRAVEL CHILE S.A. Y FILIAL
(Closely held stock company)
Statement of Classified Financial Position
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
As of December 31
2016
MUS$
5,347
111
5,458
2,724
3
2,727
2,731
5,458
2015
MUS$
5,655
114
5,769
5,538
6
5,544
225
5,769
For the years ended
as of Dec. 31
2016
MUS$
11,675
7,294
3,500
(850)
2,650
2016
MUS$
12,399
7,714
3,323
(1,004)
2,319
246
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of changes in equity capital
Equity Capital January 1, 2015
Total integral income
Dividends
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Dividends
Ending balances current year, as of Dec. 31, 2016
Issued
capital
MUS$
Accumul.
profit
MUS$
Total eq.
capital
MUS$
225
-
-
225
225
10
-
225
715
2,319
(3,034)
-
-
2,650
(144)
2,506
940
2,319
(3,034)
225
225
2,650
(144)
2,731
Cash Flow Statement - 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 equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
(2,483)
(30)
-
(2,513)
1,066
2015
MUS$
3,207
3,200
(3,200)
3,207
3,579
247
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
LAN PAX GROUP S.A.
(Closely held stock company)
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets other than assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total non-current assets or groups of assets for disposal
classified as maintained for sale or to be distributed to property owners
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities other than liabilities included
in asset groups for disposal classified asmaintained for sale
Liabilities included in asset groups for disposal
classified as maintained for sale
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Non-controlled shareholdings
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
As of December 31
2016
MUS$
2015
MUS$
252,060
8,988
261,048
214,715
475,763
301,887
417
302,304
217,359
519,663
344,970
352,056
2,556
347,526
698,235
1,045,761
(570,638)
640
(569,998)
475,763
-
352,056
697,176
1,049,232
(528,769)
(800)
(529,569)
519,663
248
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Year’s profit (loss) attributable to:
The controller’s property owners
Non-controlled shareholdings
Year’s profit (loss)
Consolidated Integral Income Statement
YEAR’S PROFIT (LOSS)
Other integral income
Total integral income
Integral income attributable to:
The controller’s property owners
Non-controlled shareholdings
TOTAL INTEGRAL INCOME
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
For the years ended
as of Dec. 31
2016
MUS$
877,106
132,300
(41,945)
6,028
(35,917)
2015
MUS$
988,081
168,193
(45,960)
10,779
(35,181)
(36,223)
306
(35,917)
(35,187)
6
(35,181)
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
(35,917)
(7,118)
(43,035)
(35,181)
(71,840)
(107,021)
(41,575)
(1,460)
(43,035)
(104,941)
(2,080)
(107,021)
249
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Statement of changes in equity capital
Equity Capital January 1, 2015
Total integral income
Other equity capital increases (decreases)
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Other equity capital increases (decreases)
Ending balances current year, as of Dec. 31, 2016
Equity Capital
attributable to
prop, owners of the
controller
MUS$
Non-controlling
shareholdings
MUS$
Total eq.
capital
MUS$
(426,016)
(104,941)
2,188
(528,769)
(528,769)
(41,575)
(294)
(570,638)
879
(2,080)
401
(800)
(800)
(1,460)
2,900
640
(425,137)
(107,021)
2,589
(529,569)
(529,569)
(43,035)
2,606
(569,998)
Consolidated Cash Flow Statement - 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 cash and cash equivalent increase (decrease)
before foreign exchange rate change effects
Effect of the variation of foreign exchange rates
on cash and cash equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
(60,254)
52,991
(10,978)
26,664
(108,757)
81,527
(18,241)
(566)
(181)
71,314
3,774
89,736
250
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
TECHNICAL TRAINING LATAM S.A.
(Limited Partnership)
Consolidated Classified Financial Statement
ASSETS
Total current assets
Total non-current assets
TOTAL ASSETS
EQUITY CAPITAL AND LIABILITIES
LIABILITIES
Total current liabilities
Total non-current liabilities
Total liabilities
EQUITY CAPITAL
Equity capital attributable to the controller’s property owners
Total equity capital
TOTAL EQUITY CAPITAL AND LIABILITIES
As of December 31
2016
MUS$
1,597
148
1,745
284
-
284
1,461
1,461
1,745
2015
MUS$
1,347
180
1,527
266
-
266
1,261
1,261
1,527
251
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Consolidated Income Statement, by function
Income from ordinary activities
Gross profit
Profit (loss) before taxes
Profit tax expenses
YEAR’S PROFIT (LOSS)
Year’s profit (loss) attributable to:
The controller’s property owners
Non-controlled shareholdings
Year’s profit (loss)
Statement of changes in equity capital
Equity Capital Equity Capital January 1, 2015
Total integral income
Other equity capital increases (decreases)
Year-end balances current year, as of Dec. 31 2015
Equity Capital January 1, 2016
Total integral income
Other equity capital increases (decreases)
Ending balances current year, as of Dec. 31, 2016
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
1,784
100
103
(30)
73
73
-
73
1,626
1,866
(22)
50
(72)
(72)
-
(72)
Total eq.
capital
MUS$
1,397
(72)
(64)
1,261
1,261
73
127
1,461
252
FINANCIAL STATEMENTS | Subsidiaries and Affiliated Companies
Consolidated Cash Flow Statement - 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 equivalent
Effect of the variation of foreign exchange rates on cash and cash equivalent
Beginning-of-year cash and cash equivalent
Year-end cash and cash equivalent
For the years ended
as of Dec. 31
2016
MUS$
2015
MUS$
778
(14)
-
764
(2)
479
1,241
89
-
-
89
6
384
479
253
FINANCIAL STATEMENTS | Analysis of the Financial Statements
Analysis of the Financial Statements
Comparative analysis and explanation of the main trends:
1. Consolidated statement of financial position
As of December 31, 2016, the company’s total assets
amounted to MUS$ 19,198,194; which, compared to those
as of December 31, 2015 represents an increase of MUS$
1,096,776, equivalent to 6.1%.
The company’s current assets increased by MUS$ 803,874
(28.5%), compared to the closing of the year 2015. The
main increases appear in the following items: commer-
cial debtors and other sundry accounts receivable of
MUS$ 310,915 (39.0%); cash and cash equivalent of MUS$
195,830 (26.0%); other current financial assets of MUS$
61,480 (9.4%); current stock inventories of MUS$ 16,455
(7.3%); and non-current assets or group of assets for dis-
posal classified as maintained for sale or maintained to
be distributed to property owners of MUS$ 335,235. The
above referred items were offset by a drop in other current
non-financial assets of MUS$ 117,774 (35.7%).
The company’s liquidity index shows an increase, from 0.50
times at the closing of the year 2015, to 0.58 times as of
December 2016. Current assets and liabilities increased by
28.5% and 10.3%, respectively. One may also observe an
increase in the acid test index, going from 0.13 times as
of the closing of 2015, to 0.15 times by the closing of the
present year.
The company’s non-current assets increased by MUS$
292,902 (1.9%) with respect to the closing of the year
2015. The main increases are in the following items: good-
will of MUS$ 429,807 (18.8%), intangible assets other than
goodwill of MUS$ 288,888 (21.9%) whose increases were
mostly attributable to the monetary conversion of Bra-
zilian reals to US dollars; other financial assets of MUS$
12,667 (14.2%); assets on account of deferred taxes of
MUS$ 7,985 (2.1%). All of the foregoing was offset by a re-
duction in the following items: property, plant and equip-
ment of MUS$ 440,508 (4.0%) originated by the sale of
two Airbus A330 aircraft and the reclassification of two
Airbus A319 aircraft, two Airbus A320, six Airbus A330 and
two Boeing F-777 to the non-current assets item or group
of assets for disposal classified as maintained for sale,
depreciation expense corresponding as of December 31,
2016 of MUS$ 744,552 among other movements of the
period, the negative effect is offset by the acquisition of a
Boeing 787 aircraft, one Airbus A320 aircraft, four Airbus
A321 aircraft, and four Airbus A350 aircraft, the adjust-
ment of the conversion of the companies whose function-
al currency is other than the US dollar of MUS$ 172,987
which corresponds mostly to TAM S.A. and Subsidiaries,
and the payment of down payments (prepayments) for
the acquisition of aircraft; and, finally, the drop in the item
accounts payable of MUS$ 2,461 (23.0%).
As of December 31, 2016, the company’s total liabilities
amounted to MUS$ 15,012,890; which, when compared to
the value as of December 31, 2015, shows a reduction of
MUS$ 150,980 equivalent to 1.0%.
The company’s current liabilities increased by MUS$
581,219 (10.3%), with respect to the closing of the year
2015. The main increases appear in the following items:
other non-financial liabilities of MUS$ 272,212 (10.9%);
other financial liabilities of MUS$ 195,293 (11.9%); which is
mostly explained by the financing in TAM Linhas Aéreas of
US$ 200 million and the reclassification of MUS$ 300,000
in obligations with the public of TAM Capital Inc. to the
short term, since its expiration is on April 25, 2017. All of
the foregoing is affected by the net variation between the
reduction of the passive positions of the hedging deriva-
tives, the reduction of other guaranteed obligations and
financial leasing; and commercial accounts payable and
other accounts payable of MUS$ 109,111 (7.4%); which was
slightly affected by the drop in: liabilities on account of
current taxes of MUS$ 5,092.
254
FINANCIAL STATEMENTS | Analysis of the Financial Statements
The indebtedness indicator of the company’s current liabilities
shows a drop of 23.1%, going from 1.97 times as of the clos-
ing of the year 2015, to 1.52 times as of the closing of 2016.
The incidence of current liabilities over total debt increased by
4.18 percentage points going from 37.20% as of the closing of
the year 2015 to 41.38% as of the closing of the current year.
The company’s non-current liabilities dropped by MUS$
732,199 (7.7%), as compared to the balance as of December
31, 2015. The main reductions appear in the following items:
other financial liabilities of MUS$ 735,433 (9.8%), which is
explained by the net effect of the reclassification of MUS$
300,000 of obligations with the public of TAM Capital Inc.
to the short term, the financing of the down payment for
the purchase of the Airbus and Boeing aircraft; other non-
financial liabilities of MUS$ 58,349 (21.4%); and accounts
payable of MUS$ 57,659 (13.8%); the foregoing items were
offset by increases in: deferred taxes of MUS$ 104,194
(12.8%), and provisions on account of employee benefits of
MUS$ 17,051 (26.1%).
The indicator of the company’s non-current liability indebt-
edness shows a reduction of 35.6%, going from 3.33 times
as of December 31, 2015 to 2.15 times as of the closing of
2016. The incidence of non-current liabilities over total debt
dropped by 4.2 percentage points going from 62.80% as of
the closing of the year 2015 to 58.55% as of December 2016.
As of December 31, 2016, approximately 63% of the debt had
rate-fixing instruments; according to the foregoing and con-
sidering the debt such instruments, the average rate was 3.7%.
The equity capital attributable to the controller’s proper-
ty owners increased by MUS$ 1,240.125 going from MUS$
2,856,535 as of December 31, 2015 to MUS$ 4,096,660 as
of December 31, 2016. The main increases appear in: issued
equity capital of MUS$ 603,859 (23.7%) corresponding to the
capital increase approved at the Extraordinary Shareholders’
Meeting of August 18, 2016, having subscribed and paid as
of December 31, 2016 a total of 60,849,592 shares, collect-
ing MUS$ 608,496; additionally, share-issuing costs total-
ing MUS$ 4,793 were capitalized. Other reserves of MUS$
580,870, mostly originating from the positive effect of foreign
exchange rate variations of conversion reserves amounting to
MUS$ 489,486, mostly explained by the conversion adjust-
ment originated by the acknowledged goodwill of the combi-
nation of businesses with TAM and Subsidiaries, the reserves
correspond to cash flow hedges totaling MUS$ 92,016. The
variation of the accumulated result was positive, because of
the profit generated as of December 31, 2016 attributable
to the controller’s property owners of MUS$ 69,220; conse-
quently, temporary dividends amounted to MUS$ 20,766.
2. Consolidated financial statement
As of December 31, 2016 the controller recorded a profit
of MUS$ 69,220, which represents an income increase of
MUS$ 288,494 compared to the loss of MUS$ 219,274 of
the previous year. The net margin increased from -2.2% to
0.7% during 2016.
The operating income as of December 31, 2016 amounted
to MUS$ 567,903; which, when compared to the year 2015
shows an increase of MUS$ 53,984, equivalent to 10.5%, while
the operating margin reached 6.0%, showing an increase of 0.9
percentage points.
The operating income as of December 31, 2016 diminished
by 5.9% with respect to that of the year 2015, reaching MUS$
9,527,088. The foregoing was due to a 6.3% drop in passenger
income and a 16.5% drop in cargo income, partially offset by
a 39.7% increase in the other income item. The impact of the
depreciation of the Brazilian real represented a lower ordinary
income of about US$ 121 million.
Passenger income totaled MUS$ 7,877,715; which, when com-
pared to the MUS$ 8,410,614 of the year 2015, represented
a drop of 6.3%. This variation is mostly attributable to a 6.9%
drop in the RASK as a result of an 8.1% drop in yields, which
were impacted by an increasingly competitive environment in
domestic markets, combined with the yet sluggish macroeco-
nomic environment in South America and by the depreciation
of local currencies (especially the Brazilian real, the Chilean
peso and the Argentinean peso). All of the foregoing was
partially offset by a 0.6% increase in ASK-measured capac-
ity. Additionally, the occupation factor reached 84.2%, which
represents an increase of 1.1 percentage points with respect
to the previous year.
As of December 31, 2016, cargo income totaled MUS$
1,110,625, which represents a reduction of 16.5% with re-
spect to the year 2015. This drop corresponds to an 8.5%
drop in yields and 8.7% drop in RTK-measured traffic. Such
drop in yields reflects the yet depressed cargo environment
worldwide, the weakening of Brazil’s domestic and inter-
national market, the sluggishness of imports from North
America and Europe, and the negative impact of the de-
preciation of the Brazilian real in the income from Brazil’s
domestic market. Additionally, the ATK-measured capacity
dropped by 5.3%.
On the other hand, the Other Income item shows an increase
of MUS$ 152,967 mostly attributable to income from land
services associated to the 2016 Rio Olympic Games, the profit
obtained from the sale of aircraft and greater income received
on account of aircraft and land services.
As of December 31, 2016, operating costs amounted to MUS$
8,959,185; which, when compared to those of the previous
year, represent lower costs of MUS$ 652,722, equivalent to
a 6.8% drop, while the ASK-equivalent unit cost dropped by
7.0%. Additionally, the impact of the depreciation of the Bra-
zilian real in this item represents lower costs of approximately
US$ 101 million.
The variations by item are explained as follows:
a) Compensation and benefits dropped by MUS$ 121,672
mostly due to the depreciation of the Brazilian real, the Ar-
gentinean peso and the Chilean peso by 4.8%, 60.7% y 4.2%
respectively. Additionally, the average payroll during the
period dropped by 9.3%, in line with Brazil’s reduced supply
and the cost control initiatives promoted by the company.
255
b) Fuel dropped by 22.4%, the equivalent of MUS$ 594,424
of lower costs. Such drop is mostly attributable to a 16.6%
drop on non-hedged prices and of 2.9% in consumption
measured in gallons. During 2016, the company acknowl-
edged a loss of MUS$ 48,094 on account of fuel hedg-
ing, as compared to a loss of MUS$ 239,430 during the
previous year; and a loss of MUS$ 40,772 on account of
currency hedging.
i) Other operating costs show an increase of MUS$ 139,404
mostly attributable to land service costs associated to
the 2016 Rio Olympic Games, greater costs associated to
the fair-value valuation of the stock inventory, as part of
a sales plan promoted by inventory reduction initiatives.
The foregoing was partially offset by the depreciation of
the Brazilian real and the drop in associated marketing and
advertising costs.
c) Commissions show a drop of MUS$ 33,478, which is mostly
owed to a drop in income from the sale of airline tickets and
lower cargo operations.
Financial income totaled MUS$ 74,949; which, when compared
to the MUS$ 75,080 of the same period of 2015, represent a
lower income of MUS$ 131.
d) Depreciation and amortization increased by MUS$ 25,922.
This variation is mostly explained by the incorporation to the
fleet of 13 aircraft of the Airbus A320 family, 6 Airbus A350
and, 5 Boeing 787. The foregoing was partly offset by the
depreciation of the Brazilian real, and by the exit of 9 Airbus
of the A320 family, 10 Airbus A330 and 1 Boeing 767.
e) Other leases and landing charges diminished by MUS$
32,419, mostly due to lower aircraft leasing costs, as a re-
sult of slowed-down operations and the depreciation of lo-
cal currencies.
f) Passenger services dropped by MUS$ 8,818; which repre-
sents a 3.0% variation that is mostly explained by a lower
average cost of on-board services, partially offset by in-
creased passenger compensations.
g) Aircraft leases increased by MUS$ 43,845, mostly because
of the incorporation of 8 Airbus of the Airbus A320 family,
4 Boeing 787 and 2 Airbus A350. The foregoing was par-
tially offset by the return of 7 Airbus aircraft of the A320
family, 2 Airbus A330 and 1 Boeing 767
The main items of the Consolidated Statement of Financial
Position of TAM S.A. and Subsidiaries, which generated a
profit of MUS$ 199,589 because of foreign exchange rate
differences as of the fourth quarter of 2016, were the fol-
lowing: Other financial liabilities, a profit of MUS$ 175,614
originated from US-dollars-denominated loans and finan-
cial leasing operations toward the acquisition of the fleet
and other items of net assets and liabilities, a profit of
MUS$ 103,960 reduced by foreign exchange differences
in accounts receivable to related companies, and a loss of
MUS$ 79,985.
Income of Multiplus S.A.
h) Maintenance shows lower costs totaling MUS$ 71,082,
equivalent to a 16.3% variation, mostly due to the de-
preciation of the Brazilian real, lower costs associated
to the return of aircraft and the efficiency gained by the
fleet renewal.
The net income of Multiplus as of December 31, 2016
amounted to a profit of MUS$ 152,873; which, when com-
pared to the MUS$ 138,591 of the year 2015, represents an
increase of 10.3%.
FINANCIAL STATEMENTS | Analysis of the Financial Statements
Income dropped by 6.4%, which is mostly explained by the ef-
fect of the depreciation of the Brazilian real by 4.8% and by
a drop of 9.1% from the redemption of outdated points with
respect to the previous year. Additionally, there was a 10.2%
drop of income on account of the redemption of outdated
points from the previous year.
Operating costs dropped by 11.7%, mostly because of the de-
preciation of the Brazilian real, added to a 10.0% drop in the
redemption of airline ticket points.
Financial income/costs represented a profit of MUS$ 58,379,
which corresponds to a positive variation of 275.3%, mostly
attributable to the depreciation of the Brazilian real, partially
offset by the placement of a part of the company’s cash on
US-dollar linked currency hedges.
The operating cash flow shows a negative variation of MUS$
723,349, with respect to the same period of the previous
year that is mostly attributable to a reduction in the follow-
ing items: Collections on account of the sale of goods and
the delivery of services totaling MUS$ 1,453,808; taxes to
reimbursed profits of MUS$ 1,593; interest payments re-
ceived of MUS$ 32,132 and other cash inflows (outflows)
totaling MUS$ 24,642 because of increased cash inflows re-
sulting from the movement of fuel byproducts contracted by
the company, the establishment of guarantees for byproduct
margins and payments to offset active and passive positions
as of the dates of expiration of these contracts, net of dis-
bursements made for establishing guarantees on account of
judicial deposits and administrative proceedings carried out
mostly in TAM S.A. and Subsidiaries; the foregoing was offset
by positive variations in the following items: Supplier pay-
ments for the supply of goods and services totaling MUS$
273,461; net effect in Other collections and payments for op-
erating activities totaling MUS$ 170,460 and Payments to and
on behalf of employees totaling MUS$ 344,905.
256
Financial costs increased by 0.7%, totaling MUS$ 416,336 as
of December 31, 2016, mostly due to greater fleet financing
costs and other charges associated to credit card sales.
Other income/costs recorded a positive result of MUS$
47,358, mainly explained by income mostly acknowledged by
TAM as a result of the appreciation of the Brazilian real during
the year 2016.
3. Analysis and explanation of the Consolidated Net Cash
Flow originated by the company’s operating, investment
and financing activities.
FINANCIAL STATEMENTS | Analysis of the Financial Statements
The investment cash flow shows a positive variation of MUS$
1,296,038 with respect to the same period of the previous
year; which is explained by increases in the following items:
net effect on Other collections and payments on account of
the sale of capital equity or debt instruments of other entities
totaling MUS$ 447,653, which acknowledge the movement of
the investments materialized by TAM S.A. and Subsidiaries in
private investment funds, real estate property acquisitions,
plant and equipment of MUS$ 875,379, mostly because of
a lower movement of down payments (prepayments) toward
the acquisition of aircraft and other fixed-asset incorpora-
tions. During the year 2016, the company acquired 1 Boeing
787 aircraft, 1 Airbus A320 aircraft, 4 Airbus A321 aircraft,
and 4 Airbus A350 aircraft, as compared to the same period
of the previous year, in which the company had acquired 8
Airbus A321, 3 Boeing 787 aircraft and 1 Airbus A350 air-
craft; and proceeds from the sale of real estate properties,
plant and equipment totaling MUS$ 18,967. The previously-
described positive variation was offset by a reduction in the
following items: Other cash inflows (outflows) totaling MUS$
9,733 and the acquisition of intangible assets amounting to
MUS$ 36,138.
The financing cash flow shows a negative variation of MUS$
267,919, with respect to the same period of the previous year;
which is mostly explained by an increase in the following
items: Loan payments totaling MUS$ 857,337, related to the
payment of the financing of 10 Airbus A321 aircraft, 5 Air-
bus A350 aircraft, 2 Boeing 787aircraft, 1 Airbus A320 aircraft,
among other commercial loan payments; paid out interest to-
taling MUS$ 14,640; paid out dividends totaling MUS$ 6,191
and other cash inflows (outflows) totaling MUS$ 129,406,
because of lower PDP financing obtained from the Parent
Company and disbursements made by TAM S.A. on account
of the establishment of loan guarantees of MUS$ 74,186. The
foregoing is offset by increased proceeds from the issue of
shares totaling MUS$ 608,496 on account of the capital in-
crease approved at the Extraordinary Shareholders’ Meeting
held on August 18, 2016; proceeds from short and long-term
loans totaling MUS$ 103,125 and lower liability payments on
account of financial leasing operations totaling MUS$ 28,034.
The above-depicted loan flows were affected by the following:
months. This includes a total of 23 Airbus aircraft pro-
jected to be delivered toward the end of 2018.
a. During the month of March 2016, the company re-
scheduled a Revolving Credit Facility (line of credit) guar-
anteed by airplanes, engines, spare parts and supplies
for a total available amount of US$ 275 million. In May
of 2016, the referred credit facility was expanded by US$
50 million.
This facility includes minimum liquidity restrictions mea-
sured at the level of the Consolidated Company and
measured at the individual level for the companies: LA-
TAM Airlines Group S.A. and TAM Linhas Aéreas S.A.
During the month of December of the year 2016, the
company prepaid the full amount withdrawn of US$
315 million, maintaining a committed total of the RCF
facility (line) of US$ 325 million. The facility will be
available for future withdrawals until its date of expira-
tion on March 2019. The assets (airplanes, engines and
spare parts) given as collateral will be maintained as a
security pledge.
As compared to the same period of 2015, the Parent
Company issued and placed a non-guaranteed long-
term bond of MUS$ 500,0000, to expire in the year
2020, whose cash inflows were used to pay off the inter-
company debt with Tam Capital 2 Inc. in the amount of
MUS$ 300.000.
In September 2016, TAM Linhas Aéreas S.A. obtained
b.
financing of US$ 200 million, with the guarantee of ap-
proximately 18% of the shares of Multiplus S.A.; a per-
centage subject to adjustment depending on the market
value of the shares pledged in guarantee.
c. Finally, additionally, in September 2016 the compa-
ny obtained financing of down payments (prepayments)
toward the acquisition of aircraft for an initial withdrawal
of US$ 225 million (US$ 260 million is the line’s maxi-
mum authorized amount) for a period of 2 years and 3
The company’s net cash flow as of December 31, 2016 shows
a positive variation of MUS$ 195,829, with respect to the pre-
vious year.
4. Analysis of the financial risks
The company’s global risk management program’s objective is
to minimize the adverse effects of the financial risks that af-
fect the company.
(a) Market risks
Given the nature of its operations, the company is exposed
to market factors such as: (i) fuel price risks; (ii) rate of in-
terest risks; and (iii) local foreign exchange rate risks.
(i) Fuel price risks
In order to execute its operations, the company purchases
Grade 54 USGC Jet Fuel, which is subject to the fluctuation
of international fuel prices.
In order to hedge against fuel risks, the company operates
with derivative securities (swaps and options) whose under-
lying objectives may be other than Jet Fuel. Thus, it is pos-
sible to hedge against the West Texas Intermediate (“WTI”)
oil, the Brent crude oil (“BRENT”) and distilled Heating Oil
(“HO”), all of which have a high price correlation with Jet
Fuel and are more liquid.
As of December 31, 2016, the company acknowledged
losses of MUS$ 48,034 on account of fuel hedges net of
premiums. Part of the differences produced by the lower or
greater market value of these contracts is acknowledged as
hedge component reserves in the company’s net equity. As
of December 31, 2016, the market value of the contracts
currently in effect amounted to MUS$ 8,085 (positive).
257
FINANCIAL STATEMENTS | Analysis of the Financial Statements
(ii) Foreign exchange risks
The functional currency for the presentation of the par-
ent company’s financial statements is the US dollar; rea-
son why transaction and conversion exchange rate risks
arise mostly from operating activities inherent to the line
of business, the strategy and accounting practices of the
company that are stated in a monetary units other than
the functional currency.
Likewise, TAM S.A. and the LATAM Subsidiaries are also ex-
posed to foreign exchange risks, whose impact affects the
company’s consolidated income.
LATAM’s greater exposure to foreign exchange risks arises
from the concentration of business in Brazil, which are
mostly denominated in Brazilian reals (BRL); risks that are
actively managed by the company.
Additionally, the company manages exposure to operating
income in UK Pound Sterling (GBP).
The company mitigates its foreign exchange exposure by
contracting derivative securities or through natural hedges
or the execution of internal operations.
As of December 31, 2016, the market value of FX positions
amounted to MUS$ 1,645 (negative).
The company has executed Cross Currency Swaps (CCS)
with the purpose of dollarizing the cash flow of obligations
contracted in Chilean UF (Unidades de Fomento – inflation
index units), which accrue interest at a fixed rate. With
this financial instrument the company manages to pay a
variable interest rate that accrues interest at LIBOR plus a
fixed spread. Likewise, the company through TAM S.A. has
executed hedging contracts for its variable rate US-dollar-
denominated debt with the objective of transforming it into
fixed-rate Brazilian reals.
As of December 31, 2016, the market value of the com-
pany’s CCS positions amounted to MUS$ 12,338 (negative).
(iii) Rate of interest risks
The company is exposed to the fluctuations of the rates of
interest of the markets, thereby affecting the future cash
flows of the financial assets and liabilities currently in ef-
fect and of those in the future.
The company is mostly exposed to the London Inter Bank
Offer Rate (“LIBOR”) and other less relevant rates of inter-
est, such as Brazilian inter-bank deposit certificates (“CDI”)
and Brazil’s long-term interest rate (“TJLP”).
In order to diminish the risk of an eventual interest rate
hike, the company executed interest-rate swap contracts.
With respect to such contracts, the company pays, receives
or merely receives –as the case might be- the difference
between the agreed fixed rate of interest and the floating
rate of interest calculated over each contract’s outstanding
capital. On account of these contracts, the company ac-
knowledged during the period a loss of MUS$ 22,533. Loss-
es or gains on account of interest rate swaps are acknowl-
edged as a component of the financial expenses based of
the amortization of the loan being hedged.
As of December 31, 2016, the market value of the interest
rate swaps currently in effect amounted to MUS$ 17,183
(negative).
As of December 31, 2016, approximately 63% of the debt
is at a fixed rate or at a rate fixed against one of the above-
mentioned instruments (securities). The average interest
rate of the company’s debt is 3.7%.
(a) Concentration of credit risks
A high percentage of the Company’s accounts receivable come
from airline ticket sales, cargo services to persons and various
commercial companies that are economically and geographi-
cally dispersed; albeit generally short-term. In line with the
foregoing the company is not exposed to a significant risk of
credit concentration.
5. Economic environment
In order to analyze the economic environment in which the
company operates, following is a brief summary of the situa-
tion and evolution of the principal economies that affect both
the domestic as well as the regional and world environment.
The year 2016 showed a weak economic growth around the
world despite the upturn as of the second half of the year.
The economies that improved the most during the second half
of the year were the advanced economies. On the other hand
some emerging market economies experienced an economic
slowdown. It is estimated that during 2016 the global econ-
omy expanded by an average of 3.1%, slightly less than the
3.2% recorded in 2015.
The growth of the European economy was about what was ex-
pected in some countries like the United Kingdom and Spain,
with a demand that turned out to be better than expected
after the vote that decided the exit (Brexit) of United Kingdom
of the European Union. During 2016, it is estimated that the
Eurozone economies grew by 1.7% on the average (as com-
pared to 2.0% in 2015).
In United States the prospects for economic growth were re-
vised downward after a weak first-half performance. However,
starting in the second half, GDP growth exceeded market ex-
pectations, evidencing that the economy continues to make
progress, albeit at a slower rate. From 2017 onwards, however,
it is expected that the fiscal stimulus policies announced by
the new government will boost the country’s economic growth.
An economic growth of 1.6% is now being projected for the
year 2016 (as compared to 2.6% in 2015).
In Latin America, growth prospects remain depressed and
recovery from the second half of 2016 was weaker than ex-
pected in the large economies of the region, such as Brazil and
Argentina, although there is greater uncertainty about Mexico.
On the other hand, we continue to see a continuous weakening
of Venezuela’s economy, with a projected economic contrac-
tion of 0.7% (as compared to a growth of 0.1% in 2015).
258
FINANCIAL STATEMENTS | Analysis of the Financial Statements
Specifically in Brazil, some indicators, like consumer and busi-
ness confidence, suggest that the economic recession may be
coming to an end. However, the recovery during the second
half of the year was lower than expected. Consequently, that
country’s prospects for next year remain uncertain. Some of
the country’s main challenges are the implementation of re-
forms that will improve the country’s structural problems as
well as the recovery of the political credibility. For the year
2016, the projection is for a 3.5% economic contraction (as
opposed to- 3.8% in 2015).
In Chile, economic growth has remained stable although at
lower levels than in the last few years, mainly because of
the lower dynamism of their counterparts in the region and
the lower price of copper, among other factors. An economic
recovery is expected during the coming years, as a result of
projected stronger external demand for products and of more
stable copper prices. The foregoing, however, might be offset
by a low recovery of seen domestic demand and consumer
confidence. A growth of 1.7% is projected for the year 2016 (as
compared to 2.3% in 2015).
In this economic environment, the flexibility of the business
model implemented by the company is crucial to better con-
front such projected economic fluctuations.
a) The following are the main financial indices of the Consolidated Financial Statement:
LIQUIDITY INDICES
Current liquidity (times) (Current assets in operation/Current liabilities)
Acid test (times) (Funds available/ Current liability)
INDEBTEDNESS INDICES
Debt ratio (times) (Current liabilities + Non-current Liabilities/Net equity)
Current debt / Total debt (%)
Non-current debt / Total debt (%)
Hedging of financial expenses (R.A.I.I. / Financial expenses)
ACTIVITY INDICES
Total assets
Investments
Disposal of property (enajenación)
31-12-2016
31-12-2015
0,58
0,15
3,66
41,38
58,55
1,80
0,50
0,13
5,31
37,20
62,80
-0,06
19.198.194
3.401.103
3.046.658
18.101.418
1.533.637
587.153
Profitability indices
The profitability indices were calculated over the equity capital and income attributable to the Majority Shareholders.
31-12-2016
31-12-2015
Return on equity (Net income / Average net income)
Return on assets (Net income / average assets)
Yield of operating assets (Net income / Average (**)operating assets
0.02
0.00
0.00
(**) Total assets minus deferred taxes, personnel current accounts, permanent and temporary investments, and goodwill.
Income per share (Net income / N° of subscribed and paid shares)
Dividend returns (Paid dividends / Market price)
0.11
0.00
-0.08
-0.01
-0.01
-0.40
0.00
259
b) The following are the main financial indices of the
Consolidated Financial Statement:
INCOME
Passengers
Cargo
Others
TOTAL OPERATING INCOME
COSTS
Compensation (Remuneraciones)
Fuel
Commissions
Depreciation and amortization
Other leases and Landing charges
Services to passengers
Aircraft leases
Maintenance
Other operating costs
TOTAL OPERATING COSTS
OPERATING INCOME
Operating margin
Financial income
Financial expenses
Financial income / Costs
PROFIT BEFORE TAXES AND MINORITY INTEREST
Taxes
PROFIT BEFORE MINORITY INTEREST
Attributable to:
Parent company investors
Minority interest
NET PROFIT
Net margin
Effective rate of interest
Total shares
Net profit per share (US$)
FINANCIAL STATEMENTS | Analysis of the Financial Statements
For the 12 months ended on December 31
2016
2015
7,877,715
1,110,625
538,748
9,527,088
-1,951,133
-2,056,643
-269,296
-960,328
-1,077,407
-286,621
-568,979
-366,153
-1,422,625
-8,959,185
567,903
6.0%
74,949
-416,336
47,358
273,874
-163,204
110,670
69,220
41,450
69,220
0.7%
-59.6%
8,410,614
1,329,431
385,781
10,125,826
-2,072,805
-2,651,067
-302,774
-934,406
-1,109,826
-295,439
-525,134
-437,235
-1,283,221
-9,611,907
513,919
5.1%
75,080
-413,357
-532,757
-357,115
178,383
-178,732
-219,274
40,542
-219,274
-2.2%
-50.0%
606,497,693
0.11415
545,547,819
-0.40193
260
Sworn Statement
As Directors and Chief Financial Officer of LATAM Airlines
Group, we declare under our responsibility on the veracity of
the information contain in the Annual Report 2016.
FINANCIAL STATEMENTS | Sworn Statement
261
Annual Report
262