O U R
C O M P A N Y
We are constantly adapting,
placing our customers in
the heart of our decision-
making process.
O U R C O M P A N Y
Latam by the Numbers
4
BEST AIRLINE
in South America
Global Traveler GT Tested
Reader Survey Awards
307
operating
aircraft
Average
age of
7.9 years
137
destinations
24 countries
30 new routes
in 2017
L A T A M
BY THE NUMBERS
67
million
passengers
carried
43.095
employees
64
nationalities
BRAZIL 52%
CHILE 27%
896
thousand
tons
144
transported destinations
ARGENTINA 6%
PERU 8%
COLOMBIA 3%
OTHERS 1%
ECUADOR 2%
USA 1%
Welcome Letter
5
Our commitment is to offer passengers a unique travel
experience; this is why all our decisions focus on customer
satisfaction. With the current trend aiming towards a
customized travel.
IN 2017 WE IMPLEMENTED A NEW BUSINESS
MODEL FOR DOMESTIC MARKETS. SUPPORTED
BY “MERCADO LATAM” AND A NEW SEGMENTED
FARES STRUCTURE, THIS NEW MODEL BROUGHT
TO OVER 85% OF OUR PASSENGERS THE ACCESS
TO TARIFFS UP TO 40% LOWER AND A GREATER
FLEXIBILITY IN THEIR TRAVEL. ITS ROLLOUT
AMONG OUR DOMESTIC AFFILIATES IMPLIED A
GREAT EFFORT FROM ALL OF US AT LATAM GROUP,
AND WE ARE PROUD OF THE POSITIVE RESULTS
WE HAVE OBTAINED.
Also, after seeing the great difference to the international
travel experience that on-board dining makes, we embarked
upon the challenge of redesigning the traditional food
tray served on board the Economy cabin of flights lasting
over seven hours. As a result, we developed a new dining
experience, unique in the industry, that gives our passengers
more options to choose from, a more comfortable format,
and gourmet quality food that showcase the best of Latin
American and international cuisine, with over 300 new dishes.
All this is available at no additional cost to our passengers,
who have loved the new service.
Along the same line, we have continued to invest in self-service
technologies, so that our passengers can tend to themselves
in a simple, transparent, and fully independent way. As an
example, during 2017 we set up over 700 kiosks throughout
more than 80 airports. IATA acknowledged our self-service
initiatives and certified us in the “Platinum” category of its “Fast
Welcome
Enrique Cueto Plaza
CEO LATAM Group
Dear shareholders,
I n 2017 we experienced the greatest transformation in our
recent history—a process that we undertook with the aim
to improve our offer to passengers and move towards a
simpler and more efficient organization. We aspire to become
one of the most admired airline groups in the world, and I am
certain that the steps we have taken in the last few years in
terms of client initiatives, destinations network, productivity,
and sustainability have set us on the right path to achieve this.
OUR COMPANY Welcome Letter
6
Travel” program, confirming our commitment with offering a
leading travel experience in the industry.
volatile economic environment, thereby improving our
competitiveness.
IN 2017, WE MADE GREAT ACHIEVEMENTS IN
TERMS OF EXPANDING AND OPTIMIZING OUR
NETWORK, OPENING 30 NEW ROUTES, INCLUDING
SANTIAGO-MELBOURNE, WHOSE 15-HOUR
DURATION MAKES IT LATAM’S LONGEST NON-
STOP FLIGHT. MOREOVER, WE CONTINUED TO
STRENGTHEN OUR HUBS, CONNECTING SAO
PAULO TO BARILOCHE AND MORE DOMESTIC
DESTINATIONS IN BRAZIL, LIMA TO RIO DE JANEIRO
AND CARTAGENA, BOTH LIMA AND SANTIAGO
TO VARIOUS SECONDARY CITIES THROUGHOUT
ARGENTINA, AND SANTIAGO TO ORLANDO AND
SANTA CRUZ.
Simultaneously, in 2017 we continued to work towards
obtaining the approval of the Joint Business Agreements (JBAs)
with American Airlines and IAG (British Airways and Iberia).
The antitrust authorities of Brazil, Colombia, and Uruguay have
already granted their approval, and we are only awaiting the
resolution in Chile and the confirmation of Open Skies in Brazil
(which has already been approved by Congress). We expect to
complete this process in 2018 so we can begin to implement
these new agreements, which will provide our passengers with
access to a broader network of destinations, as well as more
flights, better connection times, and better prices.
In order to expedite the coordination among our
affiliates and streamline the decision-making process,
we defined a new organizational structure in 2017,
shifting from business units to a functional structure that
focuses on four main areas of responsibility—Clients,
Operations, Marketing, and Finance. This will enable
us to adapt continuously to an evolving industry and a
IN LATAM GROUP WE UPHOLD A LONG-TERM
COMMITMENT TO THE REGION, REFLECTED IN
ITS SUSTAINABILITY STRATEGY, WHOSE FOCUS
IS BOTH TO COMPENSATE THE ENVIRONMENTAL
IMPACT OF OUR OPERATIONS AND TO ACTIVELY
CONTRIBUTE TO SOCIETY.
Accordingly, for the fourth consecutive year, we were included
in the “World” category of the Dow Jones Sustainability Index
(DJSI), which acknowledges the performance of the top 10%
leading companies in sustainability within this index, being
among the only three airline groups in this category worldwide.
OUR COMPANY Welcome Letter
7
The efforts we have made these past years have mirrored
in a steady improvement of our financial results. In 2017,
operating income was the highest in our history, reaching
US$715 million, while net profit totaled US$155 million,
surpassing the US$69 million from 2016. On the revenue
side, these results were boosted by the development of our
business strategy, as well as an overall better economic
environment in the markets where we operate. Moreover,
assisted by our productivity and efficiency measurements,
we were able to keep costs increasing below 2016 inflation
levels and the fuel increase of 2017, thus expanding our
operating margin to 7%.
We also managed to make progress in strengthening our
financial front. In 2017, we continued with our investment
discipline, being the year with the lowest fleet commitments in
LATAM’s history. We also achieved a significant improvement
in our debt profile, aside from disposing of a US$450 million
revolving credit facility, which was fully available at yearend.
As a result, we achieved the highest cash flow and lowest
indebtedness level since the association of LAN and TAM,
maintaining a healthy liquidity level.
In a nutshell, 2017 was a year of transformation, with
important steps towards a more efficient organization, with
a unique position in the market in terms of customers offer
and destinations network, so we can ensure that our business
model will be competitive and sustainable in the long term.
The major changes we implemented throughout 2017 were
possible thanks to the work of the many teams involved. This
is why I cannot end this letter without first thanking everyone
in the great LATAM family for their effort, commitment, and
dedication. I encourage you to keep this same spirit alive and
to keep working with passion and excellence, ensuring that our
clients’ dreams reach their destination, all this in our aim to
become one of the most admired airline groups in the world.
Enrique Cueto
CEO LATAM Group
THE MARKET ACKNOWLEDGED THIS
IMPROVEMENT, WHICH WAS REFLECTED IN
THE 54% INCREASE OF STOCK PRICE IN 2017. I
WOULD LIKE TO THANK OUR SHAREHOLDERS
FOR THE TRUST THEY HAVE PLACED IN THIS
ADMINISTRATION AND IN LATAM GROUP’S
PROJECT.
1 Subject to borrowing base availability
OUR COMPANY
Business
L ATAM is the largest group of passenger and cargo
airlines in South America. At December 2017, it was
offering passenger transportation services to roughly
137 destinations in 24 countries, and cargo services to
around 144 destinations in 29 countries, by operating a fleet
of 307 airplanes, while having several bilateral alliances.
Business Strategy
8
The Group’s business strategy is based on five success
pillars that will enable it to guarantee the sustainability of its
business in the long term, driving the growth of the region’s
air traffic and improving its profitability. These five pillars
are: strengthening and leadership in route network; customer
experience; passenger segmentation; ancillary revenue; and
operating efficiency.
ONE OF THE MAIN STRENGTHS OF LATAM GROUP
IS THE BROAD ROUTE NETWORK THAT IT HAS
CREATED THROUGHOUT THE YEARS. THE AIRLINES
OF THE GROUP ARE IN SIX DOMESTIC MARKETS
IN THE REGION—BRAZIL, CHILE, ARGENTINA,
PERU, COLOMBIA, AND ECUADOR—IN ADDITION
TO OFFERING INTERREGIONAL FLIGHTS, AND
INTERNATIONAL FLIGHTS THAT CONNECT SOUTH
AMERICA AND THE REST OF THE WORLD. THIS
BROAD NETWORK ENABLES LATAM TO ITS
PASSENGERS A WIDE RANGE OF FLIGHTS, WITH
SEVERAL DESTINATIONS, CONNECTIONS, AND
ITINERARY OPTIONS.
The Group seeks permanently to develop its route network. In
this regard, the most relevant projects are the Joint Business
Agreement (JBA) that it expects to complete with IAG Group
(British Airways and Iberia) and American Airlines, and which
would expand its offer to over 420 destinations. In 2017, the
regulatory authorities of Brazil and Colombia gave their green
light, following the steps of Uruguay’s authorization in 2016.
Thus, the Chilean regulator’s approval for both agreements
remains pending; besides the ratification of Open Skies
between Brazil and the US, so the authority from the latter
country can approve the agreement with American Airlines.
Regarding the ratification of Open Skies, it’s worth highlighting
that in 2017, both the Chamber of Deputies and the Senate
of Brazil authorized this agreement, thus only remaining the
approval from the Executive of this country.
OUR COMPANY Business Strategy
9
In the aim to provide the best passenger connectivity, LATAM
Group opened 30 new routes in 2017, most of which feed
traffic to and from its main hubs–in Sao Paulo (Guarulhos),
Lima, and Santiago–and whose strengthening made way for
great progress in the expansion and optimization of its route
network. Among these routes, we should note those from
Sao Paulo (Guarulhos) to Bariloche and various cities within
Brazil, such as Joinville, Londrina, and Uberlandia; from Lima
to Rio de Janeiro and Cartagena; from Lima and Santiago
to secondary cities in Argentina, such as Tucumán; and from
Santiago to international destinations such as Melbourne—
LATAM’s longest non-stop flight ever—Orlando and Santa
Cruz. Furthermore, in 2018, the Company will open 21 more
routes, which will improve connectivity within the region and
towards the rest of the world. Amongst them there are some
new and attractive international destinations, such as Rome,
Tel Aviv, Boston, and Las Vegas.
LATAM Group’s whole transformation is taking place keeping
customers at the heart of its decision making process.
Passengers are the Group’s main priority, and the customer-
driven culture generated within the organization aims to
provide them with a differentiated, consistent, simpler, and
more digital service.
LATAM GROUP’S BUSINESS STRATEGY SEEKS TO
PROVIDE PASSENGERS WITH MORE CONTROL OVER
THEIR OWN TRAVEL EXPERIENCE, SO THEY CAN
ADAPT IT TO THEIR OWN NEEDS AND THE GROUP CAN
FOCUS ON PROCESSES EXECUTION, SO ITS AIRLINES
CAN PROVIDE AN EXCEPTIONAL SERVICE THAT
DIFFERENTIATE IT FROM OTHER MARKET PLAYERS.
In line with the above, in 2017 LATAM Group made a major
step regarding self-service technology, by setting up over
700 kiosks in the counter areas of more than 80 airports, so
passengers can do their own check-in, print out their boarding
pass, tag their baggage, and pay for additional baggage if they
need to. The aim is to meet the needs of the modern traveler,
who values an expedited, simple, and efficient trip; as well as
to increase the Group’s productivity.
Moreover, in line with its commitment to offer a differentiated
travel experience, the Group developed a unique dining
concept for passengers in the Economy cabin of flights lasting
over 7 hours. This new dining experience has replaced the
traditional tray with an individual gourmet dish and fewer
IN ACKNOWLEDGMENT OF THE GROUP’S SELF-
SERVICE INITIATIVES, TOWARDS LATE NOVEMBER,
LATAM BECAME THE FIRST AVIATION GROUP
IN THE REGION TO OBTAIN THE “PLATINUM”
CERTIFICATION UNDER IATA’S “FAST TRAVEL”
PROGRAM, WHICH IS AWARDED TO AIRLINES
THAT OFFER SELF-SERVICE TO AT LEAST 80% OF
THEIR PASSENGERS. THIS WAS POSSIBLE MAINLY
THANKS TO THE IMPLEMENTATION OF FOUR
PROJECTS: CHECK-IN, FLIGHT REBOOKING, SELF-
BOARDING, AND BAGS READY TO GO.
OUR COMPANY Business Strategy
10
LIKEWISE, LATAM GROUP MADE SIGNIFICANT
PROGRESS IN THE PLAN TO REDUCE ITS FLEET
INVESTMENTS, REACHING ITS LOWEST FLEET
COMMITMENTS EVER IN 2017, US$326 MILLION.
THIS ENABLED THE COMPANY TO INCREASE ITS
FLEET’S PRODUCTIVITY, AS WELL AS TO IMPROVE
ITS CASH FLOW GENERATION AND STRENGTHEN
ITS BALANCE SHEET POSITION.
on-board food & beverage selling service—, and announced
the implementation of on-board WiFi for domestic and
regional flights, beginning with LATAM Airlines Brazil (where it
will be operative as of the first quarter of 2018).
On the other hand, in line with the transformation plan
announced towards the end of 2016, the Company has
made progress towards its goal of becoming a simpler and
more efficient company, with the flexibility to adapt quickly
to an ever-changing industry and economic environment.
In this context, one of the most relevant changes in the
Group’s organizational structure took place throughout 2017,
emphasizing four main areas, which are the foundation of
the business strategy, and that report directly to the CEO:
Costumer, Operations & Fleet, Commercial, and Finance; each
of them is headed by current LATAM executives.
peripheral elements, and offers more options for lunch and
dinner, gourmet quality food that features Latin American
ingredients and cuisine, dishes 50% larger, and a variety of
over 300 dishes; all at no additional cost to passengers.
Innovation plays an important role in the decision-making process
of LATAM Group, and this was manifested in the implementation
of the new business model for domestic markets, that allows
travelers to customize their travel experience by only paying
for the attributes the value, in line with industry’s last trends.
Anticipating the market environment, the Group led the way in the
adoption of this model, thus maintaining its competitiveness in a
region that is taking on this trend.
A STRATEGIC AXIS OF THIS NEW MODEL
CONSISTS ON SEGMENTING PASSENGERS WITH
NEW TARIFF STRUCTURE, SO TRAVELERS CAN
CHOSE HOW THEY WANT TO TRAVEL, AND CAN
HAVE MORE ALTERNATIVES THROUGHOUT THEIR
FLIGHT EXPERIENCE, SUCH AS THE OPTION
TO CHOOSE PREFERRED SEATS, AND THE
FLEXIBILITY TO CHANGE OR CANCEL FLIGHTS.
With the lower tariffs, the Group seeks to target passengers
with higher price-sensitivity, and thus, increase by 50% the
air traffic of region by the year 2020. At the same time,
LATAM Group maintains its differentiating attributes, such as
its frequent flyer program, route network, and free on-board
entertainment, among others.
Another key element of this model are the initiatives to increase
ancillary revenues. This includes the offer of additional services,
such as charging for each checked bag and for excess baggage
(including sport gear and musical instruments). Furthermore,
in 2017, the Group also kicked off “Mercado LATAM”—a new,
OUR COMPANY History
11
Always building a story so we can
take care that all dreams reach
their destinations.
1929
1946
1956
Linea Aerea Nacional de Chile (LAN)
founded by Comandante
Arturo Merino Benítez.
Start of LAN
services to Lima.
FIRST LAN
INTERNATIONAL FLIGHT:
SANTIAGO-BUENOS AIRES.
OUR COMPANY History
12
1958
1961
Start of LAN services
to Miami.
TAM-Taxi Aéreo Marília
created by five charter
flight pilots.
LAN begins flights
to Europe.
1970
1975
1976
Launch of TAM services in
Brazilian cities, especially
Mato Grosso and São Paulo.
FOUNDATION OF
TAM-TRANSPORTES AÉREOS
REGIONAIS BY CAPITAN ROLIM
ADOLFO AMARO.
OUR COMPANY History
13
CONSTITUTION OF LINEA
AEREA NACIONAL - CHILE
LIMITADA, THROUGH
CORFO
LAN becomes a joint
stock company
Start of privatization of LAN:
the Chilean government sells a
51% stake to local investors and
Scandinavian Airlines System (SAS).
1983
1985
1986
1989
1990
TAM acquired Brasil Central Linhas
Aéreas-VOTEC, a regional airline
that served the North and Central
West regions of Brazil.
BRASIL CENTRAL RENAMED
TAM-TRANSPORTES AÉREOS
MERIDONAIS
OUR COMPANY History
14
Launch by TAM of TAM
Fidelidade, Brazil's first
frequent flyer program.
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
1993
1994
1996
1997
1998
Privatization of LAN completed with
the acquisition of a 98.7% stake by
its current controllers and
other shareholders.
Arrival of first A330; first
TAM international flight from
São Paulo to Miami.
LAN LISTS ON THE NEW YORK
STOCK EXCHANGE, BECOMING
THE FIRST LATIN AMERICAN
AIRLINE TO TRADE ADRS ON
THIS IMPORTANT MARKET
Start of São Paulo – Asuncion flights
OUR COMPANY History
15
LAN JOINS THE
ONEWORLD ALLIANCE
1999
2000
2001
2002
2003
LAN’s expansion begins: start of
operations of LAN Perú.
LAN Alliance with Qantas
and Lufthansa Cargo
LAN continues its expansion plan:
start of operations of LAN Ecuador.
LAN Alliance with Iberia and
inauguration of Miami cargo
terminal.
Creation of TAM Technology
Center and Service Academy in
São Paulo.
OUR COMPANY History
16
Completion of renewal of LAN's
short-haul fleet with aircraft from
the Airbus A320 family.
Launch of the new
executive class for flights
to Paris and Miami.
FURTHER STEP IN LAN’S
REGIONAL EXPANSION PLAN:
START OF OPERATIONS OF
LAN ARGENTINA.
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.
TAM receives its first
Boeing 777-300ER.
2004
2005
2006
2007
2008
TAM S.A. lists on the BOVESPA
stock market.
Start of flights to New York and
Buenos Aires.
Implementation of low-cost model
in domestic markets.
Capital increase of US$320 million.
Launch of new corporate
image as LAN Airlines S.A.
Start of TAM flights to Santiago.
Launch of new LAN Premium
Business Class.
TAM S.A. lists on the NYSE
OUR COMPANY History
17
LATAM AIRLINES GROUP IS
BORN AS A RESULT OF THE
BUSINESS COMBINATION
BETWEEN LAN AND TAM.
Acquisition of Colombia's
Aires airline.
TAM officially joins
Star Alliance.
2010
Issuance of 2.9 million shares.
Capital increase for US$ 940.5 million.
2011
2012
2013
LAN and TAM sign binding
agreements related to the
business combination of the
two airlines.
2009
Start of cargo operations in
Colombia and domesticpassenger
operations in Ecuador.
Launch of Multiplus Fidelidade.
OUR COMPANY History
18
IMPLEMENTATION OF
THE NEW TRAVEL
MODEL BY THE
AFFILIATES OF THE
DOMESTIC MARKETS
LATAM is Born: The New Brand
for LAN Airlines, TAM Airlines
and Affiliates.
EETC structured bond issue
for US $ 1,020MM:
First in Latin America.
2014
2015
2016
2017
TAM joins oneworld alliance, which
becomes LATAM Airlines Group
global alliance.
LATAM launches its 2015- 2018
Strategic Plan.
Capital increase of US $ 608 million
with which Qatar Airways acquires
10% of the total of paid
and subscribed shares of LATAM.
OUR COMPANY Fleet
19
LATAM Group’s fleet plan is constantly assessing its needs,
and it has the flexibility to expand, rationalize, or adapt
its airplane requirements based on the demand in each of
the countries where it operates, and on the needs of its
worldwide network. In this context, throughout 2017, it
subleased four Airbus A350 airplanes to Qatar Airways,
per the agreements signed for a period of six months to
one year, whereby Qatar is responsible for these airships’
operational control.
Moreover, the Group ended the year with five A320 airplanes
subleased, and received two of the three Boeing 767F that it
had subleased to another carrier.
To carry out its short-haul passenger operations—flights
on domestic and regional routes within South America—
the Group used 223 airplanes, mainly from the Airbus
A320 family.
TWO NEW AIRBUS A320 NEO AIRPLANES—THE
LARGEST IN THE FAMILY—WERE RECEIVED,
ADDING TO THE 2 AIRCRAFT OF THE SAME TYPE
RECEIVED IN THE PREVIOUS YEAR TO TOTAL 4 OF
THIS KIND BY YEAREND.
These planes include a more efficient engine and new
sharklets (advanced technology wing-tip devices to reduce
drag), enabling savings of up to 15% in fuel and the ensuing
reduction in annual emissions by around 3,600 tons of CO2
per airplane. The Company’s plan for the medium term is
to operate a short-haul fleet comprised of only A320-family
airplanes, versions A320, A321, and A320neo.
L ATAM Group operates one of the most modern fleets
in South America and the world. At the end of 2017,
it comprised 307 airplanes, with an average age of
around eight years. After launching the merged LATAM
brand in 2016, the Group had 61 airplanes painted with the
new logo by December 2017, in a process that the company
expects to complete by 2021.
In this period, the Group continued to move forward on its
fleet renewal and adjustment plan, aiming to operate using
the largest and most efficient models in the industry, and
assigning the most suitable for each of the markets where it
participates. Along this line, it removed 21 of its older aircraft
and added four airplanes of the most efficient models: two
Boeing 787-9 and two Airbus A320 neo.
OUR COMPANY
Fleet
20
To carry out its long-haul operations, LATAM Group used
a fleet of 75 airplanes in 2017, such as the Boeing 787
Dreamliner versions 8 and 9, and the new Airbus A350-900.
The wide-body aircraft fleet plan aims towards its renewal
to include more efficient and state-of-the-art technology
equipment, maintaining the same number of planes, but
increasing capacity through larger aircraft. Thus, in this period,
two Boeing 787-9 were added to the five airplanes included in
the previous year, totaling 14 of these planes by the end of the
year. As for the Boeing 787-8 fleet, the company operated 10
of these planes in 2017—unchanged from the previous year.
To carry out its cargo service, LATAM Group ended the year
with an operational fleet comprised by 9 Boeing 767F planes
(one less than in 2016). The Group’s focus is on optimizing
the use of passenger plane bellies, so it has gradually
decreased its dedicated cargo fleet. During 2017, the Group
retired two Boeing 777F, and received two of the three Boeing
767F that it had subleased to other cargo carriers outside
the region. By yearend 2017, the mix of cargo transported in
cargo planes and the bellies of the passenger fleet was 29%
and 71%, respectively.
By 2017, fleet commitments totaled US$326 million—the
lowest in LATAM’s history—fully comprised by operating
leases previously agreed. For 2018 and 2019, these
commitments will total US$714 million and US$1,213
million, respectively.
Altogether, LATAM Group maintains its commitment to offer
its passengers the most modern fleet in the industry, to
provide them with the best travel experience in Latin America.
MAINTENANCE
The company’s facilities for major maintenance, line
maintenance, and components are equipped and certified
to service all its Airbus and Boeing aircraft fleet.
With facilities in Brazil (Sao Carlos) and Chile (Santiago),
LATAM Group’s Maintenance, Repair, and Overhaul (MRO) unit
is in charge of giving major maintenance to the group’s aircraft,
and occasionally serves third parties. Both facilities meet 78%
of the Group’s major maintenance service needs, and those
that are not carried out internally are engaged through the
broad MRO partner network worldwide. This unit is also in
charge of planning and executing aircraft redeliveries.
THE BOEING 787-9 HAS 27% MORE
PASSENGER CAPACITY AND 23% MORE
CARGO VOLUME CAPACITY COMPARED
TO THE BOEING 787-8. IT IS DESIGNED
FOR 283 PASSENGERS IN ECONOMY
AND 30 PREMIUM BUSINESS SEATS.
MOREOVER, IT FEATURES UP TO 20%
LESS FUEL CONSUMPTION THAN
SIMILAR PLANES AND REDUCES ITS CO2
EMISSIONS BY UP TO 20% AS WELL.
OUR COMPANY from certified third parties at some destinations where it is
financially convenient, such as Frankfurt, where it is serviced
by Lufthansa Technik; Milan, by Air France-KLM; and
Johannesburg, by South African Airways.
We should note that, since 2010, maintenance at LATAM
follows production and support processes transformed
under the LEAN methodology, which has translated into a
process automatization and integration, improving both the
productivity levels of the technical teams and emergency
response times, as well as simplifying and strengthening the
maintenance processes, rendering them upgradable and
visible to all the organization.
In addition to the development of these IT systems, the Group
has delivered over 700 iPads throughout its maintenance
network to improve on-site maintenance connectivity.
Built in 2015, the Group also has a hangar at the Miami
International Airport. This city offers a strategic geographic
advantage for obtaining supplies and services, as well as a broader
range of suppliers to carry out complex maintenance tasks. The
hangar and surrounding infrastructure cover over 66,000 square
feet and implied an investment of US$16.5 million.
At the Brazil MRO, which includes its own support engineering
capacity and a full technical training center, the Group is
prepared to service up to eight planes simultaneously, with
a hangar devoted to stripping and painting. At this facility, it
also has 22 technical component shops, including a full shop
to repair and overhaul landing gear, hydraulic gear, tires,
electronics, electric components, electroplating, compounds,
wheels and brakes, interiors, and emergency equipment. It
also has an exclusive 1,720-meter runway.
The Santiago MRO, located near the Comodoro Arturo Merino
Benítez international airport, has two hangars with capacity
to service one wide-body and two narrow-body airplanes
simultaneously. It has 10 shops set up to support the hangar,
such as cabins, galley, structures, and compound materials,
and it has capacity to adapt airplane interiors, including setting
up the wireless IFE (In-Flight Entertainment) and winglets.
IN 2017, THE MRO UNIT EFFECTIVELY USED 1.2
MILLION MAN-HOURS, SERVICING OVER 300
AIRPLANES IN LATAM’S FLEET, AND REPAIRING
AROUND 55 THOUSAND COMPONENTS DELIVERED
TO THE MAINTENANCE OPERATIONS.
On the other hand, the line maintenance network offers a
full range of maintenance services for aircraft to ensure that
the fleet is functioning safely and in compliance with all local
and international regulation. The network has facilities at the
hangars in Santiago, São Carlos, São Paulo (CGH), Lima,
Miami, Buenos Aires (AEP), and Brasilia, among others.
In 2017, the line maintenance network effectively used 2.2
million man-hours on preventive and corrective maintenance
tasks for the LATAM fleet. The Group also receives services
Fleet
21
As of December 31, 2017
Off
Balance
On
Balance
Total
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
TOTAL
OPERATING FLEET
SUBLEASES
Airbus A320-200
Airbus A350-900
Boeing 767-300F
TOTAL SUBLEASES
9
38
3
17
-
2
2
6
4
10
91
-
2
2
37
88
1
30
0
3
34
4
6
4
46
126
4
47
0
5
36
10
10
14
207
298
-
7
7
-
9
9
93
214
307
-
-
-
-
5
1
-
8
5
1
-
8
TOTAL FLEET
93
222
315
Note: This table does not include one B777-200F currently subleased
to a third party, that was reclassified from property plant and
equipment to hold for sale.
OUR COMPANY
Fleet
22
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
WIDE BODY
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
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 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
Boeing 787-9
Airbus A350-900
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
Airbus A320 neo
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
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 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
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
OUR COMPANY PASS EN GER
NETWO RK
We have broaden our network, offering our
passengers more destinations and frequencies.
Destinations137
10
North / Central
America
4
Asia/Oceanía
116
South America
Destinations
23
6
Europe
1
Africa
OUR COMPANY INTERN ATI ON A L
We aim to build and ensure the best
route network within Southamerica and
to the world.
Destinations 27
Sydney
Auckland
Melbourne
Los Angeles
Papeete
Ciudad de México
New York
Washington
Orlando
Miami
La Habana
Punta Cana
Cancún
Aruba
La Paz
Santa Cruz
Asunción
Punta del Este
Montevideo
Mount Pleasant
Destinations
24
London
Frankfurt
Paris
Barcelona
Madrid
Milan
Johannesburg
*international exclusive
OUR COMPANY BRAZ I L
Destinations41
Destinations
25
Boa Vista
Macapá
Belém
Manaos
Santarém
São Luís
Marabá
Imperatriz
Teresina
Fortaleza
Porto Velho
Río Branco
Palmas
Cuiabá
Brasilia
Goiânia
Uberlândia
Natal
João Pessoa
Aracaju
Recife
Maceió
Salvador
Ilhéus
Porto Seguro
Campo Grande
São José Do Rio Preto
Belo Horizonte
Vitória
Ribeirão Preto
Bauru
Londrina
São Paulo
Río de Janeiro
Foz do Iguaçu
Curitiba
Joinville
Navegantes
Florianópolis
Jaguaruna
Porto Alegre
OUR COMPANY O U R C O M P A N Y
Destinations
26
ARGE NTINA
Destinations15
Salta
Tucumán
Iguazú
San Juan
Córdoba
Mendoza
Rosario
Buenos Aires
Bahía Blanca
Neuquén
Bariloche
Comodoro Rivadavia
El Calafate
Río Gallegos
Ushuaia
Easter Island
CHI LE
16
Destinations
+
Easter Island
O U R C O M P A N Y
Destinations
27
Arica
Iquique
Calama
Antofagasta
Copiapó
La Serena
Santiago
Concepción
Temuco
Valdivia
Osorno
Puerto Montt
Castro (Chiloé)
Balmaceda (Aysén)
Puerto Natales
Punta Arenas
Isla San Andrés
COLOM BI A
Destinations14
O U R C O M P A N Y
Destinations
28
Barranquilla
Santa Marta
Valledupar
Cartagena
Montería
Cúcuta
Medillin
Bucaramanga
Pereira
Bogotá
Cali
Yopal
Leticia
O U R C O M P A N Y
Destinations
29
ECUADOR
Galápagos Baltra
Galápagos San Cristóbal
Destinations5
Quito
Guayaquil
Cuenca
O U R C O M P A N Y
Destinations
30
PE RU
Tumbes
Talara
Piura
Jaén
Iquitos
Chiclayo
Cajamarca
Tarapoto
Trujillo
Pucallpa
Destinations18
Jauja
Lima
Puerto Maldonado
Ayacucho
Cuzco
Juliaca
Arequipa
Tacna
Destinations
31
44
Destinations
Europe
4
Destinations
Africa
CO DESH ARE
Additional benefits to our passengers, including
access to a wider network, more flight options with
a better connecting time, and more competitive
tariffs on destinations not operated by LATAM.
Destinations148
13
Destinations
Asia
17
Destinations
Australia
70
Destinations
North America
OUR COMPANY CAR G O
7
Destinations*
Guadalajara
Guatemala City
Caracas
San Jose
We are the largest cargo operator of
the region.
Cabo Frío
Destinations
32
Amsterdam
Basel
*cargo exclusive
OUR COMPANY Our People
33
OVERALL
Employees by function
Our
We build a unique traveling experience by
connecting with our customers.
L ATAM is a group of airlines that stands out for the cultural
plurality of its human teams. At the end of 2017, its
staff comprised over 43 thousand employees—from
64 different nationalities—across 23 countries.
Within the framework of the transformation plan that the
Group is carrying out in all its areas in order to position itself
as a profitable airline group and gain customers’ preference,
2017 was a milestone in the consolidation of Project Twist, the
most relevant initiative regarding people, as it implies a new
way of conceiving service rendering.
Operations
Cabin Crew
Administration
Maintenance
Control Crew
Sales
Total
15,126
9,016
6,922
4,742
3,957
3,332
35%
21%
16%
11%
9%
8%
43,095
100%
Gross Salary by gender (male/female ratio)
Role
General Role
Medium Level
Executive Level
0.98
1.04
1.40
OUR COMPANY
Its main goal is to generate an emotional connection between
the Company’s collaborators and its customers, in order to
achieve greater passenger loyalty. The method is to adapt the
work that the human teams do to the industry’s evolution,
customer empowerment, and the size that LATAM Group has
achieved, providing them with greater autonomy to answer to
clients’ various needs in the different places where it operates,
and giving them the ability to bend the service to these realities.
This cultural transformation managed to reach over 140
locations throughout 2017, covering over 20 thousand
employees distributed among 130 airports, nine Contact
Centers (including internal and outsourced), 7,500 crew
members, and 1,800 in-flight service, in addition to
participating in the Hub Control Center (HCC) of the main
airports—the first population without direct customer contact
that the process has included.
In this period, LATAM’s Unique Leadership Model was also
launched, conceived as a basic guideline for leading within
the Company, which showcases the practices that must be
adopted in directing teams, in the understanding that it is
they who bring LATAM’s culture to life and get every dream
to its destination. The goal is to carry out excellently the daily
operations and large projects, and to develop the human
teams with a common view, which is to become one of the
most admired airlines in the world.
BY IMPLEMENTING THIS LEADERSHIP MODEL,
THE GROUP SEEKS TO FOSTER A UNIQUE CULTURE
THAT WILL RESPECT INDIVIDUALITY AND EACH OF
ITS LEADERS’ OWN STYLE IN APPLYING IT.
Our People
34
DIVERSITY OF THE ORGANIZATION
Employees by country and gender
Ecuador
Women 427 (54%)
Men 357 (46%)
Total 784
USA
Women 142 (45%)
Men 177 (55%)
Total 319
Others
Women 440 (49%)
Men 467 (51%)
Total 907
Brazil
Women 7,396 (33%)
Men 14,805 (67%)
Total 22,201
Chile
Women 4,597 (40%)
Men 6,845 (60%)
Total 11,442
Peru
Women 1,805 (51%)
Men 1,762 (49%)
Total 3,567
Argentina
Women 1,104 (44%)
Men 1,383 (56%)
Total 2,487
Colombia
Women 685 (49%)
Men 703 (51%)
Total 1,388
OUR COMPANY Our People
35
In order to move towards an ever more efficient system and
to continue to render a quality service, LATAM Group’s Human
Resources team launched an online customer service platform
known as “RH Connect”, which consolidates within a single
site all the information of the department’s processes and
services. Through this channel, the Group’s workers can now
access information regarding compensation, medical leave,
team management, benefits, insurance, agreements, vacation
time, processes, tools, and much more, in a quick, simple, and
direct manner of their respective employers.
Likewise, in the period, there was significant progress in the
LATAM Acknowledgement program started in 2016, destined
to reward those who best embody the Group’s guidelines of
conduct in the “Security”, “Service”, and “Efficiency” categories.
Through this initiative, the to recognize those who embody
LATAM’s spirit of service, beyond the position they hold, or the
department they work in.
IN 2017, ROUGHLY 53 THOUSAND
ACKNOWLEDGMENTS WERE AWARDED BY
LATAM AFFILIATES, 3,154 OF WHICH WERE FOR
“SECURITY”, 22,387 FOR “SERVICE”, AND 27,410
FOR “EFFICIENCY”.
On the other hand, in this period, 43 thousand workers were
trained, most of who were people in the operations department
or crew members. This is in line with the project to transform
the business model, which the Group implemented and, among
other aspects, changed the way in which airfare tickets are sold
(charging for the various features, such as checked baggage),
based on each customer’s needs.
Employees by age
Employees by years in the company
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
People
Years in the company
13,211 (31%)
Up to 3 years
17,943 (42%)
From 4 to 6 years
8,432 (20%)
From 7 to 9 years
2,955 (7%)
From 10 to 12 years
517 (1%)
More than 12 years
37 (0%)
43,095
Total
People
12,298 (29%)
8,843 (21%)
8,091 (19%)
7,320 (17%)
6,543 (15%)
43,095
OUR COMPANY Our People
36
DIVERSITY OF THE MANAGEMENT
Managers by country and gender
Managers by age
Managers by years in the company
Chile
Brazil
USA
Peru
Argentina
Colombia
Ecuador
Others
Total
130
110
15
9
9
5
6
10
294
Total
512 (50%)
303 (30%)
56 (6%)
33 (3%)
33 (3%)
26 (3%)
14 (1%)
38 (4%)
382
193
41
24
24
21
8
28
721
1,015
Age
From 31 to 40 years
From 41 to 50 years
From 51 to 60 years
Up to 30 years
From 61 to 70 years
Total
People
Years in the company
542 (53%)
274 (27%)
108 (11%)
73 (7%)
18 (2%)
Up to 3 years
From 4 to 6 years
From 7 to 9 years
From 10 to 12 years
More than 12 years
1,015
Total
People
135 (13%)
225 (22%)
208 (20%)
176 (17%)
271 (27%)
1,015
DIVERSITY OF BOARD OF DIRECTORS
Board members by country and gender
Board members by age
Board members by years in the company
Chile
Brazil
United Kingdom
Total
-
-
-
-
6
2
1
9
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
People
Years in the company
People
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
1
4
1
1
9
5
2
1
-
1
9
OUR COMPANY Company
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”.
Company Information
37
INCOR PORAT ION
E stablished as a limited liability company by public deed
of 30 December 1983, extended by Public Notary
Eduardo Avello Arellano, an extract of which was
recorded at Folio 20,341 Nº 11,248 of 1983 of the Santiago
Business Register and published in the Official Gazette of 31
December 1983.
By public deed of 20 August 1985, extended by Public
Notary Miguel Garay Figueroa, the company became a joint
stock company under the name of Línea Aérea Nacional
de Chile S.A. (now LATAM Airlines Group S.A.). As regards
aeronautical and radio communication concessions, traffic
rights and other administrative concessions, this company
was expressly designated by Law N°18.400 as the legal
continuation of the state company created in 1929 under the
name of Línea Aérea Nacional de Chile.
The change of name
came into force on
22 June 2012.
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 Shareholders’
Meeting of LAN Airlines S.A. held on 21 December 2011
agreed to change the company’s name to “LATAM Airlines
Group S.A.”, current corporate name of the Company. 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.
OUR COMPANY Company Information
38
LATAM AIRLINES GROUP S.A. IS RULED BY
THE REGULATION APPLICABLE TO OPEN
STOCK COMPANIES, AND REGISTERED
TO THIS EFFECT UNDER Nº 0306, DATED
JANUARY 22, 1987, IN THE COMMISSION
FOR THE FINANCIAL MARKET (“CMF”),
FORMERLY THE SUPERINTENDENCY OF
SECURITIES AND INSURANCE.
THE CORPORATE PURPOSE IS:
a) The commerce of air and / or land transport in any of its
forms, whether of passengers, cargo, mail and everything
that has direct or indirect relation with said activity, inside
and outside the country, 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 other 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.
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
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
LTM CI - Santiago Stock Exchange
LTM US - 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 8765
Email: InvestorRelations@latam.com
OUR COMPANY CO R P O R AT E
G O V E R-
N A N C E
Our leaders are committed to
improving their teams, so we
can be one of the most admired
airlines group in the world.
Board members
40
Board
IGNACIO CUETO PLAZA
Chairman
RUT: 7.040.324-2
The Board of Directors was elected
in the Shareholder’s Meeting of April 27,2017
for a two-year period.
M r. Ignacio Cueto Plaza joined LATAM’s Board of
Directors in April 2017. 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, a
national cargo company of that time.
He led the commercial and service area of the company in
the North American market. Mr. Cueto later served on the
Board of Directors of Ladeco (from 1994 to 1997) and LAN
(from 1995 to 1997), and served as President of LAN Cargo
from 1995 to 1998. He served as Chief Executive Officer
of Passenger Business from 1999 to 2005, and in 2005 as
President and Chief Operating Officer of LAN until the merger
with TAM was finalized. Mr. Cueto later served as LAN’s CEO
until April 2017. Mr. Cueto also led the establishment of the
different affiliates that the company has in South America
(Peru, Argentina, Ecuador, and Colombia), as well as the
implementation of key alliances with other airlines. Mr. Cueto is
part of the Cueto Group, the group of controlling shareholders.
CORPORATE GOVERNANCE Board members
41
CARLOS HELLER SOLARI
HENRI PHILIPPE REICHSTUL
Director
RUT: 6.694.240-6
Vice-Chairman
RUT: 8.717.000-4
M r. Carlos Heller Solari, entrepreneur, joined the board
of LAN in May 2010 and was re-elected to the
Board of Directors of LATAM in April 2017. Mr. Heller has
extensive experience in the sectors of retail, communications,
transportation, and agriculture. He is the Chairman of Bethia
Group, which in turn owns Axxion S.A. and Betlán Dos S.A.,
companies with significant shares in LATAM Airlines.
M r. Juan José Cueto Plaza has served on LAN’s Board of
Directors since 1994 and was re-elected to the board
of directors of LATAM in April 2017. Mr. Cueto is the Executive
Vice President of Inversiones Costa Verde S.A., a position
that he has held since 1990, and also serves on the boards
of Consorcio Maderero S.A., Inversiones del Buen Retiro S.A.,
Costa Verde Aeronáutica S.A., Sinergía Inmobiliaria S.A., Valle
Escondido S.A., and Fundación Colunga.
JUAN JOSÉ CUETO PLAZA
Director
RUT: 48.175.668-5
M r. Henri Philippe Reichstul was re-elected to the Board
of Directors of LATAM in April 2017. Mr. Reichstul has
served as President of Petrobras and the IPEA-Institute for
Economic and Social Planning, and Executive Vice President
of Banco Inter American Express S.A. Currently, in addition to
being an administrative council member of TAM and LATAM
group, he is also a member of the Board of Directors of
Peugeot Citroen and chairman of Fives, among others.
Additionally, he is also the Chairman of Red Televisiva
Megavision S.A., Club Hipico de Santiago, Falabella Retail
S.A., Sotraser S.A., and Blue Express S.A. Mr. Heller is the
major shareholder and Chairman of Azul Azul S.A. which
administrates the Corporación de Fútbol Profesional from the
Universidad de Chile.
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.
CORPORATE GOVERNANCE Director
Foreign
Director
Rut: 15.336.049-9
Board members
42
M r. 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 aircraft financing. He is also currently a
member of the Board of Directors of Air Italy. Mr. Agutter
has had vast experience in advising airlines, including Qatar
Airways, on significant Merger and Acquisition projects within
the airline industry.
Mr Agutter has a degree in Aerospace Engineering from
Manchester University and he currently resides in England.
EDUARDO NOVOA CASTELLÓN
M r. Nicolás Eduardo Eblen Hirmas joined LATAM’s Board
of Directors in April 2017. Mr. Eblen currently serves
as CEO of Inversiones Andes SpA, a position he has held
since 2010. In addition, he serves on the Board of Directors of
Granja Marina Tornagaleones S.A., Río Dulce S.A., Patagonia
SeaFarms Inc., Salmon Chile A.G., and Sociedad Agrícola
La Cascada Ltda. Mr. Eblen holds a Bachelor’s degree in
Industrial Engineering with a concentration in Computer
Science from Pontificia Universidad Católica de Chile, and a
Master in Business Administration from Harvard University.
GILES AGUTTER
Director
Rut: 7.836.212-K
NICOLÁS EBLEN HIRMAS
M r. Eduardo Novoa Castellón joined LATAM’s Board of
Directors in April 2017. Currently, Mr. Novoa serves on
the Board of Directors of Cementos Bio-Bio, Grupo Ecomac, and
ESSAL, and is a member of the Advisory Board in STARS and
Endeavor. He was previously a member of the Board of Directors
of Esval, Soquimich, Grupo Drillco, Techpack, Endesa-Americas,
Grupo Saesa, Grupo Chilquinta, and various companies in the
region that were branches of Grupo Enersis or AFP Provida.
Additionally, he has formed part of the Board of Directors of
union entities and nonprofit organizations such as Amcham-
Chile, Asociación de Empresas Eléctricas, YPO-Chile, Chile
Global Angels, and various Start-Ups. Between 1990 and 2007
he was an executive of different companies such as CorpGroup,
Enersis, Endesa, Blue Circle, PSEG, and Grupo Saesa.
Mr. Novoa is an economist from Universidad de Chile and has
a Master in Business Administration from the University of
Chicago. He has participated in executive programs in Harvard,
Stanford, and Kellogg, and was a finance and economics
professor in various Chilean universities.
CORPORATE GOVERNANCE Board members
43
Director
RUT: 7.269.147-4
Mr. Georges de Bourguignon, has served on LATAM Airlines
Group’s Board of Directors since September 2012 and
was reelected in April 2017. He is co-founder of Asset Chile
S.A., a Chilean investment bank, and its Chairman as of January
2018. Currently, he also has a board seat in K+S Chile S.A.;
Embotelladora Andina S.A.; and Asset AGF, as Chairman. In
the past, he has participated in various directories at public
and private companies, and non-profit organizations as well.
Between 1990 and 1993 he worked as Manager of Financial
Institutions at Citibank N.A. in Chile and as a Professor of
Economics at the Pontifical Catholic University of Chile.
Mr. de Bourguignon is an economist from this University and has
an MBA from the Harvard Business School.
GEORGES DE BOURGUIGNON
ANTONIO LUIZ PIZARRO MANSO
Director
Foreign
M r. Antonio Luiz Pizarro Manso joined LATAM’s Board
of Directors in April 2017. In addition, Mr. Pizarro has
served on the Board of Directors of Banco Caixa Geral Brasil SA
since 2009, on TAM Aviação Executiva S.A. since 2012, and on
TAM S.A. since 2017. In 1995 assumed the position of CFO of
Embraer, a position he held until 2008. He was also a member
of the boards of Solví Participações S.A., Itapoá Terminais
Portuários S.A, TAM S.A., and LM Wind Power do Brasil.
Mr. Pizarro is a mechanical engineer from Escuela Politécnica
of Pontificia Universidad Católica de Rio de Janeiro and has
a graduate degree in Finance from the Instituto Brasileiro de
Mercado de Capitales.
CORPORATE GOVERNANCE Executives
44
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 held this position since
the combination between LAN and TAM in June 2012. From
1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast
Air, a Chilean Cargo 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 is
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 Endeavor foundation,
an organization dedicated to the promotion of entrepreneurship
in Chile, and Executive Member of the Latin American and
Caribbean Air Transport Association (ALTA).
Our experience is what makes us unique.
CORPORATE GOVERNANCE Vice President Senior FinancialFleet
Rut: 22.357.225-1
Executives
45
M r. 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,
CLAUDIA SENDER
Senior Vice-President of Customers
Foreign
a leading utility company, in Spain, Italy and Chile, having
served as Deputy Chief Executive 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.
RAMIRO ALFONSÍN
ROBERTO ALVO
Senior Vice-President of Commercial
RUT: 8.823.367-0
M rs. Claudia Sender, is the Vice-President of Customers
LATAM. Previously, she served as TAM Airlines’
President since May 2013. Mrs. Sender joined the company in
M r. Roberto Alvo Milosawlewitsch has been the
Commercial Senior Vice-President of LATAM since
May 2017, being responsible of the Group’s passenger and
December 2011, as Commercial and Marketing Vice-President.
After June 2012, with the conclusion of TAM-LAN combination
and the creation of LATAM Airlines Group, she became the
head of Brazil’s Domestic Business Unit, and her functions were
expanded in order to include TAM’s entire Customer Service
structure. Prior to joining LATAM Airlines, she was Marketing
Vice-President at Whirlpool Latin America for seven years. She
also worked as a consultant at Bain & Company, developing
projects for large companies in various industries, including
TAM Airlines and other players of the global aviation sector.
She has a bachelor’s degree in Chemical Engineering from the
Polytechnic School at the University of São Paulo (“USP”) and
an MBA from Harvard Business School.
cargo revenue management, with all the commercial units
reporting to him. Previously, he was Senior Vice-President
of International and Alliances at LATAM Airlines since 2015,
and Vice-President of Strategic Planning and Development
since 2008. Mr Alvo joined LAN Airlines in November 2001,
where he served as Chief Financial Officer of LAN Argentin,
as Manager of Development and Financial Planning at
LAN Airlines, and as Deputy Chief Financial Officer of LAN
Airlines. Before 2001, Mr. Alvo held various positions at
SociedadQuímica y Minera de Chile S.A., a leading Chilean
non-metallic mining company. He is a civil engineer, and MBA
from IMD in Lausanne, Switzerland.
CORPORATE GOVERNANCE Senior Vice-President of Operations,
Maintenance and Fleet
Rut: 21.828.810-3
Executives
46
Senior Vice-President of Human Resources
RUT: 9.908.112-0
M r. Hernan Pasman has been the Senior Vice-President
of Operations, Maintenance and Fleet of LATAM
airlines group since October, 2015. He joined LAN Airlines in
2005 as a head of strategic planning and financial analysis
of the technical areas. Between 2007 and 2010, Mr. Pasman
was the Chief operating officer of LAN Argentina, then, in
2011 he served as Chief Executive Officer for LAN Colombia.
Prior to joining the company, between 2001 and 2005,
M r. Emilio del Real Sota, is LATAM’s Senior Vice-
President of Human Resources, a position he
assumed in August 2005. Between 2003 and 2005, Mr.
del Real was the Human Resources Manager of D&S, a
Chilean retail company. Between 1997 and 2003 Mr. del
Real served in various positions in Unilever, including Human
Resources Manager of Unilever Chile, and Manager of
Training and Recruitment and Management Development for
Latin America. Mr. del Real has a Psychology degree from
Mr. Pasman was a consultant at McKinsey & Company in
JUAN CARLOS MENCIÓ
Universidad Gabriela Mistral.
Chicago. Between 1995 and 2001, Hernan held positions
at Citicorp Equity Investments, Telephonic de Argentina and
Argentina Motorola. Mr. Pasman is a Civil engineer from
ITBA (1995) and an MBA from Kellogg Graduate School of
Management (2001).
HERNÁN PASMAN
Senior Vice President of Legal Affairs
RUT: 24.725.433-1
EMILIO DEL REAL
M r. 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 worldwide 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 Bachelor’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.
CORPORATE GOVERNANCE 2017
I t should be noted that the compensations thus reported
correspond to allowances for monthly attendance to
Board of Directors’ Meetings and Directors’ Committee
Meetings pursuant to the resolution approved by the Ordinary
Shareholders Meeting of April 27, 2017.
During the year 2017, neither the Board of Directors nor
the Directors’ Committee incurred any additional consulting
services costs.
Year 2017
47
BOARD MEMBERS’ COMPENSATION
2017
Board members
Position
Board of Director’s
Board of Director’s
Subcommittee
Total
allowance (US$) Committee allowance (US$)
allowance (US$)
(US$)
Ignacio Cueto
Chairman
Mauricio Amaro
Former Chairman
Ramón Eblen Kadis
Former VC
Juan Gerardo Jofré Miranda Former Director
Juan José Cueto Plaza
Director
Carlos Heller Solari
Vice-Chairman
Georges Antoine
de Bourguignon Arndt
Director
Henri Philippe Reichstul
Director
Antonio Luiz Pizarro
Director
Eduardo Novoa Castellón
Director
Nicolás Eblen Hirmas
Giles Agutter
Director
Director
2016
31,222
5,235
5,419
5,419
18,707
12,467
24,198
14,463
11,275
18,778
18,778
10,241
4,751
-
7,262
7,262
2,376
2,376
30,452
1,716
1,716
23,190
23,190
1,716
12,677 48,650
1,055
6,290
4,335
17,017
4,335
17,017
15,153 36,236
- 14,842
17,012 71,662
9,917 26,095
9,155 22,146
12,677 54,645
12,677 54,645
3,946 15,902
Board members
Position
Board of Director’s
Board of Director’s
Subcommittee
Total
allowance (US$) Committee allowance (US$) allowance (US$)
(US$)
Mauricio Amaro
Francisco Luzón López
Juan José Cueto Plaza
Chairman
Director
Director
Ramón Eblen Kadis
Vice-Chairman
Juan Gerardo Jofré Miranda Director
Carlos Heller Solari
Director
Georges Antoine
de Bourguignon Arndt
Ricardo J. Caballero
Director
Director
Henri Philippe Reichstul
Director
25,029
2,470
19,071
19,071
19,071
15,576
19,071
6,212
13,774
-
-
-
25,555
25,555
1,992 27,021
- 2,470
13,879 32,950
12,497 57,123
12,497 57,123
-
- 15,576
25,555
12,489
57,115
-
-
2,976
9,188
10,024 23,798
CORPORATE GOVERNANCE
CEO LATAM
board of
Directors
Year 2017
48
ORGANIZATIONAL CHART
On March 22, 2017, the Company announced that it would
be restructuring its high-level management in the company,
following an international trend in the airline industry. This
trend seeks a simple and efficient structure that meets the
needs of the markets it operates in and enables the company
to face an increasingly competitive environment.
Legal
Planning
Technology
Safety
Corporate
Affairs
Human
Resources
Board of
Commietees
The organization was restructured with a focus on four basic
areas, which will be the pillars of the Company’s business
strategy and will report directly to the CEO of LATAM, Enrique
Cueto. These areas are:
Internal Audit
CLIENTS; OPERATIONS AND FLEET;
COMMERCIAL; AND FINANCE;
each one led by current LATAM executives that have a
distinguished trajectory in the Company in executing projects
of large scope. Furthermore, they will report to the areas of:
Human Resources, Legal, Planning, Technology, Security,
Corporate Affairs, and Human Resources.
In 2017, the LATAM Airlines Group paid its senior executives
a total of US $35,148,972, in addition to US $17,959,509
corresponding to performance incentives paid in March 2017.
Consequently, the Company paid its senior executives a total
gross remuneration amounting to US $53,108,481.
In 2016, the LATAM Airlines Group paid its senior executives
a total of US $40,194,453, in addition to US $14,980,291
corresponding to performance incentives paid in March 2016.
Consequently, the Company paid its senior executives a total
gross remuneration amounting to US $55,174,744.
LATAM
Airlines Brazil
Customer
Vice-presidency
LATAM
Airlines Argentina
LATAM
Airlines Chile
Operations and
Fleet
Vice-presidency
LATAM
Airlines Colombia
Commercial
Vice-presidency
LATAM
Airlines Ecuador
LATAM
Airlines Peru
Finance
Vice-presidency
CORPORATE GOVERNANCE
Year 2017
49
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.
COMPENSATION PLANS
(a) Compensation plan for increase of capital
The compensation plans implemented via stock options for
the underwriting and payment of stock options, that have
been provided by LATAM Airlines Group S.A. to employees of
the Company and its branches, are recognized in the financial
statements pursuant to the established in NIIF 2 “Payments
based on stock options”. This registers the fair value of the
stock options offered in the form of remuneration in a linear
form, between the date of offering of said stock options and
the date in which they expire.
(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.
(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
CORPORATE GOVERNANCE Corporate Governance
L ATAM Airlines Group S.A. is a publicly held stock
corporation (sociedad anónima abierta) registered
before the Commission for the Financial Market
(“CMF”), formerly the Superintendency of Securities and
Insurance, under N° 306, whose stocks are traded on the
Santiago Stock Exchange, the Chilean Electronic Exchange,
and the Valparaiso Stock Exchange. Moreover, its stocks
are traded on the New York Stock Exchange (“NYSE”) as
American Depositary Receipts (“ADRs”).
Corporate Governance Practices
50
LATAM Airlines Group’s Corporate Governance practices follow
the contents of Law N° 18,045 of the Securities Market, Law
N° 18,046 on Stock Corporations (“LSA”) and its Rules, and the
CMF’s regulations, the laws and regulations of the United States
of America, and of the Securities and Exchange Commission
(“SEC”) of said country, regarding the issuance of ADRs.
LATAM Airlines Group’s Corporate Governance practices are
constantly revised so that its internal self-regulation processes
may be fully in line with existing regulation and LATAM’s values.
THE BASIS FOR THE BUSINESS DECISIONS AND
ACTIVITIES THAT LATAM AIRLINES GROUP CARRIES
OUT IS ITS ETHICAL PRINCIPLES, WHICH ARE
STATED WITHIN THE LATAM CODE OF CONDUCT.
As for the main bodies of LATAM Airlines Group’s Corporate
Governance, they are the Board of Directors and the Board
of Directors’ Committee (which also acts as Audit Committee
pursuant to the US Sarbanes-Oxley Act), together with the
Strategy, Finance, Leadership, and Costumers and Businesses
Committees, created following the merger of LAN and TAM.
The main duties of these corporate bodies are detailed below.
LATAM AIRLINES GROUP BOARD OF DIRECTORS
LATAM Airlines Group’s Board of Directors, comprising nine
permanent members, is the body that analyzes and sets LATAM’s
strategic vision, thus fulfilling a key role in the Company’s
Corporate Governance. Every two years, all its members are
renewed. Pursuant to LATAM Airlines Group’s bylaws, the
members of the board are chosen by cumulative voting.
CORPORATE GOVERNANCE Corporate Governance Practices
51
The requirements pertaining to board members’ independence
are stated in the LSA and its latter amendments by Law N°
19,705, regarding the relationship between managers and the
controlling shareholders of the company.
A board member is considered independent when he or she has
no links, interests, economic, professional, credit, or commercial
dependence of any relevant nature or volume to the company,
the other subsidiaries of the group of which it is a member, its
controller, or the main executives, nor any family relation with
the latter, nor any other links as stated in the LSA.
Each shareholder has a vote for every share held, and they may
cast all their votes in favor of a single candidate or share their
votes among any number of candidates. These rules allow any
shareholder who owns over 10% of the float to choose at least
one representative on the board. The current Board was chosen
in the ordinary shareholders’ meeting held on April 27, 2017.
LATAM Airlines Group’s Board meets in ordinary
monthly sessions and in extraordinary sessions whenever
the company’s needs require it. Board members’
compensation must be approved by a vote in the ordinary
shareholders’ meeting. The Board of Directors’ Committee
normally meets on a monthly basis and its functions and
powers are stated by applicable law and regulations.
LATAM AIRLINES GROUP
BOARD OF DIRECTORS’ COMMITTEE
Chilean law states that publicly held stock corporations
must appoint at least one independent board member and
one Board of Directors’ Committee whenever their equity is
equal to or greater than 1,500,000 Unidades de Fomento
(UF, CLP-denominated unit indexed to inflation), and at least
12.5% of their voting shares are held by shareholders who
individually control or own less than 10% of said shares. Of
the new members of the Board, three are part of the Board
of Directors’ Committee, which fulfills the role defined in the
LSA, as well as the functions of the Audit Committee per the
US Sarbanes-Oxly Act and the corresponding SEC regulation.
The Board and Audit Committee’s functions are set forth in
Article 50 bis of the LSA and other applicable regulation,
wherein we can highlight the following issues:
• Examine the reports by LATAM Airlines Group’s external
auditors, the balance sheets, and other financial
statements that LATAM Airlines Group’s management
may deliver to shareholders, as well as issue an opinion
regarding said reports prior to presenting them to the
shareholders for approval.
• Propose external auditors and risk rating agencies to the Board.
• Examine the internal control reports and any related complaints.
• Examine and report everything regarding related-party
transactions.
• Examine the sliding scale for LATAM Airlines Group’s
senior management.
US REGULATION REQUIRES AN AUDIT COMMITTEE
COMPRISED OF AT LEAST THREE BOARD
MEMBERS, ADAPTING TO THE REQUIREMENTS OF
INDEPENDENCE SET FORTH IN RULE 10A OF THE
EXCHANGE ACT.
At December 31, 2017, all the Members of the Board of
Directors’ Committee who are also part of the Audit Committee
were independent, pursuant to Rule 10A of the Exchange
Act. To that date, the committee members were Messrs.
Eduardo Novoa Castellón, Nicolás Eblen Hirmas, and Georges
de Bourguignon Arndt (Chairman of the Board of Directors’
Committee). For purposes of the LSA, Mr. Nicolás Eblen
Hirmas is not considered an independent board member.
CORPORATE GOVERNANCE ANNUAL REPORT OF THE BOARD OF DIRECTORS’
COMMITTEE’S ADMINISTRATION
Pursuant to item number 5 of section 8 of article 50 bis of
Law N° 18,046 regarding Stock Corporations, the Board of
Directors’ Committee of LATAM Airlines Group S.A. issues the
following annual report of its administration for 2017.
I. COMPOSITION OF THE BOARD OF DIRECTORS’
COMMITTEE AND SESSIONS.
The Board of Directors’ Committee of the Company comprises
Messrs. Georges de Bourguignon Arndt, Eduardo Novoa
Castellón, and Nicolás Eblen Hirmas, who are deemed
independent members under US legislation. Under Chilean
legislation, the former two are deemed independent members.
The Board of Directors’ Committee is chaired by Mr. Georges
de Bourguignon Arndt.
The members were chosen in the Ordinary Shareholders’
Meeting held on April 27, 2017, for a two-year term, pursuant
to the Company’s bylaws.
II. COMMITTEE’S ACTIVITY REPORT.
During 2017, the Board of Directors’ Committee met in 21
sessions to exercise its powers and fulfill its duties as per
article 50 Bis of Law N° 18,046 on Stock Corporations,
as well as to see to those other matters that the Board of
Directors’ Committee deemed it necessary to examine, review,
or evaluate. Below, is a report of the main issues discussed.
Examination and Review of Balance Sheet
and Financial Statements.
The Board of Directors’ Committee examined and reviewed
the Company’s financial statements as at December 31,
2016, as well as at the end of the quarters ended on
March 31, June 30, and September 30, 2017, including
the examination of the corresponding reports from the
Company’s external auditors, as explained below. The
Company’s External Auditor participated in the Committee’s
sessions regarding the Company’s financial statements as
at December 31, 2016 and June 30, in order to deliver
their audit opinion and report the relevant points of their
review, the main aspects of internal control, and the
communications required by the External Auditor’s regulator
including, on each item, the confirmation that (i) they met
with no difficulties to carry out the audit, (ii) they had no
difference of opinion with Management, and (iii) no events
arose that could pose a threat to their independence.
In the ordinary session held on September 29, 2017, the
external auditors, Price WaterhouseCoopers (PwC), presented
their audit plan for 2017. Likewise, in its capacity as external
auditor for TAM S.A. and its affiliates, Ernst & Young (EY)
participated in the Board of Directors’ Committee’s sessions
of May 31, 2017 and September 29, 2017 to report on the
main aspects of the external audit of TAM, the focus of its
review process, and aspects of internal control.
Review of Reports on Impairment
of Cash Generating Units.
In the session held on March 6, 2017, the Directors'
Committee analyzed the impairment reports prepared
by the Company's management and the consulting firm
KPMG, hired for that purpose and present at that session,
corresponding to the cash-generating units of the Company
for certain assets included in the Financial Statements as
of December 31, 2016. In the sessions held on May 10,
2017, August 4, 2017, and November 2, 2017, LATAM's
Comptroller's area presented to the Board of Directors’
Committee an impairment analysis reports for the
Company’s cash generating units regarding certain assets
included in the Financial Statements dated March 31, 2017,
June 30, 2017, and September 30, 2017, respectively,
pursuant to the reports issued by the Company.
At the Board of Directors’ Committee’s session held on May
31, 2017, LATAM’s Comptroller presented to the Board of
Directors’ Committee the “Policy for the Control of Signs
of Impairment of Air Transport Cash Generating Unit and
Multiplus Coalition and Loyalty Program Cash Generating Unit”.
Corporate Governance Practices
52
Executive and Workers’ Compensation Systems.
In an ordinary session held on March 23, 2017, the Board of
Directors’ Committee examined changes to the compensation
systems for executives in relation to the calculation of
long-term bonds. In the Board of Directors’ Committee’s
session held on April 3, 2017, the reorganization of the senior
management was reviewed.
In the session held on August 4, 2017 and on September 1,
2017, the Board of Directors’ Committee reviewed the main
topics discussed in the Leadership Committee throughout
the year, including the “Headcount Challenge” and LATAM’s
new Organizational Structure. In terms of compensation,
the LATAM executive compensation strategy was reviewed,
beginning at the Director level, including the methodology used
to assess the position, the compensation policy defined by the
Company, and the average ranking for said positions within
the Chilean and Brazilian markets.
CORPORATE GOVERNANCE Examination of Background Pertaining
to Related-Party Transactions
The transactions that are considered or could be considered
related-party transactions according to the Company’s
applicable legal and accounting rules were examined in the
sessions held on January 4, 2017, February 16, 2017, August
4, 2017, and September 1, 2017, whereby the Committee
granted the corresponding approvals.
Corporate Governance Practices.
In order to comply with General Rule N° 385 of the
Commission for the Financial Market (“CMF”), formerly the
Superintendence of Securities and Insurance ("NCG 385”),
the Board of Directors’ Committee analyzed and examined
LATAM’s corporate governance practices for 2017 in the
sessions held on May 31, 2017 and December 7, 2017,
January 22, 2018, and March 5, 2018, per the questionnaire
included in Appendix I of said NCG 385. In said sessions,
improvements to the Company’s corporate governance
practices were evaluated, and it was agreed to strengthen
the implementation of some practices that have already been
approved, and to improve some procedures for meetings with
the planning department. With regard to the session held
on May 31, 2017, the planning of the Board of Directors’
Committee in coordination with the Board’s activities was
reviewed, and in an extraordinary session held on December
13, 2017, a meeting was held with the Company’s “Investor
Relations” department review its operation and propose
possible improvements to the practices of information delivery
to the market.
Training on Matters of Competition.
In the sessions held on January 23, 2017, June 30, 2017,
December 7, 2017, and March 5, 2018, the Board of
Directors’ Committee reviewed the conclusions of the training
carried out on competition to reinforce in this field in the
Company’s various business segments.
Updating Sustainability Matters.
In the Board of Directors’ Committee’s session held on
November 2, 2017, the Company’s progress in terms
of Sustainability was reported, reviewing the company's
sustainability strategy, matters of corporate governance
regarding the Dow Jones Sustainability Index, and issues
regarding corporate citizenship.
Review of Tax and Accounting Topics
In the sessions held on January 23, 2017, March 6, 2017,
May 10,2017 and September 29, 2017, the Board of
Directors’ Committee reviewed accounting and tax topics
including the authority’s oversight, asset reorganization, rules
for determining transfer prices, implementation of new IFRS
standards, and accounting contingencies
Internal Audit and Internal Controls
In the ordinary sessions of the Directors' Committee held on
June 30, 2017 and August 4, 2017, the reports issued by
LATAM Internal Audit and the Internal Audit work plan for
2017 were reviewed and revised.
Also, in the sessions of March 23, 2017, August 4, 2017 and
December 7, 2017, the Directors' Committee reviewed the
conclusions of the review of control systems under the Sarbanes
Oxley regulation. The 2017 work plan was also reviewed and
progress on internal control was reported. On December 7, 2017,
the Directors Committee met with the "Procurement & Supply
Chain" area in order to learn more about its operation including
a review of the main processes and controls in this area. On
November 2 and November 15, 2017, the Directors Committee
internalized the progress in the various projects associated with
the Revenue Accounting area.
Corporate Governance Practices
53
which the functions of this center were analyzed, as well
as the management tasks of the center, contingencies and
operational continuity, the teams involved, the evolution of
the management of the CCO and matters related to its new
organizational format.
Compliance
In the ordinary sessions held on January 23, 2017 and
September 1, 2017, the Board of Directors’ Committee received
training on the Compliance Program currently in force in the
Company. The training included a revisionon its main contents,
including the Code of Conduct, different Policies and Procedures,
Due Diligence processes for Third Party Intermediaries (TPIs),
Crime Prevention Manual, ongoing consulting on Compliance,
Ambassador Program, Hotline and internal investigations, and
the risk assessment processes, certification, and training.
Board of Directors’ Committee Recommendations.
On the other hand, the Directors' Committee made several
recommendations, and section IV of this report indicates
those related to the appointment of external auditors of the
Company and of private risk rating agencies for the year 2017.
Report of Activities by
Board of Directors’ Committee Session
Notwithstanding the above, the Board of Directors’ Committee
met and discussed the opportunities described below, with a
brief example of the topics examined at each of these sessions:
Corporate Risk Management
In the ordinary session held on April 3, 2017, the Directors'
Committee reviewed a presentation regarding the risks
associated with the Operations Control Center (CCO) in
1) Extraordinary session N°52 01/04/2017
• Examination of aircraft subleasing agreement under wet
lease modality, concerning 4 A350-941 aircraft, to be
entered with Qatar Airways Q.E.S.C.
CORPORATE GOVERNANCE Corporate Governance Practices
54
2) Ordinary session N°173 01/23/2017
• Presentation relative to the project for competitiveness training.
• Updates on accounting matters.
• Presentation of tax matters.
• Compliance matters.
3) Extraordinary session N°53 02/16/2017
• Review and approval of aircraft subleasing agreement
under dry lease modality, concerning 4 A350-941 aircraft,
to be entered with Qatar Airways Q.E.S.C.
4) Ordinary session N°174 03/06/2017
• Analysis of impairment test of certain assets included in
the Financial Statements at December 31, 2016.
• Updates on accounting matters.
• Review of the document required by General Rule 385
• Review of legal issues and compliance.Transaction review
relative to a subsidiary Mas Air.
5) Extraordinary session N°54 03/15/2017
• Review of Financial Statements at December 31, 2016.
6) Extraordinary session N°55 03/23/2017
• Conclusion of SOX review up to December 31, 2016.
• Human resources related to modifications in compensation
systems through long-term executive bonds.
7) Ordinary session N°175 04/03/2017
• Reorganization of the senior management.
• Proposal of hiring external auditors and private risk rating
agencies for 2017.
• Review of the functioning of the Directors' Committee for
incoming Directors to the Committee.
• Review of legal issues and compliance.
• Corporate risk management issues: CCO centralization:
review of the centralization of the Operations Control Center.
8) Ordinary session N°176 05/10/2017
• Installing and election of the Committee Chairman.
• Review of the functioning of the Directors' Committee for
11) Ordinary session N°178 06/30/2017
• Administrative aspects revision regarding the functioning of
the Directors’ Committee.
incoming Directors to the Committee.
• Review of Internal Audit Reports and work plan of Internal
• Analysis of signs of Impairment of air transport cash
Audit for the year 2017
generating unit.
• Analysis of future application of accounting rule IFRS 16.
• Transaction in relation Transaction review relating to a
subsidiary Mas Air
9) Extraordinary session N°56 05/15/2017
• Review of the Financial Statements up to March 31, 2017.
10) Ordinary session N°177 05/31/2017
• Policy on signs of impairment and consultation on state
of cash flows.
• Presentation of external auditors EY.
• Board's annual activity plan.
• Analysis of information required by General Rule 385
of the SVS.
• Various matters concerning Legal Affairs
• Planning of activities of Board of Directors’ Committee
and others.
• Presentation of the Project for competitiveness training.
• Revision of legal Affairs topics
12) Extraordinary session N°57 08/01/2017
• Review of legal and Compliance matters.
13)Ordinary session N°179 08/04/2017
• Review of the Internal Audit work plan for 2017.
• Review of Transactions between parties related to the
Frequent Flyer Programs of LATAMPASS and MULTIPLUS.
• Analysis of signs of deterioration of the cash-generating
unit of air transport.
• Presentation of information on Transactions with related
parties.
• SOX 2017 work plan.
• Review of legal issues.
• Review of topics discussed in the Leadership Committee
related to executive compensation systems.
CORPORATE GOVERNANCE Corporate Governance Practices
55
14) Extraordinary session N°58 08/17/2017
• Review of the Financial Statements up to June 30, 2017.
20) Ordinary session N°183 12/7/2017
• Presentation of part of the LATAM Procurement area
IV. BOARD OF DIRECTORS’ COMMITTEE
RECOMMENDATIONS.
15) Ordinary session N°180 09/01/2017
• Review of the FFP Transactions (between parties related
to the Frequent Flyer Programs of LATAMPASS and
MULTIPLUS).
related to the processes under its responsibility.
• Analysis of the information required by General
Standard 385 of the SVS
• Presentation by the Comptroller's Office regarding the
status of the SOX 2017 review
• Review of a Transaction in relation to a subsidiary. Mas Air
• Extension Review of the extension of the term of the
• Presentation on the Competency Training Project.
• Analysis of the letter received from external auditors
sublease contract of aircraft A350-941 to Qatar Airways
Q.E.S.C .
• Review of compliance issues.
• Presentation of BH Compliance.
• Review of topics discussed in the Leadership Committee
related to executive compensation systems.
16)Ordinary session N°181 09/29/2017
• Review of progress status of PWC 2017 external audit.
• Presentation of the firm EY relative to the audit to TAM S.A.
• Presentation of tax issues associated with transfer prices,
asset reorganization, and contingencies.
17) Ordinary session N°182 11/2/2017
• Analysis of signs of Impairment of air transport cash
generating unit.
• Presentation of the Revenue Accounting area regarding the
current status of the "REVERA" project.
• Presentation on LATAM Sustainability and Corporate
Citizenship.
• Revision of Legal matters.
18) Extraordinary session N°59 11/15/2017
• Review of the Financial Statements up to September 30, 2017
• Presentation of the Revenue Accounting area related to the
progress of the "REVERA" project.
19) Extraordinary session N°60 12/1/2017
• Analysis of notice received by TAM Linhas Aéreas S.A.
(“TAM”) from Brazil’s Federal Revenue Office (Secretaria
de Receita Federal ).
related to internal control issues.
21) Extraordinary session N°61 12/13/2017
• Presentation relative to the functioning of the “Investor
Relations” department and the information deliver to
the market.
III. BOARD OF DIRECTORS’ COMMITTEE
COMPENSATION AND EXPENDITURES.
The Company’s Ordinary Shareholders’ meeting held on
April 27, 2017, agreed that each member of the Board of
Directors’ Committee should receive the equivalent to 80
Unidades de Fomento (UF) per monthly attendance to the
Board of Directors’ Committee’s sessions.
With regard to the functioning of the Board of Directors’
Committee and its advisors, the Stock Corporations law states
that their spending budget must be at least equivalent to the
annual compensation paid to the Committee members; thus,
said Ordinary Shareholders’ Meeting approved a budget of
2,880 UF for 2017, which was not used during the year 2017.
As a result, the Board of Directors’ Committee’s spending
is related to the monthly fee for attending the sessions, and
members have no other expenses or outlays to report.
IV.1 Proposal for Appointment of External Auditors.
In the Board of Directors’ Committee’s session held
on April 3, 2017, and pursuant to the contents of item
2), section eight of Article 50 Bis of Law N° 18,046
regarding Stock Corporations, the Board of Directors’
Committee agreed to submit to the Board the external
auditors suggested at the Company’s Ordinary
Shareholders’ Meeting held on April 27, 2017. Thus,
the Committee decided to propose to the company’s
Board the appointment of PriceWaterhouseCoopers
Consultores, Auditores y Cía. Limitada (“PWC”), Ernst &
Young Servicios Profesionales de Auditoría y Asesorías
Limitada (“EY”), and KPMG Auditores Consultores Ltda
(“KPMG”) as Audit Companies for the Company, in that
same order of priority, albeit advising to retain PWC as
the Audit Company for the year 2017, given the contract
with PWC, which is still valid, as it was awarded during
the bidding process for External Audit services that the
Company held in 2016, and comprises the rendering of
said services for the years 2016, 2017, and 2018. On
that occasion, the following reasons and arguments were
considered to make this decision:
(i) The Company’s management or Board have made no
observations or objections to the quality of the services
rendered by PWC to LATAM Airlines Group.
(ii) The interaction and coordination between both external
auditors, PWC and EY, as external auditors for LATAM
Airlines Group and TAM S.A. for the year 2016 is deemed
to have been positive.
(iii) While PWC has been the external auditor for LATAM Airlines
Group for the last 25 years, this audit company’s degree
of independence is guaranteed through the internal control
systems that it has implemented and through the policy that
PWC follows on an international level of changing the partner
CORPORATE GOVERNANCE Corporate Governance Practices
56
The Strategy Committee focuses on the corporate strategy,
current strategic issues and the three-year plans and budgets
for the main business units and functional areas and high-
level competitive strategy reviews.
The Leadership Committee focuses on, among other things,
group culture, high-level organizational structure, appointment
of the LATAM CEO and his or her other reports, corporate
compensation philosophy, compensation structures and levels
for the LATAM CEO and other key executives, succession or
contingency planning for the LATAM CEO and performance
assessment of the LATAM CEO.
The Finance Committee is responsible for financial policies and
strategy, capital structure, monitoring policy compliance, taxation
strategy and the quality and reliability of financial information.
Finally, the Customers and Businesses Committee is
responsible for setting the competitive strategies of the
Customers and Commercial Vice-Presidencies with a focus
on sales, marketing, network and fleet initiatives, customer
experience and revenue management.
Moreover, pursuant to the agreement reached by the Board
of LATAM Airlines Group S.A., in board meeting N° 389 held
on June 10, 2014, a Risk Committee was created to supervise
the implementation of the risk pillar in the company’s strategic
plan, and particularly, to supervise LATAM Airlines Group’s risk
management and ensure the structuring of a corporate risk matrix.
RELATED-PARTY TRANSACTIONS
On August 2, 2016, the Company’s Board approved a Control
Policy for Related-Party Transactions applicable to LATAM
and all its affiliates, based on LSA, which states that all
transactions of a publicly traded company with a related party
must contribute to the company’s interest, be carried out under
market conditions, and comply with certain requirements, such
as a prior examination by the board of directors’ committee,
authorization by the board or meeting, and disclosure, which
are different from those applicable to a non-public company.
in charge of the client every 5 years, which is in accordance
with the contents of item f) of Article 243 of Law N° 18,045
regarding the Securities Market. Indeed, as the partner in
charge of LATAM’s audits has already held this position for 5
years, the change is due for the audit pertaining to year 2017,
whereby PWC has already informed of the appointment of
the new partner in charge.
(vii)On the other hand, and pursuant to the results of the
abovementioned bidding process, the Board’s recommendation
to the Board of Directors of TAM S.A., which concurs with the
Board of Directors’ Committee’s, is to continue with EY as the
external auditor for TAM S.A. and affiliates.
In fiscal year 2017, the PWC rotated the Senior Partner to
the External Audit of LATAM, appointing Mr. Renzo Corona as
replacement of Mr. Jonathan Yeomans.
IV.2 Proposal for Private Risk Rating Agencies.
In the Board of Directors’ Committee’s session held on April
3, 2017, and pursuant to the stipulations of item 2), section
eight of Article 50 Bis of Law N° 18,046 regarding Stock
Corporations, the Board of Directors’ Committee agreed to
submit to the Board the risk rating agencies to be suggested
at the Company’s Ordinary Shareholders’ Meeting to be
held on April 27, 2017. Thus, the Committee decided to
propose to the company’s Board the appointment of rating
agencies Fitch Chile Clasificadora de Riesgo Limitada,
Feller-Rate Clasificadora de Riesgo Limitada, and Standard
and Poor's Ratings Chile Claisificadora de Riesgo Limitada.
As for the international risk rating, the Board of Directors’
Committee agreed to propose to the Board the appointment
of agencies Fitch Ratings, Inc., Moody’s Investors Service,
and Standard & Poor’s Ratings Services.
LATAM AIRLINES GROUP BOARD COMMITTEES
Pursuant to the shareholders’ agreement signed on January
25, 2012 between LATAM Airlines Group S.A. (formerly
LAN Airlines S.A.) and TEP Chile S.A., in an ordinary Board
meeting held on August 3, 2012, the setting up of the
following four committees was agreed to review, discuss, and
make recommendations to the Company’s Board regarding
the issues concerning each one:
(i) Strategy Committee, (ii) Leadership Committee, (iii) Finance
Committee, and (iv) Costumers and Businesses Committee.
Pursuant to the contents of the shareholders’ agreement
mentioned above, each of these committees will comprise two
or more of the Company’s Board members and at least one
of their members must be appointed by TEP Chile S.A.
CORPORATE GOVERNANCE
Corporate Governance Practices
57
4. Compliance Program, whereby LATAM’s Compliance
Management, which is part of the Legal Affairs Vice-
Presidency of LATAM Airlines Group, in coordination
with the Board and its Committee and supervised by
them, ensures compliance with the laws and regulations
applicable to LATAM Airlines Group's businesses and
activities in the various countries where it operates.
CORPORATE GOVERNANCE PRACTICES
On March 30, 2018, the Company’s Corporate Practices
Report was submitted to the CMF, approved by the Board of
LATAM Airlines Group S.A. and prepared pursuant to CMF
General Rule N° 385, formerly N° 341, dated June 8, 2015.
The duty of information disclosure stated in this rule is set to
cover up to December 31 of each year, to be presented no
later than March 31 of the following year.
The information delivered on an annual basis to the CMF must
regard the following issues:
• Board of Directors’ Committee Functioning.
• The relations between the company, shareholders, and
the public.
• Substitution and compensation of senior executives.
• Definition, implementation, and supervision of the
company’s internal control and risk management
policies and procedures.
This policy includes the Board’s definition of the transactions
considered habitual, which was approved in the board meeting
held on December 29, 2009 and reported on said date to the
CMF via a communiqué. The transactions declared to be habitual
may be executed without the requirement of prior examination
and approval by the board or meeting.
PILLARS OF THE CORPORATE GOVERNANCE
OF LATAM AIRLINES GROUP
In order to ensure a proper Corporate Governance at LATAM
Airlines Group, and notwithstanding the responsibilities of the
Board and the Board of Directors’ Committee of LATAM, its
management has taken a series of steps, including the following:
LATAM Airlines Group has performed various transactions
with its affiliates, including the companies held or controlled
by some of its majority shareholders. During the normal
course of LATAM’s business, various types of services have
been rendered and received to and from related companies,
including aircraft leasing and exchange, cargo transportation,
and booking services.
LATAM Airlines Group’s policy considers not carrying out
transactions with, or in favor of any shareholder or Board
member, or with any entity controlled by said persons, or
where they hold a significant economic stake, except when
said transaction is related to LATAM and the price and other
terms are, at least, as favorable for the company as those it
could obtain from a third party under market conditions.
Said transactions are summarized in the audited consolidated
financial statements for the fiscal year ended on December
31, 2017.
PRINCIPLES OF A GOOD CORPORATE GOVERNANCE
The good Corporate Governance of LATAM Airlines Group
is a result of the interaction among various people and
stakeholders.
While compliance with the highest of ethical and regulatory
standards set by the Board of LATAM Airlines Group must be
observed by all its employees, initially, the persons responsible
for a good Corporate Governance are the Board, the Board
of Directors’ Committee, and the Senior Executives of LATAM
Airlines Group. Thereby, LATAM Airlines Group is committed
to offer transparency and compliance with the ethical and
regulatory standards set by the Board for this purpose.
1. Publication of a single LATAM Airlines Group Code of
Conduct for all its collaborators, whose goal is to ensure
compliance with the highest ethical, transparency, and
regulatory standards required by LATAM Airlines Group.
LATAM Group has a Channel to Report Ethical Breaches
(www.etica-grupolatam.com) where workers can file their
concerns directly via electronic media, in a private way,
and certain that their concerns will be duly dealt with and
investigated, guaranteeing that there will be no retaliation
against the person who filed the report.
2. Code of Ethics for senior financial executives, which fosters
honest and ethical conduct in the presentation of financial
information, regulation compliance, and absence of
conflicts of interest.
3. Manual for Handling Relevant Information, a requirement
of the CMF and, based on the contents of Law N° 20,382
on Corporate Governments, a requirement of the Chilean
law regarding the Securities Market as well. Aside from the
rules, LATAM Airlines Group regulates the criteria for the
disclosure of transactions, voluntary blackout periods for
the purchase and sale of LATAM stocks, the mechanisms
for the ongoing distribution of relevant information to the
market, and mechanisms for safekeeping confidential
information by LATAM employees and executives.
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
58
Property as of December 31, 2017
Property as of December 31, 2016
Ownership Structure and
Main Shareholders
As of December 31, 2017,
LATAM Airlines Group had a total
of 1,485 shareholders on record and it is
controlled by the Cueto Group.
Cueto Group
169,248,377
Qatar Airways (1)
Amaro Group
Bethia Group
Eblen Group
Hirmas Group
ADRs
AFPs
Foreign investors
Others
Total
60,837,452
15,615,113
33,367,357
35,945,199
1,143,957
24,829,435
128,650,206
63,453,785
73,316,812
27.9%
10.0%
2.6%
5.5%
5.9%
0.2%
4.1%
21.2%
10.5%
12.1%
Cueto Group
171,430,090
Qatar Airways (1)
Amaro Group
Bethia Group
Eblen Group
Hirmas Group
ADRs
AFPs
Foreign investors
Others
60,837,452
30,254,075
33,367,357
35,945,199
1,260,177
28,429,683
105,683,288
60,744,566
78,455,806
28.3%
10.0%
5.0%
5.5%
5.9%
0.2%
4.7%
17.4%
10.0%
12.9%
606,407,693
100.0%
Total
606,407,693
100.0%
1 Qatar owns 9.999999918% of total issued shares
of LATAM.
1 Qatar owns 9.999999918% of total issued shares
of LATAM.
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
59
12 Main Shareholders by December 31, 2017
12 Main Shareholders by December 31, 2016
Name or
Business name
Shares paid and subscribed Percentage
(%)
as of Jan 31, 2017
Name or
Business name
Shares paid and subscribed Percentage
(%)
as of Dec 31, 2015
Costa Verde
Aeronáutica S.A
Qatar Airways
Investments (uk) Ltd.
Costa Verde
Aeronáutica tres SpA
Banco de Chile
por cuenta de terceros
no residentes
88,259,650
14.6%
60,837,452
10.0%
35,300,000
5.8%
26,868,034
JP Morgan Chase Bank
25,087,789
Inversiones Nueva
Costa Verde Aeronáutica Ltda. 23,578,077
Banco Itaú Corpbanca
por cuenta de
inversionistas extranjeros
Axxion S.A
22,101,009
18,473,333
Inversiones Andes SpA
17,146,529
TEP Chile S.A
Inversiones HS SpA
15,615,113
14,894,024
Banco Santander
por cuenta de
inversionistas extranjeros
4.4%
4.1%
3.9%
3.6%
3.0%
2.8%
2.6%
2.5%
90,427,620
14.9%
60,837,452
10.0%
Costa Verde
Aeronáutica S.A
Qatar Airways
Investments (uk) Ltd.
Costa Verde
Aeronáutica tres SpA
TEP Chile S.A
Banco de Chile
por cuenta de terceros
no residentes
Inversiones
Nueva Costa Verde
Aeronáutica Ltda.
Banco Itaú Corpbanca
por cuenta de
inversionistas extranjeros
Axxion S.A
35,300,000
30,254,075
28,532,253
21,157,885
18,473,333
JP Morgan Chase Bank
28,429,683
Inversiones Andes SpA
17,146,529
Inversiones HS SpA
14,894,024
5.8%
5.0%
4.7%
4.7%
3.5%
3.0%
2.8%
2.5%
23,578,077
3.9%
13,309,477
2.2%
Costa Verde
Aeronáutica SpA
12,000,000
2.0%
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
60
2. The shareholders of COSTA VERDE AERONÁUTICA S.A.,
are the following (Table 2):
TABLE 2
Shareholder
Inversiones Costa Verde Aeronáutica S.A.
TEP Chile S.A.
Percentage
77.97%
21.88%
Inversiones Mineras del Cantábrico S.A.
0.0001%
Inversiones Costa Verde Limitada y CIA en C.P.A. 0.13%
Minority shareholders
0.013%
our board members), Ignacio Cueto Plaza (Chairman), Enrique
Cueto Plaza (LATAM CEO) and other members of this family.
As of December 31, 2017 the Cueto Group owned 27.91%
of LATAM’s ordinary shares of stock through the following
companies (Table 1):
3. In turn, the controlling company of the above-described
Costa Verde Aeronáutica S.A., is INVERSIONES COSTA
VERDE AERONÁUTICA S.A.((A in Table 2), whose partnership
structure is as follows (Table 3):
TABLE3
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%
Below we show the percentage controlled, directly or
indirectly, by the controller and by each of its members;
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 Cueto Plaza (one of
TABLE 1
RUT Taxpayer ID N°
Participant
Current number of shares
99.305.700
99.310.262
Costa Verde Aeronáutica S.A
Costa Verde Aeronáutica Tres SpA
99.307.360
Inversiones nueva Costa verde Aeronáutica Ltda.
99.307.934
99.308.347
99.308.348
99.308.349
99.310.212
99.308.419
Costa Verde Aeronáutica SpA
Inversiones Priesca Dos y Cia. Ltda.
Inversiones Caravia Dos y Cia. Ltda.
Inversiones el Fano Dos y Cia. Ltda.
Inversiones la Espasa Dos y Cia. Ltda.
Inversiones la Espasa Dos S.A
88,259,650
35,300,000
23,578,077
12,000,000
3,568,352
3,553,344
2,704,533
252,097
32,324
%
14.55%
5.82%
3.89%
1.98%
0.59%
0.59%
0.45%
0.04%
0.01%
Cueto Group Total
169,248,377
27.91%
CORPORATE GOVERNANCE
Property Ownership Structure and Main Shareholders
61
4. The above-described INVERSIONES COSTA VERDE
LIMITADA - LIMITED JOINT-STOCK PARTNERSHIP, (I in Table
3), has the following partnership structure (Table 4):
TABLE 4
Shareholder
Inmobiliaria e Inversiones El Fano Limitada
Inmobiliaria e Inversiones Caravia Limitada
Inmobiliaria e Inversiones Priesca Limitada
Inmobiliaria e Inversiones La Espasa Limitada
Inmobiliaria e Inversiones Puerto Claro Limitada
Inmobiliaria e Inversiones Colunga Limitada
Inversiones del Cantábrico Limitada
Percentage
Main partner
RUT Taxpayer ID N°
8%
8%
8%
8%
8%
30%
30%
Enrique Miguel Cueto Plaza
Juan José Cueto Plaza
Ignacio Javier Cueto Plaza
Juan José Cueto Plaza
Isidora Cueto, Felipe Cueto y
María Emilia Cueto
Same shareholders of
Inv. Mineras del Cantábrico S.A.
Same shareholders of
Inv. Mineras del Cantábrico S.A.
6.694.239-2
6.694.240-6
7.040.324-2
6.694.240-6
18.391.071-K
76.180.199-6
76.006.936-1
5. With respect to INMOBILIARIA E INVERSIONES COLUNGA
LIMITADA e INVERSIONES DEL CANTÁBRICO LTDA.
100% owned by the Cueto Group, its final shareholders are
Messrs.: (i) Juan José Cueto Plaza, previously identified;
(ii) Ignacio Javier Cueto Plaza, previously individualized;
(i) Juan José Cueto Plaza, previously identified; (ii) Ignacio
Javier Cueto Plaza, previously identified; (iii) Enrique 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 Ventura, 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 taxpayer
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 taxpayer ID N° 19.567.835-9, and (xxv) María Esperanza
Alcaíno Cueto, RUT taxpayer ID N° 17.701.730-2.
6. The shareholder of Costa Verde Aeronáutica Tres SpA is
(Table 5):
TABLE 5
Shareholder Percentage Main partner
Costa Verde
Aeronáutica S.A.
100%
Inversiones Costa Verde
Aeronáutica S.A. (77.97%)
CORPORATE GOVERNANCE
Property Ownership Structure and Main Shareholders
62
7. The shareholders of INVERSIONES NUEVA COSTA VERDE
AERONÁUTICA LIMITADA are the following (Table 6):
10. The partners of INVERSIONES CARAVIA DOS Y CIA.
LTDA. are the following (Table 9):
TABLE 6
Partners
Percentage Main partner
Costa Verde
Aeronáutica S.A.
99.99%
Inversiones Costa Verde
Aeronáutica S.A. (77.97%)
Inversiones Costa
Verde Limitada
0.01%
Inmobiliaria & Inversiones El
Fano Limitada, Inmobiliaria
& Inversiones Caravia
Limitada e Inmobiliaria &
Inversiones Priesca Limitada
(33.33% each)
8. The shareholders of COSTA VERDE AERONÁUTICA SpA
are the following (Table 7):
TABLE 7
Shareholder
Inversiones Nueva Costa
Verde Aeronáutica Dos S.A.
Percentage
100%
TABLE 9
Shareholder
Juan José Cueto
Others
Percentage
99%
1%
11. The partners of INVERSIONES EL FANO DOS Y CIA.
LTDA. are the following (Table 10):
TABLE 10
Shareholder
Enrique Cueto
Others
Percentage
99%
1%
12. The partners of INVERSIONES LA ESPASA DOS Y CIA.
LTDA. are the following (Table 11):
TABLE 11
Partners
Percentage
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%
TABLE 8
Shareholder
Ignacio Cueto
Others
Percentage
99%
1%
13. The partners of INVERSIONES LA ESPASA DOS S.A. are
the following Table 12):
TABLE 12
Shareholder
Percentage
Inmobiliaria e Inversiones La Espasa Limitada
99%
María Esperanza Alcaíno Cueto
Uno y Compañía Limitada
1%
CORPORATE GOVERNANCE
Property Ownership Structure and Main Shareholders
63
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 company’s voting shares.
Shareholding (as of December 31, 2017)
Shareholder
Cueto Group(2)
Costa Verde Aeronáutica S.A
Costa Verde Aeronáutica Tres SpA
169,248,377
88,259,650
35,300,000
Number of subscribed
and paid shares
Property ownership % over
the subscribed and paid shares
INVERSIONES MINERAS DEL CANTÁBRICO LIMITADA, is
a company 100% owned by the Cueto Group, and its final
shareholders 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
December 31, 2017, 4.14% of LATAM’s property ownership
was in the form of ADRs.
Inversiones Nueva Costa Verde Aeronáutica Ltda. 23,578,077
Costa Verde Aeronáutica SpA
Others
Qatar Airways(3)
Qatar Airways Investments
Eblen Group
Inversiones Andes SpA
Inversiones Andes II SpA
Inversiones Pia SpA
Comercial las vertientes SpA
Bethia Group
Axxion S.A
Inversiones HS SpA
Amaro Group(4)
TEP Chile S.A.
Other minority shareholders
Total
12,000,000
10,110,650
60,837,452
60,837,452
35,945,199
17,146,529
8,000,000
5,403,804
5,394,866
33,367,357
18,473,333
14,894,024
15,615,113
15,615,113
291,394,195
606,407,693
27.91%
14.55%
5.82%
3.89%
1.98%
1.67%
10.03%
10.03%
5.93%
2.83%
1.32%
0.89%
0.89%
5.50%
3.05%
2.46%
2.58%
2.58%
48.05%
100.00%
2 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.
3 Qatar owns 9.999999918% of total issued shares of LATAM.
4 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.
CORPORATE GOVERNANCE
Property Ownership Structure and Main Shareholders
64
Following the combination with TAM in 2012, the Amaro
Group Mauricio Amaro and María Claudia Amaro, among
others, also became the principal shareholder of LATAM
Airlines Group, through TEP Chile S.A. (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.
Board’s total shares
N° of shares Percentage
Ignacio Cueto Plaza5
169,248,376
Juan José Cueto Plaza5
169,248,376
Nicolás Eblen Hirmas5
Carlos Heller Solari5
35,945,199
33,367,357
27.91%
27.91%
5.93%
5.50%
During 2016, the Amaro Group decreased its stake in LATAM,
being as of December 31, 2017, direct owner of 2.58% 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 investment vehicle of the
Cueto Group in LATAM.
Antonio Luis Pizarro Manso
Georges de Bourguignon Arndt6
Eduardo Novoa Castellón
Henri Philippe Reichstul
Giles Agutter
0
0
0
0
0
-
-
-
-
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 December 31, 2017, 10.0%3 of the total The subscribed
and paid-in shares of LATAM Airlines Group through the
company Qatar Airways Investments (UK) Ltd.
FINALLY, WE WOULD LIKE TO POINT OUT THAT AS
OF THIS DATE COMPANY SHAREHOLDERS HAVE NOT
SUBMITTED ANY COMMENTS OR PROPOSALS WITH
RESPECT TO THE COMPANY’S BUSINESS AFFAIRS.
The table below shows the number of subscribed and paid
shares and the percentage shareholding in LATAM’s property
ownership of each of the company’s board members and
senior executives:
Executives’ total shares
Enrique Cueto Plaza5
169,248,376
27.91%
N° of shares
Percentage
Claudia Sender
Roberto Alvo
Juan Carlos Menció
Hernán Pasman
Emilio del Real
Ramiro Alfonsín
0
0
0
0
0
0
-
-
-
-
-
-
5 It should be noted that Juan José Cueto Plaza, Enrique Cueto Plaza and
Ignacio Cueto Plaza are part of the Cueto Group, Nicolás Eblen Hirmas is
part of the Eblen Group, and Carlos Heller Solari is part of the Bethia Group,
since none of them own the above-mentioned shares on their own, but rather
through the group in which they participate.
6 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.
CORPORATE GOVERNANCE
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 Holdco 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, Holdco 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 restrictions related to corporate governance
in an attempt to balance the interests of the LATAM Airlines
Group, as the owner of substantially all economic rights in
TAM, and TAM’s controlling 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 management of
the LATAM Airlines Group, subsequent to the combination of
LAN and TAM businesses.
THE LATAM GROUP’S GOVERNANCE AND MANAGEMENT
Property Ownership Structure and Main Shareholders
65
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.
the governance and management of Holdco I, TAM and its
subsidiaries (collectively, the “TAM Group”).
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
operation 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.
Following are the key provisions of the Shareholders’ agreements
referred to in paragraphs 1 and 2 above. It is important 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
Since April 2017, there no restrictions in the Shareholders
agreement in regards to the Board Member of LATAM Airlines
Group. Once chosen the board members, in compliance with
the Chilean regulation, LATAM Airlines Group’s board has
the right to designate any of its members as the Chairman
thereof, in compliance the governing statues. Thereby, in May
2017, Mr. Ignacio Cueto Plaza was voted Chairman of the
Board. In April 2017, Mr. Mauricio Amaro left the Board of
LATAM Airlines Group, with Mr. Henri Philippe Reichstul being
re-elected as board member in April 2017 with the votes of
TEP Chile S.A., in compliance with the local regulation.
Insofar as the governance and management of the LATAM
Group is concerned, there are different shareholders’
agreements:
1. Shareholders’ agreement of the controlling group: executed
between the controlling shareholders of LATAM and
TEP Chile, establishing agreements with respect to the
corporate governance, control and operation of LATAM,
Holdco I, TAM and their respective subsidiaries. It also
4. Shareholders’ agreement of TAM: executed between
LATAM, Holdco I, TAM and TEP Chile, establishing
the agreements 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
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
66
by the terms and conditions of such shareholders’ agreements
and not by the summary of any of such agreements contained
in this a.
BOARD MEMBERSHIP OF
HOLDCO I AND TAM
The shareholders’ agreement of Holdco I and the shareholders’
agreement of TAM provide, in general terms, identical board
memberships and the same Holdco I and TAM CEO; whereupon
LATAM appoints two board members 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 replacement,
the Board appointed, Mr. Henri Philippe Reichstul. TAM’s
Board membership was totally renewed on April 2015.
The shareholders’ agreement of the controlling group
establishes that the persons elected by or on behalf of LATAM’s
controlling shareholders or TAM’s controlling shareholders, 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
jointly appointed by LATAM and TEP Chile and any successor
of the CFO shall be designated by TEP Chile from among
three candidates 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 govern the
composition of the board of directors of TAM’s subsidiaries.
FOLLOWING THE COMBINATION, TAM STILL HAS
ITS MAIN HEADQUARTERS LOCATED IN SÃO
PAULO, BRAZIL.
ACTIONS REQUIRING QUALIFIED MAJORITY VOTES
Certain actions of Holdco I or TAM require approval by a
qualified 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.
The affairs and day-to-day business of Holdco I shall be
managed by the CEO of the TAM Group under the supervision
of the Board of Directors of Holdco I. The affairs 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 international 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
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
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-ranking
position in the LATAM Airlines Group, who reports directly 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 responsibilities set forth in
the Shareholders’ Agreement of the LATAM Airlines Group and
TEP. Upon the eventual departure of LATAM’s current CEO,
the LATAM Board of Directors will appoint his successor after
receiving a recommendation from the Leadership Committee.
THE MAIN HEADQUARTERS OF THE LATAM AIRLINES
GROUP ARE STILL LOCATED IN SANTIAGO, CHILE.
Following are the key provisions of the Shareholders’
agreements referred to in the preceding paragraphs 3 and 4.
It is important to note, however, that the rights and obligations
of the members of the Controlling Group are indeed governed
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
67
in the provisions of the Approved Plans and in effect, in
relation 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
Approved Plans;
• approving the granting of any interest of securities or
guarantees 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
• approving the acquisition, disposal, modification or
subsidiaries in their capacity as shareholders.
encumbrance 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
Approved Plans;
• approving any investment in assets not related to the
corporate 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,
except to the extent that it is expressly contemplated in the
Approved Plans;
• executing any contract related to the distribution of
profits, company associations, business collaborations,
alliance memberships, code-sharing agreements, with
the exception 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 Approved Plans;
Those actions requiring qualified majority votes by the
shareholders are the following:
• approving any modification of the bylaws of any relevant
company or its subsidiaries in relation to the following
subject 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 meetings or limitations to the powers of
the board of directors; (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 company; and dividends and
other distributions;
• approving the dissolution, settlement or liquidation of a
relevant 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
distribution to shareholders;
• starting, participating in, committing or establishing
• approving the issue, withdrawal or amortization of debt
any important action with respect to any litigation or
legal proceeding in excess of $15 million, related to the
relevant company, except to the extent that it is expressly
contemplated in the Approved Plans;
• approving the execution, modification, termination or
ratification of agreements with third parties, except to
the extent 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;
instruments, shares or convertible securities;
• approving a disposal plan for the sale, encumbrance or
other 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
Holdco 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.
VOTING AGREEMENTS, TRANSFERS AND OTHER
AGREEMENTS.
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:
• 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
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
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
68
LATAM Airlines Group;
• the parties agree to vote their ordinary LATAM Airlines
Group shares to support the other parties in removing
or replacing 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 considered 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 Directors
of the LATAM Airlines Group at a total of nine (9) board
members and maintain the quorum required by the majority 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
requiring 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
Airlines Group; which we refer to as “direct vote”.
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.
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 REPRESENTATION OF
THE BOARD OF DIRECTORS OF TAM.
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
regarding 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 exception
of a limited amount of the ordinary shares of the LATAM
Airlines Group, neither the controlling shareholders of the
LATAM 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 shareholding rights over Holdco I in one block, subject
to the following 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 controlling shareholders of the LATAM Airlines
CORPORATE GOVERNANCE
Property Ownership Structure and Main Shareholders
69
Group; conditions to which we refer, collectively, as “block
sale provisions”. An “adverse effect” is so defined in the
Shareholders’ Agreement 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 occur or if TEP Chile is required to exercise one or
more directed 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 exercise 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 designated by TEP
Chile for the voting of the Board of Directors of the LATAM
Airlines Group with the collaboration of the Controlling 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 capitalization
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 PROVIDES 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’
Agreement 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 issued
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 voting
shares. Without prejudice of the foregoing, LATAM shall be
entitled to carry out such sales or transfers if, simultaneously
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 taxable
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 allowed
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 ownerships and
by other applicable laws if the conversion would not have
an adverse effect (as previously defined in the section on
“Transfer Restrictions”).
During or after June 2022, and after LATAM would have totally
converted all its Holdco I non-voting shares into Hold I voting
shares, as allowed by Brazilian laws and other applicable 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
CORPORATE GOVERNANCE Property Ownership Structure and Main Shareholders
70
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 peculiarities 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. On
May 18, 2017, the Company distributed a total dividend of
US$20,766,119 charged to the profits of 2016.
Holdco I’s non-voting shares into Holdco I voting shares, and if
such conversion would not have an adverse effect but we would
not have exercised 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 purposes
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.
CORPORATE GOVERNANCE
Financial
T he Corporate Finance Department is responsible
for managing the Company’s Financial Policy. This
Policy makes it possible to effectively face changes in
conditions outside the business’ normal operation and thus
maintain and anticipate a stable flow of funds to ensure the
operation’s continuity.
Moreover, the Finance Committee, comprising the Executive
Vice-Presidency and members of LATAM’s Board of Directors,
meets periodically to review and propose to the Board the
approval of issues that are not regulated by the Financial Policy.
Financial Policy
71
LATAM Airlines Group’s Financial Policy aims for the
following goals:
• To ensure a minimum liquidity level for operations. To
preserve and maintain suitable cash flow levels to ensure
that requirements for operations and growth are covered.
To maintain a suitable level of credit lines with local and
foreign banks to face contingencies.
• To keep an optimal debt level and profile that matches
the growth of its operations, and considering the goal to
minimize financing costs.
• Capitalize excess cash flow through financial investments
that will guarantee a risk and liquidity level consistent with
the Financial Investment Policy.
• To reduce the effects of market risks, such as variations
in fuel prices, exchange rates, and interest rates on the
Company’s net profit margin.
• To reduce Counterparty Risk through the diversification and
limits on investments and transactions with counterparties.
• To maintain, at all times, a long-term view of the
Company’s projected financial situation to anticipate
situations of covenant breaches, low liquidity, deterioration
of the financial ratios agreed with rating agencies, etc.
The Financial Policy delivers guidelines and restrictions to
manage Liquidity and Financial Investment transactions,
Financing Activities, and Market Risk Management.
LIQUIDITY AND FINANCIAL INVESTMENT POLICY
During 2017, LATAM Airlines Group maintained suitable
liquidity levels to hedge against potential external shocks
and volatility, as well as the industry’s inherent cycles. Thus,
it ended December 2017 with a liquidity ratio of 20.3% of
total revenues for the last 12 months. This liquidity includes
a revolving credit facility for a total of US$450 million with
eleven financial institutions—both local and international—
and was fully available at yearend.
Moreover, during 2017, a significant part of the pre-delivery
payments, related to the Boeing and Airbus aircraft that
LATAM will receive in the future, was financed with the
CORPORATE GOVERNANCE Financial Policy
72
billion. The main financing activities carried out during 2017
were related to debt restructuring, including the issuance of an
international corporate bond for US$700 million in April at a
rate of 6.875%, whose funds were used for general purposes of
the Company. Likewise, in April, the Company paid the US$300
million principal of the bond issued by TAM Capital Inc, which
was due that same month.
Moreover, during August, TAM issued an unsecured bond
in Chile’s local market for approximately US$350 million
denominated in UF (Unidades de Fomento), maturing in 2022
and 2028. The funds from this issuance were fully used to call
TAM’s last corporate bond, worth US$500 million at a rate of
8.375% maturing in 2021, whereby the call option was exercised
in September. The balance outstanding for the call came from
other financing activities and the Company’s cash balance.
Company’s own resources. The balance as at December 31,
2017, stood at US$276 million in pre-delivery payments
funded through own resources.
WITH REGARD TO THE FINANCIAL INVESTMENT
POLICY, THE GOAL IS TO CENTRALIZE INVESTMENT
DECISIONS TO OPTIMIZE PROFITABILITY, ADJUSTED
FOR CURRENCY RISK, SUBJECT TO MAINTAINING
SUITABLE SECURITY AND LIQUIDITY LEVELS.
Moreover, the aim is to manage risk through the diversification
of counterparties, maturities, currencies, and instruments.
FINANCING POLICY
The scope of LATAM’s Financing Policy is to centralize
financing activities and balance the assets’ useful life
against debt maturities.
Throughout 2017, the Company succeeded in reducing the
balance of its total gross debt by roughly US$713 million,
explained by the payment of a debt maturity for about US$2.0
billion, and the issuing of new debt worth around US$1.3
MOST OF THE INVESTMENTS THAT LATAM
AIRLINES GROUP HAS MADE PERTAIN TO
THE FLEET ACQUISITION PROGRAMS, WHICH
ARE GENERALLY FINANCED THROUGH A
COMBINATION OF OWN RESOURCES AND LONG-
TERM STRUCTURED FINANCIAL DEBT.
Normally, LATAM finances between 80% and 85% of the
value of the assets through bank loans, bonds covered
by the export promotion agencies, or bonds secured by
aircrafts such as the EETC, where the remaining part is
funded through commercial loans or the Company’s own
funds. The payment maturities of the various financing
structures are mainly 12 years long. Moreover, LATAM
contracts a significant percentage of its fleet acquisition
commitments through operating leases as an additional
source of financing.
During 2017, the whole fleet received accounted for operating
leases, so there was no financing for the new fleet.
CORPORATE GOVERNANCE Financial Policy
73
As for short-term financing, at December 31, 2017, LATAM
held 3% of its total debt in loans to exporters and importers
to finance working capital needs.
Some of the Financing Policy’s other goals are to ensure
a stable debt maturity and leasing commitment profile,
including debt servicing and the payments on fleet leasing,
which is consistent with LATAM’s operating cash flow.
MARKET RISK POLICY
Given the nature of its operations, LATAM Airlines Group is
subject to market risks, such as: (i) fuel price risk, (ii) interest
rate risk, and (iii) exchange rate risk. In order to hedge fully or
partially against these risks, LATAM uses financial derivatives
to reduce the adverse effects that these risks could cause.
Market Risk management is carried out comprehensively
and considers the correlation with each market factor to
which LATAM is exposed. In order to do business with each
counterparty, the company must have an approved line, and
a signed framework agreement with the chosen one. The
counterparties must have a Risk Rating issued by one of the
international Risk Rating agencies that is equal to, or greater
than the equivalent of an “A-” rating.
i. Fuel price risk:
Variations in fuel prices depend significantly on oil supply and
demand in the world, as well as on the decisions made by the
Organization of the Petroleum Exporting Countries (“OPEC"),
the refining capacity worldwide, inventory levels, and the
occurrence of climatic or geopolitical events. LATAM purchases
fuel for airplanes, known as Jet Fuel. In order to execute
fuel hedges, there is a benchmark index on the international
market for this core asset, which is Jet Fuel 54 US Gulf Coast.
This index was mainly used by LATAM Airlines Group for its
hedges during 2017.
LATAM also undertook hedging through NYMEX Heating Oil,
whose core index is included the Fuel Hedging Policy, given the
high correlation it was with the Jet Fuel 54.
The Fuel Hedging Policy sets a minimum and a maximum
hedging range for the Company’s fuel consumption, based on
the capacity to pass through fuel price variations to airfares,
anticipated sales, and the competition scenario. Moreover,
this Policy sets hedging zones, a premiums budget, and other
strategic restrictions that are assessed and presented periodically
before the LATAM Finance Committee.
The uncertainty surrounding how the market and the
governments will behave, and thus, how the interest rate
will change, leads to a risk related to LATAM’s debt subject
to variable interest, its investments, and the new issuances
it may make. Interest rate risk on existing debt is equivalent
to future cash flow risk on financial instruments, given the
interest rate fluctuations on the markets.
With regard to fuel hedging instruments, the Policy makes
it possible to contract combined Swaps and Options only for
hedging purposes, and does not allow the net sale of options.
LATAM’s exposure to the risk from market interest rate
fluctuations is mainly related to long-term obligations with
variable rates.
ii. Interest rate risk on cash flows:
Interest rate variations depend largely on the state of the
global economy. An improvement in the long-term economic
outlook drives long-term interest rates upward, while a
deterioration causes a drop due to market effects. However,
when we consider government interventions, in a period of
economic contraction, benchmark rates are usually decreased
to boost aggregate demand by making credit more affordable
and increasing production ( just as there are hikes in the
benchmark rate in times of economic expansion).
In order to reduce the risk from an eventual hike in interest
rates, LATAM Airlines Group has interest rate swap contracts.
At December 31, 2017, the market value of interest rate
derivatives positions totaled US$6.6 million (negative). The
instruments approved in the Interest Rate Hedging Policy are
interest rate Swaps and Options.
iii. Exchange rate risks:
The functional currency used by the controlling company is
the US dollar in terms of price-setting for its services, the
composition of its statement of financial position, and the
effects on the results of operations. There are two types of
CORPORATE GOVERNANCE Financial Policy
74
LATAM AIRLINES GROUP’S PRICING OF
INTERNATIONAL CARGO AND PASSENGER
BUSINESSES IS MAINLY DONE IN USD. A SHARE
OF THE FARES FROM THE INTERNATIONAL PAX
BUSINESS IS CLOSELY CORRELATED TO THE
EURO. IN THE DOMESTIC BUSINESS, MOST
FARES ARE IN LOCAL CURRENCY WITHOUT ANY
SORT OF INDEXATION TO THE US DOLLAR. AS
FOR THE DOMESTIC BUSINESSES IN PERU AND
ECUADOR, BOTH AIRFARES AND SALES ARE
IN USD. THEREBY, LATAM IS EXPOSED TO THE
FLUCTUATIONS IN VARIOUS CURRENCIES, BUT
MAINLY THE BRAZILIAN REAL AND THE EURO.
exchange risks: Cash flow and balance sheet risks. Cash flow
risk arises as a consequence of the net position between
revenue and costs in currencies other than US dollars.
appreciation or depreciation against the functional currency
used by the holding, during 2017, LATAM held no hedges
against balance sheet risk.
The main mismatch factor is seen in TAM S.A., whose
functional currency is the Brazilian Real, and as most of its
liabilities are stated in US dollars, even though its assets are
stated in local currency. This mismatch was substantially
reduced during 2017, thus reducing the aforementioned risk.
Particularly, the mismatch between liabilities and assets was
reduced to US$805 million by yearend 2017, compared to a
US$1,392 million in December 2016.
LATAM sells most of its services in US dollars, in prices
equivalent to the US dollar and the Brazilian Real. Roughly
62% of revenues are US dollar-denominated, whereas
around 23% are denominated in Brazilian Reais. A major
part of expenses is denominated in US dollars or equivalent
to the USD, particularly fuel costs, aviation taxes, aircraft
leases, insurance, and aircraft components and accessories.
Remuneration expenses are denominated in local currencies.
The total percentage of costs denominated in USD is around
63%, whereas roughly 20% is denominated in Brazilian Reais.
LATAM Airlines Group has hedged against exchange rate risks
mainly through forwards contracts and currency options. At
December 31, 2017, LATAM is hedged against the Brazilian
Real for US$180 million for 2018.
On the other hand, the balance sheet risk appears when
entries recorded are exposed to exchange rate variations,
as these entries are expressed in a different currency from
the functional one. While LATAM may have derivatives
contracts to hedge against the effects of a possible currency
CORPORATE GOVERNANCE O P E R A-
T I O N S
LATAM is the biggest airlines
group in Latin America, and one
of the largest worldwide.
International
Thirteen new international
routes in 2017
L ATAM Group’s international passenger operations
include the regional flights within South America and
the Caribbean, and long-haul flights between this
subcontinent and the rest of the world.
International Business
76
At December 2017, the Group serves 27 international
destinations in 18 countries: five in the United States, six
in Europe, 11 in other countries in Latin America and the
Caribbean, four in Asia-Pacific, and one in the African
continent, with a broad network of connections that no other
airline in South America can offer.
Air operations in this period developed within a sound context,
driven mainly by more stable currencies and the recovery of
the Brazilian economy—the largest market in the region—
after two consecutive years of contraction. As a result,
significant improvements were achieved on the yields of the
routes from Brazil to the US, that also benefited from the
sharp adjustments in capacity carried out in 2016 and the
first half of 2017, and Europe.
IN 2017, LATAM GROUP TRANSPORTED 16.1
MILLION PEOPLE IN INTERNATIONAL FLIGHTS,
A 6.3% INCREASE COMPARED TO 2016.
CONSOLIDATED PASSENGER TRAFFIC (MEASURED
IN RPK) GREW 4.7% COMPARED TO THE PREVIOUS
YEAR, WHEREAS CAPACITY (MEASURED IN ASK)
ROSE 3.8%. AS A RESULT, LOAD FACTOR SETTLED
AT A SOUND 86.9% (AN INCREASE OF 0.7 BASIS
POINTS COMPARED TO 2016).
To develop its international operations, LATAM Group used a
fleet comprising 120 aircraft, on average, during the period.
In order to serve the regional routes, it operated 66 airplanes,
mainly from the Airbus A320 family, whereas for long-haul
flights, it used 54 airships including Boeing 767 and 787
(versions 8 and 9) and Airbus A350.
OPERATIONS International Business
77
Throughout this year, LATAM Group continued to strengthen
its network of connections to improve connectivity within the
region, and to and from the rest of the world. Thus, in 2017,
it opened 13 new international routes: three long-haul ones,
and 10 on a regional level.
REGIONAL FLIGHTS
With regard to regional operations, LATAM opened ten new
routes in order to offer its passengers a better response in
terms of service and connectivity, always boosting its main
hubs, such as Lima, Santiago, and Guarulhos.
REGARDING CUSTOMERS, ONE OF THE LANDMARKS
IN THE PERIOD WAS THE LAUNCH OF A NEW
GASTRONOMIC CONCEPT FOR THE ECONOMY
CABIN ON INTERNATIONAL FLIGHTS LASTING OVER
SEVEN HOURS, WHICH IS NOW AVAILABLE TO
PASSENGERS AT NO ADDITIONAL COST.
It consists in three menu options for lunch and dinner, as
well as two options for breakfast, sampling both Latin
American and international cuisine. LATAM has created
over 300 new dishes to be served to an average of 14,000
passengers on 64 daily flights.
Overall, the Group continued to invest in improving its service,
in line with its aim to set clients at the heart of its decision-
making processes. Passengers are LATAM Group’s main
priority; therefore, the culture that has been created within the
organization seeks to offer them a simpler, more digital, and
consistent service, and thus stand out from the competition.
During 2017, LATAM Group opened five new regional routes
from Santiago, four of them connecting secondary cities
within Argentina—Tucuman, Neuquén, Rosario, and San
Juan—to achieve presence in 10 international airports in
Argentina. In addition, as of March 2017, the Group began
to operate its new Santiago-Santa Cruz direct flight with a
frequency of three flights per week.
The Group also launched four new regional routes from Lima—
Mendoza, Tucuman, Cartagena, and Rio de Janeiro—reflecting
its ongoing commitment with the Peru’s economic and social
development. As for the Guarulhos hub, it launched a new
route connecting Sao Paulo and Bariloche.
Given all this, LATAM Group remained as market leader on the
regional routes it operates within South America, holding 47%1
of the market share by the end of 2017. Its main competitors
are Avianca (23%), Aerolineas Argentinas, and Gol (9% each),
among others2.
LONG-HAUL FLIGHTS
This year, the Company opened three new routes, improving
connectivity between the region and the US and Oceania. The
maiden flight between Santiago and Melbourne was held in
October 2017, turning LATAM into the only airline to join Latin
America to this new destination without stopovers. Melbourne
is the second Australian city where LATAM operates, together
with Sydney, reached via Auckland, New Zealand. Moreover,
two new direct flights were opened to Orlando from Santiago
and Rio de Janeiro.
In its international operation, LATAM’s most relevant strategic
project comprises the Joint Business Agreements (JBAs) that it
expects to seal with American Airlines and IAG Group (British
Airways and Iberia). These JBAs will enable LATAM Group
to expand its international network to over 420 destinations
in North America and Europe, mainly, benefiting passengers
with more flights, better connection times, and lower rates to
destinations where the Group doesn’t fly.
During 2017, these agreements added further authorizations to
those granted by the Uruguay regulator in 2016. Specifically, the
JBA with American Airlines was authorized without any mitigation
measures by the antitrust agencies of both Colombia and Brazil,
while the JBA with the airlines of IAG was also approved by the
antitrust agencies of these countries.
OPERATIONS International Business
78
16.1
Million passengers
Aircraft120
Destinations27
REGARDING THE NORTH AMERICA ROUTES
(WHICH, IN ADDITION TO FIVE US DESTINATIONS,
INCLUDE CANCUN AND MEXICO CITY), THE GROUP
ENDED THE YEAR WITH A 19% MARKET SHARE,
CONSOLIDATING ITSELF AS THE SECOND LARGEST
OPERATOR, JUST BEHIND AMERICAN AIRLINES,
WHOSE MARKET SHARE REMAINED AT 21%.
Other competitors are Copa (14%), Avianca and United Airlines
(9% each), and Delta (7%), among the most important.
On the routes to Europe, LATAM Group is the third operator in
the market, holding 13% by December 2017. Air France-KLM
with 21%, and IAG with 19%1 are at the head of this group,
which also includes Tap Portugal and Air Europa (9% each),
the Lufthansa group (8%), Avianca (6%), Alitalia (5%), and
Aerolineas Argentinas (4%), among the most relevant2.
As for the Oceania/Asia Pacific operations, LATAM Group
is the main operator, holding 45%1 of the market share.
Australian airline Qantas and Air New Zealand hold the
remaining 34% and 12%, respectively2.
1 Source: LATAM Airlines Group, considering ASKs from the Group’s
flights. Data as of December 31, 2017.
2 Source: Apgdata, considering ASKs from the Group’s flights. Data as
of December 31, 2017.
On the other hand, in Chile, the agreements are undergoing a
consultation process before the Competition Court (Tribunal
de la Libre Competencia). While in the US, the Department
of Transportation (US-DOT) requires Brazil to ratify the Open
Skies agreement between both countries, in order to review
the JBA with American Airlines. This Open Skies agreement
has already been approved by the Chamber of Deputies
and the Senate of Brazil, thus remaining the signature of the
Executive and its corresponding publication.
This year, the Group opened three new routes, improving
connectivity between the region and the US and Oceania.
The maiden flight between Santiago and Melbourne was
held in October 2017, turning LATAM into the only airline to
join Latin America to this new destination without stopovers.
Melbourne is the second Australian city where LATAM
operates, together with Sydney, reached via Auckland, New
Zealand. Moreover, two new direct flights were opened to
Orlando from Santiago and Rio de Janeiro.
Meanwhile, LATAM Group continued to work on strengthening its
connections network; and thus, during 2017, it announced new
routes from its Guarulhos hub, in Brazil, to Rome, Tel Aviv, Boston
and Las Vegas, that will increase the connectivity between Latin
America and Europe, Asia, and North America, as of 2018.
OPERATIONS
B RAZIL
Over 90 million
passengers carried
B razil is the largest domestic market in South
America—and the third worldwide—with 280
million inhabitants and over 90 million passengers
transported within the country throughout 2017. The low
penetration of air travel presents huge growth potential in this
market, maintaining it as an opportunity for LATAM Group.
After facing two consecutive years of severe economic
contraction—periods when the country’s Gross Domestic
Product (GDP) dropped 3.8% in 2015 and 3.6% in 2016—the
Brazilian economy began to break this trend in 2017, showing
greater dynamism thanks to private consumption, and thus
managing to end the year with 1.0% growth and presenting a
positive scenario for future years.
Brazil
79
Despite the spike in macroeconomic conditions, corporate
demand (from business travelers) showed signs of slow
recovery, not reaching higher levels until the fourth quarter
of the year.
AN IMPORTANT FACTOR THAT HAS HELPED TO
MITIGATE THE IMPACT OF COUNTRY’S ECONOMIC
SLOWDOWN HAS BEEN THE SUPPLY ADJUSTMENT
THAT LATAM AIRLINES BRAZIL HAS BEEN
CARRYING OUT IN THE PAST YEARS.
In this context, during 2017, LATAM Airlines Brazil reduced its
domestic supply by 3.6% in terms of ASK (Available Seat-
Kilometers), on top of the 11.5% decrease carried out in 2016.
On the other hand, domestic demand decreased 3.2% in terms
of RPK (Revenue Passenger-kilometer), resulting in a healthy
load factor of 82.7% for the full year—a 0.3 percentage-point
increase vs. the previous year.
At December 2017, LATAM Airlines Brazil was operating 44
airports, with roughly 560 domestic flights daily. With 28.3
million PAX transported and a 2.4% decrease compared to
2016, it ended the year as the second largest carrier ofnational
routes, holding a 33% market share; that is, 4 percentage
points less than Gol. Next, came Azul with 17% and Avianca
with 13%, among its main competitors. 1
For that reason, in this period, LATAM Airlines Brazil continued
to focus on maintaining its strategic position in the country,
reformulating its whole network, improving the connectivity
from its main hubs, such as the Guarulhos/Sao Paulo and
Brasilia terminals, and optimizing the use of its assets.
In 2017, LATAM Airlines Brazil opened eight new routes within
the country: Guarulhos (São Paulo)-Uberlândia, Guarulhos-
Londrina, Guarulhos-Santos Dumont (Rio), Confins (Belo
OPERATIONS MOREOVER, IN OCTOBER, LATAM AIRLINES BRAZIL
ANNOUNCED THAT, BEGINNING IN THE FIRST
QUARTER OF 2018, IT WILL OFFER INTERNET
ACCESS ON ALL ITS DOMESTIC FLIGHTS. ITS ON-
BOARD WI-FI SERVICE WILL COMPLEMENT LATAM
ENTERTAINMENT, THE WIRELESS ENTERTAINMENT
SYSTEM THAT ALL THE GROUP’S AIRLINES OFFER ON
SHORT-HAUL FLIGHTS, ENABLING PASSENGERS TO
WATCH MOVIES, TV SHOWS, AND OTHER CONTENT
ON THEIR MOBILE DEVICES, FREE OF CHARGE.
Altogether, despite the challenging scenario, the Company
obtained two great achievements in consolidating its identity
as LATAM Group. For the ninth consecutive year, it was the
top-of-mind airline brand in newspaper Folha de S. Paulo’s
“Top of Mind" ranking. Furthermore, in the World Travel 2017
awards, it was chosen “Best Airline in South America” and
“South America’s Leading Airline”.
1 Source: ANAC Brazil, considering total RPKs from domestic carriers.
Data as of December 31, 2017.
Horizonte)-Fortaleza, Confins-Vitória, Congonhas (São
Paulo), and Bauru, Fortaleza-Manaus, and Curitiba-Iguazu.
Moreover, it added new domestic frequencies from the
Guarulhos airport for the destinations of Brasilia, Belém,
Confins (Belo Horizonte), Fortaleza, Porto Alegre, Recife,
Salvador, and Victoria.
TO CARRY OUT ITS DOMESTIC OPERATIONS, IT
USED A FLEET OF 90 AIRPLANES, ON AVERAGE,
INCLUDING 30 AIRBUS A321, WHICH MAKE IT
POSSIBLE TO SERVE THE HIGH-DENSITY ROUTES
MORE EFFICIENTLY. WE SHOULD NOTE THAT LATAM
GROUP IS CURRENTLY THE ONLY CARRIER WITH
THIS TYPE OF AIRCRAFT IN BRAZIL.
As for customer service, as of June, the Company began
implementing its new Branded Fares system, which enables
passengers to choose how to travel and pay only for what
they wish to buy. Thereby, Brazil became the fifth country to
include the new travel model that LATAM Group announced in
late 2016 for its six domestic markets. This was made possible
when the Brazilian government authorized the airlines in the
country to charge passengers for checked-in baggage, lending
flexibility to the relevant regulation, among other new rules for
air transportation that became effective during 2017.
Brazil
80
28
Million passengers
Airplanes90
Destinations41
33%
Market share
OPERATIONS ARGE NTINA
26 million passengers carried
on domestic routes
W ith 12 years of presence in the country, LATAM
Airlines Argentina has consolidated as the second
carrier in the domestic segment, with an 18%
market share by yearend 2017, in a market known for the
predominance of the heritage airline, state-owned Aerolineas
Argentinas, which holds 78% of the market, while Andes
Líneas Aéreas (a regional carrier headquartered in the city of
Salta) holds only 3%.1
Argentina
81
During this period, LATAM Airlines Argentina transported 2.6
million passengers on domestic routes. Its consolidated traffic
in terms of revenue passenger-kilometers (RPK) decreased
2.0% from 2016, whereas capacity (ASK) contracted 6% in
the domestic market. Thereby, load factor settled at 80%,
translating into a 3.0 percentage-point increase compared to
the previous year.
LATAM AIRLINES ARGENTINA HAS 14 DOMESTIC
DESTINATIONS CONNECTING TO AND FROM
BUENOS AIRES TO THE CITIES OF BAHÍA BLANCA,
BARILOCHE, COMODORO RIVADAVIA, CÓRDOBA,
EL CALAFATE, IGUAZÚ, MENDOZA, NEUQUÉN, RÍO
GALLEGOS, SALTA, SAN JUAN, TUCUMÁN, AND
USHUAIA. MOREOVER, IT OPERATES REGIONAL
FLIGHTS FROM THE CITY OF ROSARIO, IN THE
SANTA FE PROVINCE, WHERE IT HAS SIGNIFICANT
COMMERCIAL PRESENCE.
To perform its service, LATAM Airlines Argentina used 15
planes from the Airbus A320 family, considered the most
efficient in the industry for cabotage operations, as they
have the largest and most comfortable passenger cabin
in the category. LATAM Airlines Argentina stands out as
the first airline to operate within the country with a fleet
comprised fully by these modern aircrafts.
IN ADDITION, THEY ALL HAVE THE NEW
WIRELESS IFE ON-BOARD ENTERTAINMENT
SERVICE, WHICH ENABLES PASSENGERS TO
ACCESS MOVIE CONTENT, MUSIC, GAMES, AND
INFORMATION THROUGH THEIR OWN MOBILE
DEVICES, RENDERING THEIR FLIGHT EXPERIENCE
MORE ENJOYABLE.
OPERATIONS
Among the milestones of 2017, LATAM Airlines Argentina
renewed its commitment to the community through
the execution of its two most relevant Corporate Social
Responsibility programs: “Todos Podemos Volar” (we can all
fly), whose aim is to contribute to the education of the country’s
children by allowing them to experience flying for the first
time; this program ended the period with the participation of
104 students and 16 teachers from schools in the provinces of
Buenos Aires, Misiones, and Córdoba; and “Cuido Mi Destino”
(I care for my destination), which seeks to consolidate and
contribute to the strengthening of sustainable tourism and
environmental protection, increasing the value of the relevant
tourist and cultural heritage; this program reached the province
of Neuquén in the period, where it will continue over the next
two years. LATAM Airlines Argentina participates actively in
Global Deal, coordinating a round table on Climate Change.
Global Deal is a UN initiative on social responsibility that joins
companies, education organizations, and the civil society.
WE SHOULD NOTE THAT LATAM AIRLINES
ARGENTINA RECEIVED TWO BITÁCORA AWARDS
IN 2017 FROM REPRESENTATIVES OF THE
TOURISM INDUSTRY: GOLD, AS INTERNATIONAL
AIRLINE, AND SILVER AS NATIONAL AIRLINE.
LIKEWISE, IT SETTLED ONCE AGAIN AMONG THE
100 BEST COMPANIES IN TERMS OF CORPORATE
REPUTATION, ACCORDING TO THE MERCO RANKING,
AND IS ALSO THE NUMBER ONE COMPANY IN
THE PASSENGER TRANSPORTATION SECTOR. IT
WAS ALSO ACKNOWLEDGED FOR A CHRISTMAS
CAMPAIGN IN TWO OF THE MOST IMPORTANT
ADVERTISING FESTIVALS IN THE WORLD: CANNES
LIONS AND EL SOL (SAN SEBASTIÁN).
LATAM Airlines Argentina operates from Buenos Aires out
of the Ministro Pistarini (Ezeiza) airport, where it also has
its own VIP Lounge, and out of the Jorge Newbery Airport,
the most important cabotage terminal in the country. Within
that airport, the Company has its own hangar, opened in
November 2009.
Argentina
82
2.6
Million PAX transported
Airplanes15
15
Domestic destinations
18%
Market share1
1 Source: Diio.net, considering total RPKs from domestic carriers. Data
as of December 31, 2017.
OPERATIONS
CHI LE
Leading the marketexpansion
of the country
A ir operations in Chile showed a dynamic performance
in 2017, reporting a record of 11.6 million passengers
transported on domestic flights (including Easter
Island)—7.0% more than in the previous year—according to
statistics from the Chilean civil aviation authority (Junta de
Aeronáutica Civil). While the local economy continued to show
a weak performance, with GDP growth of barely 1.6%—
remaining as one of the lowest in the last three years—the
sustained decrease in fares applied by the industry in the last
few years in the context of an increasingly competitive market
has been key in driving demand.
Chile
83
LATAM Airlines stood as the leading carrier, with 7.9 million
passengers transported on domestic flights and a 70.9%
market share, translating into a 4.8 percentage-point
decrease from the previous year. On national routes, its
main competitor is Sky Airlines, with a 25.5% market share,
followed by JetSMART, a new low-cost carrier that entered
the market in July, achieving an average market share of
2.3%; whereas the other carriers—LAW amongst them—
totaled 1.3% of the market. 1
Consolidated PAX traffic (in RPK terms) for the domestic
market remained flat compared to the previous year (+0.1%),
while capacity increased by 2.8% in ASK (Available Seat-
Kilometer). As a result, the average load factor settled at
81.7%, with a 2.2 pp decrease compared to 2016.
WE MUST NOTE THAT LATAM AIRLINES HAS BEEN
A PIONEER IN EXPANDING FLIGHT COVERAGE IN
CHILE, LEADING THE INDUSTRY TO GROW FROM 3
TO NEARLY 12 MILLION PASSENGERS PER YEAR IN
THE LAST DECADE.
This has been possible by transferring much of its efficiencies
and savings to benefit the passenger, so the latter can have
access to cheaper airfares. Moreover, with the aim to continue
to stimulate traveler demand, LATAM Airlines implemented
a new travel model for the domestic market of Chile, based
on airfare segmentation depending on attributes so that each
passenger may adapt their travel experience to their own
needs, paying only for the services they require. This allows the
airline to offer prices that are 20% to 40% lower than before.
1 Source: JAC Chile, considering total RPKs from domestic carriers.
Data as of December 31, 2017.
OPERATIONS In the same context, in late 2017, LATAM Airlines announced
the selling of one-way tickets on all its flights within Chile—
another feature of the low-cost model that, so far, it had not
implemented in its offer. LATAM’s One Way tickets for national
flights are equivalent to the “light” fare, which does not include
checked baggage or seat selection for free.
LATAM AIRLINES SERVES 16 NATIONAL
DESTINATIONS IN CHILE (EXCLUDING EASTER
ISLAND), AND COVERS THE MAIN CITIES FROM
NORTH TO SOUTH, SUCH AS SANTIAGO, ARICA,
IQUIQUE, CALAMA, ANTOFAGASTA, COPIAPÓ,
LA SERENA, CONCEPCIÓN, TEMUCO, VALDIVIA,
OSORNO, PUERTO MONTT, BALMACEDA, PUNTA
ARENAS, CASTRO, AND PUERTO NATALES.
In its ongoing search to offer the best connectivity and more flight
options, with customized trips and at more affordable prices,
LATAM Airlines opened in 2017 the direct route Concepcion-
Punta Arenas, with two weekly frequencies, allowing passengers
to reduce travel times by half (from six to three hours) between
these cities, bypass Santiago, and pay a lower fare.
In this period, it also opened the direct route Concepción-
Antofagasta, with three weekly frequencies, becoming the
only airline in the country to connect these two cities through
a non-stop flight, and with the advantage of offering clients
the possibility to access record-low fares. This new route has
great potential due to demand from both business and tourist
passengers, as it connects the north and south of the country
directly, in only two and a half hours.
The opening of both routes is in line with the implementation
of the new travel model for domestic flights, whose main
goal is for more Chileans to be able to fly. Moreover, as these
are flights without stopovers in Santiago, the boarding tax
decreases to half, so the total cost of the round trip becomes
lower in both cases. On this matter, we should note that Chile
has the highest domestic boarding taxes in South America,
and these are often higher than the value of the actual ticket.
To serve domestic routes, LATAM Airlines used an average
fleet of 26 planes in the Airbus A320 family—one less than
in the previous year. Of the total, 14 are Airbus A320, with
174 seats, and 12 are Airbus A321—the most modern and
largest in the family—with capacity for 220 passengers.
LATAM Airlines has been gradually incorporating this model
into its short-haul fleet, whose technology, materials, and
aerodynamics allow for a more efficient operation of this type
of flights, and for a reduction of CO2 emissions, thanks to
lower fuel consumption.
The whole fleet that LATAM Airlines uses to operate its flights
within Chile has a modern, on-board entertainment service,
equipped with Wireless IFE technology, in line with its goal to
offer its passengers a distinctive service proposal, and the best
travel experience.
LAST, WE SHOULD NOTE THAT LATAM AIRLINES
GROUP WAS CHOSEN AS THE OFFICIAL AIRLINE
TO TRANSPORT POPE FRANCIS ON HIS FIRST
FLIGHT FROM CHILE TO PERU, IN JANUARY 2018,
AS HIS SCHEDULE INCLUDED VISITS TO THE
CITIES OF SANTIAGO, TEMUCO, AND IQUIQUE IN
CHILE, AND LIMA, PUERTO MALDONADO, AND
TRUJILLO IN PERU. LIKEWISE, THE GROUP WAS
ALSO IN CHARGE OF HIS RETURN ON THE DIRECT
TRANSOCEANIC FLIGHT FROM LIMA TO ROME.
Chile
84
7.9
Million passengers
Airplanes26
Destinations16
71%
Market share
OPERATIONS COLOM BI A
Four new domestic routes
in 2017
S ince it began operations in the country, in 2012,
LATAM Airlines Colombia has gradually positioned
itself as the second carrier in the domestic market,
acknowledged as one of the most competitive in Latin
America. Colombia is the fourth economy in the region and
the second largest passenger market, just below Brazil.
In the last five years, air transportation has experienced
a significant expansion in the country, and is a sector with
appealing growth potential.
In 2017, LATAM Airlines Colombia transported nearly 4.8 million
passengers on national flights, translating into a 0.4% increase
over the previous year, to reach a 22.4% market share—1.2
percentage points higher than in 2016. Its main competitors
are heritage airline Avianca, whose market share decreased to
54.2% in the period, Viva Colombia (14.8%), Satena (3.3%),
Wingo (2.6%), and Easy Fly (2.2%)1.
Colombia
85
ITS CONSOLIDATED PAX TRAFFIC (RPK) GREW
6.6% IN THE DOMESTIC MARKET, WHILE CAPACITY
INCREASED 3.1%. THUS, LOAD FACTOR SETTLED AT
A SOUND 83%, WITH A 2.7 PERCENTAGE-POINT
INCREASE COMPARED TO 2016.
LATAM Airlines Colombia currently serves 14 destinations
within Colombia, with 20 routes, offering a broad connectivity
from Bogota and Medellin.
In this period, it opened four new domestic routes—namely
Medellin-Santa Marta, Medellin-Barranquilla, Cartagena-San
Andres, and Cartagena-Cali—expanding its service through flights
connecting cities other than Bogotá and strengthening its presence
in more tourist destinations.
To carry out its short-haul operations within the country, it
ended the year with 16 airplanes of the Airbus A320 family,
all equipped with its on-board wireless entertainment system
to offer its clients the best travel experience.
In addition to strengthening the domestic routes, in 2017
LATAM Airlines Colombia was the first of the Group's
affiliates to launch “Mercado LATAM”, after launching in
February its new service offering on-board food & beverage
purchases on all domestic flights. This was the first step
in the evolution of the airline’s new travel model to offer
passengers more options, flexible rates, and a customized
trip, where they only pay for the attributes they choose.
Focused on its permanent goal to improve its value
proposal, in 2017 LATAM Airlines Colombia implemented
a trip tracking system for minors, in real time, through a
website link provided upon purchasing the service, which can
be viewed on a mobile device or computer. Nearly 1,900
minors used the system in the last six months of 2017. This
OPERATIONS
innovation is part of the technology investments that LATAM
Group has made in the last year to further improve its
passengers’ travel experience.
Along the same line, it also implemented a new self-service
model at the country’s main airports and had 22 kiosks
functioning at the end of the year, becoming the first domestic
carrier to offer its passengers this simple and autonomous
baggage check-in system by printing their baggage tags
without having to go to a counter, and dropping off their
suitcases at the established drop-off points. In addition, it
has added an advanced security system that guarantees the
monitoring and tracking of passengers’ baggage to prevent
possible switches or frauds with it.
Moreover, in its aim to achieve operating efficiencies, LATAM
Airlines Colombia began to simplify its boarding model, going
from a segmentation of the flight by location within the airplane
to a single queue, aiming to reduce boarding times.
WE SHOULD NOTE THAT LATAM AIRLINES
COLOMBIA IS THE FIRST AIRLINE WITH NEUTRAL
CARBON IN ITS DOMESTIC OPERATIONS, WHICH
MEANS THAT IT NEUTRALIZES 100% OF ITS
OPERATIONS’ CARBON FOOTPRINT BOTH ON LAND
AND IN THE AIR.
Colombia
86
4.8
Million passengers
Airplanes16
Destinations14
22%
Market share1
1 Source: DGAC Colombia, considering total RPKs from domestic
carriers. Datas as of December 31, 2017.
OPERATIONS ECUADOR
Operating in five cities
across the country
L ATAM Airlines Ecuador began operations in the
domestic market of this country in 2009. It has since
consolidated as a relevant carrier on national routes,
thanks to its ongoing work towards offering passengers the
best product in terms of security, reliability, and service.
LATAM Airlines Ecuador operates in five cities around the
country, along the following routes: Guayaquil-Quito-
Guayaquil; Quito-Cuenca; Quito/Guayaquil-Galápagos
(Baltra); Quito-Galápagos (Baltra); and Quito/Guayaquil-
Galápagos (San Cristóbal).
Ecuador
87
In 2017, LATAM Airlines Ecuador transported close to 1.0
million passengers on national flights—a 4.6% increase from
the previous year. This enabled it to achieve a 36% market
share, reflecting an increase of nearly 5.0 percentage points
from 2016. Its main competitors are heritage carrier Tame,
with 36% of the market, and Avianca, with 28%1.
DURING THIS YEAR, ITS CONSOLIDATED
PASSENGER TRAFFIC (MEASURED IN RPK) IN THE
DOMESTIC MARKET GREW 5.3%, WHILE CAPACITY
(ASK) INCREASED 0.4%. THEREBY, AVERAGE LOAD
FACTOR SETTLED AT A HEALTHY 83%, SHOWING A
4.1 PERCENTAGE-POINT INCREASE FROM 2016.
In November 2017, LATAM Airlines Ecuador announced
the implementation of a plan to reinforce operations on its
national routes to meet the growing PAX demand in the
country and provide an efficient and immediate solution to the
scarcity of seats on the market, as well as to offer more flight
options with lower fares.
Consequently, it added eight weekly frequencies on the
Quito-Cuenca-Quito route, totaling 11 flights per week,
thereby increasing its seating capacity by over 70%.
Simultaneously, it increased its seat capacity by 26% on the
Guayaquil-Quito-Guayaquil route, with 15 new flights per
week, totaling around 72 flights per week. This plan allowed
for an increase of over three thousand additional seats per
week on domestic routes.
OPERATIONS Meanwhile, in July 2017, LATAM Airlines Ecuador
implemented the Group’s new travel model for domestic
flights, consisting in the offer of segmented fares based on the
attributes that each passenger requires, which enables them
to pay only for the services they need. Likewise, it launched
“Mercado LATAM”, the revamped on-board service offering
over 30 options of food and beverages for purchase, including
premium products and renowned Ecuadorian brands.
Moreover, during 2017, LATAM Airlines Ecuador achieved
significant progress towards the consolidation of the new
LATAM brand. In September, it presented the new uniforms
for its command and cabin crews, and ground staff who
are in contact with clients, and it ended the year with the
new brand at the Points of Sale and Airports of Guayaquil,
Quito, Cuenca, and in Galápagos, with its headquarters at
Baltra and San Cristóbal.
These flights began operations early in December, with the
arrival of the new Aribus A319 to its aircraft fleet, leading
LATAM Airlines Ecuador to end the period with six airplanes of
this model to carry out its domestic operations. These aircrafts
have a capacity for 144 passengers, and include the free wireless
on-board entertainment system, LATAM Entertainment.
LATAM AIRLINES ECUADOR ALSO ANNOUNCED
ITS INTENTION TO BRING ABOUT AN INCREASE IN
FREQUENCIES TO AND FROM THE GALAPAGOS
ARCHIPELAGO, OFFERING A CONNECTIVITY
WHOSE AIM IS TO ENCOURAGE NATIONAL
TOURISM AND ECONOMIC DEVELOPMENT. WITH
THIS IN MIND, THE COMPANY CONTINUES TO
WORK ALONGSIDE THE AUTHORITIES, FROM THE
MINISTRIES THAT COMPRISE BOTH THE NATIONAL
CIVIL AVIATION COUNCIL AND THE DIRECTORATE-
GENERAL OF CIVIL AVIATION.
WE SHOULD NOTE THAT, IN THIS PERIOD, LATAM
AIRLINES ECUADOR WAS ACKNOWLEDGED
BY THE VERY ILLUSTRIOUS MUNICIPALITY OF
GUAYAQUIL AND THE EDÚCATE FOUNDATION FOR
ITS CONTRIBUTION TO THE MÁS TECNOLOGÍA
(MORE TECHNOLOGY) PROJECT. THIS IS A SOCIAL
RESPONSIBILITY PROGRAM AIMED TO IMPROVED
EDUCATION IN THE CITY AND REDUCE THE EXISTING
DIGITAL GAP AT PUBLIC SCHOOLS IN THE CITY.
Moreover, LATAM Airlines Ecuador was acknowledged in 2017
as the preferred airline among executives, according to a study
carried out by Grupo EKOS’ Research and Marketing Unit to
determine the brands that Ecuadorian executives prefer.
Ecuador
88
1.0
Million passengers
Airplanes6
Destinations5
36%
Market share1
1 Source: Diio.net, considering total RPKs from domestic carriers.
Data as of December 31, 2017.
OPERATIONS PE RU
Socially Responsible Company award
for the fourth consecutive year
W ith 18 years of presence in Peru, LATAM Airlines
Peru has consolidated as the leading carrier
in the domestic market, with a market share
of around 57.7%1 in 2017. In that year, it transported 6.7
million passengers within the country—a record figure for the
Company—showing a 1.8% increase from the previous year.
Peru
89
During 2017, Peru experienced a slowdown in activity
compared to the previous year, particularly in the first half of
2017, even though its economy remained among the most
dynamic in the region, ending the period with annual growth
of 2.7%. In this context, PAX traffic in the domestic market
continued to rise, surpassing 9.7 million PAX transported,
which means a 7.6% increase from 2016.
LATAM Airlines Peru’s consolidated passenger traffic (RPK)
grew 1.4%, while capacity (ASK) decreased 1.5% compared
to 2016, in the domestic market. Thereby, load factor settled
at 82.8%, showing a 2.4 percentage-point increase from the
previous year.
LATAM AIRLINES PERU’S CONSOLIDATED
PASSENGER TRAFFIC (RPK) GREW 1.4%, WHILE
CAPACITY (ASK) DECREASED 1.5% COMPARED
TO 2016, IN THE DOMESTIC MARKET. THEREBY,
LOAD FACTOR SETTLED AT 82.8%, SHOWING A
2.4 PERCENTAGE-POINT INCREASE FROM THE
PREVIOUS YEAR.
In the period, LATAM Airlines Peru opened flights to Jauja, from
Lima, with seven weekly frequencies, increasing its destinations
within the country to 18. The launch of this new destination
reflects LATAM Group’s ongoing commitment to Peru’s economic
and social development, in line with its goal to keep improving
national air connectivity. Jauja is a commercial hub between the
Peruvian coast and its mountain region.
Moreover, in July, it began operating new domestic routes
without connecting in Lima, such as Cusco-Trujillo through a
direct flight with three weekly frequencies, enabling a 56%
reduction in travel times compared to the Cusco-Trujillo route
via Lima. Cusco is a center that draws hundreds of national
and foreign tourists each year, and this new flight is expected
to bring more visitors from the north part of the country to
OPERATIONS Peru
90
6.7
Million passengers
Airplanes18
Destinations18
58%
Market share1
1 Source: MTC Peru, considering total PAX transported by domestic
carriers. Data as of December 31, 2017.
the Imperial Cities, while also taking more tourists to visit the
north of Peru. We should note that tourists from the north
are becoming better connected, given that LATAM Airlines
Peru currently offers direct flights from Cusco to Puerto
Maldonado, Juliaca, and Arequipa.
ALONG THE SAME LINE, IN DECEMBER, LATAM
AIRLINES PERU ANNOUNCED THE OPENING OF
TWO NEW ROUTES—CUSCO-PISCO, AND CUSCO-
IQUITOS—FOR FLIGHTS BEGINNING IN JUNE AND
JULY 2018, RESPECTIVELY.
To carry out its domestic operations, it used a fleet comprising
18 airplanes from the Airbus A320 family, without changes
from the previous year.
A landmark in the period was the launch of “Mercado LATAM”
in March, the new service to buy food & beverages on board
all domestic flights. Thus, Peru became one of the first affiliates
that offer this service, which is part of the new travel model
for national flights that LATAM Group announced in November
2016. On the other hand, in June, LATAM Airlines Peru began
to implement the new segmentation model for domestic flights,
with four fare options: Promo, Light, Plus, and Top. Through this
initiative, it seeks to once again revolutionize the air market in
Peru, by offering its passengers to pay only for the services they
use and thus, gain a more flexible, customized travel experience.
IN 2017, LATAM AIRLINES PERU WAS ONCE AGAIN
ACKNOWLEDGED AS ONE OF THE 10 MOST
APPEALING PERUVIAN COMPANIES TO WORK IN
WITHIN THE COUNTRY, RANKING 9TH IN THE TOP
10 EMPLOYERS OF CHOICE MERCO 2017 (ON
CORPORATE REPUTATION).
Moreover, it was the winner of the TOP 10 award in the
survey “Where do I want to work?” (DQT for its Spanish
acronym) by Arellano Marketing; the Socially Responsible
Company award from the Asociación Perú 2021 for the fourth
consecutive year, and the Best Airline and Travel Agency
Award in the Annual Survey of Executives 2017 by the Lima
Chamber of Commerce.
OPERATIONS First airline in the Americas to be awarded
the CEIV Pharma Certification
L ATAM Cargo and related enterprises is the largest
carrier of air cargo in Latin America, offering its clients
the broadest point-to-point connectivity between the
region and the rest of the world, with 144 destinations in 29
countries. LATAM Cargo Group transports cargo in the bellies
of 298 passenger planes and in 9 dedicated cargo freighters.
Cargo
91
The objective of LATAM Cargo is to contribute to LATAM
Group’s profitability by maximizing cargo transport in the
belly of passenger aircraft. To accomplish this, LATAM Cargo is
focused on developing and delivering an attractive an attractive
proposition for cargo clients, as well as on the continuous
pursuit of higher levels of efficiency and productivity. Due
to the above, 60% of the cargo was carried in the belly of
passenger aircraft, and 40% in dedicated freighters. The latter
aircraft seek to complement the group’s passenger offer, and to
accomplish this in the most effective way, LATAM Cargo carried
a restructuring process in order to homologate its fleet around
the Boring 767-300F aircraft, given the advantage they have
when operating the main markets within South America and
between this region and abroad. With this end in mind, during
2017 kicked off the face-out of its Boeing 777-200F fleet,
with the retirement of the last two airplanes of this model.
THROUGHOUT THE YEAR, CARGO REVENUES
INCREASED 0.8% FROM THE PREVIOUS YEAR,
WHEREAS THE OFFER—MEASURED IN ATKS
(AVAILABLE TON KILOMETER)—DECREASED
BY 7.1%. CARGO REVENUES PER ATK ROSE
8.5% COMPARED TO 2016, THANKS TO A 3.2
PERCENTAGE-POINT INCREASE IN LOAD FACTOR,
WHICH SETTLED AT 54.9%.
In 2017, its consolidated cargo traffic—measured in RTKs—
decreased by 1.3% compared to the previous year, mainly due
to the decrease in dedicated cargo fleet. In fact, cargo traffic
transported in the bellies of passenger planes increased 7%.
The recovery in revenues is mainly due to the capacity
adjustments that LATAM Cargo Group has been implementing
over the last few years, and to the ongoing improvement of
imports from North America and Europe to Brazil—namely,
OPERATIONS Cargo
92
AS FOR THE EXPORT MARKETS FROM LATIN
AMERICA, WHILE THE FIRST PART OF THE
YEAR SHOWED A DROP, THERE WAS A
TREND OF RECOVERY BOOSTED MAINLY BY
A HIKE IN THE TRAFFIC OF SALMON, FRUIT,
AND FLOWERS FROM CHILE, ARGENTINA,
COLOMBIA, AND ECUADOR.
electronic appliances and industrial supplies. The above was
favored by more stable market conditions in the country,
and the appreciation of the Real. Also, imports to Chile and
Argentina rebounded throughout the year. All this, within a
framework of recoveries in the air cargo market worldwide,
after several years of declines.
On the other hand, in 2017, LATAM Cargo Group consolidated
its product portfolio for the international market, which was
developed in 2016 to deliver its clients clear promises regarding
the transportation of their cargo, in compliance with the specific
needs of each shipment. Of the 3 services and 11 care options
offered during 2017, the Flex service (an affordable and reliable
solution for non-critical shipments that need to reach their
destination in a specific timeframe), and the Pharma care option
(an ideal solution to transport pharmaceutical and personal care
products), had a notable evolution.
A relevant milestone for LATAM Cargo Group in 2017 was the
acknowledgement awarded by the International Air Transport
Association (IATA). This prestigious association rewarded
the group’s pharmaceutical service with the CEIV Pharma
certification for meeting the most demanding standards
worldwide that apply to the transportation of these products,
making the company the first airline in the American continent
to be awarded this certificate. Likewise, LATAM Cargo Group was
also awarded the CEIV Pharma certification for the handling
service at its hub in Miami, USA.
the eighth rack level within the warehouse and its chambers;
and the inclusion of a controlled temperature warehouse for
exclusive use by the Pharma care option, increasing availability
to 273 positions in four types of chambers: two at 2-8°C, one
at 15-25°C, and one at -20°C.
AS FOR INFRASTRUCTURE INVESTMENT, IN
LATE APRIL, FAST AIR—LATAM GROUP’S MAIN
IMPORTS WAREHOUSE IN SANTIAGO DE CHILE—
TRANSFERRED ITS FACILITIES TO THE NEW CARGO
AREA IN THE INTERNATIONAL AIRPORT, DUE TO
THE EXPANSION OF THE PASSENGER TERMINAL,
CURRENTLY UNDER EXECUTION.
The new building considers improvements in operations
and flows for cargo clients, enabling LATAM Cargo Group
to deliver a more streamlined and efficient service. Among
the improvements, we should note the increase of around
1,000 rack positions destined to cargo storage (from 3,200
to 4,193); the increase in height positions, from the fifth to
Moreover, in January 2017, LATAM Cargo opened its new
cargo terminal in Fortaleza, Ceará, destined exclusively to the
domestic business, mainly from the north and northeast of
Brazil, and becoming the most modern terminal in the area.
With an investment of around USD$1.2 million, the new
terminal spans 1,687 m2 and offers services that represent
significant progress. Located in the area of the Pinto Martins
International Airport, it has capacity to move around two
thousand tons of cargo per month, translating into a 33%
increase compared to its previous capacity. At this airport, the
Company sends out cargo on over 20 passenger flights per
day and receives another 20. Added to this is the pure cargo
operation, with one weekly frequency.
Committed to the community, during 2017, LATAM Cargo
Group took several steps regarding social responsibility. On
this matter, we should note the “Solidarity Plane” initiative,
OPERATIONS which focuses on carrying essential goods to places struck by
natural disasters. This year, aid was carried to Peru (floods),
Chile (fires), and Puerto Rico (Hurricane Maria). In the latter
case, given the size of the disaster, a process requiring the
coordination of representatives from various teams in the
Group was carried out to implement a non-existent route
between Miami and Puerto Rico as an exception, reallocating
a B767F freighter from its usual route to the affected area.
Last, and as part of the “I Care for My Destination” campaign,
the Company supports the recycling of cardboard, PET, and
aluminum in Easter Island, totaling over 170 tons, equivalent
to one large dump truck per month, and the transfer of
animals for rehabilitation, among others.
LAST, AND AS PART OF THE “I CARE FOR MY
DESTINATION” CAMPAIGN, THE COMPANY
SUPPORTS THE RECYCLING OF CARDBOARD, PET,
AND ALUMINUM IN EASTER ISLAND, TOTALING
OVER 170 TONS, EQUIVALENT TO ONE LARGE
DUMP TRUCK PER MONTH, AND THE TRANSFER OF
ANIMALS FOR REHABILITATION, AMONG OTHERS.
Cargo
93
896
Thousand Tons of Cargo
Airplanes9
Destinations144
OPERATIONS Loyalty Programs
94
During the process of merging the LATAM brand and the
LATAM Pass and LATAM Fidelidade loyalty programs, the
rules and benefits were homogenized and simplified to
significantly improve the travel experience of LATAM Group’s
customers in all the countries where it operates.
Among the first modifications made in this period is the switch
in the LATAM Pass KMS and Multiplus Points earning model
from a distance-based system to a revenue-based one.
THIS MEANS THAT, FROM NOW ON, LATAM
MEMBERS’ KILOMETER ACCUMULATION (UNDER
BOTH PROGRAMS) WILL DEPEND ON THE MEMBER
CATEGORY AND THE DOLLAR VALUE OF THE TICKET.
THUS, THE FOCUS WILL BE ON THE TICKET RATHER
THAN ON THE KILOMETERS TRAVELED, AS WAS THE
CASE IN THE PREVIOUS MODEL.
On the other hand, the Group announced a unique coalition per
country, whereby Multiplus becomes the coalition for Brazil,
Paraguay, Mexico, the US, and Europe, while LATAM Pass
becomes the coalition for South America (except Paraguay
and Brazil) and other countries. Member migration between
coalitions will take place throughout 2018. This new model will
make it possible to deliver a unique experience to members
from a single country. Moreover, the Company announced the
unification of the redemption network so that both coalitions
will have access to LATAM’s entire network, generating more
flight and destination options for its members.
Furthermore, in January 2018, LATAM Pass switched its
program currency from kilometers to miles, whereby 1 LATAM
Pass Mile is now equivalent to 1.6 LATAM Pass KMS. This
change is purely nominative and is in line with the trend of
loyalty programs in the airline industry worldwide. Although
Programs
Over 29 million members
T he goal of frequent flyer programs is to reward the loyalty
of those passengers who make the most use of LATAM
Group’s airlines, through various benefits and prizes;
people must sign up as members to receive these rewards. This
is how airlines can thank their clients for their business, which
makes it a highly valued attribute among passengers.
OPERATIONS Loyalty Programs
95
the earning and redemption equivalences vary, members
retain the match between LATAM Pass KM and Miles (the
value of the currency remains).
As of 2018, the Group will also add new benefits for
the Program’s members, with more options to earn and
redeem points.
ONE OF THESE BENEFITS IS LATAM PASS
MALL, WHICH EXPANDS ON THE RANGE OF
PRODUCTS AND SERVICES CURRENTLY OFFERED,
AND ENABLES MEMBERS TO ACCRUE MILES
THROUGH ONLINE PURCHASES FROM THE
PARTNER BUSINESSES, OR TO REDEEM MILES
FOR NON-AIRLINE PRODUCTS, SUCH AS HOTELS,
TECHNOLOGY, AND GIFT CARDS, AMONG OTHERS.
Likewise, clients will be able to redeem their LATAM Pass Miles
for lodging at over 100 thousand hotels worldwide.
Also, in Spanish-speaking countries, LATAM Pass launched
new earning and redemption partnerships with large
companies such as Shell, Booking.com, Claro, and new
financial products with Santander Chile. This is in line
with the goal to offer an ever more complete and tangible
coalition to our members.
On the other hand, LATAM Fidelidade implemented in Brazil a
decrease in the minimum segments required to qualify for the
Platinum category (from 40 to 24 segments), thus enabling a
significant number of members to start enjoying the benefits
linked to this category.
By the end of 2017, LATAM Group had over 29 million members
registered in its frequent flyer programs—13.4% more than in
2016—divided among LATAM Pass with 14.6 million members
(1.5 million more than a year earlier) and LATAM Fidelidade with
15.1 million members (2.0 million more than in the previous
period). Together, the group’s airlines reported 3.2 million tickets
redeemed—6% more than a year earlier.
14.6
Million members
15.1
Million members
OPERATIONS Properties, Plant and Equipment
96
CHILE
Venue
Our main facilities are located near the international
Comodoro Arturo Merino Benítez Airport. The complex
includes offices, conference rooms and training facilities,
dining rooms and simulation cabins used for crew instruction.
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
International Comodoro Arturo Merino Benítez Airport. These
facilities include our aircraft hangar, warehouses, workshops
and offices, and parking space for parking up to:
Plant and Equipment
30 o r 10
short-range
aircraft
long-range
aircraft
Other facilities
We have a flight training center right beside the International
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 International Comodoro Arturo
Merino Benítez Airport.
OPERATIONS Properties, Plant and Equipment
97
BRAZIL
Can serve up to
Comprises
OTHER LOCATIONS
8
aircraft
simultaneously
22
technical
component-
workshops
Venue
LATAM Airlines Brazil main facilities are located in São Paulo, in
the hangars located in and around the Congonhas Airport. At
the Congonhas Airport, LATAM Airlines Brazil 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 LATAM
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 aeronautical
materials. In addition, LATAM Airlines Brazil has its aircraft
maintenance facilities (MRO) in São Carlos (Brazil).
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. Additionally, during 2015, the Company
opened its first maintenance hangar in Miami, with an area of
6,140 m2 for aircraft maintenance and adjacent infrastructure
(workshop, stores and offices). The project entailed a final
investment of US$ 16.5 million, funded 100% by the company.
Moreover, LATAM’s affiliates keeps lease contracts through
airport concessions, administrative and sale offices, hangars and
areas of maintenance in Argentina, Colombia, Ecuador and Peru.
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. Additionally, in São Paulo,
LATAM Airlines Brazil has subsidiaries’ offices owned by the
group, such as Multiplus and LATAM Travel.
OPERATIONS M A N A-
G E M E N T
2 0 1 7
Committed to take care
that drams reach their
destination.
Industry Environment
99
On the other hand, revenues in the global aviation industry
showed an overall good performance in 2017, driven by 7.6%
increase in passenger traffic—above the average growth
of the last 10 years—and a 0.9% increase in load factor,
which reached an all-time high of 81.4%. However, these
figures were countered by hikes in non-fuel costs, particularly
wages and costs related to the using of airport infrastructure.
Thus, the global industry’s operating result is estimated at
US$62.6 million (below the US$65.2 million achieved in
2016), whereas net profit settled around US$34.5 million (vs.
US$35.3 million in 2016).
ON A LOCAL AND REGIONAL LEVEL, WE
CONTINUED TO SEE A TREND TOWARDS THE
LOW-COST MODEL, WITH GREATER PASSENGER
SEGMENTATION BASED ON CUSTOMERS’
TRAVEL NEEDS, NOT ONLY AMONG EXISTING
CARRIERS, BUT ALSO AMONG NEW PLAYERS
WHO HAVE JUST BEGUN OPERATIONS, OR WHO
ANNOUNCED THEIR ENTRY IN 2017.
Moreover, the trend towards strengthening alliances and
cooperation agreements among the world’s airlines continues,
improving passenger connectivity.
With regard to the various geographic markets, North
American airlines showed better results in terms of profit,
thanks to a stronger economic juncture, which favored both
domestic and international demand, even though the latter was
negatively impacted by strong hurricanes. Moreover, carriers
benefited from their capacity discipline, managing to increase
their load factor to 83.6%, and from ancillary revenues.
Industry
The cargo business recorded its highest
growth since 2010
G lobal economic growth in 2017 was slightly higher
than in 2016, with improvements both in advanced
economies, and in emerging and developing markets.
The latter were driven by a rebound in commodity exports,
which helped economies such as Brazil to recover from the
recession. However, even though these commodity-exporting
economies showed growth in 2017, it was moderate, so they
remain weakened by two consecutive years of recession.
MANAGEMENT 2017 Industry Environment
100
could be mainly explained by strong economic growth
worldwide, which would drive traffic growth above capacity
expansions. Nonetheless, this would be largely countered
by the higher fuel prices expected in 2018, as well as a
sustained increase in unit costs ex-fuel. We must note that
emerging economies, mainly Asia Pacific, Middle East, and
Latin America, will remain the drivers of global traffic growth
in 2018. This trend should remain for the next 20 years, given
the economic growth projections of these regions, as well as
the low penetration of air travel in their countries.
In Europe, the aviation industry’s profit showed a spike
from the previous year, partly because in 2016, growth was
hampered by the various terrorist attacks in the region, but
also given an improvement in passenger traffic (as it was
the second region with the highest growth, just behind Asia
Pacific), together with the highest load factor in the industry
(83.9%). This managed to counter the low yields resulting
from strong competition as a consequence of being an open
aviation area, and due to the high regulation costs.
Asia Pacific was the region with the most growth in terms
of PAX traffic, driven by the large domestic markets of the
region (India, China, and Russia). Overall, Asian airlines
reported higher profit than in 2016, aided by improvements
in the cargo business.
As for Latin America, the economies in recession (Brazil,
Argentina, and Ecuador) showed some recovery in 2017.
Together with their currencies’ appreciation (thanks to stronger
commodity prices), this managed to counter the weaker growth
seen in Chile, Peru, and Colombia. On the other hand, the
aviation industry benefited from traffic growth both in domestic
and international markets (despite the natural disasters
experienced throughout the year). Together with the overall
industry’s sound capacity discipline, this helped to increase the
load factor to 81.8%. Thereby, airlines in the Latin American
industry managed to keep their profits at US$0.7 billion.
AS FOR THE CARGO BUSINESS, TRAFFIC ROSE 9.0%
IN 2017—THE LARGEST EXPANSION SINCE 2010—
DRIVEN BY HIGH DEMAND FOR MANUFACTURED
PRODUCTS, MAINLY FROM EUROPE (WHOSE
CARGO TRAFFIC INCREASED BY 11.8%).
Added to the industry’s capacity discipline, this led to a
recovery in load factor, which settled at 45.5%. On the other
hand, after two consecutive years of declines, the cargo
business in Latin America reported traffic growth (+5.7%)
aided by a recovery in the Brazilian economy.
Given the industry’s current structure, the International Air
Transport Association (IATA) expects better net profits for the
worlds aviation industry in 2018, settling around US$38.4
billion, with an operating margin of 8.1%. This improvement
MANAGEMENT 2017 Regulatory
B elow we provide a brief reference about the important
effects of ae ronautic regulations, free competition and
other type of regulations that ap ply in Chile.
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 governs
civil aviation, the JAC regulates the allocation of domestic 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 EFFECTIVENESS ARE SUBJECT TO THE
CONTINUOUS COMPLIANCE WITH THE STATUTES,
RULES AND REGULATIONS THAT GOVERN THE
AERONAUTIC INDUSTRY, INCLUDING ANY RULE OR
REGULATION TO BE ISSUED 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 industry’s
technical guidelines; which, in turn, have been incorporated into
our country’s laws and regulations by the Chilean authorities.
In the absence of an applicable Chilean standard related to
security or maintenance matters, the DGAC has incorporated
most of OACI’s technical guidelines by way of references. We
are certain to comply with all relevant technical guidelines.
Regulatory Framework
101
ROUTING RIGHTS
National routes
Chilean Airlines are not required to obtain permits to transport
passengers or cargo on domestic routes, but only to comply
with the technical and insurance requirements established by
the DGAC and the JAC, respectively. Nevertheless, there are no
regulatory barriers preventing foreign airlines to create a Chilean
subsidiary company and enter the country’s domestic market via
such subsidiary. On January 18, 2012, Chile’s Transportation
Ministry and Economics Ministry announced that the country
was adopting a unilateral open skies policy. The foregoing was
subsequently confirmed on November 2013 and remains in
effect 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 ESTABLISH 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 operations and financial results.
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
government the right to assign the operation of scheduled
flight services between certain destinations of that country
to one or more of its domestic airlines.
MANAGEMENT 2017 Regulatory Framework
102
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 international 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
Commission. In general terms, according to this plan, we
must ensure that the yields of routes classified as “non-
competitive” 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 reductions
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 acronym)
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 permit
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 Chilean airline
is registered before the DGAC or before another equivalent
entity empowered as supervisor in another country. Every
aircraft must have its own airworthiness certificate; whether
issued by the DGAC or by another equivalent 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 indeed approved our maintenance operations. Only
such maintenance 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
facilities must be certified by the DGAC or by an equivalent
MANAGEMENT 2017 Regulatory Framework
103
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
organizations. Each of Chile’s airlines and airports must submit
before the DGAC an air safety manual describing the safety
procedures that they execute in their daily commercial aviation
operations, 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 applicable
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 International Airport. Airport
Managers manage private airport facilities 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
affect 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
environmental noise regulations to govern aircraft flying
toward and within the country.
The regulation that has been proposed will require such aircraft
to meet specific noise restrictions, which the market nowadays
refers to as Stage 3 Standards.
MOST OF LATAM’S FLEET ALREADY MEETS THE
PROPOSED RESTRICTIONS; 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
Commission, 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 competition 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
resulting 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 TDLC is empowered to impose a variety of sanctions to
Antitrust Law violations, including the termination of contracts
that infringe the Antitrust Law, the dissolution 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 October 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 APPROVED BY
THE FREE COMPETITION TRIBUNAL IN JULY 2005
AND ALSO IN SEPTEMBER 2011.
MANAGEMENT 2017 Regulatory Framework
104
In February 2010, the National Economic Affairs
Investigation Bureau (FNE, in its Spanish Acronym)
completed the investigation 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
Defense Tribunal approved the association between LAN and
TAM, imposing 14 mitigation measures to LATAM, whose
scope and regulation is established in the Resolution, as
summarized below by way of reference:
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
restrictions along the Santiago-Sao Paulo route.
5. To introduce and execute certain amendments into
LATAM’s Self-regulatory Tariff Plan, applicable to its
domestic operations.
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.
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.
2. To extend for a 5-year period its frequent flyer program
to those airlines that operate (or state their interest in
operating) 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).
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 associates
of an alliance other than that to which LATAM belongs.
MANAGEMENT 2017
Regulatory Framework
105
Brazil’s Administrative Council for Economic Defense
(CADE, in its Portuguese acronym) unanimously approved
the association between LAN and TAM at its meeting on
December 14, 2011, subject to the following conditions:
1.
2.
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
between Sao Paulo and Santiago, Chile.
The aforementioned conditions are consistent with the
mitigation measures adopted in Chile by the TDLC.
ADDITIONALLY, THE ASSOCIATION BETWEEN
LAN AND TAM WAS SUBMITTED BEFORE THE
FREE COMPETITION AUTHORITIES OF GERMANY,
ITALY AND SPAIN. ALL THESE JURISDICTIONS
GRANTED THEIR UNCONDITIONAL APPROVAL OF
THIS OPERATION.
8. To adhere to certain restrictions, in their future bidding
contest bids, regarding 3rd, 4th and 5th freedom rights
between Santiago and Lima; and to renounce to four 5th
freedom frequencies to Lima.
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
requiring reciprocity.
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.
11. To adhere to certain guidelines in the granting of incentives
to travel agencies.
12. To temporarily maintain, except in cases of force majeure:
i) at least 12 non-stop round-trip flights per week, directly
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
Santiago-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 party
provides advice to the FNE for a 3-year period in the
supervision of LATAM’s compliance with the Resolution.
MANAGEMENT 2017 Financial
LATAM Group Airlines reported an operating income of
US$714.5 million in 2017—a 25.8% increase compared
to 2016. Operating margin reached 7.0%, translating into
a 1.0 percentage-point increase from the previous year. The
improvement in LATAM’s results was mainly due to a recovery in
unit revenues throughout its business units, countering the hike in
costs resulting from an increase in fuel prices.
Financial Results
106
Revenues totaled US$10.163 billion in 2017—a 6.7% growth
compared to 2016—and the first annual increase in revenues
since the business combination of LAN and TAM. This is mainly
explained by a 7.8% increase in PAX revenues, added to a
0.8% rise in cargo revenues and a 2.1% advance in others.
THIS GROWTH WAS MAINLY DUE TO A 6.7% RISE
IN RASK, GIVEN A 5.9% EXPANSION IN YIELDS
AND A 0.6 PERCENTAGE-POINT ADVANCE IN LOAD
FACTOR, WHICH SETTLED AT 84.8%, COMPARED
THE PREVIOUS YEAR.
In 2017, we recorded improvements in revenues per
ASK across all the passenger business units of the Group
(International, Brazil Domestic, and Spanish Speaking
Countries Domestic). These improvements were boosted
by the development of our business strategy, and capacity
discipline in weakened markets; together with an overall better
economic environment in the markets were we operate, and
the appreciation of local currencies (especially the Brazilian
Real and the Chilean Peso).
As for capacity, it rose 1.1% in 2017, driven by a 3.8%
increase in the international business’ capacity, focused on
strengthening our international hubs from where we have
started to operate new routes, including Santiago-Melbourne
(whose 15-hour duration makes it LATAM’ longest non-
stop flight), countered by a contraction in routes with lower
demand, such as operations between Brazil and the US. On
the other hand, capacity in the Spanish-speaking domestic
markets decreased 0.1%, mainly affected by the Argentinean
and Peruvian markets.
Moreover, during 2017, we continued to adjust the size of
our operations in the Brazilian domestic market, achieving a
3.8% reduction in our supply.
MANAGEMENT 2017 Financial Results
107
THE COST INCREASE IS MAINLY DUE TO
THE 21.1% HIKE IN FUEL PRICES, WHICH
WAS PARTIALLY COUNTERED BY THE COST-
REDUCTION PROGRAM THAT THE COMPANY HAS
BEEN IMPLEMENTING.
Cargo revenues rose to US$1.119 billion, translating into
a 0.8% increase vs. 2016. This recovery is attributed to
a 2.1% hike in cargo yields, added to a 3.2 percentage-
point improvement in load factor compared to 2016, to
settle at 54.9%. These results were seen in the context of
an improvement in the global air cargo market, following
several years of declines, added to the capacity adjustments
that LATAM Cargo Group has been implementing over
the last few years, and to the ongoing improvement of
imports from North America and Europe to Brazil—namely,
electronic appliances and spare parts.
Operating costs in 2017 reached US$9.449 billion—a
5.5% increase compared to 2016—resulting in a 4.4%
advance in the cost per ASK. The cost increase is mainly
due to the 21.1% hike in fuel prices, which was partially
countered by the cost-reduction program that LATAM
Group has been implementing.
Fuel expenses increased 12.7% in 2017, totaling $2.318
billion. The increase is mainly due to the hike in fuel prices,
which was partially countered by a 3.5% reduction in fuel
consumption per ASK, as a result of the fuel efficiency
programs and an increasingly more efficient fleet.
Moreover, in 2017, the Company recognized a US$15.2
million gain from fuel hedges, compared to a US$48.1
million loss in 2016. As for FX hedges, the Company
reported a US$9.9 million loss in this line in 2017, compared
to a US$40.1 million exchange loss in the previous year.
As for non-operating results, the Company reported a non-
cash loss of US$18.7 million in foreign exchange in 2017,
explained mainly by the depreciation of the Brazilian real in
the last quarter of the year, compared to a US$121.7 million
gain in 2016.
Thus, LATAM reported a net gain of US$155.3 million,
attributable to controlling shareholders, compared to a
US$69.2 million gain in 2016. This implies a positive net
margin of 1.5%, translating into a 0.8 percentage-point
increase compared to the net margin reported in 2016.
WAGES AND BENEFITS EXPENSES INCREASED
3.7% IN 2017, DUE TO INFLATION ADJUSTMENTS
(USING 2016 RATES), PARTICULARLY IN BRAZIL,
AND THE APPRECIATION OF LOCAL CURRENCIES.
This was partially countered by a 9.7% reduction in the
average payroll during 2017, in line with the decrease in
domestic offer carried out by LATAM Airlines Brazil, and the
efficiency initiatives that the Group is implementing.
MANAGEMENT 2017 For the twelve month period ended December 31
2017
2016
% Change
Financial Results
108
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
8,494,477
1,119,430
549,889
7,877,715
1,110,625
538,748
10,163,796
9,527,088
-2,023,634
-2,318,816
-252,474
-1,001,625
-1,172,129
-288,662
-579,551
-430,825
-1,951,133
-2,056,643
-269,296
-960,328
-1,077,407
-286,621
-568,979
-366,153
-1,381,546
-1,422,625
-9,449,262
-8,959,185
714,534
7.0%
78,695
-393,286
-25,725
374,218
-173,504
200,714
155,304
45,410
155,304
1.5%
-46.4%
567,903
6.0%
74,949
-416,336
273,874
-163,204
110,670
69,220
41,450
69,220
0.7%
-59.6%
1,716,159
1,528,231
16.9%
16.0%
2,295,710
2,097,210
22.6%
22.0%
7.8%
0.8%
2.1%
6.7%
3.7%
12.7%
-6.2%
4.3%
8.8%
0.7%
1.9%
17.7%
-2.9%
5,5%
25,8%
1.1 pp
5.0%
-5.5%
36.6%
6.3%
81.4%
124.4%
9.6%
124.4%
0.8 pp
13.2 pp
12.3%
0.8 pp.
9.5%
0.6 pp.
47,358
-154.3%
MANAGEMENT 2017 Awards and Acknowledgements
109
and Acknowledgements
Our most outstanding
acknowledgments
I n 2017, LATAM and its aff iliates received
several acknowledgments in various f ields:
Services, S ustainability, and Enter tainment on
B oard, among others. B elow, is a list of the most
outstanding ones:
AWARDS FOR SERVICE
SUSTAINABILITY AWARDS
OTHER AWARDS
World Line Airline Awards-
Skytrax 2017:
The most renowned award in the industry.
• Third place in “Best Airline in
South America” category
• Third place in “Best Service in
South America” category
Global Traveler’s 2017 - Tested
Reader Survey awards
• First place in “Best Airline in
South America” category (fourth
consecutive year)
World Travel Awards 2017
•
Acknowledged as "South America’s
Leading Airline"
Fast Travel IATA
• Platinum Certification
OAG Punctuality League 2018
• Eighth place in the “Top world’s
largest airlines by OTP” of 2017
Dow Jones Sustainability Index 2017:
• DJSI “World” category (fourth
consecutive year)
APEX 2018: “Airline Passenger
Experience”
• “Five Star Global Airline” for its
experience on board
ALAS20 Awards
• Third place in “Leading Company
in Sustainability” category
• Third place in “Leading Company
in Investor Relations” category
Corporate Transparency
Report 2017 - IdN
• First place in “Most Transparent
Company in the Service Sector”
category for open stock companies.
Informe Reporta Chile 2017
• First place in “Accessibility” among
IPSA companies
Harvard Business Review
• Enrique Cueto listed amongst
“The Best-Peforming CEOs in the
World 2017”
Content Marketing Awards 2017
• Vamos/LATAM magazine named
“Best Travel Publication”
Fast Travel IATA
• Platinum Certification
Adrian Awards: Digital Marketing
• First place in “Mobile Marketing”
category
• Second Place in “Email Series”
category
MANAGEMENT 2017
M A N A G E M E N T 2 0 1 7
Material Facts
110
MARCH 15
CHANGES IN MANAGEMENT
In accordance with Articles 9 and the second paragraph
of Article 10 of the Securities Market Law, and pursuant
to General Regulation N° 30 of the Commissioner, the
undersigned, duly authorized, reports the following MATERIAL
FACT from LATAM Airlines Group S.A. ("LATAM" or the
“Company”), Securities Registry No. 306:
AS PART OF LATAM’S REORGANIZATION IN
SEVERAL DIVISIONS OF ITS BUSINESS AND WITH
THE OBJECTIVE OF PREPARING THE ORGANIZATION
FOR FUTURE CHALLENGES, THE COMPANY
ANNOUNCES THAT MR. IGNACIO JAVIER CUETO
PLAZA, CEO OF LAN AIRLINES S.A., WILL LEAVE
THE COMPANY IN APRIL 15, 2017.
APRIL 05
DEFINITIVE DIVIDEND
DISTRIBUTION PROPOSAL
In accordance with the provisions of Circular No. 660, dated
October 22, 1986, of your Superintendency, and duly
authorized, I comply with informing this Superintendency,
as a Material Fact, that in meeting held on April 4, 2017,
the Board of Directors resolved to propose to the Ordinary
Shareholders' Meeting, summoned for April 27, 2017, the
distribution of Dividend No. 48, Definitive, up to complete the
30% of net income for the year 2016, that is, the equivalent
amount in Chilean pesos of USD 20,766,119.39, which
means to distribute a dividend of USD 0.0342444854 per
share, payable on Thursday, May 18, 2017, in its equivalent
in Chilean pesos according to the exchange rate "observed",
published in the Official Journal on the fifth business day
prior to the distribution day, that is, on May 12, 2017. In the
event that the dividend is approved in the terms proposed by
the Board of Directors, will be entitled to receive the dividend
INDEX
Facts
JANUARY 24
CHANGES IN MANAGEMENT
In accordance with Articles 9 and the second paragraph
of Article 10 of the Securities Market Law, and pursuant
to General Regulation N° 30 of the Commissioner, the
undersigned, duly authorized, reports the following MATERIAL
FACT from LATAM Airlines Group S.A. ("LATAM" or the
“Company”), Securities Registry No. 306:
Today the Company’s Board of Directors decided to appoint
Mr. Giles Agutter as director in the vacant position left by Mr.
Ricardo Caballero following his resignation last June; a position
that had been unfilled to date.
Notwithstanding this appointment, and as reported at the
time of Mr. Caballero's resignation, the Company's Board of
Directors must be completely renewed at the next LATAM
Regular Shareholders' Meeting.
the shareholders registered at the Shareholders' Registry at
midnight on May 12, 2017.
APRIL 27
CHANGES IN MANAGEMENT
APRIL 27
DEFINITIVE DIVIDEND
M A N A G E M E N T 2 0 1 7
Material Facts
111
As provided in Articles 9 and 10 of Securities Market Law
18045 and in General Rule #30 of the Commission of 1989,
please be advised that at an Ordinary Shareholders Meeting
(“Meeting”) of LATAM Airlines Group S.A. (“LATAM”) held on
April 27, 2017, LATAM’s shareholders elected the members of
LATAM’s Board of Directors, who will hold office for two years.
The following individuals were elected Directors at the Meeting:
1. Antonio Luiz Pizarro Manzo;
2. Carlos Heller Solari;
3. Nicolás Eblen Hirmas;
4. Giles Edward Agutter;
5. Henri Philippe Reichstul;
6. Ignacio Cueto Plaza;
7. Juan José Cueto Plaza;
8. Georges de Bourguignon Arndt; and
9. Eduardo Novoa Castellón
The Directors named in numbers 8 and 9 above were elected
as independent directors, according to article 50-bis of
Companies Law No. 18.046 of the Republic of Chile.
APRIL 6
PLACEMENT OF SECURITIES IN
INTERNATIONAL AND/OR DOMESTIC MARKETS
In accordance with the provisions of Articles 9 and 10 of Law
No. 18,045 on Securities Market and General Rule No. 30 of
the Superintendence under its responsibility, the undersigned,
duly empowered for this purpose, reports as a Material Fact,
the following:
(a) On this date, LATAM Finance Limited (the "Issuer"),
an exempted company incorporated in the Cayman
Islands with limited liability and a wholly owned subsidiary
of LATAM Airlines Group S.A. (“LATAM”), has agreed to
issue and place on the international market, pursuant to
Rule 144-A and Regulation S of the securities laws of the
United States of America, senior unsecured notes of US $
700,000,000 aggregate principal amount, with maturity in
the year 2024, at an initial annual interest rate of 6.875%
(the “144-A Notes” or the “Issuance”); and
(b) The Issue and placement of the 144-A Notes shall be
intended to finance general corporate purposes of LATAM.
In accordance with what is established in Circular No. 988 of
the Superintendence of Securities and Insurance, we inform
you that at this moment it is not possible to quantify the
effects that this operation will have on the results of LATAM, in
the event of materialization.
In accordance with articles 9 and 10 under the Securities
Market Law N°18,045, and as established under the
Superintendence’s General Norm No. 30 of 1989, I hereby
inform you as material information that at the Ordinary
Shareholders Meeting (the “Meeting”) of LATAM Airlines
Group S.A. (“ LATAM ”) held today, April 27 th of 2017, the
shareholders of LATAM approved the distribution of the final
dividend proposed by the Board in the session held last April 4
th , which consists in distributing 30% of the earnings obtained
in 2016, equivalent to US$20.766.119,39.
As required by the Superintendence’s Resolution N°
660 of 1986, the Exhibit 1 -that explains in detail the
aforementioned final dividend- is attached hereto.
MAY 9
OTHERS
In accordance with Article 9 and the second paragraph
of Article 10 of Law No. 18,045 on the Securities Market
and with Section II, numeral 2.2 of the Superintendency’s
General Rule No. 30 of 1989, and as duly authorized by the
Board of the Directors (the “Board of Directors”) of LATAM
Airlines Group S.A. (“LATAM”), I inform you as a material
fact that, at a meeting of the Board of Directors held today,
the following was agreed:
1. To designate the director Mr. Ignacio Cueto Plaza as
president of the Board of Directors of LATAM and the
director Mr. Carlos Heller Solari as vice-president of the
Board of Directors of LATAM.
INDEX
M A N A G E M E N T 2 0 1 7
Material Facts
112
2. To designate the directors Mr. Georges de Bourguignon
Arndt, Mr. Eduardo Novoa Castellón and Mr. Nicolás Eblen
Hirmas as members of the Audit Committee of LATAM,
all of them independent directors under Rule 10A-3 of the
U.S. Securities Exchange Act of 1934 and the first two
independent directors under Chilean Corporate Law.
JULY 28
OTHERS
In accordance with the provisions of Articles 9 and 10 of Law
No. 18,045 on Securities Market, and in General Rule No. 30
of the Securities and Insurance Commission (the "SVS"), the
undersigned, duly authorized for the purpose as agreed at
the extraordinary session of Directory No. 128 (the "Board
Session") of LATAM Airlines Group S.A. ("LATAM") held on
April 21, 2017, reports the following material fact regarding
LATAM, its businesses, its public offering values or the offer of
them, as applicable, the following:
On this date TAM Capital 3 Inc., a company indirectly
controlled by TAM S.A. through its subsidiary TAM Linhas
Aereas S.A., which consolidates its financial statements with
LATAM, has announced the total anticipated redemption of
the bonds placed abroad on June 3, 2011, for an amount of
500 million dollars of the United States of America at a rate
of 8.375% and with a maturity date of June 3, 2021.
Also, as agreed at the Board Session, LATAM will place,
within the next few days in the local market (Santiago
Stock Exchange), the Series A Bonds (BLATM-A), Series B
(BLATM- B), Series C (BLATM-C) and Series D (BLATM-D),
which correspond to the first bond issuance charged to the
line registered in the Securities Registry of the SVS under
the number N° 862 for a total amount of UF 9,000,000.
The total amount of the Series A Bond will be UF 2,500,000.
The total amount of the Series B Bond will be UF 2,500,000.
The total amount of the Series C Bond will be UF 1,850,000
and the total amount of the Series D Bond will be UF
1,850,000, totaling UF 8,700,000.
AUGUST 17
OTHERS
THE SERIES A BONDS WILL HAVE A MATURITY
DATE OF JUNE 1, 2022 AND AN INTEREST RATE OF
5.25% PER YEAR. THE SERIES B BONDS WILL HAVE
A MATURITY DATE OF JANUARY 1, 2028 AND AN
INTEREST RATE OF 5.75% PER YEAR. THE SERIES C
BONDS WILL HAVE A MATURITY DATE OF JUNE 1,
2022 AND AN INTEREST RATE OF 5.25% PER YEAR,
AND THE SERIES D BONDS WILL HAVE A MATURITY
DATE OF JANUARY 1, 2028 AND AN INTEREST RATE
OF 5.75% % PER YEAR.
The proceeds from the placement of the Series A, Series
B, Series C and Series D Bonds will be used entirely for the
partial financing of the early redemption of the total of the
TAM Capital 3 Inc. bonds described above.
In accordance with the provisions of Article 9 and the second
paragraph of Article 10 of Law No. 18,045 on Securities
Market, and in General Rule No. 30 of the Securities and
Insurance Commission (the "SVS"), the undersigned, duly
authorized for the purpose as agreed at the extraordinary
Meeting of the Board of Directors No. 128 (the "Board
Meeting") of LATAM Airlines Group S.A. ("LATAM") held on
April 21, 2017, reports the following material fact regarding
LATAM, its businesses, its public offering values or the offer of
them, as applicable, the following:
On this date, and as agreed at the Board Meeting, LATAM
placed in the local market (Santiago Stock Exchange), the
Series A Bonds (BLATM-A), Series B Bonds (BLATM- B),
Series C Bonds (BLATM-C) and Series D Bonds (BLATM-D),
becoming the first bond issuance made under the bond facility
registered in the Securities Registry of the SVS under the
number No. 862 for a total amount of UF 9,000,000.
INDEX
The total amount placed of the Series A Bond was UF
2,500,000. The total amount placed of the Series B Bond was
UF 2,500,000. The total amount placed of the Series C Bond
was UF 1,850,000 and the total amount placed of the Series D
Bond was UF 1,850,000, totaling UF 8,700,000.
The Series A Bonds have a maturity date of June 1, 2022 and
an interest rate of 5.25% per year. The Series B Bonds have
a maturity date of January 1, 2028 and an interest rate of
5.75% per year. The Series C Bonds have a maturity date of
June 1, 2022 and an interest rate of 5.25% per year, and the
Series D Bonds have a maturity date of January 1, 2028 and
an interest rate of 5.75% % per year.
THE PROCEEDS FROM THE PLACEMENT OF
THE SERIES A, SERIES B, SERIES C AND SERIES
D BONDS WILL BE USED ENTIRELY FOR THE
PARTIAL FINANCING OF THE TOTAL EARLY
REDEMPTION OF THE TAM CAPITAL 3 INC. BONDS,
AS DESCRIBED IN THE MATERIAL FACT PUBLISHED
IN THE SVS IN JULY 28, 2017.
OCTOBER 5
OTHERS
In accordance with the provisions of Article 9 and 10 of
the Securities Market Law and General Rule No. 30, duly
authorized, the following material fact regarding LATAM
Airlines Group S.A. (“LATAM Airlines”), Securities Registration
No. 306, reports the following:
• On October 4, 2017, LATAM Airlines and its subsidiaries
Inversiones LAN S.A. and LAN Pax Group S.A. signed a
Shares Purchase Agreement in which they agreed to sell
100% of the shares issued by Andes Aiport Services S.A.
("Andes"), the subsidiary responsible for its ground handling
business at the Santiago airport to the Spanish companies
Acciona Airport Services S.A. and Acciona Aeropuertos,
S.L. (the "Sale").
M A N A G E M E N T 2 0 1 7
Material Facts
113
• The purchase price is the amount of $24,300 million Chilean
pesos, which may be adjusted according to variations in net
debt and working capital at the date of closing.
• Closing is subject to the condition that Andes implements
a capital increase to be subscribed by LATAM Airlines, in
order to concentrate the assets of the ground handling
business in Andes. In addition, closing is subject to prior
approval by the Chilean competition authority (Fiscalía
Nacional Económica).
• Together with the Sale, LATAM Airlines and its aviation
subsidiaries will sign an agreement with Andes to provide
ground handling services at the Santiago airport for a
period of five years.
It is estimated that closing will take place within the
fourth quarter of 2017, and the effect on results will be of
approximately US$20 million profit.
INDEX
Stock Market Information
114
Stock Market
D uring 2017, the local stock of LATAM Airlines Group
showed a positive return of 56.4%. Likewise, its ADR
(American Depositary Receipts) showed a positive
return of 69.9%. As of December 31, 2017, the Company’s
stock market capitalization amounted to US$ 8,429.1 million.
Throughout all of 2017, the return of LATAM Airlines Group’s
stock was higher than that of the IPSA (Select Share Price
Index), an index that showed a positive return of 34.1% in the
same period. With respect to the trading of the stock in the
Santiago Stock Exchange, in 2017 the LATAM Airlines Group
stock had a market presence of 100%.
VOLUMES TRADED PER QUARTER LOCAL SHARE
(SANTIAGO STOCK EXCHANGE, SSE)
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Tercer Trimestre
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of shares traded
Average price (CLP)
Total amount (CLP)
31,493,741
39,247,595
33,931,237
25,027,442
28,689,255
22,564,404
64,835,131
27,691,478
43,655,851
30,259,560
29,094,196
37,823,823
6,222
5,328
3,861
3,825
4,073
4,492
5,463
5,975
6,655
8,035
7,965
8,498
195,967,557,400
209,103,806,200
131,020,733,700
95,732,011,700
116,838,645,700
101,366,302,500
354,183,531,700
165,468,048,100
284,991,986,800
240,451,798,500
234,898,104,000
320,108,505,000
MANAGEMENT 2017
Stock Market Information
115
Local Share (CLP)
IPSA Index
Local Share (CLP)
ADR (USD)
VOLUMES TRADED PER QUARTER ADR (NEW YORK STOCK EXCHANGE, NYSE)
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
N° of shares traded
Average price (USD)
Total amount (USD)
50,592,157
58,290,119
40,747,698
27,744,021
32,739,012
33,327,301
42,231,494
30,197,724
24,889,893
32,015,881
27,902,087
33,450,067
10.2
8.5
5.8
5.5
5.8
6.6
8.2
8.9
10.1
12.1
12.4
13.4
493,490,843
509,156,817
233,360,093
152,266,039
191,001,755
220,695,139
350,640,203
270,233,009
254,166,511
384,720,373
347,933,436
446,780,362
MANAGEMENT 2017
Risk Factors
116
RISK FACTORS RELATING
TO OUR COMPANY
LATAM does not control the voting shares or board of
directors 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 December 31, 2017, the
ownership structure of TAM is as follows:
• Holdco I owns 100% of the TAM common shares
previously outstanding;
» the Amaro family (the “Amaro Group”) own
approximately 51% of the outstanding Holdco I
voting shares through TEP Chile S.A. (“TEP Chile”,
a Chilean entity wholly owned by the TAM
Controlling Shareholders) and LATAM 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 as well as approximately
49% of the outstanding Holdco I voting shares; and
• LATAM owns 100% of the TAM preferred shares
previously outstanding.
As a result of this ownership structure:
• The Amaro Group retains 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 governance
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, entering
into acquisitions or business collaborations, amending or
approving budgets, business plans, financial statements and
factors
T he following important factors, and those important
factors 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 particular, as we are a non-U.S. company, there are risks
associated 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 consider all of
the information contained in this document, including the
following risk factors.
MANAGEMENT 2017
Risk Factors
117
accounting policies, incurring indebtedness, encumbering
assets, entering into certain agreements, making certain
investments, modifying rights or claims, entering into
settlements, appointing executives, creating security
interests, issuing, redeeming or repurchasing securities and
voting on matters as a shareholder of affiliates of TAM.
Actions requiring 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/liquidation, corporate reorganization, payment of
dividends, issuance of securities, disposal or encumbrance of
certain assets, creation of security interests or entering into
guarantees and agreements with related parties.
OUR ASSETS INCLUDE A SIGNIFICANT
AMOUNT OF GOODWILL.
Our assets included US$2,672.6 million of goodwill as of
December 31, 2017. Under IFRS, goodwill is subject to an annual
impairment test and may be required to be tested more frequently
if events or circumstances indicate a potential impairment. In 2017,
mainly as a result of the depreciation of the Brazilian real against
the U.S. dollar during 2017, the value of our goodwill decreased
by 1.4% as compared with 2016. Any impairment could result in
the recognition of a significant charge to earnings in our statement
of income, which could materially and adversely impact our
consolidated results for the period in which the impairment occurs.
A FAILURE TO SUCCESSFULLY IMPLEMENT
OUR STRATEGY OR A FAILURE 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
becoming one of the most admired 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 efficiencies 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 domestic operations) to address the changing
dynamics of customers 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 increasing revenues from ancillary
activities. In connection with these efforts, the Company is
implementing a series of initiatives to reduce cost per ASK
in all its domestic operations as well as developing new
ancillary revenue initiatives.
Difficulties in implementing our strategy may adversely
affect 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 continued
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 transfer 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 customer preferred carrier and may
adversely affect our business and results of operations and the
market value of our ADSs and common shares.
MANAGEMENT 2017 Risk Factors
118
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
or points earned with either LAN or TAM interchangeably.
During 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 identity
(LATAM) and the evolution of the programs, which enhances
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 FLUCTUATIONS.
We prepare and present our consolidated financial
statements 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 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 significantly in the future.
Changes in Chilean, Brazilian and other governmental
economic policies affecting foreign exchange rates could also
adversely affect our business, financial condition, results
of operations and the return to our shareholders on their
common 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
RELATIONSHIPS TERMINATES.
We maintain a number of alliances and other commercial
relationships 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 offer 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.
Also, technical and operational problems with the airport
infrastructure of cities in which we have a focus may have a
material adverse effect on us.
Our business depends upon our access to key routes and
airports. Bilateral aviation agreements between countries,
open skies laws and local aviation approvals frequently involve
political and other considerations outside of our control. 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
markets or under bilateral agreements; or
• the inability to maintain our existing slots and obtain
additional slots.
We operate numerous international routes subject to bilateral
agreements, as well as domestic flights within Chile, Peru,
Brazil, Argentina, Ecuador and Colombia, subject to local route
and airport access approvals.
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
modification, suspension or revocation of one or more bilateral
agreements 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,
MANAGEMENT 2017 Risk Factors
119
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 exporters,
is concentrated in a small number of product categories,
such as exports of fish, sea products and fruits from Chile,
asparagus from Peru and fresh flowers from Ecuador and
Colombia. Events that adversely affect the production, trade
or demand for these goods may adversely affect the volume
of goods that we transport and may have a significant impact
on our results of operations. Future trade protection measures
may have an impact in cargo traffic volumes and adversely
affect our financial results. Some of our cargo products are
sensitive to foreign exchange rates and, therefore, traffic
volumes could be impacted by the appreciation or depreciation
of local currencies.
OUR OPERATIONS ARE SUBJECT TO FLUCTUATIONS
IN THE SUPPLY AND COST OF JET FUEL, WHICH
COULD ADVERSELY IMPACT OUR BUSINESS.
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 24.5% of our
operating expenses in 2017. Both the cost and availability of fuel
are subject to many economic and political factors and events
that we can neither control nor predict, including international
political and economic circumstances such as the political
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 material adverse effect on our business, financial
condition and results of operations.
Moreover, our operations and growth strategy are dependent
on the facilities and infrastructure of key airports, including
Santiago’s International Airport, São Paulo’s Guarulhos and
Congonhas International Airports, Brasilia’s International
Airport and Lima’s Jorge Chavez International Airport.
Santiago’s Comodoro Arturo Merino Benítez International Airport
is currently facing an important expansion, which is expected to
be completed by 2020. If the expansion is not carried out timely,
this will likely reduce significantly our operations and adversely
affect our ability to remain competitive.
One of the major operational risks we face on a daily basis
at Lima’s Jorge Chavez International Airport is the limited
number of parking positions. Additionally, the indoor
infrastructure of the airport limits our ability to manage
connections and launch new flights due to the lack of gates
and increasing security and immigration controls. We expect
that for the next few years, Lima’s airport’s capacity will
remain as it is today, limiting our ability to grow and affecting
our competitiveness in the country and in the region.
Moreover, Lima’s airport will undergo an expansion, as
there are plans to expand the airport’s capacity with a
second runway, more parking positions and a new terminal
for passengers. Therefore, we expect that for the next few
years, Lima’s airport’s capacity will remain as it is today,
limiting our ability to grow and affecting our competitiveness
in the country and in the region.
Brazilian airports, such as the Brasília, and São Paulo
(Guarulhos) international airports, have limited the number of
slots per day due to infrastructural limitations. Any condition
that would prevent or delay our access to airports or routes
that are vital to our strategy, or our inability to maintain our
existing slots and obtain additional slots, could materially
adversely affect our operations.
MANAGEMENT 2017 instability in major oil-exporting countries. Any future fuel supply
shortage (for example, as a result of production curtailments
by the Organization of the Petroleum Exporting Countries, or
“OPEC”), a disruption of oil imports, supply disruptions resulting
from severe weather or natural disasters, the continued unrest in
the Middle East or other events could result in higher fuel prices
or further reductions in scheduled airline services. We cannot
ensure that we would be able to offset any increases in the price
of fuel by increasing our fares. In addition, lower fuel prices may
result in lower fares through the reduction or elimination of fuel
surcharges. 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.
WE RELY ON MAINTAINING A HIGH AIRCRAFT
UTILIZATION RATE TO INCREASE 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
aircraft utilization rate, which measures the number of hours
we use our aircraft per day. High daily aircraft utilization
allows us to maximize the amount of revenue we generate
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 different
factors that are beyond our control, including air traffic and
airport congestion, adverse weather conditions, unanticipated
maintenance and delays by third-party service providers
relating 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 and have a financial
impact on our results.
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
BECOME 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, 2017, LATAM Airlines
Group has a fleet of 235 Airbus and 80 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
directives restricting or prohibiting the use of our Airbus or
Boeing aircraft, or requiring time-consuming inspections
and maintenance;
• adverse public perception of a manufacturer as a result
of safety concerns, negative publicity or other problems,
whether real or perceived, in the event of an accident; or
• delays between the time we realize the need for new
aircraft and the time it takes us to arrange for Airbus and
Boeing or for a third-party provider to deliver this aircraft.
The occurrence of any one or more of these factors could
restrict our ability to use aircraft to generate profits, respond
to increased demands, or could otherwise limit our operations
and adversely affect our business.
Risk Factors
120
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
operating leases. Our operating leases typically run from three
to 12 years from the date of delivery. We may face more
competition for, or a limited supply of, leased aircraft, making
it difficult 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 SERVICE 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
aircraft capital requirements and may require additional
financing 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. Higher 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, creditors’
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
markets may limit the availability of funding at particular
times or increase its costs, which could adversely affect our
MANAGEMENT 2017
Risk Factors
121
profitability, our competitive position and result in lower net
interest 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 INTEREST 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, principally
in relation to the U.S. dollar London Interbank Offer Rate
(“LIBOR”). Many of our financial leases are denominated in
U.S. dollars and bear interest at a floating rate. 36.9% of our
outstanding consolidated debt as of December 31, 2017 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 COVERAGE 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 significant decreases of insurance coverage, as occurred
after the September 11, 2001 terrorist attacks. As a result,
further increases in insurance costs or reductions in available
insurance coverage could have an adverse impact on our
financial results and results of operations and increases the
risk that we experience uncovered losses.
PROBLEMS WITH AIR TRAFFIC CONTROL
SYSTEMS OR OTHER TECHNICAL FAILURES COULD
INTERRUPT OUR OPERATIONS AND HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our operations, including our ability to deliver customer service,
are dependent on the effective operation of our equipment,
including our aircraft, maintenance systems and reservation
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 operate. Equipment
failures, personnel shortages, air traffic control 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, aircraft
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 suppliers, or
adverse perception by the public that would result unscheduled
maintenance requirements, in customer avoidance or in actions
MANAGEMENT 2017
Risk Factors
122
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 adversely
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 providers
to adequately perform their service obligations, or other
interruptions of services, may reduce our revenues and
increase 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.
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
systems hosted internally at our data centers or externally
at third-party locations, or large-scale interruption in
technology infrastructure we depend on, such as power,
telecommunications or the internet, may disrupt our
technology network with potential impact on our operations.
by the aviation authorities resulting in an inability to operate our
aircraft. During the year 2017, LATAM Airlines’s main suppliers
were aircraft manufacturers Airbus and Boeing.
In addition to Airbus and Boeing, LATAM Airlines has a number
of other suppliers, primarily related to aircraft accessories,
spare parts, and components, including Pratt & Whitney, MTU
Maintenance, Rolls-Royce, and Pratt and Whitney Canada.
As of February 9, 2018, Airbus has been experiencing
difficulties in the delivery of A320neo aircraft worldwide
which we understand is stated to be due to problems with the
aircraft’s Pratt & Whitney engines. We are currently expecting
delivery of seven A320neo and 2 A321neo aircraft during
2018, and any delays in the delivery of theses could adversely
affect our operations. In addition, we currently have four
A320neo aircraft in our fleet, and problems associated with the
lack of availability of these engines could potentially prevent
these aircrafts from remaining operational.
We understand that Rolls Royce is experiencing problems
with the availability of Rolls Royce Trent 1000 engines in
connection with engine maintenance programs, affecting our
Boeing 787 aircraft and potentially our A350 aircraft. Any
prolonged problems, could adversely affect our operations.
OUR BUSINESS RELIES EXTENSIVELY ON THIRD-
PARTY SERVICE PROVIDERS. FAILURE OF
THESE PARTIES TO PERFORM AS EXPECTED, OR
INTERRUPTIONS IN OUR RELATIONSHIPS WITH
THESE PROVIDERS OR THEIR PROVISION OF
SERVICES TO US, COULD HAVE AN ADVERSE
EFFECT ON OUR FINANCIAL POSITION AND
RESULTS OF OPERATIONS.
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,
operation 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 various 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 expected service performance.
Any of these third-party service providers, however,
may materially fail to meet their Wservice performance
MANAGEMENT 2017 Our technology systems and related data may also be
vulnerable to a variety of sources of interruption, including
natural disasters, terrorist attacks, telecommunications
failures, computer viruses, hackers and other security issues.
These systems include our computerized airline reservation
system, flight operations system, telecommunications
systems, website, maintenance systems, check-in kiosks, in-
flight entertainment systems and data centers.
In addition, as a part of our ordinary business operations,
we collect and store sensitive data, including personal
information of our passengers and employees and
information 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 information security. The
compromise of our technology systems resulting in the loss,
disclosure, misappropriation of, or access to, customers’,
employees’ or business partners’ information could result in
legal claims or proceedings, liability or regulatory penalties
under laws protecting the privacy of personal information,
disruption to our operations and damage to our reputation,
any or all of which could adversely affect our business.
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 (21.4% in 2017) and at times in our
operating 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.
Risk Factors
123
OUR BUSINESS MAY EXPERIENCE ADVERSE
CONSEQUENCES IF WE ARE UNABLE TO REACH
SATISFACTORY COLLECTIVE BARGAINING
AGREEMENTS WITH OUR UNIONIZED EMPLOYEES.
As of December 31, 2017, approximately 75% of LATAM
Group’s employees, including administrative personnel, cabin
crew, flight attendants, pilots and maintenance technicians
are members of unions and have contracts and collective
bargaining agreements which expire on a regular basis. Our
business, financial condition and results of operations could be
materially adversely 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.
COLLECTIVE ACTION BY EMPLOYEES COULD
CAUSE OPERATING DISRUPTIONS 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.
A strike, work interruption or stoppage or any prolonged
dispute with our employees who are represented by any of
these unions could have an adverse impact on our operations.
These risks are typically exacerbated during periods of
renegotiation with the unions, which typically occurs every
two to four years depending on the jurisdiction and the union.
Any renegotiated collective bargaining agreement could
feature significant wage increases and a consequent increase
in our operating expenses. Any failure to reach an agreement
during negotiations with unions may require us to enter
into arbitration proceedings, use financial and management
resources, and potentially agree to terms that are less
MANAGEMENT 2017 Risk Factors
124
favorable to us than our existing agreements. Employees
who are not currently members of unions may also form new
unions that may seek further wage increases or benefits.
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.
We cannot assure you that we will be able to recruit, train and
retain the managers, pilots, technicians and other qualified
employees that we need to continue our current operations
or replace departing employees. An increase in turnover or
failure to recruit, train and retain qualified employees at a
reasonable cost could materially adversely affect our business,
financial condition, and results of operations.
RISKS RELATED TO THE AIRLINE
INDUSTRY AND THE COUNTRIES
IN WHICH WE OPERATE
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 BUSINESS 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
economic growth in Chile, recession in Brazil and Argentina
and poor economic performance in certain emerging market
countries in which we operate. The occurrence of similar
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
depend heavily on economic conditions in the region.
Any of the following factors could adversely affect our business,
financial condition and results of operations in the countries in
which we operate:
• changes in economic or other governmental policies;
• changes in regulatory, legal or administrative practices;
• weak economic performance, including, but not limited to, a
slowdown in the Brazilian economy and political instability 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 markets in which we operate. Sustained
weak demand may adversely impact our revenues, results of
operations or financial condition.
MANAGEMENT 2017 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. Such increases could have an adverse effect on our
financial condition and results of operations.
Certain airports that we serve (or that we plan to serve in the
future) are subject to capacity constraints and impose various
restrictions, including slot restrictions during certain periods
of the day and limits on aircraft noise levels. We cannot be
certain that we will be able to obtain a sufficient number
of slots, gates and other facilities at airports to expand our
services in line with our growth strategy. It is also possible
that airports not currently subject to capacity constraints may
become so in the future. In addition, an airline must use its
slots on a regular and timely basis or risk having those slots
re-allocated to others. Where slots or other airport resources
are not available or their availability is restricted in some
way, we may have to amend our schedules, change routes or
reduce aircraft utilization. Any of these alternatives could have
an adverse financial impact on our operations.
We cannot ensure that airports at which there are no such
restrictions may not implement restrictions in the future or
that, where such restrictions exist, they may not become more
onerous. Such restrictions may limit our ability to continue to
provide or to increase services at such airports.
OUR BUSINESS IS HIGHLY REGULATED AND
CHANGES IN THE REGULATORY ENVIRONMENT
IN THE COUNTRIES IN WHICH WE OPERATE MAY
ADVERSELY AFFECT OUR BUSINESS AND RESULTS
OF OPERATIONS.
Risk Factors
125
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
segmentation profit maximization techniques (“passenger
revenue management”) and adjust prices to reflect cost
pressures. 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
governmental authorizations or our failure to comply with
applicable regulations, may adversely affect our business and
results of operations.
OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND THE PRICE OF PREFERRED
SHARES AND ADSS MAY BE ADVERSELY AFFECTED
BY CHANGES IN POLICY OR REGULATIONS AT THE
FEDERAL, STATE OR MUNICIPAL LEVEL IN THE
COUNTRIES IN WHICH WE OPERATE, INVOLVING
OR AFFECTING FACTORS SUCH AS:
• interest rates;
• currency fluctuations;
• monetary policies;
• inflation;
• liquidity of capital and lending markets;
• tax and social security policies;
• labor regulations;
• energy and water shortages and rationing; and
• other political, social and economic developments in
or affecting Brazil, Chile, Peru, and the United States,
among others.
For example, the Brazilian federal government has frequently
intervened in the domestic economy and made drastic changes
in policy and regulations to control inflation and affect other
policies and regulations. This required the federal government to
increase interest rates, change taxes and social security policies,
implement price controls, currency exchange and remittance
controls, devaluations, capital controls and limits on imports.
An adverse economic environment, whether global, regional or
in a particular country, could result in a reduction in passenger
traffic, as well as a reduction in our cargo business, and could
also impact our ability to raise fares, which in turn would
materially and negatively affect our financial condition and
results of operations.
WE ARE EXPOSED TO INCREASES IN LANDING
FEES AND OTHER AIRPORT SERVICE CHARGES
THAT COULD ADVERSELY AFFECT OUR MARGIN
AND COMPETITIVE POSITION.
Also, it cannot be assured that in the future we will have access
to adequate facilities and landing rights necessary to achieve
our expansion plans. We must pay fees to airport operators
for the use of their facilities. Any substantial increase in
airport charges, including at Guarulhos International Airport
in São Paulo, Jorge Chavez International Airport in Lima or
Comodoro Arturo Merino Benitez International Airport in
Santiago, could have a material adverse impact on our results
of operations. Passenger taxes and airport charges have
MANAGEMENT 2017 Risk Factors
126
• 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
incident 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, or by other flight operators, 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,
or due to aperception of increased risk in the industry related
to concerns about war or terrorist attacks.
HIGH LEVELS OF COMPETITION IN THE AIRLINE
INDUSTRY, SUCH AS THE PRESENCE OF LOW-COST
CARRIERS IN THE DOMESTIC MARKETS IN WHICH
WE OPERATE, MAY ADVERSELY AFFECT OUR
LEVEL OF OPERATIONS.
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
competitors into the markets in which we operate.
Airlines compete primarily over fare levels, frequency and
dependability of service, brand recognition, passenger
amenities (such as frequent flyer programs) and the
availability and convenience of other passenger or cargo
services. New and existing airlines (and companies providing
ground cargo or passenger transportation) 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 effort to gain greater market share.
Low-cost carriers have an important impact in the industry’s
revenues given their low unit costs. Lower costs allow low-
Uncertainty over whether the Brazilian federal government
will implement changes in policy or regulation affecting these
or other factors may contribute to economic uncertainty in
Brazil and to heightened volatility in the Brazilian securities
markets and securities issued abroad by Brazilian companies.
These and other developments in the Brazilian economy
and governmental policies may adversely affect us and our
business and results of operations and may adversely affect
the trading price of our preferred shares and ADSs.
We are also subject to international bilateral air transport
agreements that provide for the exchange of air traffic rights
between the countries where we operate, and we must obtain
permission from the applicable foreign governments to provide
service to foreign destinations. There can be no assurance that
such existing bilateral agreements will continue, or that we will
be able to obtain more route rights under those agreements to
accommodate our future expansion plans.
Any modification, suspension or revocation of one or more
bilateral agreements could have a material adverse effect on
our business, financial condition and results of operations. The
suspension of our permits to operate to certain airports or
destinations, the inability for us to obtain favorable take-off
and landing authorizations at certain high-density airports or
the imposition of other sanctions could also have a negative
impact on our business. We cannot be certain that a change
in a foreign government’s administration of current laws and
regulations or the adoption of new laws and regulations will
not have a material adverse effect on our business, financial
condition 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;
MANAGEMENT 2017
cost carriers to offer inexpensive fares which, in turn, allow
price sensitive customers to fly or to shift from large to low
cost carriers. In past years we have seen more interest in the
development of the low-cost model throughout Latin America.
For example, in the Chilean domestic market, Sky Airlines, our
main competitor, has been migrating to a low-cost model since
2015, while in July 2017, JetSmart, a new low-cost airline,
started operations. In the Peruvian domestic market, VivaAir
Peru, a new low-cost airline, started operations in May 2017. In
Colombia, low-cost competitor VivaColombia has been operating
in the domestic market since May 2012. Low-cost competitor
Flybondi began operations in the Argentinian domestic market
during 2018, while Norwegian began international operations
between London and Buenos Aires in 2018. A number of
low-cost carriers have announced growth strategies including
commitments to acquire significant numbers of aircraft for
delivery in the next few years. The entry of the low-cost
carriers local into markets in which we compete, including those
described above, could have a material adverse effect on our
operations and financial performance.
Our international strategic growth plans rely, in part, upon
receipt of regulatory approvals of the countries in which we plan
to expand our operations of certain Joint Business Agreements
(JBAs). We may not be able to obtain those approvals, while
other competitors might be approved. Accordingly, we might
not be able to compete for the same routes as our competitors,
which could diminish our market share and adversely impact our
financial results. No assurances can be given as to any benefits,
if any, that we may derive from such agreements.
SOME OF OUR COMPETITORS MAY RECEIVE
EXTERNAL SUPPORT, WHICH COULD ADVERSELY
IMPACT OUR COMPETITIVE POSITION.
adversely affect our operations and financial performance.
For example, Aerolineas Argentinas has historically been
government subsidized.
Moreover, as a result of the competitive environment, there
may be further consolidation in the Latin American and
global airline industry, whether by means of acquisitions,
joint ventures, partnerships or strategic alliances. We cannot
predict the effects of further consolidation on the industry.
Furthermore, consolidation in the airline industry and changes
in international alliances will continue to affect the competitive
landscape in the industry and may result in the development
of airlines and alliances with increased financial resources,
more extensive global networks and reduced cost structures.
OUR OPERATIONS ARE SUBJECT TO
LOCAL, NATIONAL AND INTERNATIONAL
ENVIRONMENTAL REGULATIONS; COSTS OF
COMPLIANCE WITH APPLICABLE REGULATIONS,
OR THE CONSEQUENCES OF NONCOMPLIANCE,
COULD ADVERSELY AFFECT OUR RESULTS, OUR
BUSINESS OR OUR REPUTATION.
Our operations are affected 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 operations and financial
results may vary as a result of such regulations. Compliance with
these regulations and new or existing regulations that may be
applicable to us in the future could increase our cost base and
adversely affect our operations 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.
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, subsidies, financial aid or tax waivers. This
support could place us at a competitive disadvantage and
In 2016, the International Civil Aviation Organization (“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 international civil
Risk Factors
127
aviation (i.e., civil aviation flights that depart in one country and
arrive in a different country). 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). Currently, CORSIA focuses
on defining standards for monitoring, reporting 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 environmental regulations that the airline
industry is facing in Colombia, may also affect our costs of
operations and our margins.
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.
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 condition and results of operations. Furthermore,
these types of situations could have a prolonged effect on air
transportation demand and on certain cost items.
MANAGEMENT 2017 Risk Factors
128
After the terrorist attacks in the United States on September
11, 2001, the Company made the decision to reduce its
flights to the United States. In connection with the reduction
in service, the Company reduced its workforce resulting
in additional expenses due to severance payments to
terminated employees during 2001. Therefore, any future
terrorist attacks or threat of attacks, whether or not involving
commercial aircraft, any increase in hostilities relating to
reprisals against terrorist organizations or otherwise and any
related economic impact could result in decreased passenger
traffic and materially and negatively affect our business,
financial condition and results of operations.
After the 2001 terrorist attacks, airlines have experienced
increased costs resulting from additional security measures
that may be made even more rigorous in the future. In
addition to measures imposed by the U.S. Department of
Homeland Security and the TSA, IATA and certain foreign
governments have also begun to institute additional security
measures at foreign airports we serve.
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 profitability. 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
FINANCIAL 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
administrative proceedings, governmental investigations, tort
claims and contract disputes. Litigation is inherently costly
and unpredictable, 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 litigation. 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,
Brazil, the United States and in the various countries we
operate. Violations 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
regulations and are required to comply with the applicable
laws and regulations of all 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 practices, 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
MANAGEMENT 2017 instability, which have led to adverse economic consequences.
We cannot assure you that Peru will not experience similar
adverse developments in the future even though for some
years now, several democratic procedures have been completed
without any violence. We cannot assure you that the current
or any future administration will maintain business-friendly
and open-market economic policies or policies that stimulate
economic growth and social stability. Any changes in the
Peruvian economy or the Peruvian government’s economic
policies may have a negative effect on our business, financial
condition and results of operations.
INSTABILITY AND POLITICAL UNREST IN LATIN
AMERICA MAY ADVERSELY AFFECT OUR BUSINESS.
We operate primarily within Latin America and are thus
subject to a full range of risks associated with our operations
in this region. These risks may include unstable political or
economic conditions, lack of well-established or reliable legal
systems, exchange controls and other limits on our ability
to repatriate earnings and changeable legal and regulatory
requirements. In Venezuela, for example, foreign companies
may only repatriate cash through specific governmental
programs, which may effectively preclude us from
repatriating cash for periods of time.
Although conditions throughout Latin America vary from
country to country, our customers’ reactions to developments
in Latin America generally may result in a reduction in
passenger traffic, which could materially and negatively affect
our financial condition and results of operations
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
significant involvement of the Brazilian government, which
often changes monetary, credit, fiscal and other policies to
influence 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.
THE PERUVIAN GOVERNMENT HAS EXERCISED,
AND MAY CONTINUE TO EXERCISE, SIGNIFICANT
INFLUENCE OVER THE PERUVIAN ECONOMY,
WHICH MAY HAVE AN ADVERSE IMPACT ON OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In the past, Peru has experienced periods of severe economic
recession, currency devaluation, high inflation, and political
Risk Factors
129
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 December
31, 2017, beneficially owned 27.91% 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 entered
into a shareholders agreement with the Amaro Group, which as
of December 31, 2017, held 2.58% of LATAM shares through
TEP Chile, in addition to the indirect stake it has through the
21.88% interest it holds in Costa Verde Aeronáutica S.A.,
the main legal vehicle through which the Cueto Group holds
LATAM shares, pursuant to which these two major shareholder
groups have agreed to vote together to elect individuals to our
board of directors in accordance with their direct and indirect
shareholder interest in LATAM.
Pursuant to a shareholders’ agreement, the LATAM Controlling
Shareholders and the Amaro Group have also agreed to use
their good faith efforts to reach an agreement and act jointly on
all actions to be taken by our board of directors or shareholders
meeting, and if unable to reach to such agreement, to follow
the proposals 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 the Amaro Group. In addition,
another major shareholder, Qatar Airways Investments (UK)
Ltd., which as of December 31, 2017, held 10.03% of our
common 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.
Under the terms of the deposit agreement governing the
ADSs, if holders of ADSs do not provide JP Morgan Chase
MANAGEMENT 2017
Bank, N.A., in its capacity as depositary for the ADSs, with
timely instructions on the voting of the common shares
underlying 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. The members of the
new board of Directors elected by the shareholders in 2017
designated Ignacio Cueto, to serve in this role.
TRADING OF OUR ADSS AND COMMON SHARES
IN THE SECURITIES MARKETS 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 securities
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 depositary
at any time, your ability to sell the common shares underlying
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 DEVALUATIONS AND FOREIGN
EXCHANGE FLUCTUATIONS.
If the Chilean peso exchange rate falls relative to the U.S. dollar,
the value of the ADSs and any distributions made thereon from
the depositary could be adversely affected. Cash distributions
made in respect of the ADSs are received by the depositary
(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 WITHHOLDING
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
regulations that govern investment repatriation and earnings
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 reserve 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 required.
OUR ADS HOLDERS MAY NOT BE ABLE TO
EXERCISE PREEMPTIVE RIGHTS IN CERTAIN
CIRCUMSTANCES.
Risk Factors
130
The Chilean Corporation Law provides that preemptive rights
shall be granted to all shareholders whenever a company
issues new shares for cash, giving such holders 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 shareholders located in the
United States pursuant to the preemptive 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 requirements 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. holders of ADRs evidencing ADSs
and shareholders located in the United States to exercise
preemptive rights, as well as 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 shareholders located in the United States.
WE ARE NOT REQUIRED TO DISCLOSE AS
MUCH INFORMATION TO INVESTORS AS A U.S.
ISSUER IS REQUIRED TO DISCLOSE AND, AS A
RESULT, YOU MAY RECEIVE LESS INFORMATION
ABOUT US THAN YOU WOULD RECEIVE FROM A
COMPARABLE U.S. COMPANY.
MANAGEMENT 2017
Risk Factors
131
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 reporting
requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. The disclosure requirements
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 exchanges also provides
less detail in certain respects than the information regularly
published by listed companies in the United States or in
certain other countries. Furthermore, 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 other developed countries.
MANAGEMENT 2017 Additional
Our strategic partners allow us to achieve
operating efficiency while taking care
of our employees’ security
Additional information
132
SUPPLIERS
During the year 2017, and just like in previous years, the main
suppliers of LATAM Airlines were the aircraft manufacturers,
Airbus and Boeing.
ALONG WITH THEM, LATAM AIRLINES 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
Comercial Aviation Services Ltd., General Electric Celma,
General Electric Engines Service, Honeywell, Israel Aerospace
Industries, Air France/KLM (engines and APU); Zodiac Seats
US, Recaro, Thompson Aero Seating (seats); Honeywell y
Rockwell Collins (Avionics); Air France/KLM, LUFTHANSA
Technik (MRO components); Zodiac Inflight Innovations,
Panasonic, Thales (On-board entertainment); SAFRAN
Landing Systems, AAR Corp (trains and brakes); UTC
Aerospace Nordam (nacelles). To these, we must be added
our fuel suppliers, such as Raizen, Petrobras, Air BP-Copec,
World Fuel Services, PBF, Shell, YPF, Terpel, Repsol, CEPSA,
Vitol, among others.
MANAGEMENT 2017 Additional information
133
AVIATION INSURANCES
GENERAL CASUALTY INSURANCE
CUSTOMERS
This insurance group permits covering
various risks that might affect the
company’s equity capital, which is
protected through multi-risk insurance
policies (which includes risks of fire,
theft, computer equipment failure,
consignments of values, crystals, and
others based on a comprehensive
coverage), motorized vehicles
insurances, air and maritime transport
insurances, and civil liability insurances.
Moreover, the Company hires life and
accident insurances that cover the
company personnel.
LATAM Airlines hires Aviation
Insurances, Hull and Legal Liabilities.
THESE TYPES OF INSURANCE
COVER ALL THE RISKS
INHERENT TO COMMERCIAL
NAVIGATION SUCH AS
LOSS OF DAMAGE OF
AIRCRAFT, ENGINES AND
SPARE PARTS, AND THIRD-
PARTY RESPONSIBILITIES
(PASSENGER, CARGO,
BAGGAGE, AIRPORTS, ETC.).
are parts, and third-party
responsibilities (passenger, cargo,
baggage, airports, etc.). After the
association of LAN and TAM, the
insurance policies of both companies
began to be acquired by LATAM Airlines
Group, which carried on with LATAM’s
policy since 2016 of doing it together
with IAG Group (comprised by British
Airways, Iberia, and their related
companies), generating increased
trading volumes that have translated in
better coverage and operating costs.
The Company has no customers that
individually represent more than:
of sales.10%
BRANDS AND PATENTS
The company and its subsidiaries use
different trademarks, 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 destination,
with the purpose of differentiating and
marketing their products and services in
such country. Among the main brands
are: LATAM Airlines, LATAM Airlines
Argentina, 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.
MANAGEMENT 2017 Investment Plan
134
L ATAM continues to have a flexible view regarding its
fleet plan, adapting to operational requirements and to
market conditions. In the last few years, the Company
has been adjusting its future fleet commitments by postponing
or canceling aircraft orders. This led the Company to achieve
in 2017 the lowest fleet commitment in its recent history, with
US$326 million related to the delivery of two Airbus A320neo
and two Boeing 787-9 planes.
These reductions have translated into a significant
improvement in the Company’s balance sheet position
and cash flow generation, due to lower rentals and capital
expenditures, as well as lower financing needs.
Plan
We adapt to the market conditions
IN 2018, THE COMPANY’S FLEET COMMITMENTS
TOTAL US$714 MILLION, RELATED TO THE DELIVERY
OF SIX AIRBUS A320NEO, TWO A321NEO, AND TWO
A350. FOR 2019, FLEET COMMITMENTS AMOUNT
TO US$1,213 MILLION, RELATED TO THE DELIVERY
OF FOUR AIRBUS A320NEO, FOUR A321NEO, FOUR
AIRBUS A350, AND TWO BOEING 787-9.
MANAGEMENT 2017 By year end
2016
2017
2018E
2019E
Investment Plan
135
PASSENGER AIRCRAFT
Narrow Body
Airbus A319-100
Airbus A320-200
Airbus A320 Neo
Airbus A321-200
Airbus A321 Neo
TOTAL
Wide Body
Boeing 767-300
Airbus A350-900
Boeing 777-300 ER
Boeing 787-8
Boeing 787-9
TOTAL
CARGO AIRCRAFT
Boeing 777-200F
Boeing 767-300F
TOTAL OPERATING FLEET
Subleases
Airbus A320-200
Airbus A350-900
Boeing 767-300F
TOTAL
48
146
2
47
-
243
37
7
10
10
12
76
2
8
10
329
-
-
3
3
TOTAL FLEET
332
Fleet Commitment (US$ millions)
1,950
46
126
4
47
-
223
36
5
10
10
14
75
-
9
9
307
5
2
1
8
315
326
46
121
10
49
2
228
35
9
10
10
14
78
-
10
10
316
5
-
-
5
321
714
46
119
14
49
6
234
29
13
9
10
16
77
-
11
11
322
5
-
-
5
327
1,213
Note: This table does not include one B777-200F currently subleased to a third party, that
was reclassified from property plant and equipment to hold for sale.
ADDITIONALLY, LATAM EXPECTS TO INVEST ABOUT
US$650 MILLION IN NON-FLEET CAPEX IN 2018,
WHICH INCLUDES INTANGIBLE ASSETS, FLEET
AND NON-FLEET MAINTENANCE, EXPENDITURES
IN SPARE ENGINES AND FLEET COMPONENTS, AS
WELL AS EXPENSES RELATED TO THE RETROFIT
OF THE BOEING 767S AND 777S CABINS. THIS
NUMBER ALSO INCLUDES THE IMPLEMENTATION
OF OUR NEW PASSENGER SERVICE SYSTEM,
SWITCHING OUR BRAZILIAN OPERATION TO SABRE,
CURRENTLY UNDERWAY, WHICH WE EXPECT TO
CONCLUDE DURING THE FIRST HALF 2018.
MANAGEMENT 2017
S U S TA I N A-
B I L I T Y
We innovate by using
latest technology, and
promote humanitarian and
ecological initiatives.
Sustainability vision
137
The sustainability goals and targets are monitored by the Board
of Directors. In 2017, the board started to assess how to enhance
the current governance structure, including the incorporation of
diversity-related questions. It should be noted that whenever an
executive assumes a senior management position at LATAM, he
or she undergoes an immersion process on business strategy
which, based on this intersecting model, includes a specific
module on managing sustainability.
The Sustainability Policy establishes the three dimensions in
which the Sustainability Strategy is structured:
• Governance: this establishes how the group should position
itself in relation to its sustainability commitments and targets,
as well as defining the spheres responsible for decision
making, execution, and monitoring results.
• Climate change: the concept put forward seeks a balance
between mitigating risks and identifying new opportunities
for managing environmental aspects (actual and potential),
stressing reduction of the operations’ carbon footprint and the
promotion of eco-efficient practices.
• Corporate citizenship: this is aimed at transforming the
business and the agents in the group’s value chain into drivers
of social progress, economic development, and environmental
preservation in the regions where LATAM operates.
Each dimension encompasses a series of areas to be
developed by LATAM. These are broken down into goals and
targets. To measure development in these areas, LATAM uses
its performance on the Dow Jones Sustainability Index (DJSI),
whose Best in Class methodology assesses the performance
of publicly traded companies in different sectors in terms of
managing governance, social, and environmental practices.
The analysis, conducted by the investment consultancy
specialized in sustainability, RobecoSAM, generates a final list
featuring the organizations considered to be references in the
aspects mentioned.
vision
W ith the Sustainability Policy in place, in 2017 the
Group focused its efforts on raising awareness and
engaging leaders and teams in implementing the
economic, social and environmental dimensions in work routines
and decision-making processes. Presentations were made to
the Executive Committee and to specific areas, such as Legal,
Human Resources, Marketing, and Safety, among others.
SUSTAINABILITY Our Sustainability Policy also defines the main stakeholders
and relevant issues and opportunities for them, which are
managed in order to generate added value.
Stakeholder group
Employees
LATAM’s deliveries
• Generation of jobs in various countries
• Occupational health and safety
• Professional growth opportunities
Sustainability vision
138
Deliveries for LATAM
• Intellectual capital
• LATAM culture
• Alignment and commitment to group
strategy and results
Customers/
Passengers
Public and
regulatory
authorities
Suppliers
Investors
• Connectivity: own routes as well as partnerships and hubs
• Safety
• Advantages in loyalty program
• Revenue generation and business
sustainability in the short, medium
and long terms
• Participation and involvement in major airline industry and
sustainability questions, among others
• Interactions based on ethics and integrity
• Compliance with relevant legislation and compliance
• Participation in industry associations/organizations and in
• Business growth based on sharing
experiences and best practices and
compliance with relevant legislations
sustainability initiatives
• Wealth generation
• Sharing good practices
• Sustainability risk analyses
• Product and service quality and safety
• Guarantees for operation and business
continuity
• Financial responsibility and return on investment
• Strategy based on long-term vision
• Conduct based on ethics and integrity
• Maintenance of investments to ensure
business continuity
Economic
dimension:
Social
dimension:
Environmental
dimension:
LATAM score
Industry average
Industry best
SUSTAINABILITY RELEVANT TOPICS
Materiality matrix
Sustainability vision
139
LATAM wants to guide its vision for the future and its
commitments to be increasingly aligned with sustainability
standards and global trends in this material. To achieve
this, we had to understand which were the relevant issues
for our stakeholders.
In 2017, a materiality process was carried out where the
relevance of 36 topics was revealed through direct surveys of
employees, suppliers, senior executives, and clients, in addition to
an indirect survey of the relevance of these issues for investors,
the media, competing groups, sustainability associations,
governments, and NGOs.
l
s
r
e
d
o
h
e
k
l
a
t
s
r
u
o
o
t
e
c
n
a
v
e
l
e
R
Relevance to LATAM Group
(For further details, see LATAM Sustainability Report.).
THIS WAS CONSOLIDATED IN A MATRIX THAT
SHOWS THE RELEVANCE OF THESE TOPICS
FOR THE INDUSTRY CROSSED AGAINST THE
IMPORTANCE GIVEN BY OUR STAKEHOLDERS. THIS
RESULTED IN 10 MATERIAL ISSUES THAT WERE
VALIDATED BY LATAM’S CEO.
Due to constant changes in regulations and world trends,
LATAM believes it is important to review this sustainability
process periodically.
Material topics
1 Health and safety in the air and on the ground
2 Ethics and anti-corruption
3 On-time performance
4 Economic and financial sustainability
5 Developing employees
6 Mitigating climate change
7 Customer focus
8 Developing the destination network to offer
greater connectivity
9 Relations with authorities
10 Sustainable tourism
27 Work-life balance
28 Human traffic
29 Local development
30 Biodiversity management
31 Noise management
32 Making aviation services available to everyone
33 Volunteering
34 Responsible food offering
35 Sex tourism
36 Animal transport
37 Drug traffic
Non-prioritized topics
11 Benefits and conditions
12 Diversity
13 Recycling management
14 Biofuel usage
15 Transparent reporting and communication
practices
16 Social investment
17 Labor relations with suppliers
18 Generation of direct and indirect economic benefits
19 Innovation, research and development
20 Infrastructure and maintenance investment
21 Eco-efficiency management
22 Water-usage management
23 Sustainability awareness among employees
24 Inclusion of consumers with special needs
25 Environmental impact management with suppliers
26 Flight comfort
SUSTAINABILITY
Sustainable governance
140
GOVERNANCE
LATAM has 4 main lines of action regarding the governance
issue: transparency, monitoring of regulations and
commitments, risks and opportunities, and ensuring the
integration of sustainability in all areas of the company.
All relations are grounded in ethics and transparency.
Although public and industry issues are monitored on a global
level by the Corporate Affairs area, they are put into practice
by the respective executives and employees working in the
subsidiaries. There is an ongoing effort to further consolidate
the corporate regulatory agenda, with cross-cutting
management of issues whose impact affects the entire group
and not just operations in a specific country.
LATAM engages in the key matters that impact the industry
and the business, such as those concerning air safety,
taxation, and other charges. The work done, within the
legal framework, with public and regulatory authorities and
industry associations is fundamental for identifying courses
of action and drafting directives for responding to current
challenges, contributing to LATAM’s growth and that of other
organizations, as well as society in general.
All employees of the Group undergo training which addresses
ethics, compliance, anti-corruption, and antitrust practices. In
2017, a new version of the e-learning program on the Code of
Conduct was made available, providing practical examples and
facilitating understanding of the connections between daily
work routines and the matters set forth in the document. Also
in 2017, a training course for staff members was concluded
whereby they became compliance ambassadors in their units,
responsible for spreading key concepts and behaviors among
their colleagues.
matrix comprised more than 50 topics, broken down into
11 categories. The range of risks covers the environment,
safety, regulatory environment, supply chain, and employee
management, among others.
Remarkable in 2017 was the reinforcement in management
of compliance risks and a risk management training program
for directors, conducted by a specialized consultancy. The
development of a system for managing strategic intersecting
risks in the key local operations was also concluded, ensuring the
standardization of identification, monitoring, and reporting tools.
REGARDING RISKS, THEY ARE MONITORED BY
THE RISK MANAGEMENT TEAM, WHICH REPORTS
TO THE GROUP’S EXECUTIVE COMMITTEE ON A
MONTHLY BASIS.
Although there is a dedicated risk management area,
it is understood that managing risks should be inherent
to all leaders, units, and areas. In 2017, the LATAM risk
SUSTAINABILITY CLIMATE CHANGE
LATAM has a climate change strategy, which allows the
company to monitor the main environmental issues and
establish work plans. This strategy has 4 main lines: carbon
footprint, eco-efficiency, sustainable alternative energies, and
standards and certifications.
Since 2010, LATAM has conducted a greenhouse gas (GHG)
emissions inventory on an annual basis. Since 2012, LATAM
reports a joint carbon footprint for LAN and TAM. Each year,
we aim to reduce our net emissions
Total Greenhouse Gas Emissions
A major part of aviation greenhouse gases (GHG) are
generated by the fossil fuels burned by aircraft engines. Due
to this, two complementary measures are implemented to
reduce fuel consumption: fleet renewal and Ongoing pursuit of
fuel efficiency.
Regarding the later, in 2017 the LATAM Fuel Efficiency
Program Focus conducted over 20 projects that accounted
for the avoidance of 50 gallons of fuel, generating savings of
approximately US$100 million for the group.
ALTERNATIVE SUSTAINABLE FUELS ARE THE
PERFECT COMPLEMENT TO REDUCE GHG
EMISSIONS.
LATAM supports the development of biofuels for use
on a commercial scale by the airline sector, but believes
that this depends on the consolidation of an integrated
strategy involving producers, aircraft engine manufacturers,
distributors, and government authorities, in addition to the
actual airline companies.
Regarding standards and certifications, LATAM remains
committed to the directives set forth in the IATA (International
Air Transport Association) voluntary Environmental
Assessment (IEnvA) initiative. In 2017, the international air
operations from Chile were recertified under the program.
For ground operations, our Miami operation (United States) is
adapting the system to the most recent 2015 version of the ISO
14.001 standard, in order to obtain the recertification in 2018.
Air emissions intensity (kg CO2e/100 RTK4)
LATAM Airlines Colombia advanced in its compensation
strategy in 2017, with the formal offsetting of all GHG
emissions from the operation in the country, including
domestic flights and ground operations, such as employee
travel and other indirect emissions. Emissions from
ground operations had been neutralized since 2014. The
neutralization certificate ensured exemption for LATAM
Airlines Colombia from a tax introduced by the Colombian
government at the end of 2016, which charges US$5 for
each metric ton of carbon emitted from burning fossil fuels.
Climate Change
141
Energy saving – fuels (2017)
Rationalizing use of the auxiliary
power unit (APU)
31%
Approach, landing, and
taxiing procedures:
13%
Reducing weight on board:
9%
Adopting adequate speeds:
7%
Corrective actions in the event of
deviations from standard consumption:
6%
Optimizing use of onboard pressurization
and air conditioning equipment:
5%
Route reviews:
6%
Other measures:
24%
SUSTAINABILITY Corporate Citizenship
142
IN 2017, THE SOLIDARY AIRCRAFT
TOOK PART IN THREE EMERGENCY
OPERATIONS IN RESPONSE TO PLEAS FROM
EMBASSIES AND CIVIL HUMANITARIAN AID
ORGANIZATIONS.
SOCIETY
2015
2016
2017
Fomenting sustainable tourism: Cuido mi Destino
Places benefiting
9
Students involved
516
Total investment (in US$) 228,913
8
668
181,612 201,533
7
358
4,558
Social logistics
Air tickets donated
Cargo transported as humanitarian aid
(metric tons)
Recyclable material transported
(metric tons)
139
303
4,059
5,992
678
51,5
143
170,9
In January, LATAM was active in combating the fires that
affected the Valparaiso region, one of the most heavily visited
destinations in Chile. In March, the group provided support in
Peru, where more than 133,000 people were made homeless by
the floods caused by the El Niño phenomenon. In September, the
program took action to transport aid for the victims of hurricane
Maria in Costa Rica.
Approved at the end of 2016, the LATAM Donations
Policy was enforced in 2017. The document sets forth the
requirements for LATAM to approve and carry out a social
donation. The policy describes the criteria, the validation
stages and the levels of authority required for the concession
of courtesy tickets, the free transportation of cargos, and cash
donations to non-governmental organizations, foundations,
and other civil society entities.
CORPORATE CITIZENSHIP
In addition to the company's social responsibility programs, LATAM's
corporate citizenship strategy considers humanitarian aid and
sponsorships and donations that generate an impact in the region.
In order to drive greater effectiveness and relevance in the
actions undertaken in the different countries where it operates,
the Group is further developing its work on identifying and
mapping the operations’ impacts on society. The analysis
takes into account both positive and negative, and direct and
indirect effects and, in conjunction with the diagnosis of social
initiatives undertaken, will shape the review of the group’s
social responsibility and corporate citizenship strategy in 2018.
Created in 2009, the Cuido mi Destino program is made possible
by the mobilization of LATAM employees, young students, and
representatives of public authorities and civil society who, on a
voluntary basis, work together on projects to repair or rebuild
tourist areas, reestablishing the potential for tourism in these
areas and driving the local commercial and service networks.
At times, the program also includes professional training
programs for members of the benefiting communities, ensuring
improved working conditions and income. From 2009 to 2017,
US$1.916.825 were invested in different projects in South
America – US$201.533 in 2017 alone.
SUSTAINABILITY
F I N A N C I A L
S T A T E-
M E N T S
We made great
achievements, supported
by the implementation of
the initiatives from our
transformation plan.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
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
Consolidated Financial Statements
144
REPORT OF INDEPENDENT AUDITORS
(Free translation from the original in Spanish)
Santiago, March 14, 2018
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 statement of financial position as at December 31, 2017
and 2016 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 consolidate 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.
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
FINANCIAL STATEMENTS
Santiago, March 14, 2018
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, 2017 and 2016, and the results
of operations and cash flows for the years then ended in accordance with the International Financial
Reporting Standards (IFRS).
Renzo Corona Spedaliere
RUT: 6.373.028-9
Consolidated Financial Statements
145
Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and
Subsidiaries.
Notes
Page
1 - General information ....................................................................................................................... 1
2 - Summary of significant accounting policies .................................................................................. 5
2.1. Basis of Preparation ................................................................................................................. 5
2.2. Basis of Consolidation ............................................................................................................. 8
2.3. Foreign currency transactions .................................................................................................. 9
2.4. Property, plant and equipment ............................................................................................... 10
2.5. Intangible assets other than goodwill ..................................................................................... 11
2.6. Goodwill ................................................................................................................................. 11
2.7. Borrowing costs ..................................................................................................................... 12
2.8. Losses for impairment of non-financial assets ....................................................................... 12
2.9. Financial assets ....................................................................................................................... 12
2.10. Derivative financial instruments and hedging activities ...................................................... 13
2.11. Inventories ............................................................................................................................ 14
2.12. Trade and other accounts receivable .................................................................................... 14
2.13. Cash and cash equivalents .................................................................................................... 15
2.14. Capital .................................................................................................................................. 15
2.15. Trade and other accounts payables ....................................................................................... 15
2.16. Interest-bearing loans ........................................................................................................... 15
2.17. Current and deferred taxes ................................................................................................... 15
2.18. Employee benefits ................................................................................................................ 16
2.19. Provisions ............................................................................................................................. 16
2.20. Revenue recognition ............................................................................................................. 17
2.21. Leases ................................................................................................................................... 17
2.22. Non-current assets (or disposal groups) classified as held for sale ...................................... 18
2.23. Maintenance ......................................................................................................................... 18
2.24. Environmental costs ............................................................................................................. 18
3 - Financial risk management .......................................................................................................... 19
3.1. Financial risk factors .............................................................................................................. 19
3.2. Capital risk management ........................................................................................................ 33
3.3. Estimates of fair value ............................................................................................................ 33
4 - Accounting estimates and judgments ........................................................................................... 35
5 - Segmental information ................................................................................................................. 39
6 - Cash and cash equivalents ........................................................................................................... 42
7 - Financial instruments ................................................................................................................... 43
7.1. Financial instruments by category .......................................................................................... 43
7.2. Financial instruments by currency ......................................................................................... 45
8 - Trade, other accounts receivable and non-current accounts receivable ....................................... 46
9 - Accounts receivable from/payable to related entities .................................................................. 49
10 - Inventories ................................................................................................................................. 50
11 - Other financial assets ................................................................................................................. 51
12 - Other non-financial assets .......................................................................................................... 52
13 - Non-current assets and disposal group classified as held for sale ............................................. 53
14 - Investments in subsidiaries ........................................................................................................ 54
FINANCIAL STATEMENTS
15 - Intangible assets other than goodwill ......................................................................................... 57
16 - Goodwill .................................................................................................................................... 58
17 - Property, plant and equipment ................................................................................................... 60
18 - Current and deferred tax ............................................................................................................ 66
19 - Other financial liabilities ............................................................................................................ 71
20 - Trade and other accounts payables ............................................................................................ 79
21 - Other provisions ......................................................................................................................... 81
22 - Other non-financial liabilities .................................................................................................... 83
23 - Employee benefits ...................................................................................................................... 84
24 - Accounts payable, non-current .................................................................................................. 86
25 - Equity ......................................................................................................................................... 86
26 - Revenue ..................................................................................................................................... 92
27 - Costs and expenses by nature .................................................................................................... 92
28 - Other income, by function ......................................................................................................... 94
29 - Foreign currency and exchange rate differences ........................................................................ 94
30 - Earnings per share .................................................................................................................... 103
31 - Contingencies ........................................................................................................................... 104
32 - Commitments ........................................................................................................................... 116
33 - Transactions with related parties ............................................................................................. 121
34 - Share based payments .............................................................................................................. 122
35 - Statement of cash flows ........................................................................................................... 125
36 - The environment ...................................................................................................................... 127
37 - Events subsequent to the date of the financial statements ....................................................... 128
Consolidated Financial Statements
146
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
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
held for sale or as held for distribution to owners
Total current assets
Non-current assets
Other financial assets
Other non-financial assets
Accounts receivable
Intangible assets other than goodwill
Goodwill
Property, plant and equipment
Tax assets
Deferred tax assets
Total non-current assets
Total assets
Note
6 - 7
7 - 11
12
7 - 8
7 - 9
10
18
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
1,142,004
559,919
221,188
1,214,050
2,582
236,666
77,987
949,327
712,828
212,242
1,107,889
554
241,363
65,377
3,454,396
3,289,580
13
291,103
337,195
3,745,499
3,626,775
7 - 11
12
7 - 8
15
16
17
18
18
88,090
220,807
6,891
1,617,247
2,672,550
10,065,335
17,532
364,021
15,052,473
18,797,972
102,125
237,344
8,254
1,610,313
2,710,382
10,498,149
20,272
384,580
15,571,419
19,198,194
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
Consolidated Financial Statements
147
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF INCOME BY FUNCTION
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
EQUITY
Other financial liabilities
Accounts payable
Other provisions
Deferred tax liabilities
Employee benefits
Other non-financial liabilities
Total non-current liabilities
Total liabilities
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
13
7 - 19
7 - 24
21
18
23
22
25
25
25
14
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
1,300,949
1,695,202
760
2,783
3,511
2,823,963
5,827,168
15,546
5,842,714
6,605,508
498,832
374,593
949,697
101,087
158,305
8,688,022
1,839,528
1,593,068
269
2,643
14,286
2,762,245
6,212,039
10,152
6,222,191
6,796,952
359,391
422,494
915,759
82,322
213,781
8,790,699
14,530,736
15,012,890
3,146,265
475,118
(178)
554,884
4,176,089
91,147
4,267,236
3,149,564
366,404
(178)
580,870
4,096,660
88,644
4,185,304
18,797,972
19,198,194
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 INCOME (LOSS) FOR THE PERIOD
Income (loss) attributable to owners
of the parent
Income (loss) attributable to
non-controlling interest
Net income (loss) for the year
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)
Diluted earnings (losses) per share (US$)
Note
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
26
28
27
29
18
14
30
30
9,613,907
(7,441,849)
8,988,340
(6,967,037)
2,172,058
2,021,303
549,889
(699,600)
(938,931)
(368,883)
(7,754)
706,779
78,695
(393,286)
-
(18,718)
748
374,218
(173,504)
538,748
(747,426)
(872,954)
(373,738)
(72,634)
493,299
74,949
(416,336)
-
121,651
311
273,874
(163,204)
200,714
110,670
155,304
69,220
45,410
41,450
200,714
110,670
0,25610
0,25610
0.12665
0.12665
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
148
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
Total other comprehensive income
that will not be reclassified to income before taxes
Components of other comprehensive income
that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax
Other comprehensive income, before taxes,
currency translation differences
Cash flow hedges
Gains (losses) on cash flow hedges before taxes
Other comprehensive income (losses),
before taxes, cash flow hedges
Total 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
Total Other comprehensive income
Total comprehensive income (loss)
Comprehensive income (loss) attributable to
owners of the parent
Comprehensive income (loss) attributable to
non-controlling interests
TOTAL COMPREHENSIVE INCOME (LOSS)
Note
25
29
19
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
200,714
110,670
2,763
2,763
(3,105)
(3,105)
-
-
(47,495)
494,362
(47,495)
494,362
18,344
127,390
18,344
127,390
(29,151)
621,752
(26,388)
618,647
18
(785)
(785)
921
921
-
-
(1,770)
(34,695)
(1,770)
(28,943)
171,771
(34,695)
584,873
695,543
128,876
648,539
42,895
171,771
47,004
695,543
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
Consolidated Financial Statements
149
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Change in other reserves
Note
Share
capital
ThUS$
Treasury
shares
ThUS$
Currency
translation
reserve
ThUS$
Cash flow
hedging
reserve
ThUS$
Actuarial gains
or losses on
defined benefit
plans
reserve
ThUS$
Shares based
payments
reserve
ThUS$
Other
sundry
reserve
ThUS$
Total
other
reserve
ThUS$
Retained
earnings
ThUS$
Parent's
ownership
interest
ThUS$
Non-
controlling
interest
ThUS$
Total
equity
ThUS$
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
Equity as of January 1, 2017
Total increase (decrease) in equity
Comprehensive income
Gain (losses)
Other comprehensive income
Total comprehensive income
Transactions with shareholders
Dividens
Increase (decrease) through
25
25
-
-
-
-
-
-
-
-
-
-
-
(45,036)
(45,036)
-
16,634
16,634
-
-
-
-
-
-
-
1,974
1,974
-
-
-
-
-
-
-
-
-
-
-
(26,428)
(26,428)
155,304
-
155,304
155,304
(26,428)
128,876
45,410
(2,515)
42,895
200,714
(28,943)
171,771
-
(46,590)
(46,590)
-
(46,590)
943
943
(501)
(501)
442
442
-
(46,590)
(2,857)
(49,447)
(40,392)
(40,392)
(43,249)
(89,839)
transfers and other changes, equity
Total transactions with shareholders
25-34
(3,299)
(3,299)
Closing balance as of
December 31, 2017
3,146,265
(178)
(2,131,591)
18,140
(10,926)
39,481
2,639,780
554,884
475,118
4,176,089
91,147
4,267,236
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
Consolidated Financial Statements
150
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Change in other reserves
Note
Share
capital
ThUS$
Treasury
shares
ThUS$
Currency
translation
reserve
ThUS$
Cash flow
hedging
reserve
ThUS$
Actuarial gains or losses
on defined benefit plans
reserve
ThUS$
Shares based
payments
reserve
ThUS$
Other
sundry
reserve
ThUS$
Total
other
reserve
ThUS$
Retained
earnings
ThUS$
Parent's
ownership
interest
Non-
controlling
interest
ThUS$
ThUS$
Total
equity
ThUS$
Equity as of January 1, 2016
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
Total increase (decrease) in equity
Comprehensive income
Gain (losses)
Other comprehensive income
Total comprehensive income
Transactions with shareholders
Equity issue
Dividens
Increase (decrease) through
25
-
-
-
25-34
608.496
25
-
transfers and other changes, equity
25-34
(4.637)
Total transactions with shareholders
603.859
-
-
-
-
-
-
-
-
489.486
489.486
-
92.016
92.016
-
-
-
-
-
-
-
-
-
(2.183)
(2.183)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
69.220
579.319
579.319
-
69.220
69.220
579.319
648.539
41.450
5.554
47.004
110.670
584.873
695.543
-
-
-
(20.766)
608.496
(20.766)
-
-
608.496
(20.766)
2.891
2.891
5.602
5.602
8.493
8.493
-
3.856
(39.373)
(35.517)
(20.766)
591.586
(39.373)
552.213
Closing balance as of
December 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
The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
Consolidated Financial Statements
151
1
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
Income taxes refunded (paid)
Other cash inflows (outflows)
Net cash flows from operating activities
Cash flows used in investing activities
Cash flows from losses of control of subsidiaries or other businesses
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
Interest received
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 EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Note
For the periods ended
December 31,
2017
ThUS$
2016
ThUS$
10,595,718
73,668
(6,722,713)
(1,955,310)
(223,706)
(91,986)
(8,931)
1,666,740
9,918,589
70,359
(6,756,121)
(1,820,279)
(162,839)
(59,556)
(209,269)
980,884
6,503
-
3,248,693
2,969,731
(3,106,411)
51,316
(403,666)
-
(87,318)
12,684
(9,223)
(287,422)
-
1,305,384
132,280
(1,829,191)
(344,901)
(66,642)
(389,724)
13,706
(2,706,733)
76,084
(694,370)
1
(88,587)
11,242
843
(431,789)
608,496
1,820,016
279,593
(2,121,130)
(314,580)
(41,223)
(398,288)
(229,163)
(1,179,088)
(396,279)
200,230
(7,553)
192,677
949,327
1,142,004
152,816
43,014
195,830
753,497
949,327
35
35
35
35
6
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, 2017
NOTE 1 - GENERAL INFORMATION
LATAM Airlines Group S.A. (the “Company”) is a public company registered with the
Commission for the Financial Market (1), 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 developed directly or by
their 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 Commission for the Financial
Market (1) 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 (2).
At December 31, 2017, 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; 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 approved at the extraordinary meeting of
shareholders of August 18, 2016.
(1)
On February 23, 2017 the Law No. 21,000 was published in the Official Journal, creating
the new Commission for the Financial Market (CMF), a collegiate and technical entity that replaced
the Superintendency of Securities and Insurance (SVS).
As reported in due course, during 2016, LATAM discontinued its Brazilian receipts
(2)
program - BDR level III, currently LATAM not counting with securities in the Brazilian market.
FINANCIAL STATEMENTS
Consolidated Financial Statements
152
2
3
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 Ltda., 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. and
Inversiones La Espasa Dos y Cía. Ltda., owns 27.91% 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, 2017, the Company had a total of 1,485 registered shareholders. At that date
approximately 4.14% of the Company’s share capital was in the form of ADRs.
For the period ended December 31, 2017, the Company had an average of 43,593 employees,
ending this period with a total of 43,095 employees, spread over 6,922 Administrative employees,
4,742 in Maintenance, 15,126 in Operations, 9,016 in Cabin Crew, 3,957 in Controls Crew, and
3,332 in Sales.
The main subsidiaries included in these consolidated financial statements are as follows:
a)
Participation rate
Tax No.
Company
Country
of origin
Functional
Currency
As December 31, 2017
As December 31, 2016
Direct
Indirect
Total
Direct
Indirect
Total
%
%
%
%
%
%
99.9900
0.0000
99.8361
49.0000
99.8939
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
99.7100
99.8300
100.0000
100.0000
100.0000
0.0100
0.0000
0.1639
21.0000
0.0041
100.0000
0.0000
100.0000
70.0000
99.8980
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
0.2900
0.1700
0.0000
0.0000
0.0000
100.0000
100.0000
100.0000
100.0000
100.0000
99.9900
99.0100
99.8361
49.0000
99.8939
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
99.7100
99.8300
0.0000
0.0000
0.0000
0.0100
0.9900
0.1639
21.0000
0.0041
100.0000
100.0000
100.0000
70.0000
99.8980
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
100.0000
0.2900
0.1700
0.0000
0.0000
0.0000
100.0000
100.0000
0.0000
0.0000
0.0000
63.0901
36.9099
100.0000
63.0901
36.9099
100.0000
Chile
Chile
Chile
Peru
Chile
U.S.A.
U.S.A.
Chile
Chile
Argentina
Bahamas
Chile
Chile
Chile
Cayman Insland
Cayman Insland
U.S.A.
Brazil
US$
US$
US$
US$
US$
US$
US$
US$
CLP
ARS
US$
US$
US$
CLP
US$
US$
US$
BRL
96.518.860-6
Latam Travel Chile S.A. and Subsidary (*)
96.763.900-1
Inmobiliaria Aeronáutica S.A.
96.969.680-0
Lan Pax Group S.A. and Subsidiaries
Foreign
Lan Perú S.A.
93.383.000-4
Lan Cargo S.A.
Foreign
Foreign
Connecta Corporation
Prime Airport Services Inc. and Subsidary
96.951.280-7
Transporte Aéreo S.A.
96.631.520-2
Fast Air Almacenes de Carga S.A.
Foreign
Foreign
Laser Cargo S.R.L.
Lan Cargo Overseas Limited and Subsidiaries
96.969.690-8
Lan Cargo Inversiones S.A. and Subsidary
96.575.810-0
Inversiones Lan S.A. and Subsidiaries
96.847.880-K
Technical Trainning LATAM S.A.
Latam Finance Limited
Peuco Finance Limited
Profesional Airline Services INC.
TAM S.A. and Subsidiaries (**)
Foreign
Foreign
Foreign
Foreign
(*)
In June 2016, Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel
Chile S.A.
(**) As of December 31, 2017, 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 implemented
during 2016 which 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.
b)
Financial Information
Statement of financial position
As of December 31, 2017
As of December 31, 2016
Net Income
For the periods ended
December 31,
2017
2016
Tax No.
Company
Assets
Liabilities
Equity
Assets
Liabilities
Equity
Gain /(loss)
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
96.518.860-6
96.763.900-1
Latam Travel Chile S.A. and Subsidary (*)
Inmobiliaria Aeronáutica S.A.
96.969.680-0
Lan Pax Group S.A. and Subsidiaries (**)
Foreign
Lan Perú S.A.
93.383.000-4
Lan Cargo S.A.
Foreign
Foreign
Connecta Corporation
Prime Airport Services Inc. and Subsidary (**)
6,771
-
499,345
315,607
584,169
38,735
12,671
303,204
371,934
17,248
15,722
96.951.280-7
Transporte Aéreo S.A.
324,498
104,357
Foreign
Aircraft International Leasing Limited
96.631.520-2
Fast Air Almacenes de Carga S.A.
Foreign
Foreign
Laser Cargo S.R.L.
Lan Cargo Overseas Limited
and Subsidiaries (**)
96.969.690-8
Lan Cargo Inversiones S.A. and Subsidary (**)
96.575.810-0
Inversiones Lan S.A. and Subsidiaries (**)
Technical Trainning LATAM S.A.
Latam Finance Limited
Peuco Finance Limited
Profesional Airline Services INC.
TAM S.A. and Subsidiaries (**)
96.847.880-K
Foreign
Foreign
Foreign
Foreign
(*)
2,197
-
4,574
-
1,101,548
(596,406)
2,727
8,843
2,741
27,913
1,045,761
(561,472)
5,468
36,756
475,763
306,111
480,908
31,981
7,385
294,912
239,728
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
-
-
-
11,199
241,180
8,456
(3,909)
216,135
-
6,378
(11)
15,737
(13,506)
4,452
1,461
-
-
-
1,833
-
(35,943)
1,205
(30,220)
13,013
857
2,172
-
939
2
3,438
3,389
1,561
109
(30,017)
-
294
2,650
3,443
(36,331)
(2,164)
(24,813)
9,684
588
8,206
9
1,717
(1)
176
(910)
2,549
73
-
-
-
12,403
212,235
21,487
(3,051)
220,141
8,068
(9)
18,808
(10,112)
6,377
1,600
(30,017)
-
265
12,931
18
66,039
144,884
11,681
1,967
678,289
608,191
3,703
4,863
27
42,271
156,005
5,201
367
708,306
608,191
3,438
4,490,714
3,555,423
856,829
5,287,286
4,710,308
495,562
160,582
2,107
In June 2016, Lantours Division of Terrestrial Services S.A. changed its name to Latam Travel
Chile S.A.
(**) The Equity reported corresponds to Equity attributable to owners of the parent, it does not include
Non-controlling interest.
Additionally, we have proceeded to consolidate the following special purpose entities: 1. Chercán
Leasing Limited created to finance the pre-delivery payments on aircraft; 2. Guanay Finance Limited
created to issue a bond collateralized with future credit card receivables; 3. Private investment funds and
4. Avoceta Leasing Limited created to finance the pre-delivery payments on aircraft. These companies
have been consolidated as required by IFRS 10.
All controlled entities have been included in the consolidation.
FINANCIAL STATEMENTS
Consolidated Financial Statements
153
4
5
Changes in the scope of consolidation between January 1, 2016 and December 31, 2017, are
detailed below:
(1)
Incorporation or acquisition of companies
-
-
-
-
-
-
-
On January 2016, the increase in the share capital and statutory amendment for the purpose
of creating a new class of shares of Lan Argentina SA, a subsidiary of Lan Pax Group SA,
for a total amount was registered in the Public Registry of Commerce. of 90,000,000
nominated "C" class shares not endorsable and without the right to vote. Lan Pax Group S.A.
participated in this capital increase, modifying its ownership in 4.87%, as a result of which,
the indirect participation of LATAM Airlines Group S.A. increases to 99.8656%.
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.
On September 2016, Latam Finance Limited, a wholly-owned subsidiary of LATAM Airlines
Group S.A., was created. Company operation started on April 2017.
On November 2015, the company Peuco Finance Limited was created, whose ownership
corresponds 100% to LATAM Airlines Group S.A. The operation of this company began in
December 2017.
Prismah Fidelidade Ltda. is constituted on June 29, 2012, whose ownership corresponds
99.99% to Multiplus S.A. direct subsidiary of TAM S.A. The operation of this company
began in December 2017.
On December 11, 2017, a capital increase was made in TAM S.A. for a total of MR $
697,935 (ThUS $ 210,000), with no new shares issues. This capital increase was paid a whole
100% by the shareholder LATAM Airlines Goup S.A.
The foregoing, in accordance with the TAM's shareholder Holdco I S.A., who renounces to
any right arisinged from this increase.
As of December 31, 2017, Inversiones LAN S.A., subsidiary of LATAM Airlines Group
S.A., acquired 4,951 shares of Aerovías de Integración Regional Aires S.A. a non-controlling
shareholder, equivalent to 0.09498%, consequently, the indirect participation of LATAM
Airlines Group S.A. increases to 99.19414%
(2) Dissolution of companies
-
-
During the period 2016, Lan Chile Investments Limited, subsidiary of LATAM Airlines
Group S.A.; and Aircraft International Leasing Limited, subsidiary of Lan Cargo S.A., were
dissolved.
On November 20, 2017 LATAM Airlines Group S.A. acquires 100% of the shares of
Inmobiliaria Aeronáutica S.A. consequently, a merger and subsequent dissolution of said
company is carried out.
(3) Disappropriation of companies.
-
On May 5, 2017 Lan Pax Group S.A. and Inversiones Lan S.A., both subsidiaries of LATAM
Airlines Group S.A., sold Talma Servicios Aeroportuarios S.A. and Inversiones Talma
S.A.C. 100% of the capital stock of Rampas Andes Airport Services S.A.
The sale value of Rampas Andes Airport Services S.A. it was of ThUS $ 8,624.
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, 2017, 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).
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 concluding 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.
In order to facilitate comparison, some minor reclassifications have been made to the consolidated
financial statements for the previous year.
FINANCIAL STATEMENTS
Consolidated Financial Statements
154
6
7
(a)
Accounting pronouncements with implementation effective from January 1, 2017:
(i)
Standards and amendments
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
(ii)
Standards and amendments
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
Amendment to IAS 7: Statement of cash flow
January 2016
01/01/2017
Amendment to IAS 12: Income tax
January 2016
01/01/2017
Amendment to IFRS 10: Consolidated financial statements and
IAS 28 Investments in associates and joint ventures.
September 2014
To be determined
(ii)
Improvements
(iii)
Improvements
Improvements to International Financial Reporting Standards
(2014-2016 cycle): IFRS 12 Disclosure of interests in other
entities
December 2016
01/01/2017
The application of standards, amendments, interpretations and improvements had no material
impact on the consolidated financial statements of the Company.
(b)
on January 1, 2017 and which has not been effected early adoption
Accounting pronouncements not yet
force
in
for
financial years beginning
Improvements to International Financial Reporting Standards.
(cycle 2014-2016) IFRS 1: First-time adoption of international
financial reporting standards and IAS 28 investments in
associates and joint ventures.
December 2016
01/01/2018
Improvements to International Financial Reporting Standards.
(cycle
IAS 12: Income tax, IFRS 11: Joint arrangements and IAS 23:
Borrowing costs
3: Business
2015-2017)
IFRS
combinations,
December 2017
01/01/2019
(i)
Standards and amendments
Date of issue
Mandatory
Application:
Annual periods
beginning on or after
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 9: Financial Instruments
October 2017
01/01/2019
Amendment to IAS 28: Investments in associates and joint
ventures
October 2017
01/01/2019
IFRS 17: Insurance contracts
May 2017
01/01/2021
(iv)
Interpretations
IFRIC 22: Foreign currency
consideration
IFRIC 23: Uncertain tax positions
transactions and advance
December 2016
01/01/2018
June 2017
01/01/2019
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.
The Company evaluated the possible adoption impacts that this new standard will have on the
consolidated financial statements and has identified changes in: i) the recognition of the
income associated with the fines for changes, which were previously recognized at the time
FINANCIAL STATEMENTS
Consolidated Financial Statements
155
8
9
of the sale and now will be considered as a modification of the initial transport contract and
therefore the recognition must be deferred until the rendering of the service; ii) the moment
of recognition of the income from the sale of some services or products, where the Company
concluded that it acted as principal, and therefore the revenues must be deferred until the
service is rendered; and iii) the presentation of the income associated with the sale of
products, where the Company concluded that it acted as agent and therefore the income must
be presented net of the associated costs.
As of December 31, 2017, the effect of the changes indicated above As of December 31,
2017, the effect of the changes indicated above will not have a significant impact on the
Company’s consolidated financial statements in the year of its first adoption.
(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 evaluating the impact that the adoption of the new lease rule will have on the
consolidated financial statements. Currently, we believe that the adoption of this new
standard will have a significant impact on the consolidated statement of financial position due
to the recording of an asset for right of use and a liability, corresponding to the recording of
the leases that are currently registered as operating leases.
LATAM Airlines Group S.A. and subsidiaries are still assessing this 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 revealed when carrying out a business
combination, such as the acquisition of an entity by the Company, is 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.
(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
FINANCIAL STATEMENTS
Consolidated Financial Statements
156
10
11
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.
2.5.
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.
2.4.
Property, plant and equipment
(b)
Computer software
The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any
accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in
their initial recognition and in their subsequent measurement, at their historical cost less the
corresponding depreciation and any loss due to deterioration.
The amounts of advances paid to the aircraft manufacturers are activated by the Company under
Construction in progress until they are received.
Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the
value of the initial asset or are recognized as a separate asset, only when it is probable that the
future economic benefits associated with the elements of property, plant and equipment , they will
flow to the Company and the cost of the item can be determined reliably. The value of the replaced
component is written off. The rest of the repairs and maintenance are charged to the result of the
year in which they are incurred.
The depreciation of the properties, plants and equipment is calculated using the linear 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 the useful life of the assets are reviewed and adjusted, if necessary, once a
year.
When the value of an asset exceeds its estimated recoverable amount, its value is immediately
reduced to its recoverable amount (Note 2.8).
Losses and gains from the sale of property, plant and equipment are calculated by comparing the
consideration with the book value and are included in the consolidated statement of income.
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
157
12
13
2.7.
Borrowing costs
Interest costs incurred for the construction of any qualified asset are capitalized over the time
necessary for completing and preparing the asset for its intended use. Other interest costs are
recognized in the consolidated income statement when they are accrued.
2.8.
Losses for impairment of non-financial assets
Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to
amortization and are subject to annual testing for impairment. Assets subject to amortization are
subjected to impairment tests whenever any event or change in circumstances indicates that the
book value of the assets may not be recoverable. An impairment loss is recorded when the book
value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its
fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped
at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets
other than goodwill that have suffered an impairment loss are reviewed if there are indicators of
reverse losses at each reporting date.
2.9.
Financial assets
The Company classifies its financial instruments in the following categories: financial assets at fair
value through profit and loss and loans and receivables. The classification depends on the purpose
for which the financial instruments were acquired. Management determines the classification of its
financial instruments at the time of initial recognition, which occurs on the date of transaction.
(a)
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss are financial instruments held for trading and
those which have been designated at fair value through profit or loss in their initial classification. A
financial asset is classified in this category if acquired mainly for the purpose of being sold in the
near future or when these assets are managed and measured using fair value. Derivatives are also
classified as held for trading unless they are designated as hedges. The financial assets in this
category and have been designated initial recognition through profit or loss, are classified as Cash
and cash equivalents and Other current financial assets and those designated as instruments held for
trading are classified as Other current and non-current financial assets.
(b)
Loans and receivables
Loans and receivables are non-derivative financial instruments with fixed or determinable payments
not traded on an active market. These items are classified in current assets except for those with
maturity over 12 months from the date of the consolidated statement of financial position, which are
classified as non-current assets. Loans and receivables are included in trade and other accounts
receivable in the consolidated statement of financial position (Note 2.12).
The regular purchases and sales of financial assets are recognized on the trade date – the date on
which the Group commits to purchase or sell the asset. Investments are initially recognized at fair
value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or losses are initially recognized at fair value,
and transaction costs are expensed in the income statement. Financial assets are derecognized when
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);
(b)
Hedge of an identified risk associated with a recognized liability or an expected
highly- Probable transaction (cash-flow hedge), or
(c)
Derivatives that do not qualify for hedge accounting.
The Company documents, at the inception of each transaction, the relationship between the hedging
instrument and the hedged item, as well as its objectives for managing risk and the strategy for
carrying out various hedging transactions. The Company also documents its assessment, both at the
beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions
are highly effective in offsetting the changes in the fair value or cash flows of the items being
hedged.
The total fair value of the hedging derivatives is booked as Other non-current financial asset or
liability if the remaining maturity of the item hedged is over 12 months, and as an other current
financial asset or liability if the remaining term of the item hedged is less than 12 months.
Derivatives not booked as hedges are classified as Other financial assets or liabilities.
(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
FINANCIAL STATEMENTS
Consolidated Financial Statements
158
14
15
income under other gains (losses). Amounts accumulated in equity are reclassified to profit or loss
in the periods when the hedged item affects profit or loss.
In case of variable interest-rate hedges, the amounts recognized in the statement of other
comprehensive income are reclassified to results within financial costs at the same time the
associated debts accrue interest.
For fuel price hedges, the amounts shown in the statement of other comprehensive income are
reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge
is used.
For foreign currency hedges, the amounts recognized in the statement of other comprehensive
income are reclassified to income as deferred revenue resulting from the use of points, are
recognized as Income.
When hedging instruments mature or are sold or when they do not meet the requirements to be
accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive
income until that moment remains in the statement of other comprehensive income and is
reclassified to the consolidated statement of income when the hedged transaction is finally
recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or
loss accumulated in the statement of other comprehensive income is taken immediately to the
consolidated statement of income as “Other gains (losses)”.
(c)
Derivatives not booked as a hedge
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.
2.16.
Interest-bearing loans
Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction.
Later, these financial liabilities are valued at their amortized cost; any difference between the
proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in
the consolidated statement of income during the term of the debt, according to the effective interest
rate method.
Financial liabilities are classified in current and non-current liabilities according to the contractual
payment dates of the nominal principal.
2.17. Current and deferred taxes
The expense by current tax is comprised of income and deferred taxes.
The charge for current tax is calculated based on tax laws in force on the date of statement of
financial position, in the countries in which the subsidiaries and associates operate and generate
taxable income.
Deferred taxes are calculated using the liability method, on the temporary differences arising
between the tax bases of assets and liabilities and their book values. However, if the temporary
differences arise from the initial recognition of a liability or an asset in a transaction different from
a business combination that at the time of the transaction does not affect the accounting result or the
tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws)
that have been enacted or substantially enacted at the consolidated financial statements close, and
are expected to apply when the related deferred tax asset is realized or the deferred tax liability
discharged.
FINANCIAL STATEMENTS
Consolidated Financial Statements
159
16
17
Deferred tax assets are recognized when it is probable that there will be sufficient future tax
earnings with which to compensate the temporary differences.
2.20. Revenue recognition
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
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.
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 Consolidated Statement of Financial Position.
(ii)
Frequent flyer program
The Company currently has a frequent flyer programs, whose objective is customer loyalty through
the delivery of kilometers or points fly whenever the programs holders make certain flights, use the
services of entities registered with the program or make purchases with an associated credit card.
The kilometers or points earned can be exchanged for flight tickets or other services of associated
entities.
The consolidated financial statements include liabilities for this concept (deferred income),
according to the estimate of the valuation established for the kilometers or points accumulated
pending use at that date, in accordance with IFRIC 13: Customer loyalty programs.
(iii) Other revenues
(d)
Incentives
The Company records revenues for other services when these have been provided.
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)
(ii)
The Company has a present legal or implicit obligation as a result of past events;
It is probable that payment is going to be necessary to settle an obligation; and
(iii)
The amount has been reliably estimated.
(b) Dividend income
Dividend income is booked when the right to receive the payment is established.
2.21. Leases
(a) When the Company is the lessee – financial lease
The Company leases certain Property, plant and equipment in which it has substantially all the risk
and benefits deriving from the ownership; they are therefore classified as financial leases. Financial
leases are initially recorded at the lower of the fair value of the asset leased and the present value of
the minimum lease payments.
Every lease payment is separated between the liability component and the financial expenses so as
to obtain a constant interest rate over the outstanding amount of the debt. The corresponding
leasing obligations, net of financial charges, are included in other financial liabilities. The element
FINANCIAL STATEMENTS
Consolidated Financial Statements
160
18
19
of interest in the financial cost is charged to the consolidated statement of income over the lease
period so that it produces a constant periodic rate of interest on the remaining balance of the
liability for each year. The asset acquired under a financial lease is depreciated over its useful life
and is included in Property, plant and equipment.
(b) When the Company is the lessee – operating lease
Leases, in which the lessor retains an important part of the risks and benefits deriving from
ownership, are classified as operating leases. Payments with respect to operating leases (net of any
incentive received from the lessor) are charged in the consolidated statement of income on a
straight-line basis over the term of the lease.
2.22. Non-current assets or disposal groups classified as held for sale
Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of
their book value and the fair value less costs to sell.
2.23. Maintenance
The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are
capitalized and depreciated until the next maintenance. The depreciation rate is determined on
technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.
In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property,
plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based
on the use of the main components is recognized, since 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.
2.24. Environmental costs
Disbursements related to environmental protection are charged to results when incurred.
NOTE 3 - FINANCIAL RISK MANAGEMENT
3.1.
Financial risk factors
The Company 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, exchange rates and interest 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.
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 greater liquidity.
Fuel Hedging Results:
During the period ended December 31, 2017, the Company recognized gains of US $ 15.1 million
for fuel net premium coverage. During the same period of 2016, the Company recognized losses of
US $ 48.0 million for the same concept.
As of December 31, 2017, the market value of fuel positions amounted to US $ 10.7 million
(positive). At the end of December 2016, this market value was US $ 8.1 million (positive).
FINANCIAL STATEMENTS
Consolidated Financial Statements
161
20
21
The following tables show the level of hedge for different periods:
Positions as of December 31, 2017 (*)
Maturities
Q218
Q118
Q318
Total
Percentage of coverage over the expected volume of consumption
19%
12%
5%
12%
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
Positions as of December 31, 2016 (*)
Percentage of coverage over the expected volume of
consumption
Q117
21%
Maturities
Q217
16%
Total
18%
(*) 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.
(ii)
Foreign exchange rate risk:
Exposition:
The functional and presentation currency of the Financial Statements of the Parent Company is the
US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the
Company's business, strategic and accounting operating activities that are expressed in a monetary
unit other than the functional currency.
The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the
Company's Consolidated Income.
The largest operational exposure to LATAM's exchange risk comes from the concentration of
businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively
managed by the company.
At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such
as: euro, pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso,
Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.
Mitigation:
The Company mitigates currency risk exposures by contracting derivative instruments or through
natural hedges or execution of internal operations.
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.
FX Hedging Results:
The following table shows the sensitivity analysis of the financial instruments according to
reasonable changes in the fuel price and their effect on equity. The term of the projection was
defined until the end of the last current fuel hedge contract, being the last business day of the third
quarter of 2018.
The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the
BRENT and JET crude futures benchmark price at the end of December 2017 and the end of
December, 2016.
Benchmark price
(US$ per barrel)
Positions as of December 31, 2017
effect on equity
(millions of US$)
Positions as of December 31, 2016
effect on equity
(millions of US$)
In order to reduce the exposure to the exchange rate risk in the operational cash flows of 2017,
and to ensure the operating margin, LATAM makes hedges using FX derivatives.
As of December 31, 2017,
to US $ 4.4 million (positive). At the end of December 2016, this market value was
US $ 1.1 million (negative).
the market value of FX derivative positions amounted
During the period ended December 31, 2017, the Company recognized losses of US $ 9.7 million
for FX net premium coverage. During the same period of 2016, the company recognized losses of
US $ 40.3 million for this concept.
As of December 31, 2017, the Company has contracted FX derivatives for US $ 180 million for
BRL. By
the end of December 2016,
for US $ 60 million for BRL, and US $ 10 million for GBP.
the company had contracted FX derivatives
+5
-5
+1.8
- 3.3
+3.12
-4.78
Sensitivity analysis:
Given the structure of fuel coverage during 2017, considers a hedge-free portion, a vertical drop of
5 dollars in the JET reference price (considered as the monthly average), would have meant an
approximate impact US $ 109.7 million of lower fuel costs. For the same period, a vertical rise
of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact
of approximately US $ 110.5 million of higher fuel costs.
A depreciation of the R $ / US $ exchange rate, negatively affects the Company's operating cash
flows, however, also positively affects the value of the positions of derivatives contracted.
FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate
has an impact on the market value of the derivatives, the changes of which affect the Company's net
equity.
FINANCIAL STATEMENTS
Consolidated Financial Statements
162
22
23
The following table shows the awareness of FX derivative instruments according to reasonable
changes in the exchange rate and its effect on equity. The projection term was defined until the end
of the last contract of coverage in force, being the last business day of the second quarter of the year
2018:
Appreciation (depreciation)*
of R$
Effect at December 31, 2017
Millions of US$
Effect at December 31, 2016
Millions of US$
-10%
+10%
-10.7
+9.7
-1.02
+3.44
(*)Both currencies (BRL and GBP) only apply period to the closing of 2016.
During 2017, the Company contracted derivative currency swaps to hedge debt issued the same
year for a notional UF 8.7 million. As of December 31, 2017, the market value of derivative
positions of currency swaps amounted to US$ 30.6 million (positive).
As of December 31, 2017, the Company has recorded an amount for ineffectiveness in the
consolidated statement of income for this type of hedges for US $ 6.2 million (positive).
In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities
are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars
to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's
Income Statement.
With the objective of reducing the impact on the Company's results caused by appreciations or
depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure
in US$ for 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, 2017
Millons of US$
Effect at December 31, 2016
Millons of US$
-10%
+10%
+80.5
-80.5
+119.2
-119.2
(*) 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, 2017
Millions of US$
Effect at December 31, 2016
Millions of US$
-10%
+10%
+386.62
-316.33
+351.04
-287.22
(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").
Mitigation:
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% (63% at December 31, 2016) of the debt is fixed to
fluctuations in interest rate.
Rate Hedging Results:
At December 31, 2017, the market value of the positions of interest rate derivatives amounted
to US$ 6.6 million (negative). At end of December 2016 this market value was US$ 17.2 million
(negative).
FINANCIAL STATEMENTS
Consolidated Financial Statements
163
24
25
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, 2017
effect on profit or loss before tax
(millions of US$)
Positions as of December 31, 2016
effect on profit or loss before tax
(millions of US$)
+100 basis points
-100 basis points
-29.26
+29.26
-32.16
+32.16
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, 2017
effect on equity
(millions of US$)
Positions as of December 31, 2016
effect on equity
(millions of US$)
+100 basis points
-100 basis points
+1.9
-1.9
+3.93
-4.03
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.
(b)
Credit risk
Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an
obligation due or financial instrument, leading to a loss in market value of a financial instrument
(only financial assets, not liabilities).
The Company is exposed to credit risk due to its operative and financial activities, including
deposits with banks and financial institutions, investments 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.
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
164
26
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.
At December 31, 2017 is US$ 1,614 million (US$ 1,486 million at December 31, 2016), 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, 2017, LATAM has working capital credit lines with multiple banks and additionally
has a US$ 450 million undrawn committed credit line (US$ 325 million at December 31, 2016)
subject to borrowing base availability.
FINANCIAL STATEMENTS
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
27
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
ThUS$
Consolidated Financial Statements
165
Nominal
value
ThUS$
75,000
55,801
30,000
40,000
100,000
12,000
84,664
30,000
202,284
Amortization
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
Quarterly
Semiannual
Quarterly
1,200,000
379,274
At Expiration
At Expiration
98,091
575,221
808,987
1,034,853
351,217
74,734
37,223
472,833
96,906
413,011
46,500
26,888
22,925
63,378
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
Quarterly
Monthly
Semiannual
Effective
rate
%
Nominal
rate
%
2.30
3.57
2.49
2.57
2.40
2.03
3.68
5.51
4.41
7.44
5.50
2.66
3.41
2.46
4.48
3.31
2.87
2.78
4.00
4.39
3.42
3.18
3.31
3.19
6.04
2.30
2.77
2.49
2.57
2.40
2.03
3.68
5.51
4.41
7.03
5.50
2.22
3.40
1.75
4.48
2.47
2.27
2.18
2.82
4.39
3.40
3.18
3.31
3.19
6.04
75,863
-
30,131
40,257
100,935
12,061
22,082
-
2,040
-
-
8,368
14,498
30,764
32,026
14,166
3,292
1,611
18,485
4,043
18,192
2,375
2,570
2,033
1,930
-
57,363
-
-
-
-
22,782
16,465
3,368
84,375
20,860
25,415
59,863
92,309
95,042
42,815
9,997
4,928
55,354
12,340
54,952
7,308
7,111
6,107
11,092
-
-
-
-
-
-
43,430
15,628
202,284
650,625
41,720
56,305
148,469
246,285
253,469
114,612
26,677
13,163
146,709
32,775
129,026
20,812
16,709
15,931
26,103
-
-
-
-
-
-
-
-
-
96,250
226,379
12,751
145,315
246,479
244,836
112,435
26,704
13,196
145,364
32,613
105,990
18,104
1,669
-
26,045
-
-
-
-
-
-
-
-
-
772,188
245,067
-
313,452
245,564
676,474
102,045
14,133
7,369
158,236
32,440
166,011
-
-
-
11,055
75,863
57,363
30,131
40,257
100,935
12,061
88,294
32,093
207,692
1,603,438
534,026
102,839
681,597
861,401
1,301,847
386,073
80,803
40,267
524,148
114,211
474,171
48,599
28,059
24,071
76,225
1,757
5,843
246,926
-
-
254,526
241,287
At Expiration
3.38
3.38
5,890
12,699
13,354
13,955
12,117
6,049
370
12,076
38,248
34,430
35,567
38,076
18,344
3,325
28,234
91,821
23,211
50,433
98,424
48,829
8,798
25,783
77,810
206,749
5,656
6,719
6,228
-
51,222
-
2,312
66,849
47,785
8,692
-
-
-
2,880
-
-
21,253
3,156
9,499
-
-
46,200
196,870
70,995
102,267
236,719
124,163
30,684
42,957
184,274
67,783
98,105
221,113
117,023
25,983
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
5.67
3.78
5.46
3.66
3.17
2.51
4.01
5.00
3.17
4.85
3.25
2.67
1.96
4.01
310,342
285,891
Quarterly
6.00
6.00
18,603
17,407
-
-
-
535,352
960,284
3,010,385
1,630,990
2,780,822
8,917,833
7,633,613
Tax No.
Creditor
Loans to exporters
97.032.000-8
97.032.000-8
97.036.000-K
97.030.000-7
97.003.000-K
97.951.000-4
Bank loans
97.023.000-9
0-E
97.036.000-K
BBVA
BBVA
SANTANDER
ESTADO
BANCO DO BRASIL
HSBC
CORPBANCA
BLADEX
SANTANDER
Obligations with the public
0-E
97.030.000-7
BANK OF NEW YORK
ESTADO
Guaranteed obligations
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
0-E
CREDIT AGRICOLE
BNP PARIBAS
WELLS FARGO
WILMINGTON TRUST COMPANY
CITIBANK
BTMU
APPLE BANK
US BANK
DEUTSCHE BANK
NATIXIS
PK AirFinance
KFW IPEX-BANK
AIRBUS FINANCIAL
INVESTEC
Other guaranteed obligations
0-E
CREDIT AGRICOLE
Financial leases
0-E
0-E
0-E
0-E
0-E
97.036.000-K
0-E
Other loans
ING
CITIBANK
PEFCO
BNP PARIBAS
WELLS FARGO
SANTANDER
RRPF ENGINE
0-E
CITIBANK (*)
Derivatives of coverage
-
Others
Total
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
Chile
U.S.A.
Chile
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.
France
U.S.A.
Germany
U.S.A.
England
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
Chile
England
U.S.A.
-
US$
UF
US$
US$
US$
US$
UF
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$
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
FINANCIAL STATEMENTS
Consolidated Financial Statements
166
28
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Tax No.
Creditor
Bank loans
0-E
NEDERLANDSCHE
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
ThUS$
Nominal
value
ThUS$
Amortization
Effective
rate
%
Nominal
rate
%
Financial leases
0-E
0-E
0-E
0-E
0-E
CREDIETVERZEKERING MAATSCHAPPIJ
Holland
NATIXIS
WACAPOU LEASING S.A.
SOCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S.A
SOCIÉTÉ GÉNÉRALE
Total
France
Luxembourg
Italy
Brazil
France
US$
US$
US$
US$
BRL
BRL
176
497
1,332
722
4,248
837
11,735
34
161
17,191
7,903
2,411
32,230
-
12
23,141
6,509
204,836
-
-
71,323
3,277
-
-
-
43,053
235,818
75,322
-
-
-
-
-
-
-
2,727
2,382
Monthly
6.01
6.01
106,615
13,034
248,801
34
173
99,036
12,047
244,513
21
109
Quarterly / Semiannual
Quarterly
Quarterly
Monthly
Monthly
5.59
3.69
4.87
6.89
6.89
5.59
3.69
4.81
6.89
6.89
371,384
358,108
FINANCIAL STATEMENTS
Consolidated Financial Statements
167
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
29
Tax No.
Creditor
Trade and other accounts payables
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
ThUS$
Nominal
value
ThUS$
Amortization
Effective
rate
%
Nominal
rate
%
-
OTHERS
OTHERS
ThUS$
CLP
BRL
Other currencies
Accounts payable to related parties currents
78.997.060-2
0-E
0-E
78.591.370-1
Viajes Falabella Ltda.
Inversora Aeronáutica Argentina
Consultoría Administrativa Profesional S.A. de C.V.
Bethia S.A. y Filiales
Chile
Argentina
Mexico
Chile
CLP
ThUS$
MXN
CLP
Total
Total consolidated
566,838
165,299
315,605
290,244
534
4
210
12
-
-
-
11,215
-
-
-
-
1,338,746
11,215
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
566,838
165,299
315,605
301,459
534
4
210
12
566,838
165,299
315,605
301,459
534
4
210
12
-
-
-
-
-
-
-
-
1,349,961
1,349,961
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,891,289
1,014,552
3,246,203
1,706,312
2,780,822
10,639,178
9,341,682
FINANCIAL STATEMENTS
Consolidated Financial Statements
168
30
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
ThUS$
Nominal
value
ThUS$
Tax No.
Creditor
Loans to exporters
97.032.000-8
97.032.000-8
97.036.000-K
97.030.000-7
97.003.000-K
97.951.000-4
Bank loans
BBVA
BBVA
SANTANDER
ESTADO
BANCO DO BRASIL
HSBC
CORPBANCA
BLADEX
DVB BANK SE
SANTANDER
97.023.000-9
0-E
0-E
97.036.000-K
Obligations with the public
0-E
BANK OF NEW YORK
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
U.S.A.
Chile
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
UF
ThUS$
ThUS$
ThUS$
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
-
-
-
U.S.A.
ThUS$
-
36,250
72,500
518,125
Guaranteed obligations
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
Other guaranteed obligations
CREDIT AGRICOLE
BNP PARIBAS
WELLS FARGO
WILMINGTON TRUST COMPANY
CITIBANK
SANTANDER
BTMU
APPLE BANK
US BANK
DEUTSCHE BANK
NATIXIS
PK AirFinance
KFW IPEX-BANK
AIRBUS FINANCIAL
INVESTEC
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.
Germany
U.S.A.
England
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
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
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
Amortization
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
Quarterly
Semiannual
Quarterly
Quarterly
626,875
500,000
At Expiration
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
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
Quarterly
Monthly
Semiannual
-
-
-
-
-
-
-
-
-
-
-
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
CREDIT AGRICOLE
France
ThUS$
1,501
4,892
268,922
-
-
275,315
256,860
At Expiration
0-E
Financial leases
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
Other loans
0-E
0-E
ING
CREDIT AGRICOLE
CITIBANK
PEFCO
BNP PARIBAS
WELLS FARGO
DVB BANK SE
RRPF ENGINE
BOEING
CITIBANK (*)
Hedging derivatives
-
-
OTROS
Total
U.S.A.
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
England
U.S.A.
U.S.A.
-
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
5,889
1,788
6,083
17,558
13,744
5,591
4,773
-
163
25,802
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
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
30,689
63,698
7,157
78,249
130,811
149,119
103,326
14,127
25,274
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
26,214
370,389
At Expiration
Quarterly
508,683
944,749
2,476,840
2,002,850
2,303,047
8,236,169
7,257,368
-
-
-
-
(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.
Effective
rate
%
Nominal
rate
%
1.85
5.23
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
7.77
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
2.85
5.62
1.85
6.40
5.39
3.69
3.98
2.57
2.35
2.35
6.00
1.85
4.43
2.39
1.91
3.08
1.79
4.06
5.14
1.86
3.55
7.25
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
2.85
4.96
1.85
5.67
4.79
3.26
3.54
2.57
2.35
2.35
6.00
FINANCIAL STATEMENTS
Consolidated Financial Statements
169
31
Clases de pasivo para el análisis del riesgo de liquidez agrupado por vencimiento al 31 de diciembre de 2016
Nombre empresa deudora: TAM S.A. y Filiales, Rut 02.012.862/0001-60, Brasil.
Rut empresa
acreedora
Nombre empresa acreedora
País de
empresa
acreedora
Descripción
de la
moneda
Hasta
90
días
MUS$
Más de
90 días
a un
año
MUS$
Más de
uno a
tres
años
MUS$
Más de
tres a
cinco
años
MUS$
Más de
cinco
años
MUS$
Total
Valor
MUS$
Total
Valor
nominal
MUS$
Tipo de
amortización
Tasa
efectiva
%
Tasa
nominal
%
Préstamos bancarios
0-E
0-E
NEDERLANDSCHE
CREDIETVERZEKERING MAATSCHAPPIJ
CITIBANK
Holanda
E.E.U.U.
Obligaciones con el Público
0-E
THE BANK OF NEW YORK
E.E.U.U.
Arrendamiento Financiero
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
AFS INVESTMENT IX LLC
DVB BANK SE
GENERAL ELECTRIC CAPITAL
CORPORATION
KFW IPEX-BANK
NATIXIS
WACAPOU LEASING S.A.
SOCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S.A
HP FINANCIAL SERVICE
SOCIÉTÉ GÉNÉRALE
Total
E.E.U.U.
E.E.U.U.
E.E.U.U.
Alemania
Francia
Luxemburgo
Italia
Brasil
Brasil
Francia
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
BRL
BRL
BRL
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
Mensual
Al Vencimiento
6.01
3.39
6.01
3.14
999,501
800,000
Al Vencimiento
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
107,443
14,754
279,335
1,031
222
519
Mensual
Mensual
Mensual
Mensual/Trimestral
Trimestral/Semestral
Trimestral
Trimestral
Mensual
Mensual
Mensual
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
FINANCIAL STATEMENTS
Consolidated Financial Statements
170
32
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Tax No.
Creditor
Trade and other accounts payables
-
OTHERS
Accounts payable to related parties currents
0-E
78.997.060-2
0-E
65.216.000-K
78.591.370-1
79.773.440-3
0-E
Consultoría Administrativa Profesional S.A. de C.V.
Viajes Falabella Ltda.
TAM Aviação Executiva e Taxi Aéreo S.A.
Comunidad Mujer
Bethia S.A. y Filiales
Transportes San Felipe S.A.
Inversora Aeronáutica Argentina
Total
Total consolidated
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
ThUS$
Nominal
value
ThUS$
Amortization
Effective
rate
%
Nominal
rate
%
OTHERS
Mexico
Chile
Brazil
Chile
Chile
Chile
Argentina
ThUS$
CLP
BRL
Others currencies
549,897
48,842
346,037
140,471
21,215
(30)
27
11,467
MXN
CLP
BRL
CLP
CLP
CLP
ThUS$
170
46
28
13
6
4
2
-
-
-
-
-
-
-
1,085,516
32,679
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
571,112
48,812
346,064
151,938
170
46
28
13
6
4
2
571,112
48,812
346,064
151,938
170
46
28
13
6
4
2
-
-
-
-
-
-
-
-
-
1,118,195
1,118,195
1,620,952
1,592,486
2,697,924
2,794,588
2,344,935
11,050,885
9,828,448
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FINANCIAL STATEMENTS
Consolidated Financial Statements
171
33
34
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 2016, the Company provided US$ 30.2 million in derivative margin guarantees, for
cash and stand-by letters of credit. At December 31, 2017, the Company had provided
US$ 16.4 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, 2017 the Company has an international
long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with stable
outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.
3.3. Estimates of fair value.
At December 31, 2017, 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 of December 31, 2017
As of December 31, 2016
Fair value measurements using values
Fair value measurements using values
considered as
considered as
Fair value
Level I
ThUS$
Level II
ThUS$
Level III
ThUS$
Fair value
ThUS$
Level I
ThUS$
Level II
ThUS$
Level III
ThUS$
Assets
Cash and cash equivalents
Short-term mutual funds
Other financial assets, current
Fair value derived interest rate
Fair value of fuel derivatives
Fair value derived from foreign currency
Interest accrued since the last payment
date of Cross Currency Swap
Private investment funds
Domestic and foreign bonds
Other financial assets, not current
Fair value derived from foreign currency
Liabilities
Other financial liabilities, current
Fair value of interest rate derivatives
Fair value of foreign currency derivatives
Interest accrued since the last payment
date of Currency Swap
Other financial liabilities, non current
Fair value of interest rate derivatives
ThUS$
29,658
29,658
536,001
3,113
10,711
48,322
202
472,232
1,421
519
519
12,200
8,919
2,092
1,189
2,617
2,617
29,658
29,658
473,653
-
-
-
-
472,232
1,421
-
-
-
-
-
-
-
-
-
-
62,348
3,113
10,711
48,322
202
-
-
519
519
12,200
8,919
2,092
1,189
2,617
2,617
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2,147
6,679
6,679
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FINANCIAL STATEMENTS
Consolidated Financial Statements
172
35
36
Additionally, at December 31, 2017, 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:
Cash and cash equivalents
Cash on hand
Bank balance
Overnight
Time deposits
Other financial assets, current
Other financial assets
Trade debtors, other accounts receivable and
Current accounts receivable
Accounts receivable from entities
related, current
Other financial assets, not current
Accounts receivable, non-current
Other current financial liabilities
Accounts payable for trade and other accounts
payable, current
Accounts payable to entities
related, current
Other financial liabilities, not current
Accounts payable, not current
As of December 31, 2017
As of December 31, 2016
Book
value
ThUS$
Fair
value
ThUS$
1,112,346
8,562
330,430
239,292
534,062
23,918
23,918
1,112,346
8,562
330,430
239,292
534,062
23,918
23,918
Book
value
ThUS$
Fair
value
ThUS$
933,805
8,630
255,746
295,060
374,369
164,426
164,426
933,805
8,630
255,746
295,060
374,369
164,426
164,426
1,214,050
1,214,050
1,107,889
1,107,889
2,582
87,571
6,891
2,582
87,571
6,891
554
102,125
8,254
554
102,125
8,254
1,288,749
1,499,495
1,814,647
2,022,290
1,695,202
1,695,202
1,593,068
1,593,068
760
6,602,891
498,832
760
6,738,872
498,832
269
6,790,273
359,391
269
6,970,375
359,391
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.
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
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, 2017, the capital gain amounts to ThUS $ 2,672,550 (ThUS $ 2,710,382 as of
December 31, 2016), while the intangible assets comprise the Airport Slots for ThUS $ 964,513
(ThUS $ 978,849 as of December 31, 2016) and Loyalty Program for ThUS $ 321,440
(ThUS $ 326,262 as of December 31, 2016).
The Company checks at least once a year whether goodwill and intangible assets with an indefinite
useful life have suffered an impairment loss. For this evaluation, the Company has identified two
cash generating units (CGU), "Air transport" and "Multiplus coalition and loyalty program". The
book value of the surplus value assigned to each CGU as of December 31, 2017 amounted to
ThUS $ 2,146,692 and ThUS $ 525,858 (ThUS $ 2,176,634 and ThUS $ 533,748
as of December 31, 2016), which include the following Intangible assets of indefinite useful life:
Air Transport
CGU
Coalition and loyalty
Program Multiplus CGU
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
Airport Slots
Loyalty program
964,513
-
978,849
-
-
321,440
-
326,262
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.
(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).
FINANCIAL STATEMENTS
Consolidated Financial Statements
173
37
38
(c) Recoverability of deferred tax assets
Deferred taxes are calculated according to the liability method, on the temporary differences that
arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets
on tax losses are recognized to the extent that it is probable that future tax benefits will be available
with which to offset the temporary differences. The Company makes financial and fiscal
projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that
these projections are consistent with
those used
As of December 31, 2017, the Company has recognized deferred tax assets of ThUS $ 364,021
(ThUS $ 384,580 as of December 31, 2016) and has ceased to recognize deferred tax assets on tax
losses of ThUS $ 81,155 (ThUS $ 115,801). December 31, 2016) (Note 18).
to measure other
long-lived assets.
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, 2017, the deferred revenue associated with the LATAM Pass loyalty program
amounts to ThUS $ 853,505 (ThUS $ 896,190 as of December 31, 2016). A hypothetical change of
one percentage point
December 31, 2017 of ThUS $ 25,000 (ThUS $ 30,632 as of December 31, 2016). While the
deferred revenues associated with the loyalty programs LATAM Fidelidade and Multiplus amount
to ThUS $ 364,866 (ThUS $ 392,107 as of December 31, 2016). A hypothetical change of two
percentage points in the number of points pending to be exchanged would result in an impact as of
December 31, 2017 of ThUS $ 16,700 (ThUS $ 14,639 as of December 31, 2016).
the exchange probability would result
in an
in
impact as of
(d) Air tickets sold that are not actually used.
The Company register 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, 2017, deferred revenue associated with air tickets sold amounted to
ThUS$ 1,550,447 (ThUS$ 1,535,229 as of December 31, 2016). 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, would have an impact of up to ThUS$ 20,000 in the
results of 2017.
(e) Valuation of loyalty points and kilometers granted to loyalty program members, pending
usage.
As of December 31, 2017 and 2016 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).
The members of these programs accumulate kilometers when they fly with LATAM Airlines Group
or any other airline member of the onewordl® program, as well as use the services of the associated
entities.
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, weighted by 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
The fair value of kilometers and other associated components are determined by the Company on
the basis of fair value analysis of them past. As of December 31, 2017 a hypothetical change of
one percentage point in the fair value of the unused kilometers would result in an impact of
ThUS$ 8,000 in 2017 (ThUS$ 8,400 in 2016).
(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.
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
174
39
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 19.4 million of members, along with being a
regulated entity with a separately business and not directly related to air transport.
FINANCIAL STATEMENTS
Consolidated Financial Statements
175
40
Air
transportation
At December 31,
Coalition and
loyalty program
Multiplus
At December 31,
2017
ThUS$
2016
ThUS$
2017
ThUS$
2016
ThUS$
Eliminations
At December 31,
2017
2016
ThUS$
ThUS$
Consolidated
At December 31,
2017
ThUS$
2016
ThUS$
9,159,031
8,587,772
4,313,287
3,726,314
1,119,430
454,876
308,937
28,184
(393,286)
4,104,348
3,372,799
1,110,625
400,568
364,551
27,287
(427,054)
(365,102)
(399,767)
454,876
-
454,876
-
67,554
240,952
50,511
-
50,511
174,197
58,380
-
58,380
(994,416)
(952,285)
(7,209)
(8,043)
(75,479)
(39,238)
(18,272)
(18,717)
748
(3,482)
(104,376)
41,931
17,430,937
14,007,916
412,846
325,513
87,333
10,069
(82,734)
(29,674)
122,129
348
(83,653)
(92,476)
(42,203)
17,805,749
14,469,505
1,481,090
1,390,730
90,360
490,983
782,957
(145)
-
(144)
(1)
-
(991)
-
(476)
(478)
(37)
158,783
152,873
(69,128)
158,783
1,373,049
563,849
(70,728)
152,873
1,400,432
572,065
-
-
-
-
-
-
-
-
400,568
-
400,568
-
-
-
-
-
-
-
-
-
65,969
(522,430)
(466,537)
9,613,907
4,313,287
4,181,190
1,119,430
-
549,889
78,695
(393,286)
(314,591)
8,988,340
4,104,348
3,773,367
1,110,625
-
538,748
74,949
(416,336)
(341,387)
(1,001,625)
(960,328)
(75,624)
(39,238)
(18,416)
(18,718)
748
155,301
(173,504)
200,714
18,797,972
14,530,736
412,846
325,513
87,333
9,078
(82,734)
(30,150)
121,651
311
69,220
(163,204)
110,670
19,198,194
15,012,890
1,481,090
1,390,730
90,360
490,983
782,957
-
-
-
-
-
-
-
-
-
-
(10,718)
10,718
-
-
-
-
-
-
-
-
-
-
(6,014)
(41,029)
-
-
(7,987)
(28,680)
-
-
-
-
-
-
-
-
For the periods ended
Income from ordinary activities from
external customers (*)
LAN passenger
TAM passenger
Freight
Income from ordinary activities from
transactions with other operating segments
Other operating income
Interest income
Interest expense
Total net interest expense
Depreciation and amortization
Material non-cash items other than
depreciation and amortization
Disposal of fixed assets and inventory losses
Doubtful accounts
Exchange differences
Result of indexation units
Income (loss) atributable to owners of the parents
Expenses for income tax
Segment profit / (loss)
Assets of segment
Segment liabilities
Amount of non-current asset additions
Property, plant and equipment
Intangibles other than goodwill
Purchase of non-monetary assets
of segment
(*) The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.
FINANCIAL STATEMENTS
Consolidated Financial Statements
176
For the periods ended
Net cash flows from
Purchases of property, plant and equipment
Additions associated with maintenance
Other additions
Purchases of intangible assets (**)
Net cash flows from (used in) operating activities
Net cash flow from (used in) investing activities
Net cash flows from (used in) financing activities
Air
transportation
At December 31,
2017
ThUS$
2016
ThUS$
403,282
218,537
184,745
79,102
1,489,797
(278,790)
(1,010,705)
693,581
197,866
495,715
84,377
827,108
(426,989)
(246,907)
41
Coalition and
loyalty program
Multiplus
At December 31,
2017
ThUS$
2016
ThUS$
Eliminations
At December 31,
2017
2016
ThUS$
ThUS$
Consolidated
At December 31,
2017
ThUS$
2016
ThUS$
384
-
384
8,216
789
-
789
4,210
186,367
(8,632)
(168,383)
154,411
(4,800)
(149,372)
-
-
-
-
(9,424)
-
-
-
-
-
-
(635)
-
-
403,666
218,537
185,129
87,318
1,666,740
(287,422)
(1,179,088)
694,370
197,866
496,504
88,587
980,884
(431,789)
(396,279)
(**) The company does not have the cash flows of intangible asset acquisitions associated with maintenance.
FINANCIAL STATEMENTS
Consolidated Financial Statements
177
42
43
The Company’s revenues by geographic area are as follows:
Cash and cash equivalents are denominated in the following currencies:
For the period ended
At December 31,
2017
ThUS$
626,316
1,113,467
900,413
676,282
359,276
3,436,402
190,268
1,527,158
784,325
2016
ThUS$
627,215
1,030,973
933,130
714,436
343,001
2,974,234
198,171
1,512,570
654,610
Peru
Argentina
U.S.A.
Europe
Colombia
Brazil
Ecuador
Chile
Asia Pacific and rest of Latin America
Income from ordinary activities
9,613,907
8,988,340
Other operating income
549,889
538,748
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
Total Cash
Cash equivalents
Time deposits
Mutual funds
Total cash equivalents
Total cash and cash equivalents
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
8,562
330,430
239,292
578,284
534,062
29,658
563,720
1,142,004
8,630
255,746
295,060
559,436
374,369
15,522
389,891
949,327
Currency
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Other currencies
Total
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
12,135
106,499
81,845
7,264
11,746
882,114
40,401
1,142,004
7,871
97,401
30,758
4,336
1,695
780,124
27,142
949,327
NOTE 7 - FINANCIAL INSTRUMENTS
7.1.
Financial instruments by category
As of December 31, 2017
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
Loans
and
receivables
ThUS$
1,112,346
23,918
1,214,050
2,582
87,077
6,891
2,446,864
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
Hedge
derivatives
ThUS$
-
62,348
-
-
519
-
62,867
Other
financial
liabilities
ThUS$
1,288,749
1,695,202
760
6,602,891
498,832
10,086,434
Held
for
trading
ThUS$
-
1,421
-
-
494
-
1,915
Held
Hedge
derivatives
ThUS$
12,200
-
-
2,617
-
14,817
Initial designation
as fair value
through
profit and loss
ThUS$
29,658
472,232
-
-
-
-
501,890
Total
ThUS$
1,142,004
559,919
1,214,050
2,582
88,090
6,891
3,013,536
Total
ThUS$
1,300,949
1,695,202
760
6,605,508
498,832
10,101,251
(*) 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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
178
44
45
As of December 31, 2016
Assets
Cash and cash equivalents
Other financial assets, current (*)
Trade and others
Loans
and
receivables
ThUS$
Hedge
derivatives
ThUS$
933.805
164.426
-
11.411
accounts receivable, current
1.107.889
Accounts receivable from
related entities, current
Other financial assets,
non current (*)
Accounts receivable, non current
Total
554
101.603
8.254
2.316.531
-
-
-
-
11.411
Held
for
trading
ThUS$
-
-
-
-
522
-
522
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
Other
financial
liabilities
ThUS$
1.814.647
1.593.068
269
6.790.273
359.391
10.557.648
Held
Hedge
derivatives
ThUS$
24.881
-
-
6.679
-
31.560
Initial designation
as fair value
through
profit and loss
ThUS$
15.522
536.991
-
-
-
-
552.513
Total
ThUS$
1.839.528
1.593.068
269
6.796.952
359.391
10.589.208
Total
ThUS$
949.327
712.828
1.107.889
554
102.125
8.254
2.880.977
(*) 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.
7.2.
Financial instruments by currency
a) Assets
Cash and cash equivalents
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Other currencies
Other financial assets (current and non-current)
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Other currencies
Trade and other accounts receivable, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Other currencies (*)
Accounts receivable, non-current
Brazilian real
Chilean peso
Accounts receivable from related entities, current
Brazilian real
Chilean peso
US Dollar
Total assets
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
US Dollar
Other currencies
As of
As of
December 31,
2017
ThUS$
December 31,
2016
ThUS$
1,142,004
12,135
106,499
81,845
7,264
11,746
882,114
40,401
648,009
297
475,810
26,679
1,928
7,853
133,431
2,011
1,214,050
49,958
635,890
83,415
3,249
48,286
257,324
135,928
6,891
4
6,887
2,582
2
735
1,845
3,013,536
62,390
1,218,205
199,561
12,441
67,885
1,274,714
178,340
949,327
7,871
97,401
30,758
4,336
1,695
780,124
27,142
814,953
337
686,501
668
1,023
6,966
117,346
2,112
1,107,889
82,770
551,260
92,791
16,454
21,923
312,394
30,297
8,254
4
8,250
554
-
554
-
2,880,977
90,978
1,335,166
133,021
21,813
30,584
1,209,864
59,551
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
179
46
47
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT,
AND NON-CURRENT ACCOUNTS RECEIVABLE
Currency balances that make up the Trade and other accounts receivable and non-current accounts
receivable are the following:
Trade accounts receivable
Other accounts receivable
Total trade and other accounts receivable
Less: Allowance for impairment loss
Total net trade and accounts receivable
Less: non-current portion – accounts receivable
Trade and other accounts receivable, current
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
1,175,796
133,054
1,308,850
(87,909)
1,220,941
(6,891)
1,214,050
1,022,933
170,264
1,193,197
(77,054)
1,116,143
(8,254)
1,107,889
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
Matured accounts receivable, but not impaired
Expired from 1 to 90 days
Expired from 91 to 180 days
More than 180 days overdue (*)
Total matured accounts receivable, but not impaired
Matured accounts receivable and impaired
Judicial, pre-judicial collection and protested documents
Debtor under pre-judicial collection process and
portfolio sensitization
Total matured accounts receivable and impaired
Total
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
1,040,671
907,358
34,153
10,141
2,922
47,216
27,651
9,303
1,567
38,521
43,175
34,909
44,734
87,909
42,145
77,054
1,175,796
1,022,933
(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their
ability to recover, therefore not requiring a provision.
Currency
Argentine Peso
Brazilian Real
Chilean Peso
Colombian peso
Euro
US Dollar
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,
2017
ThUS$
As of
December 31,
2016
ThUS$
49,958
635,894
90,302
3,249
48,286
257,324
135,928
82,770
551,264
101,041
16,454
21,923
312,394
30,297
1,220,941
1,116,143
40,303
37
197
5,068
3,277
18,756
133
2,430
18,225
2,983
44,519
135,928
5,487
271
151
3,904
303
2,601
184
1,512
4,241
662
10,938
30,254
The Company records allowances when there is evidence of impairment of trade receivables. The
criteria used to determine that there is objective evidence of impairment losses are the maturity of
the portfolio, specific acts of damage (default) and specific market signals.
Maturity
Judicial and pre-judicial collection assets
Over 1 year
Between 6 and 12 months
Impairment
100%
100%
50%
FINANCIAL STATEMENTS
Consolidated Financial Statements
180
48
49
Movement in the allowance for impairment loss of Trade and other accounts receivables are the
following:
NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
Periods
From January 1 to December 31, 2016
From January 1 to December 31, 2017
Opening
balance
ThUS$
(60,072)
(77,054)
Write-offs
ThUS$
20,910
8,249
(Increase)
Decrease
ThUS$
(37,892)
(19,104)
Closing
balance
ThUS$
(77,054)
(87,909)
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, 2017
As of December 31, 2016
Gross exposure
according to
balance
ThUS$
Gross
impaired
exposure
ThUS$
Exposure net
of risk
concentrations
Gross exposure
according to
balance
ThUS$
ThUS$
Gross
Impaired
exposure
ThUS$
Exposure net
of risk
concentrations
ThUS$
Trade accounts receivable
Other accounts
receivable
1,175,796
(87,909)
1,087,887
1,022,933
(77,054)
945,879
133,054
-
133,054
170,264
-
170,264
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.
(a)
Accounts Receivable
Tax No.
Related party
Relationship
of origin
Currency
Country
Foreign
Qatar Airways
Indirect shareholder
78.591.370-1
Bethia S.A. and Subsidiaries
Related director
Foreign
TAM Aviação Executiva e
Taxi Aéreo S.A.
Related director
87.752.000-5 Granja Marina Tornagaleones S.A.
Common shareholder
Qatar
Chile
Brazil
Chile
ThU$
CLP
BRL
CLP
96.810.370-9
Inversiones Costa Verde
Ltda. y CPA.
Total current assets
(b)
Accounts payable
Related director
Chile
CLP
As of
December 31,
As of
December 31,
2017
ThUS$
2016
ThUS$
1,845
728
2
5
2
2,582
-
538
-
14
2
554
Tax No.
Related party
Relationship
Country
of origin
Currency
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
78.997.060-2
78.591.370-1
Foreign
65.216.000-K
Foreign
Foreign
Viajes Falabella Ltda.
Bethia S.A. and Subsidiaries
Inversora Aeronáutica Argentina S.A.
Comunidad Mujer
Consultoría Administrativa
Profesional S.A. de C.V.
TAM Aviação Executiva
e Taxi Aéreo S.A.
79.773.440-3
Transportes San Felipe S.A
Related director
Related director
Related director
Related director
Chile
Chile
Argentina
Chile
CLP
CLP
ThUS$
CLP
Related company
México
MXN
Related director
Common property
Brazil
Chile
BRL
CLP
Total current liabilities
534
12
4
-
210
-
-
760
46
6
2
13
170
28
4
269
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
181
50
51
NOTE 10 -INVENTORIES
The composition of Inventories is as follows:
Technical stock
Non-technical stock
Total
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
195,530
41,136
236,666
191,864
49,499
241,363
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,
2017
ThUS$
As of
December 31,
2016
ThUS$
21,839
6,488
28,327
31,647
3,429
35,076
The resulting amounts do not exceed the respective net realization values.
As of December 31, 2017, the Company recorded ThUS$ 155,421 (ThUS$ 167,365 at
December 31, 2016) within the income statement, mainly due to in-flight consumption and
maintenance, which forms part of Cost of sales.
NOTE 11 - OTHER FINANCIAL ASSETS
The composition of other financial assets is as follows:
Current Assets
Non-current assets
Total Assets
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
472.232
15.690
2.197
-
1.421
6.031
-
497.571
202
3.113
48.322
10.711
62.348
559.919
536.991
16.819
939
-
-
140.733
5.935
701.417
64
-
1.259
10.088
11.411
712.828
-
41.058
-
494
-
46.019
-
87.571
-
-
519
-
519
-
56.846
-
522
-
44.757
-
102.125
-
-
-
-
-
88.090
102.125
472.232
56.748
2.197
494
1.421
52.050
-
585.142
202
3.113
48.841
10.711
62.867
648.009
536.991
73.665
939
522
-
185.490
5.935
803.542
64
-
1.259
10.088
11.411
814.953
(a) Other financial assets
Private investment funds
Deposits in guarantee (aircraft)
Guarantees for margins of derivatives
Other investments
Domestic and foreign bonds
Other guarantees given
Other
Subtotal of other financial assets
(b) Hedging assets
Interest accrued since the last payment date
of Cross currency swap
Fair value of interest rate derivatives
Fair value of foreign currency derivatives
Fair value of fuel price derivatives
Subtotal of hedging assets
Total Other Financial Assets
The types of derivative hedging contracts maintained by the Company at the end of each period are
described in Note 19.
FINANCIAL STATEMENTS
Consolidated Financial Statements
182
52
53
NOTE 12 - OTHER NON-FINANCIAL ASSETS
The composition of other non-financial assets is as follows:
Current assets
As of
As of
Non-current assets
As of
As of
December 31, December 31,
December 31, December 31,
2017
2016
2017
2016
Total Assets
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
(a) Advance payments
Aircraft leases
Aircraft insurance and other
Others
Subtotal advance payments
(b) Other assets
Aircraft maintenance reserve (*)
Sales tax
Other taxes
Contributions to Société Internationale
de Télécommunications Aéronautiques ("SITA")
Judicial deposits
Others
Subtotal other assets
Total Other Non - Financial Assets
31,322
17,681
10,012
59,015
21,505
137,866
2,475
327
-
-
162,173
221,188
37,560
14,717
4,521
56,798
51,576
102,351
500
406
-
611
155,444
212,242
4,718
-
1,186
5,904
51,836
37,959
-
670
124,438
-
214,903
220,807
14,065
-
1,573
15,638
90,175
40,232
-
591
90,604
104
221,706
237,344
36,040
17,681
11,198
64,919
73,341
175,825
2,475
997
124,438
-
377,076
441,995
51,625
14,717
6,094
72,436
141,751
142,583
500
997
90,604
715
377,150
449,586
(*) 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. The cost of aircraft maintenance in the last
years has been higher than the related maintenance reserves for all aircraft.
As of December 31, 2017, maintenance reserves total ThUS $ 73,341 (ThUS $ 141,751 as of
December 31, 2016), corresponding to 14 aircraft that maintain remaining balances, which will be
settled 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)
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR
SALE
Non-current assets and in disposal groups held for sale at December 31, 2017 and December 31,
2016 are detailed below:
Current assets
Aircraft
Engines and rotables
Other assets
Total
Current liabilities
Other liabilities
Total
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
236,022
9,197
45,884
291,103
15,546
15,546
281,158
29,083
26,954
337,195
10,152
10,152
The balances are presented at the lower of book value and fair value less cost to sell. The fair value
of these assets was 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.
Assets reclassified from Property, plant and equipment to Non-current assets or groups of
(a)
assets for disposal classified as held for sale
During 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 under the heading
Non-current assets were transferred from the Property, plant and equipment heading. or groups of
assets for disposal, classified as held for sale.
As a result, as of December 31, 2016, an adjustment of US $ 55 million was recorded to write down
these assets to their net.
During 2016, two Airbus A319 aircraft, one Airbus A320 aircraft, two Airbus A330 aircraft, one
A330 spare engine and D200 rotables were sold.
During 2017, an adjustment of US $ 17.4 million was recognized to record these assets at their net
realizable value.
In addition, during 2017 seven Airbus A330 Spare engines and two Airbus A330 aircraft were sold.
FINANCIAL STATEMENTS
Consolidated Financial Statements
183
54
The detail of fleet classified as non-current assets or groups of assets for disposal classified as held
for sale is the following:
As of
December 31,
2017
As of
December 31,
2016
Aircraft
Boeing 777 Freighter
Airbus A330-200
Airbus A320-200
ATR42-300
Total
(*) One aircraft leased to DHL.
(*)
2
1
1
1
5
(*)
2
3
1
1
7
Assets reclassified from Inventories to Non-current assets or groups of assets for disposal
(b)
classified as held for sale
During in the first quarter of 2017, stocks of the fleet Airbus A330, were reclassified from
Inventories to Non-current assets or groups of assets for disposal classified as held for sale.
During 2017 an adjustment of US $ 1.3 million was recognized to record these assets at their net
realizable value.
In addition, during 2017 there was the partial sale of A330 inventory.
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
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.
Aerovías de Integración Regional, AIRES S.A.
TAM S.A.
Country of
Functional
incorporation
currency
Peru
Chile
Argentina
Chile
Ecuador
Colombia
Brazil
US$
US$
ARS
US$
US$
COP
BRL
Ownership
As of
December 31,
As of
December 31,
2017
%
70.00000
99.89803
99.86560
100.00000
100.00000
99.19061
99.99938
2016
%
70.00000
99.89803
99.86560
100.00000
100.00000
99.19061
99.99938
The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.
FINANCIAL STATEMENTS
Consolidated Financial Statements
184
55
Summary financial information of significant subsidiaries
Name of significant subsidiary
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales
del Ecuador S.A.
Aerovías de Integración Regional,
AIRES S.A.
TAM S.A. (*)
Name of significant subsidiary
Lan Perú S.A.
Lan Cargo S.A.
Lan Argentina S.A.
Transporte Aéreo S.A.
Aerolane Líneas Aéreas Nacionales
del Ecuador S.A.
Aerovías de Integración Regional,
AIRES S.A.
TAM S.A. (*)
Total
Assets
ThUS$
315,607
584,169
198,951
324,498
Statement of financial position as of December 31, 2017
Current
Assets
ThUS$
294,308
266,836
166,445
30,909
Non-current
Assets
Total
Liabilities
Current
Liabilities
ThUS$
21,299
317,333
32,506
293,589
ThUS$
303,204
371,934
143,731
104,357
ThUS$
301,476
292,529
139,914
36,901
96,407
66,166
30,241
84,123
78,817
Non-current
Liabilities
ThUS$
1,728
79,405
3,817
67,456
5,306
138,138
4,490,714
64,160
1,843,822
73,978
2,646,892
91,431
3,555,423
80,081
2,052,633
11,350
1,502,790
Total
Assets
ThUS$
306,111
480,908
216,331
340,940
Statement of financial position as of December 31, 2016
Current
Assets
ThUS$
283,691
144,309
194,306
36,986
Non-current
Assets
Total
Liabilities
ThUS$
ThUS$
22,420
336,599
22,025
303,954
294,912
239,728
200,172
124,805
Current
Liabilities
ThUS$
293,602
211,395
197,330
59,668
89,667
56,064
33,603
81,101
75,985
Non-current
Liabilities
ThUS$
1,310
28,333
2,842
65,137
5,116
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
Results for the period
ended December 31, 2017
Revenue
ThUS$
1,046,423
264,544
387,557
317,436
219,039
279,414
4,621,338
Net
Income
ThUS$
1,205
(30,220)
(41,636)
2,172
3,722
526
160,582
Results for the period
ended December 31, 2016
Revenue
ThUS$
967,787
266,296
371,896
297,247
219,676
Net
Income
ThUS$
(2,164)
(24,813)
(29,572)
8,206
(1,281)
(13,675)
2,107
FINANCIAL STATEMENTS
Consolidated Financial Statements
185
56
(b) Non-controlling interest
Equity
Tax No.
Country
of origin
As of
December 31,
2017
As of
December 31,
2016
%
%
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
Lan Perú S.A
Lan Cargo S.A. and Subsidiaries
Promotora Aérea Latinoamericana S.A. and Subsidiaries
Inversora Cordillera S.A. and Subsidiaries
Lan Argentina S.A.
Americonsult de Guatemala S.A.
Americonsult Costa Rica S.A.
Linea Aérea Carguera de Colombiana S.A.
Aerolíneas Regionales de Integración Aires S.A.
Transportes Aereos del Mercosur 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
Peru
Chile
Mexico
Argentina
Argentina
Guatemala
Costa Rica
Colombia
Colombia
Paraguay
Brazil
30.00000
0.10196
51.00000
0,13940
0,02842
1.00000
1.00000
10.00000
0.80944
5.02000
27.26000
30.00000
0.10196
51.00000
0.70422
0.13440
1.00000
1.00000
10.00000
0.80944
5.02000
27.26000
3,722
849
4,578
3,502
79
1
12
(520)
461
1,324
77,139
91,147
3,360
957
3,162
515
(311)
1
12
(905)
436
1,104
80,313
88,644
Tax No.
Country
of origin
As of
December 31,
2017
%
As of
December 31,
2016
%
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
Total
Incomes
Lan Perú S.A
Lan Cargo S.A. and Subsidiaries
Promotora Aerea Latinoamericana S.A. and Subsidiaries
Inversora Cordillera S.A. and Subsidiaries
Lan Argentina S.A.
Americonsult de Guatemala S.A.
Linea Aérea Carguera de Colombiana S.A.
Aerolíneas Regionales de Integración Aires S.A.
Transportes Aereos del Mercosur S.A.
Multiplus S.A.
Total
0-E
93.383.000-4
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
Peru
Chile
Mexico
Argentina
Argentina
Guatemala
Colombia
Colombia
Paraguay
Brazil
30.00000
0.10196
51.00000
0,13940
0,02842
1.00000
10.00000
0.80944
5.02000
27.26000
30.00000
0.10196
51.00000
0.70422
0.13440
1.00000
10.00000
0.80944
5.02000
27.26000
360
(4)
1,416
117
24
-
398
4
299
42,796
45,410
(649)
(7)
96
364
77
(4)
(106)
(140)
146
41,673
41,450
FINANCIAL STATEMENTS
Consolidated Financial Statements
186
57
58
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
Classes of intangible assets
(net)
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
Classes of intangible assets
(gross)
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
964,513
321,440
160,970
123,415
46,909
-
978,849
326,262
157,016
91,053
57,133
-
964,513
321,440
509,377
123,415
62,539
-
978,849
326,262
419,652
91,053
63,730
808
1,617,247
1,610,313
1,981,284
1,880,354
Airport slots
Loyalty program
Computer software
Developing software
Trademarks (1)
Other assets
Total
Movement in Intangible assets other than goodwill:
Opening balance as of January 1, 2016
Additions
Withdrawals
Transfer software
Foreing exchange
Amortization
Closing balance as of
December 31, 2016
Opening balance as of January 1, 2017
Additions
Withdrawals
Transfer software
Foreing exchange
Amortization
Closing balance as of
December 31, 2017
Computer
software
Net
Developing
software
ThUS$
ThUS$
Airport
slots (2)
ThUS$
Trademarks
and loyalty
program (1) ( 2)
ThUS$
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)
Total
ThUS$
1,321,425
90,360
(927)
10,653
239,059
(50,257)
157,016
91,053
978,849
383,395
1,610,313
157,016
8,453
(244)
45,783
(1,215)
(48,823)
91,053
78,880
(684)
(45,580)
(254)
-
978,849
-
-
-
(14,336)
-
383,395
-
-
-
(5,459)
(9,587)
1,610,313
87,333
(928)
203
(21,264)
(58,410)
160,970
123,415
964,513
368,349
1,617,247
(1) In 2016, after the extensive work of integration after the association 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
The amortization of the period is shown in the consolidated statement of income in
administrative expenses. The accumulated amortization of computer programs and brands as of
December 31, 2017, amounts to ThUS$ 373,463 (ThUS$ 270,041 at December 31, 2016).
NOTE 16 – GOODWILL
The Goodwill amount at December 31, 2017 is ThUS$ 2,672,550 (ThUS$ 2,710,382 at
December 31, 2016 and 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, 2016
Increase (decrease) due to exchange rate differences
Others
Closing balance as of December 31, 2016
Opening balance as of January 1, 2017
Increase (decrease) due to exchange rate differences
Closing balance as of December 31, 2017
Coalition
and loyalty
program
Multiplus
ThUS$
445,487
88,261
-
533,748
533,748
(7,890)
525,858
Air
Transport
ThUS$
1,835,088
341,813
(267)
2,176,634
2,176,634
(29,942)
2,146,692
Total
ThUS$
2,280,575
430,074
(267)
2,710,382
2,710,382
(37,832)
2,672,550
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 after taxes 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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
187
59
60
As of December 31, 2017 the recoverable values were determined using the following assumptions
presented below:
Air transportation
CGU
Coalition and loyalty
program Multiplus CGU (2)
Annual growth rate (Terminal)
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
%
R$/US$
%
%
1.0 - 2.0
3.3 - 3.9
7.55 - 8.55
-
commodities markets
US$/barrel
73-78
4.0 - 5.0
3.3 - 3.9
-
12.4 - 13.4
-
(1) In line with the expectations of the Central Bank of Brazil
(2) The flow, as well as annual growth rte and discount, are denominated in real.
The result of the impairment test, which includes a sensitivity analysis of the main variables,
showed that the estimated recoverable amount is higher than carrying value of the book value of net
assets allocated to the cash generating unit, and therefore impairment was not detected.
CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity
analysis included the individual impact of changes in estimates critical in determining the
recoverable amounts, namely:
Air transportation CGU
Coalition and loyalty program Multiplus CGU
Increase
Maximum
WACC
%
8.55
-
Increase
Maximum
CoE
%
-
13.4
Decrease
Minimum
terminal
growth rate
%
1.0
4.0
In none of the previous cases impairment in the cash- generating unit was presented.
As of December 31, 2017, no signs of deterioration have been identified for the CGU Multiplus
Coalition and Loyalty Program and for the UGE Transporte Aéreo that require a deterioration test.
NOTE 17 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and equipment is as follows:
Gross Book Value
Acumulated depreciation
Net Book Value
As of
As of
As of
As of
As of
As of
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2017
ThUS$
556,822
49,780
190,552
9,222,540
8,544,185
678,355
39,084
166,713
186,989
70,290
186,679
3,640,838
3,551,041
89,797
14,310,287
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
14,486,764
2017
ThUS$
-
-
(66,004)
(2,390,142)
(2,138,612)
(251,530)
(29,296)
(136,557)
(106,212)
(58,812)
(102,454)
(1,355,475)
(1,328,421)
(27,054)
(4,244,952)
2016
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)
2017
ThUS$
556,822
49,780
124,548
6,832,398
6,405,573
426,825
9,788
30,156
80,777
11,478
84,225
2,285,363
2,222,620
62,743
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
(3,988,615)
10,065,335
10,498,149
Construction in progress (*)
Land
Buildings
Plant and equipment
Own aircraft
Other (**)
Machinery
Information technology equipment
Fixed installations and accessories
Motor vehicles
Leasehold improvements
Other property, plants and equipment
Financial leasing aircraft
Other
Total
(*) As of December 31, 2017, includes pre-delivery payments to aircraft manufacturers for ThUS$ 543,720 (ThUS$ 434,250 as of
December 31, 2016)
(**) Mainly considers rotable and tools.
FINANCIAL STATEMENTS
Consolidated Financial Statements
188
61
(a) Movement in the different categories of Property, plant and equipment:
Construction
in progress
ThUS$
Land
ThUS$
Buildings
net
ThUS$
Plant and
equipment
net
ThUS$
Information
technology
equipment
net
ThUS$
Fixed
installations
& accessories
net
ThUS$
Motor
vehicles
net
ThUS$
Leasehold
improvements
net
ThUS$
Other
property,
plant and
equipment
net
ThUS$
Property,
Plant and
equipment
net
ThUS$
Opening balance as of January 1, 2016
Additions
Disposals
Retirements
Depreciation expenses
Foreing exchange
Other increases (decreases)
Changes, total
Closing balance as of December 31, 2016
Opening balance as of January 1, 2017
Additions
Disposals
Retirements
Depreciation expenses
Foreing exchange
Other increases (decreases)
Changes, total
1,142,812
14,481
-
(284)
-
5,081
(692,025)
(672,747)
470,065
470,065
11,145
-
(127)
-
107
75,632
86,757
45,313
-
-
-
-
4,835
-
4,835
50,148
50,148
-
-
-
-
(368)
-
(368)
91,491
272
-
(68)
(6,234)
2,538
42,220
38,728
130,219
130,219
-
-
(6)
(7,946)
(275)
2,556
(5,671)
(1)
(2)
7,341,075
1,301,093
(16,918)
(39,816)
(562,131)
51,770
(285,198)
448,800
7,789,875
7,789,875
258,615
(16,004)
(24,341)
(496,857)
(4,603)
(653,457)
(936,647)
Closing balance as of December 31, 2017
556,822
49,780
124,548
6,853,228
43,889
7,392
(59)
(55)
(14,909)
2,924
532
(4,175)
39,714
39,714
5,708
(6)
(473)
(14,587)
(183)
(17)
(9,558)
30,156
88,958
292
-
(1,258)
(13,664)
9,384
200
(5,046)
83,912
83,912
329
(10)
(497)
(14,124)
(820)
11,987
(3,135)
80,777
1,525
6
(32)
-
(293)
223
(384)
(480)
1,045
1,045
77
(43)
-
(187)
(8)
(448)
(609)
436
54,088
54,181
-
-
(23,283)
2,849
16,706
50,453
104,541
104,541
8,156
-
-
(27,266)
(243)
(963)
(20,316)
84,225
2,129,506
13,013
(2,972)
(2,604)
(124,038)
93,383
(277,658)
(300,876)
1,828,630
1,828,630
41,483
(27)
(1,610)
(204,237)
(5,113)
626,237
456,733
2,285,363
10,938,657
1,390,730
(19,981)
(44,085)
(744,552)
172,987
(1,195,607)
(440,508)
10,498,149
10,498,149
325,513
(16,090)
(27,054)
(765,204)
(11,506)
61,527
(432,814)
10,065,335
(1) During 2016 the sale of two Airbus A330 aircraft was materialized.
(2) During 2016 the reclassification to non-current assets or groups of assets for disposal classified as held for sale (see Note 13) of two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330
aircraft and two Boeing 777 aircraft was materialized.
FINANCIAL STATEMENTS
Consolidated Financial Statements
189
62
63
(b)
Composition of the fleet:
Aircraft included
in Property,
plant and equipment
Operating
leases
Total
fleet
Aircraft
Model
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
Boeing 767
Boeing 767
Boeing 777
Boeing 777
Boeing 787
Boeing 787
Airbus A319
Airbus A320
Airbus A320
Airbus A321
Airbus A350
Total
300ER
300F
300ER
Freighter
800
900
100
200
NEO
200
900
34
8
4
-
6
4
37
93
1
30
5
(1)
(2)
(3)
(1)
34
8
4
-
6
4
36
93
1
30
5
222
221
2
2
6
-
4
10
9
38
3
17
2
93
(3)
3
3
6
2
4
8
12
53
1
17
2
111
(1) Two aircraft leased to FEDEX as of December 2017; three aircraft as of December 2016.
(2) Three aircraft leased to Salam Air and one to Sundair
(3) Four aircraft leased to Qatar Air. Two in operating leases and two in Properties, plant and equipment.
(c)
Method used for the depreciation of Property, plant and equipment:
(1)
(2)
(3)
36
10
10
-
10
14
46
131
4
47
7
315
(1)
37
11
10
2
10
12
48
146
2
47
7
332
Buildings
Plant and equipment
Information technology
equipment
Fixed installations and accessories
Motor vehicle
Leasehold improvements
Other property, plant
and equipment
Method
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. (*)
Useful life (years)
minimum
maximum
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.
As of December 31, 2017, the deferred charge for the period, which is included in the consolidated
statement of income, amounts to ThUS $ 765,204 (ThUS $ 744,552 as of December 31, 2016). This
charge is recognized in the items of cost of sales and administrative expenses of the consolidated
statement of income.
(d) Additional information regarding Property, plant and equipment:
(i) Property, plant and equipment pledged as guarantee:
Description of Property, plant and equipment pledged as guarantee:
As of
December 31,
2017
As of
December 31,
2016
Guarantee
agent (*)
Assets
committed
Fleet
Existing
Debt
ThUS$
Book
Value
ThUS$
Existing
Debt
ThUS$
Wilmington
Trust Company
Aircraft and engines
Banco Santander S.A.
Aircraft and engines
BNP Paribas
Aircraft and engines
Credit Agricole
Aircraft and engines
Airbus A321 / A350
Boeing 767
Boeing 787
Airbus A319
Airbus A320
Airbus A321
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Airbus A321
Wells Fargo
Bank of Utah
Natixis
Aircraft and engines
Airbus A320
Aircraft and engines
Airbus A320 / A350
Aircraft and engines
Airbus A320
Airbus A321
Airbus A320
Airbus A321
Airbus A319
Airbus A320
Airbus A319
Airbus A320
Citibank N. A.
Aircraft and engines
KfW IPEX-Bank
Aircraft and engines
Airbus Financial Services
Aircraft and engines
PK AirFinance US, Inc.
Aircraft and engines
JP Morgan
Banco BBVA
Total direct guarantee
Aircraft and engines
Boeing 777 (1)
Land and buildings (2)
637,934
593,655
720,267
-
-
199,165
29,296
-
84,767
110,267
-
20,874
46,895
30,322 -
-
224,786
614,632
-
34,592
378,418
-
94,882
36,026
-
-
5,592
21,296
22,927
-
46,500
-
169,674
-
55,801
721,602
888,948
842,127
-
-
291,649
40,584
-
136,407
175,650
38,826
98,098
85,463
-
-
306,660
-
666,665
-
72,388
481,397
-
141,817
72,741
-
-
5,505
30,513
-
26,973
-
56,539
-
216,000
-
66,876
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
192,671
50,381
4,178,568
5,463,428
4,958,831
6,606,656
(*) Due to the characteristics of a syndicated loan, the guarantee agent is the representative of the
creditors.
(1) These assets are classified under Non-current assets and disposal group classified as held for
sale
(2) Corresponds to a debt classified in item loans to exporters (see Note 19).
The amounts of existing debt are presented at nominal value. Book value corresponds to the
carrying value of the goods provided as guarantees.
Book
Value
ThUS$
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
236,400
69,498
FINANCIAL STATEMENTS
Consolidated Financial Statements
190
64
65
Additionally, there are indirect guarantees related to assets recorded in Property, plant and
equipment whose
(ThUS$ 913,494 at December 31, 2016). The book value of assets with indirect guarantees as of
December 31, 2017 amounts to ThUS$ 2,222,620 (ThUS$ 1,740,815 as of December 31, 2016).
total debt at December 31, 2017 amounted
to ThUS$ 1,087,052
(ii)
Commitments and others
Fully depreciated assets and commitments for future purchases are as follows:
Gross book value of fully depreciated property,
plant and equipment still in use
As of
December 31,
2017
ThUS$
136,811
As of
December 31,
2016
ThUS$
116,386
Commitments for the acquisition of aircraft (*)
15,400,000
15,100,000
(*) Acording to the manufacturer’s price list.
Purchase commitment of aircraft
Manufacturer
Airbus S.A.S.
A320-NEO
A321
A321-NEO
A350-1000
A350-900
The Boeing Company
Boeing 777
Boeing 787-9
Total
2018
2019
Year of delivery
2020
2021
2022
Total
13
7
-
2
-
4
-
-
-
13
11
3
1
3
-
4
6
2
4
17
16
9
-
5
2
-
2
-
2
18
21
8
-
5
8
-
2
-
2
23
11
5
-
4
2
-
-
-
-
11
72
32
1
19
12
8
10
2
8
82
As of December 31, 2017, as a result of the different aircraft purchase agreements signed with
Airbus SAS, there remain 52 Airbus aircraft of the A320 family, with deliveries between 2018 and
2022, and 20 Airbus aircraft of the A350 family with dates of delivery between 2018 and 2022.
The approximate amount is ThUS$ 12,600,000, according to the manufacturer’s price list.
As of December 31, 2017, as a result of the different aircraft purchase agreements signed with The
Boeing Company, there are 8 Boeing 787 Dreamliner aircraft remaining, with delivery dates
between 2019 and 2021, and 2 Boeing 777 aircraft, with delivery scheduled for the year 2019.
The approximate amount, according to the manufacturer's list prices, is ThUS $ 2,800,000.
(iii)
Capitalized interest costs with respect to Property, plant and equipment.
For the periods ended
December 31,
2017
2016
Average rate of capitalization of
capitalized interest costs
Costs of capitalized interest
%
ThUS$
4.21
11,053
3.54
(696)
(iv) Financial leases
The detail of the main financial leases is as follows:
Lessor
Bandurria Leasing Limitd
Bandurria Leasing Limitd
Becacina Leasing LLC
Caiquen Leasing LLC
Cernicalo Leasing LLC
Cisne Leasing LLC
Codorniz Leasing Limited
Conure Leasing Limited
Flamenco Leasing LLC
FLYAFI 1 S.R.L.
FLYAFI 2 S.R.L.
FLYAFI 3 S.R.L.
Garza Leasing LLC
General Electric Capital Corporation
Intraelo BETA Corpotation (KFW)
Jilguero Leasing LLC
Loica Leasing Limited
Loica Leasing Limited
Mirlo Leasing LLC
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)
NBB São Paulo Lease CO. Limited (BBAM)
Osprey Leasing Limited
Patagon Leasing Limited
Petrel Leasing LLC
Pilpilen Leasing Limited
Pochard Leasing LLC
Quetro Leasing LLC
SG Infraestructure Italia S.R.L.
SL Alcyone LTD (Showa)
Torcaza Leasing Limited
Tricahue Leasing LLC
Wacapou Leasing S.A
Wells Fargo Bank North National Association
Aircraft
Model
As of
December 31,
2017
As of
December 31,
2016
Airbus A319
Airbus A320
Boeing 767
Boeing 767
Boeing 767
Boeing 767
Airbus A319
Airbus A320
Boeing 767
Boeing 777
Boeing 777
Boeing 777
Boeing 767
Airbus A330
Airbus A320
Boing B767
Airbus A319
Airbus A320
Boeing 767
Airbus A320
Airbus A321
Airbus A319
Airbus A319
Boeing 767
Airbus A320
Boeing 767
Boeing 767
Boeing 777
Airbus A320
Airbus A320
Boeing 767
Airbus A320
Airbus A319
100
200
300ER
300F
300F
300ER
100
200
300ER
300ER
300ER
300ER
300ER
200
200
300ER
100
200
300ER
200
200
100
100
300ER
200
300ER
300ER
300ER
200
200
300ER
200
100
3
4
1
1
-
2
-
2
1
1
1
1
1
-
-
3
2
2
1
1
1
8
3
1
-
2
3
1
1
8
3
1
1
-
-
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
-
Total
60
50
FINANCIAL STATEMENTS
Consolidated Financial Statements
191
66
67
Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration
between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.
Additionally, the lessee will have the obligation to contract and maintain active the insurance
coverage for the aircrafts, perform maintenance on the aircrafts and update the airworthiness
certificates at their own cost.
The assets acquired under the financial leasing modality are classified under Other property, plant
and equipment. As of December 31, 2017, the Company registered sixty aircraft under this modality
(fifty aircraft as of December 31, 2016).
The book value of assets under financial leases as of December 31, 2017 amounts to
ThUS$ 2,107,526 (ThUS$ 1,753,366 at December 31, 2016).
The minimum payments under financial leases are as follows:
As of December 31, 2017
As of December 31, 2016
Gross
Value
ThUS$
303,863
835,696
36,788
Interest
ThUS$
(32,447)
(30,050)
(816)
Present
Value
ThUS$
271,416
805,646
35,972
Gross
Value
ThUS$
285,168
704,822
43,713
Interest
ThUS$
(32,365)
(43,146)
(120)
Present
Value
ThUS$
252,803
661,676
43,593
No later than one year
Between one and five years
Over five years
Total
1,176,347
(63,313)
1,113,034
1,033,703
(75,631)
958,072
NOTE 18 - CURRENT AND DEFERRED TAXES
In the period ended December 31, 2017, the income tax provision was calculated for such period,
applying the rate of 25.5% for the business year 2017, 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.
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.
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.
(a)
Current taxes
(a.1) The composition of the current tax assets is the following:
Current assets
Non-current assets
Total assets
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Provisional monthly
payments (advances)
Other recoverable credits
Total assets by current tax
65,257
12,730
77,987
43,821
21,556
65,377
-
17,532
17,532
-
20,272
20,272
65,257
30,262
95,519
43,821
41,828
85,649
(a.2) The composition of the current tax liabilities are as follows:
Current liabilities
Non-current liabilities
Total liabilities
As of
December 31,
2017
ThUS$
3,511
-
3,511
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
9,632
4,654
14,286
ThUS$
ThUS$
ThUS$
-
-
-
-
-
-
3,511
-
3,511
ThUS$
9,632
4,654
14,286
Income tax provision
Additional tax provision
Total liabilities by current tax
(b) Deferred taxes
The balances of deferred tax are the following:
Concept
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial instruments
Tax losses
Intangibles
Others
Total
Assets
Liabilities
As of
December 31,
2017
As of
December 31,
2016
ThUS$
210,855
(103,201)
(484)
(9,771)
(734)
290,973
-
(23,617)
364,021
ThUS$
11,735
(35,922)
(15,820)
222,253
-
202,536
-
(202)
384,580
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
#
1,401,277
275,142
54,335
690
(4,484)
(1,188,586)
406,536
4,787
949,697
1,387,760
203,836
61,660
(59,096)
(3,223)
(1,126,200)
430,705
20,317
915,759
The balance of deferred tax assets and liabilities are composed primarily of temporary differences to
be reversed in the long term.
FINANCIAL STATEMENTS
Consolidated Financial Statements
192
68
69
Movements of Deferred tax assets and liabilities
Deferred tax expense and current income taxes:
(a)
From January 1 to December 31, 2016
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial instruments
Tax losses (*)
Intangibles
Others
Opening
balance
Recognized in
Recognized in
Exchange
consolidated
comprehensive
rate
Assets/(liabilities)
income
ThUS$
(1,130,991)
(251,302)
(71,164)
378,537
8,284
1,009,782
(364,314)
(13,802)
ThUS$
(241,435)
14,833
(4,375)
(149,969)
28,294
304,892
4,131
(30,185)
income
ThUS$
-
-
-
921
(34,695)
-
-
-
variation
ThUS$
(3,599)
(3,289)
(1,941)
53,448
1,340
14,062
(70,522)
22,234
Ending
balance
Asset (liability)
ThUS$
(1,376,025)
(239,758)
(77,480)
281,369
3,223
1,328,736
(430,705)
(20,539)
Others
ThUS$
-
-
-
(1,568)
-
-
-
1,214
Total
(434,970)
(73,814)
(33,774)
11,733
(354)
(531,179)
(b)
From January 1 to December 31, 2017
Opening
balance
Recognized in
Recognized in
Exchange
consolidated
comprehensive
rate
Ending
balance
Depreciation
Leased assets
Amortization
Provisions
Revaluation of financial instruments
Tax losses (*)
Intangibles
Others
Assets/(liabilities)
income
ThUS$
(1,376,025)
(239,758)
(77,480)
281,369
3,223
1,328,736
(430,705)
(20,539)
ThUS$
185,282
(138,879)
22,486
(286,267)
2,417
152,081
24,436
(7,547)
Total
(531,179)
(45,991)
income
ThUS$
-
-
-
(785)
(1,770)
-
-
-
(2,555)
variation
Asset (liability)
ThUS$
322
294
174
(4,778)
(120)
(1,257)
(267)
(319)
(5,951)
ThUS$
(1,190,421)
(378,343)
(54,820)
(10,461)
3,750
1,479,560
(406,536)
(28,405)
(585,676)
Deferred tax assets not recognized:
Tax losses
Total Deferred tax assets not recognized
As of
December 31,
2017
As of
December 31,
2016
ThUS$
81,155
81,155
ThUS$
115,801
115,801
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, 2017, the Company has not recognized deferred
tax assets of ThUS$ 81,155 (ThUS$ 115,801 at December 31, 2016) according with a loss of
ThUS$ 247,920 (ThUS$ 340,591 at December 31, 2016).
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
Reduction (increase) in value of deferred tax assets
during the evaluation of its usefulness
Total deferred tax expense, net
Income tax expense
Composition of income tax expense (income):
Current tax expense, net, foreign
Current tax expense, net, Chile
Total current tax expense, net
Deferred tax expense, net, foreign
Deferred tax expense, net, Chile
Deferred tax expense, net, total
Income tax expense
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
127,024
489
127,513
87,307
2,083
89,390
45,991
73,814
-
45,991
173,504
-
73,814
163,204
For the period ended
December 31,
2017
ThUS$
100,657
26,856
127,513
21,846
24,145
45,991
173,504
2016
ThUS$
80,600
8,790
89,390
119,175
(45,361)
73,814
163,204
Profit before tax by the legal tax rate in Chile (25.5% and 24.0% at December 31, 2017 and 2016,
respectively)
FINANCIAL STATEMENTS
Consolidated Financial Statements
193
70
71
For the period ended
December 31,
For the period ended
December 31,
NOTE 19 - OTHER FINANCIAL LIABILITIES
Tax expense using the legal rate (*)
Tax effect by change in tax rate (*)
Tax effect of rates in other jurisdictions
Tax effect of non-taxable operating revenues
Tax effect of disallowable expenses
Tax effect of the use of tax losses not
previously recognized
Other increases (decreases) in legal tax charge
Total adjustments to tax expense using the legal rate
2017
ThUS$
95,425
897
42,326
(44,593)
35,481
211
43,757
78,079
2016
ThUS$
65,449
-
16,333
(62,419)
132,469
-
11,372
97,755
Tax expense using the effective rate
173,504
163,204
2017
%
25.50
0.24
11.31
(11.92)
9.48
0.06
11.69
20.86
46.36
2016
%
24.00
-
5.99
(22.89)
48.58
-
4.17
35.85
59.85
(*) 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, 2017 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,
2017
ThUS$
2016
ThUS$
(2,555)
(33,774)
-
(807)
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:
Subtotal bank loans
Current
Loans to exporters
Bank loans (1)
Guaranteed obligations
Other guaranteed obligations
Obligation with the public (2)
Financial leases
Other loans
Total current
Non-current
Bank loans
Guaranteed obligations (3)
Other guaranteed obligations
Subtotal bank loans
Obligation with the public (4) (5) (6)
Financial leases
Other loans
Total non-current
Total obligations with financial institutions
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
1,288,749
12,200
1,300,949
6,602,891
2,617
6,605,508
1,814,647
24,881
1,839,528
6,790,273
6,679
6,796,952
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
314,618
59,017
531,173
2,170
906,978
14,785
276,541
90,445
278,164
290,810
578,014
1,908
1,148,896
312,043
268,040
85,668
1,288,749
1,814,647
260,433
3,505,669
240,007
4,006,109
1,569,281
832,964
194,537
6,602,891
7,891,640
294,477
4,180,538
254,512
4,729,527
997,302
754,321
309,123
6,790,273
8,604,920
(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
FINANCIAL STATEMENTS
Consolidated Financial Statements
194
72
73
The proceeds of the placement of the Series A, Series B, Series C and Series D Bonds were
allocated in full to the partial financing of the early redemption of the total bonds
of TAM Capital 3 inc.
(6) On September 1, 2017, TAM Capital 3 Inc., a company controlled indirectly by TAM S.A.
through its subsidiary TAM Linhas Aéreas SA, which consolidates its financial statements with
LATAM, made the full advance redemption of the bonds it placed abroad on June 3, 2011, for an
amount of US $ 500 million at a 8.375% rate and with an expiration date on June 3, 2021. The total
redemption was partially financed with the placement of bonds in the local market described in
number (5) above, and the balance, with other funds available from the Company.
All interest-bearing liabilities are recorded according to the effective rate method. Under IFRS, in
the case of fixed rate loans, the effective rate determined does not vary over the duration of the loan,
whereas in variable rate loans, the effective rate changes to the date of each payment of interest.
Currency balances that make the interest bearing loans:
Currency
Brazilian real
Chilean peso (U.F.)
US Dollar
Total
As of
December 31,
2017
ThUS$
130
521,122
7,370,388
7,891,640
As of
December 31,
2016
ThUS$
1,253
203,194
8,400,473
8,604,920
price. Additionally, TAM obtained a hedging economic (Cross Currency Swap) for the same
amount and period, in order to convert the commitment currency from US$ to BRL.
On March 30, 2017, TAM Linhas Aéreas S.A. restructured the financing mentioned in the previous
paragraph, modifying the nominal amount of the transaction to US $ 137 million.
On September 27, 2017, TAM Linhas Aéreas S.A. made the payment of capital plus interest
corresponding to the last installment of the financing described above. Simultaneously, all the
garments were lifted on the shares of Multiplus S.A. delivered as collateral.
(2) On April 25, 2017, the payment of the principal plus interest on the long-term bonds issued by
the company TAM Capital Inc. for an amount of US$ 300,000,000 at an interest rate of 7.375%
annual. The payment consisted of 100% of the capital, US$ 300,000,000, and interest accrued as of
the date of payment for ThUS $ 11,063.
(3) On April 10, 2017, the issuance and private placement of debt securities in the amount of
US$ 140,000,000 was made under the current structure of the Enhanced Equipment Trust
Certificates ("EETC") issued and placed the year 2015 to finance the acquisition of eleven Airbus
A321-200, two Airbus A350-900 and four Boeing 787-9 with arrivals between July 2015 and April
2016. The offer is made up of Class C Certificates, which are subordinate to the Current Class A
Certificates and Class B Certificates held by the Company. The term of the Class C Certificates is
six years and expires in 2023.
(4) On April 11, 2017, LATAM Finance Limited, a company incorporated in the Cayman Islands
with limited liability and exclusively owned by LATAM Airlines Group SA, has issued and placed
on the international market, pursuant to Rule 144 -A and Regulation S of the securities laws of the
United States of America, long-term unsecured bonds in the amount of US$ 700,000,000, maturing
in 2024 at an annual interest rate of 6.875%.
As reported in the essential fact of April 6, 2017, the Issue and placement of the 144-A Bonds was
intended to finance general corporate purposes of LATAM.
(5) On August 17, 2017, LATAM made the placement in the local market (Santiago Stock
Exchange) of the Series A Bonds (BLATM-A), Series B (BLATM-B), Series C (BLATM-) C) and
Series D (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in
the Securities Registry of the Commission for the Financial Market (“CMF”), under number 862 for
a total of UF 9,000,000.
The total amount placed of the Series A Bond was UF 2,500,000; The total amount placed of the
Series B Bond was UF 2,500,000. The total amount placed of the Series C Bond was UF 1,850,000.
The total amount placed of the Series D Bond was UF 1,850,000, thus totaling UF 8,700,000.
The Series A Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%.
The Series B Bonds have an expiration date on January 1, 2028 and an annual interest rate of
5.75%. The Series C Bonds have an expiration date on June 1, 2022 and an annual interest rate of
5.25%. The Series D Bonds have an expiration date on January 1, 2028 and an annual interest rate
of 5.75%.
FINANCIAL STATEMENTS
Consolidated Financial Statements
195
74
Interest-bearing loans due in installments to December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Tax No.
Creditor
Loans to exporters
97.032.000-8
97.032.000-8
97.036.000-K
97.030.000-7
97.003.000-K
97.951.000-4
Bank loans
97.023.000-9
0-E
97.036.000-K
BBVA
BBVA
SANTANDER
ESTADO
BANCO DO BRASIL
HSBC
CORPBANCA
BLADEX
SANTANDER
Obligations with the public
0-E
97.030.000-7
BANK OF NEW YORK
ESTADO
Guaranteed obligations
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
0-E
-
CREDIT AGRICOLE
BNP PARIBAS
WELLS FARGO
WILMINGTON TRUST
CITIBANK
BTMU
APPLE BANK
US BANK
DEUTSCHE BANK
NATIXIS
PK AIRFINANCE
KFW IPEX-BANK
AIRBUS FINANCIAL
INVESTEC
SWAP Aviones llegados
Other guaranteed obligations
Creditor
country
Currency
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
Chile
U.S.A.
Chile
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.
France
U.S.A.
Germany
U.S.A.
England
-
ThUS$
UF
ThUS$
ThUS$
ThUS$
ThUS$
UF
ThUS$
ThUS$
ThUS$
UF
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Nominal values
Accounting values
More than More than More than
one to
90 days
three
to one
years
year
ThUS$
ThUS$
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
nominal
value
ThUS$
Up to
90
days
ThUS$
More than More than More than
one to
90 days
three
to one
years
year
ThUS$
ThUS$
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
accounting
value
ThUS$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,000
55,801
30,000
40,000
100,000
12,000
84,664
30,000
202,284
75,781
-
30,129
40,071
100,696
12,007
-
55,934
-
-
-
-
-
-
-
-
-
-
21,542
-
439
21,360
15,133
-
41,548
14,750
202,284
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,781
55,934
30,129
40,071
100,696
12,007
84,450
29,883
202,723
Amortization
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
Quarterly
Semiannual
Quarterly
Up to
90
days
ThUS$
75,000
-
30,000
40,000
100,000
12,000
-
55,801
-
-
-
-
-
-
-
-
-
-
21,298
-
-
21,360
15,000
-
42,006
15,000
202,284
-
-
-
-
500,000
-
-
189,637
700,000
189,637
1,200,000
379,274
-
-
13,047
1,738
492,745
-
189,500
697,536
189,500
1,203,328
380,738
At Expiration
At Expiration
7,767
10,929
27,223
20,427
11,994
2,856
1,401
15,157
2,965
14,645
2,163
2,397
1,855
1,374
301
23,840
44,145
82,402
61,669
36,501
8,689
4,278
45,992
9,127
44,627
6,722
6,678
5,654
7,990
749
54,074
114,800
225,221
175,334
101,230
24,007
11,828
126,550
25,826
107,068
19,744
16,173
15,416
20,440
765
12,410
119,948
233,425
183,332
104,308
25,278
12,474
132,441
28,202
91,823
17,871
1,640
-
22,977
-
-
285,399
240,716
594,091
97,184
13,904
7,242
152,693
30,786
154,848
-
-
-
10,597
-
98,091
575,221
808,987
1,034,853
351,217
74,734
37,223
472,833
96,906
413,011
46,500
26,888
22,925
63,378
1,815
8,101
13,328
30,143
26,614
13,231
3,082
1,583
17,364
3,534
15,642
2,225
2,428
1,900
1,808
301
23,840
44,781
82,402
61,669
36,501
8,689
4,278
45,992
9,127
44,627
6,722
6,677
5,654
8,181
749
52,924
111,319
203,371
169,506
95,208
22,955
11,303
109,705
25,130
105,056
19,744
16,174
15,416
19,801
765
12,026
117,987
224,295
180,520
101,558
24,941
12,303
125,006
27,739
90,823
17,871
1,640
-
22,769
-
-
282,714
236,179
590,723
94,807
13,849
7,212
148,318
30,323
153,124
-
-
-
10,565
-
96,891
570,129
776,390
1,029,032
341,305
73,516
36,679
446,385
95,853
409,272
46,562
26,919
22,970
63,124
1,815
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
Quarterly
Monthly
Semiannual
Quarterly
0-E
CREDIT AGRICOLE
France
ThUS$
-
-
241,287
-
-
241,287
2,170
-
240,007
-
-
242,177
At Expiration
ING
CITIBANK
PEFCO
BNP PARIBAS
WELLS FARGO
SANTANDER
RRPF ENGINE
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
Chile
England
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
5,347
11,206
12,526
13,146
10,630
5,459
265
10,779
34,267
32,850
33,840
33,866
16,542
2,430
26,831
86,085
22,407
48,823
91,162
45,416
6,856
-
49,853
-
2,296
64,471
46,472
7,441
-
2,863
-
-
20,984
3,134
8,991
42,957
184,274
67,783
98,105
221,113
117,023
25,983
5,717
12,013
12,956
13,548
11,460
5,813
265
10,779
34,267
32,850
33,840
33,866
16,542
2,430
26,500
84,104
22,088
48,253
88,674
44,010
6,856
-
49,516
-
2,293
63,860
46,153
7,441
-
2,859
-
-
20,903
3,128
8,991
42,996
182,759
67,894
97,934
218,763
115,646
25,983
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
Effective
rate
%
Nominal
rate
%
2.30
3.57
2.49
2.57
2.40
2.03
3.68
5.51
4.41
7.44
5.50
2.66
3.41
2.46
4.48
3.31
2.87
2.78
4.00
4.39
3.42
3.18
3.31
3.19
6.04
3.38
5.67
3.78
5.46
3.66
3.17
2.51
4.01
2.30
2.77
2.49
2.57
2.40
2.03
3.68
5.51
4.41
7.03
5.50
2.22
3.40
1.75
4.48
2.47
2.27
2.18
2.82
4.39
3.40
3.18
3.31
3.19
6.04
-
3.38
5.00
3.17
4.85
3.25
2.67
1.96
4.01
CITIBANK (*)
U.S.A.
ThUS$
21,822
67,859
196,210
-
-
285,891
22,586
67,859
194,537
-
-
284,982
Quarterly
6.00
6.00
Total
482,153
713,657
2,562,843
1,346,299
2,513,069
7,618,021
508,477
729,534
2,484,733
1,318,241
2,490,731
7,531,716
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
Financial leases
0-E
0-E
0-E
0-E
0-E
97.036.000-K
0-E
Other loans
0-E
FINANCIAL STATEMENTS
Consolidated Financial Statements
196
75
Interest-bearing loans due in installments to December 31, 2017
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Tax No.
Creditor
Creditor
country
Currency
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
nominal
value
ThUS$
Up to
90
days
ThUS$
More than
90 days
to one
year
ThUS$
More than
one to
three
years
ThUS$
More than
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
accounting
value
ThUS$
Amortization
Effective Nominal
rate
%
rate
%
Nominal values
Accounting values
Bank loans
0-E
Financial leases
0-E
0-E
0-E
0-E
0-E
NEDERLANDSCHE
CREDIETVERZEKERING MAATSCHAPPIJ
Holland
ThUS$
130
401
1,161
690
NATIXIS
WACAPOU LEASING S.A.
SOCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S.A
SOCIETE GENERALE
France
Luxemburg
Italy
Brazil
France
ThUS$
ThUS$
ThUS$
BRL
BRL
2,853
696
8,964
21
101
6,099
2,125
27,525
-
8
19,682
6,020
208,024
-
-
70,402
3,206
-
-
-
12,765
36,158
234,887
74,298
Total
Total consolidated
-
-
-
-
-
-
-
2,382
142
401
1,161
690
99,036
12,047
244,513
21
109
3,592
732
9,992
21
101
6,099
2,125
27,525
-
8
19,682
6,020
208,024
-
-
70,402
3,207
-
-
-
358,108
14,580
36,158
234,887
74,299
-
-
-
-
-
-
-
2,394
Monthly
6.01
6.01
Quarterly/Semiannual
Quarterly
Quarterly
Monthly
Monthly
5.59
3.69
4.87
6.89
6.89
5.59
3.69
4.81
6.89
6.89
99,775
12,084
245,541
21
109
359,924
494,918
749,815
2,797,730
1,420,597
2,513,069
7,976,129
523,057
765,692
2,719,620
1,392,540
2,490,731
7,891,640
FINANCIAL STATEMENTS
Consolidated Financial Statements
197
76
Interest-bearing loans due in installments to December 31, 2016
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Nominal values
Accounting values
Tax No.
Creditor
Loans to exporters
97.032.000-8
97.032.000-8
97.036.000-K
97.030.000-7
97.003.000-K
97.951.000-4
Bank loans
97.023.000-9
0-E
0-E
97.036.000-K
BBVA
BBVA
SANTANDER
ESTADO
BANCO DO BRASIL
HSBC
CORPBANCA
BLADEX
DVB BANK SE
SANTANDER
Obligations with the public
0-E
BANK OF NEW YORK
Guaranteed obligations
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 PARIBAS
WELLS FARGO
WILMINGTON TRUST
CITIBANK
SANTANDER
BTMU
APPLE BANK
US BANK
DEUTSCHE BANK
NATIXIS
PK AIRFINANCE
KFW IPEX-BANK
AIRBUS FINANCIAL
INVESTEC
SWAP Aviones llegados
Other guaranteed obligations
More than More than More than
one to
three
years
ThUS$
90 days
to one
year
ThUS$
five
years
ThUS$
three to More than
More than More than More than
one to
90 days
three
to one
years
year
ThUS$
ThUS$
five
years
ThUS$
three to More than
Creditor
country
Currency
Chile
Chile
Chile
Chile
Chile
Chile
Chile
U.S.A.
U.S.A.
Chile
ThUS$
UF
ThUS$
ThUS$
ThUS$
ThUS$
UF
ThUS$
ThUS$
ThUS$
Up to
90
days
ThUS$
75.000
-
30.000
40.000
70.000
12.000
19.229
-
-
-
-
50.381
-
-
-
-
57.686
12.500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60.186
30.000
28.911
158.194
16.254
-
-
-
Total
nominal
value
ThUS$
75.000
50.381
30.000
40.000
70.000
12.000
153.355
42.500
28.911
158.194
Up to
90
days
ThUS$
75.234
-
30.183
40.098
70.323
12.002
19.819
-
3
542
five
years
ThUS$
-
-
-
-
-
-
-
-
-
-
-
-
50.324
-
-
-
-
57.686
12.667
-
-
-
-
-
-
-
-
-
-
-
-
-
-
59.176
29.625
28.911
158.194
16.189
-
-
-
five
years
ThUS$
-
-
-
-
-
-
-
-
-
-
-
Total
accounting
value
ThUS$
75.234
50.324
30.183
40.098
70.323
12.002
152.870
42.292
28.914
158.736
Amortization
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
At Expiration
Quarterly
Semiannual
Quarterly
Quarterly
492.176
At Expiration
U.S.A.
ThUS$
-
-
-
500.000
500.000
2.291
-
-
489.885
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.
Germany
U.S.A.
England
-
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
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
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
Quarterly
Monthly
Semiannual
Quarterly
0-E
CREDIT AGRICOLE
France
ThUS$
-
-
256.860
-
-
256.860
1.908
-
254.512
-
-
256.420
Quarterly
Financial leases
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
Other loans
0-E
0-E
ING
CREDIT AGRICOLE
CITIBANK
PEFCO
BNP PARIBAS
WELLS FARGO
DVB BANK SE
RRP ENGINE
BOEING
CITIBANK (*)
Total
U.S.A.
France
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
England
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
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
-
11.917
63.698
7.157
78.249
130.811
149.119
103.326
14.127
25.274
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
-
6.402
11.771
-
13.762
3.819
22.079
42.430
-
6.955
-
-
-
-
-
1.861
-
11.917
63.641
7.183
78.109
130.791
148.471
102.403
14.161
25.274
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
U.S.A.
U.S.A.
ThUS$
ThUS$
-
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 Expiration
Quarterly
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
(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.
Effective
rate
%
Nominal
rate
%
1,85
5,23
2,39
1,91
3,08
1,79
4,06
5,14
1,86
3,55
7,77
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
-
2,85
5,62
1,85
6,40
5,39
3,69
3,98
2,57
2,35
2,35
6,00
1,85
4,43
2,39
1,91
3,08
1,79
4,06
5,14
1,86
3,55
7,25
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
-
2,85
4,96
1,85
5,67
4,79
3,26
3,54
2,57
2,35
2,35
6,00
FINANCIAL STATEMENTS
Consolidated Financial Statements
198
77
Nominal values
Accounting values
More than
More than
More than
More than
More than
More than
Creditor
country
Currency
Up to
90
days
ThUS$
90 days
to one
year
ThUS$
one to
three
years
ThUS$
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
nominal
value
ThUS$
Up to
90
days
ThUS$
90 days
to one
year
ThUS$
one to
three
years
ThUS$
three to
five
years
ThUS$
More than
five
years
ThUS$
Total
accounting
value
ThUS$
Amortization
Effective Nominal
rate
%
rate
%
Interest-bearing loans due in installments to December 31, 2016
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Tax No.
Creditor
Bank loans
0-E
0-E
NEDERLANDSCHE
CREDIETVERZEKERING MAATSCHAPPIJ
CITIBANK
Obligation with the public
Holland
U.S.A
ThUS$
ThUS$
122
-
378
200.000
1.094
-
1.234
-
0-E
THE BANK OF NEW YORK
U.S.A
ThUS$
-
300.000
-
500.000
Financial leases
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
0-E
AFS INVESTMENT IX LLC
DVB BANK SE
GENERAL ELECTRIC CAPITAL CORPORATION
KFW IPEX-BANK
NATIXIS
WACAPOU LEASING S.A.
SOCIÉTÉ GÉNÉRALE MILAN BRANCH
BANCO IBM S.A
HP FINANCIAL SERVICE
SOCIETE GENERALE
U.S.A
U.S.A
U.S.A
Germany
France
Luxemburg
Italy
Brazil
Brazil
France
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
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
-
-
-
54
-
-
-
-
-
-
41.731
-
-
-
-
-
2.882
200.000
800.000
35.448
282
8.846
2.123
107.443
14.754
279.335
1.031
222
519
137
(151)
378
199.729
1.094
-
1.233
-
8.173
301.579
4.119
503.298
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
-
-
-
55
-
-
-
-
-
-
41.731
-
-
-
-
-
2.897
199.578
Monthly
At Expiration
6,01
3,39
6,01
3,14
817.169
At Expiration
8,17
8,00
35.615
283
8.869
2.127
108.301
14.795
280.567
1.030
222
519
Monthly
Monthly
Monthly
Monthly/Quarterly
Quarterly/Semiannual
Quarterly
Quarterly
Monthly
Monthly
Monthly
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
Total
Total consolidated
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
FINANCIAL STATEMENTS
Consolidated Financial Statements
199
78
79
(b) Hedge derivatives
Current liabilities
Non-current liabilities
Total hedge
derivatives
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Accrued interest from the last date
of interest rate swap
Fair value of interest rate derivatives
Fair value of foreign currency derivatives
Total hedge derivatives
1,189
8,919
2,092
12,200
2,148
9,578
13,155
24,881
-
2,617
-
2,617
-
6,679
-
6,679
1,189
11,536
2,092
14,817
2,148
16,257
13,155
31,560
The foreign currency derivatives correspond to options, forwards and swaps.
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,
2017
ThUS$
38,875
(6,542)
10,711
-
-
4,370
636
As of
December 31,
2016
ThUS$
(12,286)
(16,926)
10,088
618
109
(1,752)
-
(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$/UF of bank loans.
These contracts are recorded as cash flow hedges and fair value.
(2) Covers the significant variations in cash flows associated with market risk implicit in the
increases in the 3 months LIBOR interest rates for long-term loans incurred in the acquisition
of aircraft and bank loans. These contracts are recorded as cash flow hedges.
(3) Covers significant variations in cash flows associated with market risk implicit in the changes
in the price of future fuel purchases. These contracts are recorded as cash flow hedges.
(4) Covers the foreign exchange risk exposure of operating cash flows caused mainly by
fluctuations in the exchange rate R$/US$, US$/EUR and US$/GBP. These contracts are
recorded as cash flow hedges.
During the periods presented, the Company only has cash flow and fair value hedges (in the case of
CCS). In the case of fuel hedges, the cash flows subject to such hedges will occur and will impact
results in the next 3 months from the date of the consolidated statement of financial position, while
in the case of hedges of interest rates, these they will occur and will impact results throughout the
life of the associated loans, up to their maturity. In the case of currency hedges through a CCS,
there is a group of hedging relationships, in which two types of hedge accounting are generated, one
of cash flow for the US $ / UF component; and another of fair value, for the floating rate component
US $. The other group of hedging relationships only generates cash flow hedge accounting for the
US $ / UF 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,
2017
ThUS$
2016
ThUS$
18,344
127,390
(15,000)
(113,403)
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
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
1,349,201
346,001
1,695,202
1,117,926
475,142
1,593,068
FINANCIAL STATEMENTS
Consolidated Financial Statements
200
(a)
Trade and other accounts payable:
Trade creditors
Leasing obligation
Other accounts payable
Total
80
As of
December 31,
2017
ThUS$
1,096,540
4,448
248,213
1,349,201
As of
December 31,
2016
ThUS$
876,163
10,446
231,317
1,117,926
(b) Liabilities accrued:
Accrued personnel expenses
Aircraft and engine maintenance
Accounts payable to personnel (*)
Others accrued liabilities
Total accrued liabilities
81
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
125,246
92,711
99,862
28,182
346,001
113,785
244,949
89,523
26,885
475,142
The details of Trade and other accounts payables are as follows:
(*) Profits and bonds participation (Note 23 letter b)
Boarding Fee
Aircraft Fuel
Suppliers technical purchases
Airport charges and overflight
Handling and ground handling
Other personnel expenses
Professional services and advisory
Marketing
Leases, maintenance and IT services
Services on board
Air companies
Land services
Maintenance
Crew
Achievement of goals
Communications
Aviation insurance
Aircraft and engines leasing
SEC agreement (*)
Others
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
249,898
219,601
114,690
106,534
103,784
89,621
81,679
75,220
69,873
68,605
31,381
31,151
26,244
24,163
5,732
5,273
5,108
4,285
-
36,359
170,053
188,276
40,305
77,484
87,406
81,632
79,270
61,053
44,287
44,589
21,197
74,260
25,962
29,074
17,801
7,500
7,694
10,446
4,719
44,918
Total trade and other accounts payables
1,349,201
1,117,926
(*) 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, 2017, the debt was paid in full.
NOTE 21 - OTHER PROVISIONS
Other provisions:
Current liabilities
Non-current liabilities
Total Liabilities
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
Provision for contingencies (1)
Tax contingencies
Civil contingencies
Labor contingencies
Other
Provision for European
Commision investigation (2)
Total other provisions (3)
1,913
497
373
-
-
2,783
1,425
993
225
-
-
2,643
258,305
62,858
28,360
15,187
9,883
374,593
313,064
56,413
29,307
15,046
8,664
422,494
260,218
63,355
28,733
15,187
9,883
377,376
314,489
57,406
29,532
15,046
8,664
425,137
(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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
201
82
83
(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, 2017, and 2016, 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, 2016
Increase in provisions
Provision used
Difference by subsidiaries conversion
Reversal of provision
Exchange difference
Closing balance as of December 31, 2016
Opening balance as of January 1, 2017
Increase in provisions
Provision used
Difference by subsidiaries conversion
Reversal of provision
Exchange difference
Closing balance as of December 31, 2017
European
Legal
claims (1)
Commission
Investigation (2)
ThUS$
ThUS$
418,453
141,797
(21,997)
79,396
(201,425)
249
416,473
416,473
106,943
(14,860)
(5,830)
(135,109)
(124)
367,493
8,966
-
-
-
-
(302)
8,664
8,664
-
-
-
-
1,219
9,883
Total
ThUS$
427,419
141,797
(21,997)
79,396
(201,425)
(53)
425,137
425,137
106,943
(14,860)
(5,830)
(135,109)
1,095
377,376
(1) Cumulative balances include judicial deposit delivered as security, with respect to the
"Aerovía Fundo" (FA), for US $ 100 million, made in order to suspend the application of the
tax credit. The Company is discussing in the Court the constitutionality of the requirement
made by FA in a lawsuit. Initially it was covered by the effects of a precautionary measure,
this means that the Company would not be obliged to collect the tax, as long as there is no
judicial decision in this regard. However, the decision taken by the judge in the first instance
was published unfavorably, revoking the injunction. As the lawsuit is still underway (TAM
appealed this first decision), the Company needed to make the judicial deposit, for the
suspension of the enforceability of the tax credit; deposit that was classified in this item,
discounting the existing provision for this purpose. Finally, if the final decision is favorable
to the Company, the deposit made will return to TAM. On the other hand, if the court
confirms the first decision, said deposit will become a final payment in favor of the
Government of Brazil. The procedural stage as of December 31, 2017 is described in Note 31
in the Role of the case 2001.51.01.012530-0.
(2) European Commission Provision:
Provision constituted on the occasion of the process initiated in December 2007 by the General
Competition Directorate of the European Commission against more than 25 cargo airlines, among
which is Lan Cargo SA, which forms part of the global investigation initiated in 2006 for possible
infractions of free competition in the air cargo market, which was carried out jointly by the
European and United States authorities.
With respect to Europe, the General Directorate of Competition imposed fines totaling
€ 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros)
for infractions of European Union regulations on free competition against eleven (11 ) airlines,
among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A .. For its part,
LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the
amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these
infractions, an amount that was provisioned in the financial statements of LATAM. On January 24,
2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the
Court of Justice of the European Union. On December 16, 2015, the European Court resolved the
appeal and annulled the Commission's Decision. The European Commission did not appeal the
judgment, but on March 17, 2017, the European Commission again adopted its original decision to
impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of
776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed
the same fine of 8.2 million Euros. The procedural stage as of December 31, 2017 is described in
Note 31 in section (ii) judgments received by LATAM Airlines Group S.A. and Subsidiaries.
NOTE 22 - OTHER NON-FINANCIAL LIABILITIES
Current liabilities
Non-current liabilities
Total Liabilities
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
ThUS$
2,690,961
22,902
38,197
8,695
46,590
16,618
2,823,963
2,655,086
19,402
45,542
7,465
20,766
13,984
2,762,245
158,305
-
-
-
-
-
158,305
213,781
-
-
-
-
-
213,781
2,849,266
22,902
38,197
8,695
46,590
16,618
2,982,268
2,868,867
19,402
45,542
7,465
20,766
13,984
2,976,026
(*)
Deferred revenues
Sales tax
Retentions
Others taxes
Dividends payable
Other sundry liabilities
Total other non-financial liabilities
(*) Note 2.20.
The balance comprises, mainly, deferred income by services not yet rendered at December 31,
2017 and 2016; and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:
FINANCIAL STATEMENTS
Consolidated Financial Statements
202
84
85
LATAM Pass is the frequent passenger program created by LAN to reward the preference and
loyalty of its customers with multiple benefits and privileges, through the accumulation of
kilometers that can be exchanged for free flight tickets or for a varied range of products and
services. Customers accumulate LATAM Pass kilometers every time they fly on LAN, TAM,
oneworld® member companies and other airlines associated with the program, as well as
buying at stores or using the services of a vast network of companies that have an agreement
with the program around the world.
For its part, TAM, thinking of people who travel constantly, created the LATAM Fidelidade
program, in order to improve the service and give recognition to those who choose the
company. Through the program, customers accumulate points in a wide variety of loyalty
programs in a single account and can redeem them in all TAM destinations and associated
airline companies, and even more, participate in the Multiplus Fidelidade Network.
Multiplus is a coalition of loyalty programs, with the objective of operating accumulation and
exchange of points. This program has a network integrated by associated companies, including
hotels, financial institutions, retail companies, supermarkets, vehicle leases and magazines,
among many other partners from different segments.
NOTE 23 - EMPLOYEE BENEFITS
Retirements payments
Resignation payments
Other obligations
Total liability for employee benefits
As of
December 31,
2017
ThUS$
55,119
10,124
35,844
101,087
As of
December 31,
2016
ThUS$
49,680
10,097
22,545
82,322
(a) The movement in retirements and resignation payments and other obligations:
Opening
balance
ThUS$
65,271
82,322
Increase (decrease)
current service
provision
Benefits
paid
Actuarial
(gains)
losses
Currency
translation
ThUS$
ThUS$
ThUS$
ThUS$
Closing
balance
ThUS$
17,487
21,635
(4,536)
3,105
995
82,322
(5,399)
(2,763)
5,292
101,087
From January 1 to
December 31, 2016
From January 1 to
December 31, 2017
The principal assumptions used in the calculation to the provision in Chile are presented below:
Assumptions
2017
2016
As of
December 31,
Discount rate
Expected rate of salary increase
Rate of turnover
Mortality rate
Inflation rate
Retirement age of women
Retirement age of men
4.55%
4.50%
6.98%
RV-2014
2.72%
60
65
4.54%
4.50%
6.16%
RV-2009
2.86%
60
65
The discount rate corresponds to the 20-year term rate of the BCP Central Bank of Chile Bonds.
The RV-2014 mortality tables correspond to those established by the Commission for the Financial
Market of Chile and for the determination of the inflation rates; the market performance curves of
Central Bank of Chile papers of the BCUs have been used. BCP long term at the date of scope.
The calculation of the present value of the defined benefit obligation is sensitive to the variation of
some actuarial assumptions such as discount rate, salary increase, rotation and inflation.
The sensitivity analysis for these variables is presented below:
Effect on the liability
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
(5.795)
6.617
6.412
(5.750)
(5.665)
5.952
6.334
(5.644)
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.
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.
(b) The liability for short-term:
As of
As of
December 31,
December 31,
2017
ThUS$
2016
ThUS$
Profit-sharing and bonuses (*)
99,862
89,523
(*) Accounts payables to employees (Note 20 letter b)
FINANCIAL STATEMENTS
Consolidated Financial Statements
203
86
87
The participation in profits and bonuses correspond to an annual incentives plan for achievement of
objectives.
(**) Includes adjustment for placement of the aforementioned 10,282 shares for ThUS $ 156.
(c)
Employment expenses are detailed below:
(b)
Subscribed and paid shares
Salaries and wages
Short-term employee benefits
Termination benefits
Other personnel expenses
Total
For the periods ended
December 31,
2017
ThUS$
2016
ThUS$
1,604,552
1,549,402
145,245
85,070
188,767
132,436
79,062
190,233
2,023,634
1,951,133
NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
483.795
14.725
312
498.832
347.085
12.080
226
359.391
Aircraft and engine maintenance
Provision for vacations and bonuses
Other sundry liabilities
Total accounts payable, non-current
NOTE 25 - EQUITY
(a)
Capital
The Company’s objective is to maintain an appropriate level of capitalization that enables it to
ensure access to the financial markets for carrying out its medium and long-term objectives,
optimizing the return for its shareholders and maintaining a solid financial position.
The paid capital of the Company at December 31, 2017 amounts to ThUS$ 3,146,265 (*) divided
into 606,407,693 common stock of a same series (ThUS$ 3,149,564 (**) divided into 606,407,693
shares as of December 31, 2016), 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.
(*) Includes deduction of issuance costs for ThUS $ 3,299 and adjustment for placement of 10,282
shares for ThUS $ 156, approved at the Extraordinary Shareholders Meeting of the Company on
April 27, 2017.
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, 2017, 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, 2017, the number Company shares subscribed
and paid amounts to 606,407,693.
At December 31, 2017, the Company's capital stock is represented by 608,374,525 shares, all of the
same and unique series, nominative, ordinary, with 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.
During 2016, the Company's capital stock was expressed in 613,164,243 shares, all of the same and
unique series, nominative, ordinary, with no par 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, 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
Autorized shares as of January 1, 2017
There is no movement of authorized shares during the period 2017
Authorized shares as of December 31, 2017
(*) See Note 34 (a.1)
Nro. Of
shares
551,847,819
61,316,424
(4,789,718)
608,374,525
608,374,525
-
608,374,525
FINANCIAL STATEMENTS
Consolidated Financial Statements
204
89
(e)
Other sundry reserves
Movement of Other sundry reserves:
Periods
From January 1 to December 31, 2016
From January 1 to December 31, 2017
Opening
balance
ThUS$
2,634,679
2,640,281
Legal
reserves
ThUS$
5,602
(501)
Closing
balance
ThUS$
2,640,281
2,639,780
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
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
2,665,692
2,620
(25,911)
0
(2,621)
2,665,692
2,620
(25,911)
(9)
(2,111)
Total
2,639,780
2,640,281
(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 Commission for the
Financial Market 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, 2017, 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
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).
Movement fully paid shares
Paid shares as of January 1, 2016
Approved at Extraordinary Shereholders
meeting dated August 18, 2016
Capital reserve
Increase (decrease) by transfers
and other changes (4)
Paid shares as of December 31, 2016
Paid shares as of January 1, 2017
Capital reserve
Paid shares as of December 31, 2017
88
N° of
shares
Movement
value
of shares
(1)
ThUS$
Cost of issuance
and placement
of shares (2)
ThUS$
Paid- in
Capital
ThUS$
545,547,819
2,552,066
(6,361)
2,545,705
60,849,592
-
10,282
606,407,693
606,407,693
-
606,407,693
(3)
608,496
-
156
3,160,718
3,160,718
-
3,160,718
-
(4,793)
-
(11,154)
(11,154)
(3,299)
(14,453)
608,496
(4,793)
156
3,149,564
3,149,564
(3,299)
3,146,265
(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, 2017, 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.2)) 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.
These 10,282 shares were placed in January 2014 and charged to the Compensation plan
(4)
2011 (See Note 34 (a.1))
(c)
Treasury stock
At December 31, 2017, 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
From January 1 to December 31, 2016
From January 1 to December 31, 2017
Opening
balance
ThUS$
35,647
38,538
Stock
option
plan
ThUS$
Deferred
tax
ThUS$
Net movement
of the period
ThUS$
3,698
943
(807)
-
2,891
943
Closing
balance
ThUS$
38,538
39,481
These reserves are related to the “Share-based payments” explained in Note 34.
FINANCIAL STATEMENTS
Consolidated Financial Statements
205
90
91
(f)
Reserves with effect in other comprehensive income.
(f.3) Reserves of actuarial gains or losses on defined benefit plans
Movement of Reserves with effect in other comprehensive income:
Correspond to the increase or decrease in the obligation present value for defined benefit plan due
to changes in actuarial assumptions, and experience adjustments, which is the effects of differences
between the previous actuarial assumptions and what has actually occurred.
Opening balance as of January 1, 2016
Derivatives valuation gains (losses)
Deferred tax
Actuarial reserves
by employee benefit plans
Deferred tax actuarial IAS
by employee benefit plans
Difference by subsidiaries conversion
Closing balance as of December 31, 2016
Opening balance as of January 1, 2017
Derivatives valuation gains (losses)
Deferred tax
Actuarial reserves
by employee benefit plans
Deferred tax actuarial IAS
by employee benefit plans
Difference by subsidiaries conversion
Currency
translation
reserve
ThUS$
(2,576,041)
-
-
-
-
489,486
(2,086,555)
(2,086,555)
-
-
-
-
(45,036)
Cash flow
hedging
reserve
ThUS$
(90,510)
126,360
(34,344)
-
-
-
1,506
1,506
18,436
(1,802)
-
-
-
Actuarial gain
or loss on defined
benefit plans reserve
ThUS$
(10,717)
-
-
(3,104)
921
-
(12,900)
(12,900)
-
-
2,758
(784)
-
Total
ThUS$
(2,677,268)
126,360
(34,344)
(3,104)
921
489,486
(2,097,949)
(2,097,949)
18,436
(1,802)
2,758
(784)
(45,036)
Closing balance as of December 31, 2017
(2,131,591)
18,140
(10,926)
(2,124,377)
(f.1) Currency translation reserve
These originate from exchange differences arising from the translation of any investment in foreign
entities (or Chilean investment with a functional currency different to that of the parent), and from
loans and other instruments in foreign currency designated as hedges for such investments. When
the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown
in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale
does not involve loss of control, these reserves are transferred to non-controlling interests.
(f.2) Cash flow hedging reserve
These originate from the fair value valuation at the end of each period of the outstanding derivative
contracts that have been defined as cash flow hedges. When these contracts expire, these reserves
should be adjusted and the corresponding results recognized.
(g)
Retained earnings
Movement of Retained earnings:
Periods
From January 1 to December 31, 2016
From January 1 to December 31, 2017
(h)
Dividends per share
Description of dividend
Date of dividend
Amount of the dividend (ThUS$)
Number of shares among which the
dividend is distributed
Dividend per share (US$)
Opening
balance
ThUS$
317,950
366,404
Result
for the
period
ThUS$
69,220
155,304
Dividends
ThUS$
(20,766)
(46,590)
Closing
balance
ThUS$
366,404
475,118
Minimum mandatory
dividend
2017
Final dividend
dividend
2016
12-31-2017
46,590
606,407,693
0.0768
12-31-2016
20,766
(*)
606,407,693
0.0342
(*) In accordance with the Material Fact issued on April 27, 2017, LATAM Airlines Group S.A.
shareholders approved the distribution of the final dividend proposed by the board of directors in
the Ordinary Session of April 4, 2017, amounting to ThUS $ 20,766, which corresponds to 30% of
the profits for the year corresponding to the year 2016.
The payment was made on May 18, 2017.
FINANCIAL STATEMENTS
Consolidated Financial Statements
206
92
93
NOTE 26 - REVENUE
The detail of revenues is as follows:
Passengers LAN
Passengers TAM
Cargo
Total
For the periods ended
December 31,
2017
ThUS$
4,313,287
4,181,190
1,119,430
9,613,907
2016
ThUS$
4,104,348
3,773,367
1,110,625
8,988,340
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,
2017
ThUS$
2,318,816
1,172,129
579,551
430,825
252,474
288,662
2016
ThUS$
2,056,643
1,077,407
568,979
366,153
269,296
286,621
1,381,546
1,424,595
6,424,003
6,049,694
(b) Depreciation and amortization
Depreciation and amortization are detailed below:
Depreciation (*)
Amortization
Total
For the period ended
December 31,
2017
ThUS$
943,215
58,410
1,001,625
2016
ThUS$
910,071
50,257
960,328
(*) 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, 2017 is ThUS$ 359,940 and ThUS$ 345,651 for the same period of 2016.
(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:
Bank loan interest
Financial leases
Other financial instruments
Total
For the period ended
December 31,
2017
ThUS$
347,551
37,522
8,213
393,286
2016
ThUS$
352,405
32,573
31,358
416,336
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
207
94
95
NOTE 28 - OTHER INCOME, BY FUNCTION
Other income by function is as follows:
(a)
Foreign currency
The foreign currency detail of balances of monetary items in current and non-current assets is as
follows:
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
240,952
109,463
103,741
26,793
6,585
8,038
54,317
549,889
174,197
133,575
65,011
24,548
17,090
11,141
113,186
538,748
Coalition and loyalty program Multiplus
Tours
Aircraft leasing
Customs and warehousing
Maintenance
Duty free
Other miscellaneous income
Total
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, brazilian real and guaraní.
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.
Current assets
Cash and cash equivalents
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Other financial assets, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
U.S. dollar
Other currency
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
260,092
7,309
14,242
81,693
1,105
11,746
108,327
35,670
36,484
21
17
26,605
150
9,343
348
201,416
4,438
9,705
30,221
1,137
1,695
128,694
25,526
14,573
12
734
585
-
12,879
363
FINANCIAL STATEMENTS
Consolidated Financial Statements
208
96
97
Current assets
As of
As of
December 31,
December 31,
Non-current assets
Other non - financial assets, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Trade and other accounts receivable, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Accounts receivable from related entities, current
Chilean peso
U.S. dollar
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
Other currency
2017
ThUS$
107,170
16,507
19,686
34,258
340
2,722
21,907
11,750
373,447
49,680
22,006
82,369
1,169
48,286
34,268
135,669
958
735
223
33,575
1,679
3,934
3,317
660
179
327
21,948
1,531
811,726
75,196
59,885
228,977
3,424
62,933
174,395
206,916
2016
ThUS$
107,789
16,086
20,158
1,619
713
1,563
50,157
17,493
251,204
54,356
30,675
90,482
9,720
21,923
14,086
29,962
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
89,081
Other financial assets, non-current
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
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,
2017
ThUS$
As of
December 31,
2016
ThUS$
20,975
3,831
74
281
7,853
7,273
1,663
9,108
172
6,368
38
2,530
6,887
6,887
2,081
86
1,995
39,051
172
10,199
6,961
367
7,853
7,311
6,188
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
FINANCIAL STATEMENTS
Consolidated Financial Statements
209
98
99
Current liabilities
Other non-financial
liabilities, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Total current liabilities
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Up to 90 days
91 days to 1 year
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
25,190
393
542
11,283
837
5,954
3,160
3,021
982,282
122,845
29,352
266,603
3,801
64,035
427,002
68,644
33,439
13,463
430
14,999
578
168
684
3,117
906,290
34,301
41,167
131,688
9,627
23,613
606,336
59,558
-
-
-
-
-
-
-
-
149,063
8,810
669
90,343
855
9,165
37,304
1,917
-
-
-
-
-
-
-
-
473,684
3,408
27
120,265
578
5
348,038
1,363
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
Trade and other accounts
payables, current
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
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
Tax liabilities, current
Argentine peso
Brazilian real
Chilean peso
Other currency
Up to 90 days
91 days to 1 year
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
ThUS$
ThUS$
36,000
21,542
14,458
919,373
122,452
28,810
233,202
2,964
58,081
409,380
39,064
2,732
5,839
1,890
14,959
760
546
4
210
959
30
929
-
-
-
-
-
287,175
55,962
231,213
585,149
20,838
40,740
60,701
9,049
23,445
374,431
33,701
1,535
1,769
6,899
12,041
220
23
8
189
511
28
483
(204)
-
(3)
(25)
(176)
115,182
79,032
36,150
33,707
8,636
669
11,311
855
9,165
1,154
825
115
199
-
778
-
-
-
-
-
-
-
174
174
-
-
-
455,086
108,010
347,076
16,097
907
27
12,255
578
5
962
1,093
-
246
-
24
-
-
-
-
-
-
-
2,501
2,501
-
-
-
FINANCIAL STATEMENTS
Consolidated Financial Statements
210
100
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
Total 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,
2017
ThUS$
As of
December 31,
2016
ThUS$
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
As of
December 31,
2017
ThUS$
As of
December 31,
2016
ThUS$
276,436
41,548
234,888
362,964
13,251
348,329
1,384
41,514
940
24,074
-
551
9,883
6,066
77,579
-
73,399
4,180
-
-
758,493
940
24,074
128,198
551
9,883
593,463
1,384
178,793
59,177
119,616
195,629
10,474
183,904
1,251
39,513
635
23,541
38
569
8,664
6,066
68,774
28
68,380
366
3
3
482,712
635
23,569
138,069
572
8,664
309,952
1,251
263,798
189,500
74,298
747,218
16,189
731,029
189,500
189,500
-
41,785
-
41,785
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
263,798
-
-
189,500
-
-
74,298
-
747,218
-
-
16,189
-
-
731,029
-
189,500
-
-
189,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,785
-
-
-
-
-
41,785
-
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
Other currency
Total liabilities
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
Net position
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
U.S. dollar
Other currency
2017
ThUS$
850,777
75,368
70,084
235,938
3,791
70,786
181,706
213,104
2016
ThUS$
659,041
76,832
72,532
137,233
13,390
32,420
229,222
97,412
2,343,136
2,651,689
132,595
54,095
864,144
5,207
83,083
1,132,067
71,945
(57,227)
15,989
(628,206)
(1,416)
(12,297)
(950,361)
141,159
38,344
64,763
406,211
10,777
32,282
2,037,140
62,172
38,488
7,769
(268,978)
2,613
138
(1,807,918)
35,240
FINANCIAL STATEMENTS
Consolidated Financial Statements
211
102
103
(b) Exchange differences
NOTE 30 - EARNINGS / (LOSS) PER SHARE
Exchange differences recognized in income, except for financial instruments measured at fair value
through profit or loss, for the period ended December 31, 2017, 2016 and 2015, generated a charge
of ThUS $ 18,718, a credit of ThUS $ 121,651 and a charge of ThUS $ 467,896, respectively.
Exchange differences recognized in equity as reserves for exchange differences for conversion, for
the period ended December 31, 2017, 2016 and 2015, generated a charge of ThUS $ 47,495, a credit
of ThUS $ 494,362 and a charge of ThUS $1, 409,439, respectively.
The following shows the current exchange rates for the U.S. dollar, on the dates indicated:
2017
As of December 31,
2015
2016
2014
18.57
3.31
614.75
2,984.77
0.83
3,345.00
1.28
6.86
19.66
1.41
3.24
28.74
15.84
3.25
669.47
3,000.25
0.95
673.76
1.38
6.86
20.63
1.44
3.35
29.28
12.97
3.98
710.16
3,183.00
0.92
198.70
1.37
6.85
17.34
1.46
3.41
29.88
8.55
2.66
606.75
2,389.50
0.82
12.00
1.22
6.86
14.74
1.28
2.99
24.25
Argentine peso
Brazilian real
Chilean peso
Colombian peso
Euro
Strong bolivar
Australian dollar
Boliviano
Mexican peso
New Zealand dollar
Peruvian Sol
Uruguayan peso
Basic earnings / (loss) per share
Earnings / (loss) attributable to
For the period ended
December 31,
2017
2016
owners of the parent (ThUS$)
155,304
69,220
Weighted average number
of shares, basic
606,407,693
546,559,599
Basic earnings / (loss) per share (US$)
0.25610
0.12665
Diluted earnings / (loss) per share
Earnings / (loss) attributable to
For the period ended
December 31,
2017
2016
owners of the parent (ThUS$)
155,304
69,220
Weighted average number
of shares, basic
Weighted average number
of shares, diluted
606,407,693
546,559,599
(*)
606,407,693
546,559,599
Diluted earnings / (loss) per share (US$)
0.25610
0.12665
(*) In the calculation of diluted earnings per share have not been considered the compensation plan
disclosed in Note 34 (a.1), because the average market price is lower than the price of options.
FINANCIAL STATEMENTS
Consolidated Financial Statements
212
NOTE 31 – CONTINGENCIES
I. Lawsuits
104
1) Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries
Company
Court
Case Number
Origin
Stage of trial
Atlantic Aviation
Investments
LLC (AAI).
Supreme Court of the
State of New York
County of New York.
07-6022920
Atlantic Aviation
Investments LLC.
("AAI"), an indirect subsidiary LATAM
Airlines Group S.A., incorporated under
the laws of the State of Delaware, sued in
August 29th , 2007 Varig Logistics S.A.
("Variglog") for non-payment of four
documented loans in credit agreements
governed by New York
law. These
contracts establish the acceleration of the
loans in the event of sale of the original
debtor, VRG Linhas Aéreas S.A.
a petition
in Switzerland.
in Switzerland
to approval of
The decision ordering Variglog to pay
principal, interest and costs to AAI is in the
enforcement stage
A
settlement for CHF 24,541,781.45 was
reached in Brazil for the Swiss funds, and it
was agreed that it would be divided as
follows: (i) 54.6% of Variglog’s assets for
the Swiss funds; and (ii) 45.4% to AAI,
subject
the Brazilian
Bankruptcy Commission. Variglog also
filed
for
recognition of the decision declaring its
condition of being in judicial recovery, and
subsequently,
in
bankruptcy. The Brazilian courts approved
and Variglog’s
the AAI
bankruptcy on April 11, 2016, which were
confirmed by those courts on September 21,
2016. The final decision approving the
agreement was certified September 23,
2016. US$8.9 million have been recovered
thus far to date, leaving a balance of
US$2.08 million pending. Variglog funds
remain under embargo by AAII
in
Switzerland.
settlement
declared
being
of
Amounts
Committed (*)
ThUS$
10,976
Plus interests
and costs
FINANCIAL STATEMENTS
Consolidated Financial Statements
213
2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries
105
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
airlines, including Lan Cargo S.A., for
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
Commission
9,823
replied.
was
four
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,
infringements
which mentions
(depending on the routes involved) but
refers to Lan 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$ 9,823.135
(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 decision,
but presented a new one on March 17, 2017
reiterating the imposition of the same fine
on the eleven original airlines. The fine
totals 776,465,000 Euros. It imposed the
same fine as before on Lan Cargo and its
parent, LATAM Airlines Group S.A.,
totaling 8.2 million Euros. On May 31,
2017 Lan Cargo S.A. and LATAM
Airlines Group S.A. filed a petition with
the General Court of the European Union
seeking vacation of this decision. We
presented our defense in December 2017.
FINANCIAL STATEMENTS
Company
Court
Case Number
106
Origin
Lan Cargo S.A. y
LATAM Airlines
Group S.A.
Aerolinhas
Brasileiras S.A.
In the High Court of
Chancery
Justice
(England)
División
Romerike
Ovre
District
Court
(Norway) y Directie
Zaken
Juridische
Afdeling
Ceveil
Recht (Netherlands)
, Cologne Regional
Court
(Landgerich
Köln Germany).
Federal Justice.
-
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 in England, Norway, the
Netherlands and Germany.
0008285-
53.2015.403.6105
An action seeking to quash a decision and
petioning for early protection in order to
obgain a revocation of the penalty imposed
the Brazilian Competition Authority
by
(CADE) in the investigation of cargo airlines
alleged fair trade violations, in particular the
fuel surcharge.
Consolidated Financial Statements
214
Stage of trial
Amounts
Committed (*)
ThUS$
Cases are in the uncovering evidence stage.
-0-
11,828
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)
ABSA: ThUS$10,438;
(ii) Norberto
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. ABSA began a judicial
review in search of an additional reduction
in the fine amount. At this time we cannot
predict the final amount of the fine as the
judicial review by the Federal Court Judge
is still pending.
FINANCIAL STATEMENTS
Consolidated Financial Statements
215
Company
Court
Case Number
107
Origin
Stage of trial
Aerolinhas
Brasileiras S.A.
Federal Justice.
0001872-
58.2014.4.03.6105
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
Tam Linhas
Aéreas S.A.
Internal Revenue
Service of Brazil.
10880.725950/2011-
05
Amounts
Committed (*)
ThUS$
15,811
An annulment action with a motion for
preliminary
injunction was filed on
28/02/2014, in order to cancel tax debts
of PIS, CONFINS, IPI and II, connected
with
process
10831.005704/2006.43.
administrative
the
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. A new insurance
policy was submitted on March 3, 2016 with
the change to the guarantee requested by
PGFN, which was declared on June 3, 2016. A
decision is pending.
Alleged
irregularities
the SAT
payments for the periods 01/2011 to
12/2012
in
A judgment by CARF is pending since April
66,258
12, 2016.
Ordinary judicial action brought for the
purpose of declaring the nonexistence of
legal relationship obligating the company
to collect the Air Fund.
Unfavorable court decision in 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$106.
The court decision requesting that the Expert
make all clarifications requested by the parties
in a period of 30 days was published on March
29, 2016. The plaintiffs’ submitted a petition
on June 21, 2016 requesting acceptance of the
opinion of their consultant and an urgent ruling
on the dispute. No amount additional to the
deposit that has already been made is required
if this case is lost.
Compensation credits of
Program
for
Social
(COFINS) Declared
(PIS)
the Social
and
Security
on
Integration
Contribution
Financing
DCOMPs.
objection
(manifestação
The
de
inconformidade) filed by the company was
rejected, which is why the voluntary appeal
was filed. The case was assigned to the 1st
Ordinary Group of Brazil’s Administrative
Council of Tax Appeals (CARF) on June 8,
2015. TAM’s appeal was included in the
CARF session held August 25, 2016. An
agreement that converted the proceedings into
a formal case was published on October 7,
2016.
100,240
64,383
FINANCIAL STATEMENTS
Consolidated Financial Statements
216
Amounts
Committed (*)
ThUS$
12,443
Company
Court
Case Number
108
Origin
Stage of trial
Aerovías de
Integración
Regional,
AIRES S.A.
United States Court
of Appeals for the
Eleventh Circuit,
Florida, U.S.A.
2013-20319 CA 01
The July 30th , 2012 Aerovías de Integración
Recional, Aires S.A. ( LATAM AIRLINES
COLOMBIA) 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 LATAM
AIRLINES COLOMBIA arising from
breach of contractual obligations of the
aircraft HK-4107.
The June 20th , 2013 AIRES SA And / Or
LATAM 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 LATAM AIRLINES
COLOMBIA customs duty to obtain import
declaration when the aircraft in April 2010
entered Colombia for maintenance required
by Regional One.
This case is being heard by the 45th Civil
Court of the Bogotá Circuit in Colombia.
The court issued an order on August 16,
2016 setting the hearing date pursuant to
Article 101 for February 2, 2017. At that
hearing, a reconciliation should have
been attempted, the facts in dispute
determined,
interrogatories made and
evidence admitted. At the petition of
Regional One’s attorneys on January 27,
the
2017, which was accepted by
respondent, the hearing to be held on
February 2, 2017 was postponed. A
reconciliation hearing was held on June
14, 2017 that failed. This commenced
the evidentiary stage in which the legal
representative of LATAM Airlines
Colombia was interrogated. The judge
must now decree which evidence must
be presented and analyzed. The U.S.
Federal Court for the State of Florida
rendered a decision on March 26, 2014
sustaining the petition of Lan Colombia
Airlines to stay the proceedings in the
U.S. as long as the lawsuit in Colombia
was pending. The U.S. Court also closed
the case administratively. The Federal
Court of Appeals confirmed the closing
of the U.S. case on April 1, 2015. On
October 13, 2015, Regional One filed a
petition with the U.S. Court seeking a
reopening of the case. Lan Colombia
Airlines presented
its arguments for
keeping the case closed, which were
sustained by the Court on August 23,
2016. The case in the U.S. continues to
be closed.
FINANCIAL STATEMENTS
Consolidated Financial Statements
217
109
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.
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
Action filed by the Ministry of Labor, which
legislation on
requires compliance with
breaks, extra hours and others.
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. On January 9, 2016,
the case was referred to the Second
Division, Fourth Chamber, of the Third
Section of the Administrative Council of
Tax Appeals (CARF).
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.
This case is in the initial stages. It could
possibly
impact both operations and
employee work shift control. TAM won
in the first instance, but the Prosecutor’s
Office has appealed the trial court’s
decision. That decision was sustained by
the appellate court. A petition by the
Prosecutor’s Office for clarification is
now pending before the courts. The
Office of the Public Prosecutor withdrew
the petition for clarification and the case
was closed in favor of LATAM. Now
pending are the measures pertaining to
lawsuit management so that transfer to
the court is declared.
Amounts
Committed (*)
ThUS$
73,890
108,396
16,170
FINANCIAL STATEMENTS
Company
Court
Case Number
TAM S.A.
Conselho
Administrativo de
Recursos Fiscais.
13855.720077/2014-02
Consolidated Financial Statements
218
Amounts
Committed (*)
ThUS$
149,031
110
Origin
Stage of trial
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.
in
filed
appeal
de Recursos
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
Fiscais
Administrativo
(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. The decision was against TAM.
The lawsuit was on August 13, 2017. The
administrative court’s decision was that
TAM Linhas Aereas must pay Corporate
Income Tax
the Social
(IRPJ) and
Contribution based on Net Profits (CSLL).
The Company was summoned to hear a
decision on December 18, 2017. TAM
filed an appeal on December 28, 2017 and
must now await the appellate decision.
TAM Linhas
Aéreas S.A.
Sao Paulo Labor
Court, Sao Paulo
1001531-
73.2016.5.02.0710
The Ministry of Labor filed an action
seeking that the company adapt the
ergonomics and comfort of seats.
In August 2016, the Ministry of Labor filed
a new lawsuit before the competent Labor
Court in Sao Paulo, in the same terms as
as
0000009-45.2016.5.02.090,
case
previously reported. The
is
pending. (16/02/2018).
judgment
17,230
FINANCIAL STATEMENTS
Company
Court
Case Number
LATAM Airlines
Group S.A.
22° Civil Court of
Santiago
C-29.945-2016
Consolidated Financial Statements
219
Amounts
Committed (*)
ThUS$
21,547
111
Origin
Stage of trial
The Company received notice of a civil
liability claim by Inversiones Ranco Tres
S.A. on January 18, 2017. It is represented
by Mr. Jorge Enrique Said Yarur. It was
filed against LATAM Airlines Group S.A.
for an alleged contractual default by the
Company and against Ramon Eblen Kadiz,
Jorge Awad Mehech, Juan Jose Cueto Plaza,
Enrique Cueto Plaza and Ignacio Cueto
Plaza, directors and officers, for alleged
breaches of their duties. In the case of Juan
Jose Cueto Plaza, Enrique Cueto Plaza and
Ignacio Cueto Plaza, it alleges a breach, as
controllers of the Company, of their duties
agreement.
incorporation
under
LATAM has
counsel
retained
specializing in this area to defend it.
legal
the
the argument stage of
The claim was answered on March 22,
2017 and the plaintiff filed its replication
on April 4, 2017. LATAM filed its
rejoinder on April 13, 2017, which
concluded
the
lawsuit. A reconciliation hearing was held
on May 2, 2017, but the parties did not
reach an agreement. The Court issued
the evidentiary decree on May 12, 2017.
We filed a petition for reconsideration
because we disagreed with certain points
of evidence. That petition was partially
sustained by the Court on June 27, 2017.
The evidentiary stage commenced and
then concluded on July 20, 2017.
Observations to the evidence must now
That period expires
be presented.
August 1, 2017.
filed our
observations to the evidence on August
1, 2017. We were served the decision on
December 13, 2017 that dismissed the
claim since LATAM was in no way
liable. The plaintiff filed an appeal on
December 26, 2017. Now pending is the
admission of the appeal by the Court of
Appeals.
We
TAM Linhas
Aéreas S.A.
10th Jurisdiction of
Federal Tax
Enforcement
Sao Paulo
of
0020869-
47.2017.4.03.6182
Tax Enforcement Lien No. 0061196-
68.2016.4.03.6182 on Profit-Based Social
Contributions from 2004 to 2007.
42,548
This tax enforcement was referred to the
10th Federal Jurisdiction on February 16,
2017. A petition reporting our request to
submit collateral was recorded on April
18, 2017. At this time, the period is
pending for the plaintiff to respond to
our petition.
TAM Linhas
Aéreas S.A.
Federal Revenue
Bureau
10880.900360/2017-
55
A claim regarding the negative Company
Income Tax (IRPJ) balance. Appraisals of
compensation that were not accepted.
The case was referred to the National
Claims Management Center of
the
Federal Revenue Bureau for Sao Paulo
on May 11, 2017.
15,910
FINANCIAL STATEMENTS
Company
Court
Case Number
TAM Linhas
Aéreas S.A.
Internal Revenue
Service of Brazil
16643.000085/2009-
47
Consolidated Financial Statements
220
112
Origin
Stage of trial
Notice of claim to recover income taxes and
social contributions paid on the basis of net
profits (SCL) according
the royalty
expenses and use of the TAM trademark.
to
Before the Internal Revenue Service of
Brazil. A service of process is expected in
the lawsuit on admissibility of the special
appeal, filed by the General Counsel of the
National Treasury, as well as notification
of
the
Administrative Council of Tax Appeals
(CARF). The decision was made to file a
lawsuit on December 5, 2017.
rendered
decision
the
by
Amounts
Committed (*)
ThUS$
17,657
TAM Linhas
Aéreas S.A.
Internal Revenue
Service of Brazil
10831.012344/2005-
55
Notice of an infringement filed by the
Company to request the import tax (II), the
Social Integration Program (PIS) of the
Social Security Funding Contribution
(COFINS) as a result of an unidentified
international cargo loss.
Before the Internal Revenue Service of
Brazil. The administrative decision was
against the company.
The matter is
pending a decision by the CARF.
17,844
TAM Linhas
Aéreas S.A.
Treasury
Department of the
State of Sao Paulo
3.123.785-0
Notice of an
infringement
to demand
payment of the tax on the circulation of
merchandise and services (ICMS) assessable
on aircraft imports.
TAM Linhas
Aéreas S.A.
Treasury
Department of the
State of Sao Paulo
4.037.054
Action brought by the Treasury Department
of the State of Sao Paulo because of non-
payment of the tax on the circulation of
merchandise and services (ICMS) in relation
to telecommunications services.
Before the Treasury Department of the
State of Sao Paulo. A decision is now
pending on the appeal that the company
has filed with the Federal Supreme Court
(STF).
Before the Treasury Department of the
State of Sao Paulo. Defensive arguments
have been presented. The first-instance
decision sustained all parts of the notice.
We filed an ordinary appeal on which a
decision is pending by the Sao Paulo Tax
Court.
14,647
10,808
TAM Linhas
Aéreas S.A.
DERAT SPO
(Delegacía de
Receita Federal)
13808.005459/2001-
45
Collection of the Social Security Funding
Contribution (COFINS) based on gross
revenue of the company in the period 1999-
2000
The decision on collection was pending
through June 2, 2010.
27,226
FINANCIAL STATEMENTS
Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed (*)
ThUS$
113
Consolidated Financial Statements
221
Pantanal Linhas
Aéreas S.A.
Tax
Court
Enforcement
0253410-
30.2012.8.26.0014
TAM Linhas
Aéreas S.A
Federal
Bureau
Revenue
10880.938.664/2016-
12
An
administrative
about
compensation not being proportional to the
negative corporate income tax balance.
lawsuit
A lawsuit seeking enforcement of the fine
A decision is pending on the appeal.
10,877
and ICMS.
TAM Linhas
Aéreas S.A.
Vara das execucões
fiscais.
1997.0002503-9
This is a tax collection claim for a customs
fine—forfeiture of the temporary customs
clearance of goods (new lawsuit).
TAM Linhas
Aéreas S.A.
Delegacía
Receita Federal
de
10611.720630/2017-
16
TAM Linhas
Aéreas S.A.
Delegacía
Receita Federal
de
10611.720852/2016-
58
This is an administrative claim about a
fine for the incorrectness of an import
declaration (new lawsuit).
An improper charge of the Contribution
the Financing of Social Security
for
(COFINS) on an import (new lawsuit).
TAM Linhas
Aéreas S.A
Delegacía de
Receita Federal
16692.721.933/2017-
80
for
The Internal Revenue Service of Brazil
issued a notice of violation because TAM
applied
the
credits
contributions for the Social Integration
Program (PIS) and the Social Security
Funding Contribution (COFINS) that do
not bear a direct relationship
to air
transport (new claim).
offsetting
A decision is pending by CARF on the
27,369
appeal.
9,983
Collateral insurance was offered in 2016
and accepted by the Ministry of Finance
in a petition made November 9, 2016.
The defensive arguments were presented
(attachments against the tax collection)
and the decision was favorable to TAM,
which makes the payment of a fine more
unlikely for TAM. Now pending in the
lawsuit is a decision in the appeal made
by the Ministry of Finance.
The administrative defensive arguments
were presented September 28, 2017.
22,253
We are currently awaiting a decision.
There is no predictable decision date
because it depends on the court of the
government agency.
16,079
We are awaiting the presentation of an
34.321
administrative defense.
FINANCIAL STATEMENTS
Company
Court
Case Number
Origin
Stage of trial
Amounts
Committed (*)
ThUS$
114
Consolidated Financial Statements
222
SNEA (Sindicato
Nacional das
empresas
aeroviárias)
União Federal
0012177-
54.2016.4.01.3400
TAM Linhas
Aéreas S/A
União Federal
2001.51.01.020420-0
A claim against the 72% increase in
airport control fees (TAT-ADR) and
approach control fees (TAT-APP) charged
the Airspace Control Department
by
(“DECEA”).
TAM and other airlines filed a recourse
claim seeking a finding that there is no
legal or tax basis to be released from
collecting
the Additional Airport Fee
(“ATAERO”).
A decision is now pending on the appeal
23.118
presented by SNEA.
A decision by the superior court is
pending. The amount is indeterminate
because even
the
plaintiff, if the ruling is against it, it
could be ordered by the trial judge to pay
certain fees.
though TAM
is
-0-
-
-
In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2017, 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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
223
115
116
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 must admit to the negotiated events described in the DPA
and agree 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) LATAM
paid a fine of 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) LATAM paid a fine
of KUS$6,744 and interest of ThUS$ 2,694.
Nothing is owed to the SEC at this time as ThUS$ 4,719 was paid in July 2017.
LATAM continued to cooperate with the Chilean authorities on this matter. The
investigation continues. The 7th Criminal Court set the hearing date for October 24, 2017, at
the request of the Office of the Public Prosecutor. The Prosecutor has petitioned that the
investigation be closed.
2) LATAM received six Requests for Information from the Central-North Metropolitan Region
Legal Division, on October 25, 2016, on November 11, 2016, on March 8, 2017, on March
22, 2017, on July 7, 2017 and the last on August 28, 2017. It requested information related
to the investigation of payments made by LAN Airlines in 2006 and 2007 to a consultant
who advised it on the resolution of labor matters in Argentina. It also requested an
explanation of information provided to the market. The five requests have already been
answered and the requested information has been provided. The 7th Criminal Court set the
hearing date for October 24, 2017 at the request of the Public Prosecutor. A reopening of the
investigation was denied at that hearing and that denial was confirmed by the Santiago Court
of Appeals on November 20, 2017.
3) The ecuatorian airline affiliate, 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 Prefecture has 180 days (through February 21, 2017) to issue a report on whether
to quash the investigation or file charges against two or more of the parties involved. That
period can be extended for another 180 days. A proceeding would begin only if the decision
is made to file charges. The Commission extended the term of the investigation for another
180 days (through August 18, 2017) LATAM Airlines Ecuador is cooperating with the
authority and has retained a law firm and economist expert in the subject to advise the
company during this process and any additional information requested will be furnished. We
received notice on August 23, 2017 that the Market Regulatory Commission decided to quash
the investigation against AEROLANE LÍNEAS AÉREAS NACIONALES DEL ECUADOR
S.A. and two other airlines because there was insufficient information to charge them. This
decision is final.
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, for which, in any
case non-compliance does not generate acceleration of the loans.
Moreover, and related to these same contracts, restrictions are also in place on the Company’s
management in terms of its ownership, in relation to the ownership structure and the controlling
group, and disposal of the assets which mainly refers to important transfers 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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
224
117
118
The Revolving Credit Facility ("Revolving Credit Facility") with guaranteed aircraft, engines, spare
parts and supplies for a total amount of US $ 450 million includes restrictions of minimum liquidity
measured at the level of the Consolidated Company and measured at the individual level for the
companies LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. which remain stand by
while the credit line is not used. This credit line established with a consortium of eleven banks led
by Citibank, is not used as of December 31, 2017.
As of December 31, 2017, the Company is in compliance with all the indicators detailed above.
(b)
Commitments under operating leases as lessee
Details of the main operating leases are as follows:
Lessor
ACS Aero 1 Alpha limited
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
Avolon Aerospace AOE 100 Limited
AWAS 5234 Trust
Baker & Spice Aviation Limited
Bank of America
Bank of Utah
CIT Aerospace International
ECAF I 1215 DAC
ECAF I 2838 DAC
ECAF I 40589 DAC
Eden Irish Aircr Leasing MSN 1459
GECAS Sverige Aircraft Leasing Worldwide AB
GFL Aircraft Leasing Netherlands B.V.
IC Airlease One Limited
JSA Aircraft 38484, LLC
JSA Aircraft 7126, LLC
JSA Aircraft 7128, LLC
JSA Aircraft 7239, LLC
JSA Aircraft 7298, LLC
Macquarie Aerospace Finance 5125-2 Trust
Macquarie Aerospace Finance 5178 Limited
Aircraft
Airbus A320
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 A321
Boeing 787
Airbus A320
Airbus A320
Airbus A320
Boeing 777
Airbus A320
Airbus A320
Airbus A320
Airbus A321
Boeing 787
Airbus A320
Airbus A321
Airbus A321
Airbus A321
Airbus A320
Airbus A320
As of
December 31,
2017
As of
December 31,
2016
1
1
-
1
3
1
1
1
3
-
-
-
1
2
1
1
2
2
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
2
-
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Lessor
Magix Airlease Limited
MASL Sweden (8) AB
Merlin Aviation Leasing (Ireland) 18 Limited
Merlin Aviation Leasing (Ireland) 7 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 XXIV Leasing Company Limited
Sky High XXV Leasing Company Limited
SMBC Aviation Capital Limited
SMBC Aviation Capital Limited
TC-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
Wilmington Trust Company
Total
Aircraft
Airbus A320
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 A321
Airbus A320
Airbus A320
Airbus A320
Airbus A320
Airbus A319
Airbus A320
Airbus A320
Airbus A350
Boeing 767
Boeing 777
Boeing 787
Airbus A319
As of
December 31,
2017
As of
December 31,
2016
-
-
1
1
1
1
1
1
1
4
2
1
-
1
5
2
4
2
-
2
2
2
2
-
5
2
2
4
11
-
93
1
1
1
-
1
1
1
1
1
5
2
1
1
1
5
2
6
2
1
2
2
2
3
2
7
2
3
6
11
1
111
The rentals are shown in results for the period for which they are incurred.
The minimum future lease payments not yet payable are the following:
No later than one year
Between one and five years
Over five years
Total
As of
December 31,
2017
As of
December 31,
2016
ThUS$
ThUS$
462,205
1,620,253
1,498,064
3,580,522
533,319
1,459,362
1,262,509
3,255,190
FINANCIAL STATEMENTS
Consolidated Financial Statements
225
119
120
The minimum operating lease payments charged to income are the following:
(c) Other commitments
Minimum operating lease payments
Total
For the period ended
December 31,
2017
ThUS$
579,551
579,551
2016
ThUS$
568,979
568,979
During 2017 two Airbus A320-200N were added for a period of twelve years each and two Airbus
A319-100 aircraft, fifteen Airbus A320 aircraft were returned. On the other hand, two
Boeing 787-9 aircraft were added for a period of twelve year each and one Boeing 767-300ER
aircraft and one Boeing 767-300 Freighter aircraft were returned.
The operating lease agreements entered into by the Parent Company and its subsidiaries establish
that aircraft maintenance must be carried out in accordance with the technical provisions of the
manufacturer and in the margins agreed in the contracts with the lessor, a cost assumed by the
lessee. Additionally, for each aircraft, the lessee must purchase policies that cover the associated
risk and the amount of the assets involved. As for the rent payments, these are unrestricted and
cannot be netted from other accounts receivable or payable by the lessor and the lessee.
At December 31, 2017 the Company has existing letters of credit related to operating leasing as
follows:
Creditor Guarantee
GE Capital Aviation Services Limited
ACS Aero 1 Alpha Limited
Bank of America
Bank of Utah
Engine Lease Finance Corporation
GE Capital Aviation Services Ltd.
International Lease Finance Corp
ORIX Aviation Systems Limited
Wells Fargo Bank
CIT Aerospace International
Wells Fargo Bank North N.A.
Debtor
Lan Cargo S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Type
One letter of credit
One letter of credit
Three letter of credit
One letter of credit
One letter of credit
Six letter of credit
Three letter of credit
Two letter of credit
Nine letter of credit
One letter of credit
One letter of credit
Value
ThUS$
1,100
3,255
1,043
2,000
4,750
22,105
1,450
7,366
15,160
6,000
5,500
69,729
Release
date
Nov 30, 2018
Aug 31, 2018
Jul 2, 2018
Mar 24, 2019
Oct 8, 2018
Apr 30, 2018
Aug 5, 2018
Dec 11, 2018
Mar 2, 2018
Oct 25, 2018
Jul 15, 2018
At December 31, 2017 the Company has existing letters of credit, certificates of deposits and
warranty insurance policies as follows:
Creditor Guarantee
Debtor
Type
Value
ThUS$
Release
date
Servicio Nacional de Aduana del
Ecuador
Corporación Peruana de Aeropuertos
y Aviación Comercial
Lima Airport Partners S.R.L.
Superintendencia Nacional de Aduanas
y de Administración Tributaria
Aena Aeropuertos S.A.
American Alternative Insurance
Corporation
Comisión Europea
Deutsche Bank A.G.
Dirección General de Aeronáutica Civil
Empresa Pública de Hidrocarburos
del Ecuador EP Petroecuador
Metropolitan Dade County
4ª Vara Mista de Bayeux
Conselho Administrativo de Conselhos
Federais
Fundação de Proteão de Defesa do
Consumidor Procon
União Federal
União Federal -Fazenda Nacional
União Federal - Procuradoira - Gral
da fazenda Nacional
União Federal Vara Comarca de DF
União Federal Vara Comarca de SP
Líneas Aéreas Nacionales
del Ecuador S.A.
Three letter of credit
1,705
Aug 5, 2018
Lan Perú S.A.
Lan Perú S.A.
Twenty five letter of credit
Eighteen letter of credit
Lan Perú S.A.
LATAM Airlines Group S.A.
Ten letter of credit
Four letter of credit
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
Six letter of credit
One letter of credit
One letter of credit
Fifty three letter of credit
LATAM Airlines Group S.A.
LATAM Airlines Group S.A.
Tam Linhas Aéreas S.A.
One letter of credit
Eight letter of credit
One insurance policies guarantee
1,897
996
80,000
2,809
3,690
9,868
15,000
19,759
5,500
2,273
1,044
Jan 31, 2018
Apr 30, 2018
Jan 21, 2018
Nov 15, 2018
Apr 5, 2018
Jun 16, 2018
Mar 31, 2018
Feb 28, 2018
Jun 18, 2018
Mar 13, 2018
Mar 25, 2021
Tam Linhas Aéreas S.A.
One insurance policies guarantee
12,703
May 19, 2020
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Tam Linhas Aéreas S.A.
Two insurance policies guarantee
One insurance policies guarantee
One insurance policies guarantee
Four insurance policies guarantee
One insurance policies guarantee
One insurance policies guarantee
3,926
6,604
41,243
50,196
1,551
19,268
280,032
Apr 1, 2021
Oct 20, 2021
Jul 30, 2020
Jan 4, 2020
Sep 28, 2021
Feb 22, 2021
FINANCIAL STATEMENTS
Consolidated Financial Statements
226
121
122
NOTE 33 - TRANSACTIONS WITH RELATED PARTIES
(a) Details of transactions with related parties as follows:
Tax No.
Related party
Nature of
relationship with
related parties
Country
of origin
Nature of
related parties
transactions
96.810.370-9
Inversiones Costa Verde
Ltda. y CPA.
65.216.000-K
Comunidad Mujer
Related director
Related director
78.591.370-1
Bethia S.A and subsidiaries
Related director
65.216.000-K
Viajes Falabella Ltda.
79.773.440-3
Transportes San Felipe S.A
Related director
Related director
87.752.000-5
Granja Marina Tornagaleones S.A.
Common shareholder
Foreign
Consultoría Administrativa
Foreign
Foreign
Profesional S.A. de C.V.
Inversora Aeronáutica Argentina
TAM Aviação Executiva
e Taxi Aéreo S/A
Associate
Related director
Related director
Foreign
Qatar Airways
Indirect shareholder
Chile
Chile
Chile
Chile
Chile
Chile
Mexico
Argentina
Brazil
Qatar
Tickets sales
Tickets sales
Services provided for advertising
Services received of cargo transport
Services received from National and International
Courier
Services provided of cargo transport
Sales commissions
Services received of transfer of passengers
Tickets sales
Tickets sales
Professional counseling services received
Leases as lessor
Services provided
Services received at airports
Services provided by aircraft lease
Interlineal received service
Interlineal provided service
Services provided of handling
Currency
Transaction amount
with related parties
As of December 31,
2016
2017
ThUS$
ThUS$
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
CLP
MXN
ARS
BRL
BRL
US$
US$
US$
US$
18
14
-
1,643
(382)
(17)
(761)
-
1
72
(2,357)
(251)
45
(39)
31,707
(2,139)
5,279
1,002
6
9
(12)
(394)
(285)
192
(727)
(84)
3
76
(2,563)
(264)
(120)
7
-
-
-
-
(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).
Remuneration
Management fees
Non-monetary benefits
Short-term benefits
Share-based payments
Total
For the period ended
December 31,
2017
ThUS$
2016
ThUS$
17,826
16,514
468
740
36,970
13,173
69,177
556
778
23,459
8,085
49,392
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.
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.
Periods
From January 1 to December 31, 2016
From January 1 to December 31, 2017
Number of Stock Options
In share-based payment arrangements
Opening
balance
Options
waived by
executives
4,518,000
-
(4,172,000)
-
Expired
Action
Options
(346,000)
-
Closing
Balance
-
-
FINANCIAL STATEMENTS
Consolidated Financial Statements
227
123
124
These options was valued and recorded at fair value at the grant date, determined by the "Black-
Scholes-Merton”. No result has been recognized as of December 2017 (ThUS$ 2,989
at December 31, 2016).
Multiplus S.A.
3rd Grant
4th Grant
4nd Extraordinary
Grant
(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.
Periods
From January 1 to December 31, 2016
From January 1 to December 31, 2017
Base Units
Opening
balance
4,719,720
4,719,720
Granted
Annulled
-
37,359
-
(1,193,286)
Exercised
-
(630,897)
Closing
Balance
4,719,720
2,932,896
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, 2017, the carrying amount of ThUS$ 13,173, is classified under "Administrative
expenses" in the Consolidated Statement of Income by Function.
(c)
Subsidiaries compensation plans
(c.1) Stock Options
Multiplus S.A., subsidiaries of TAM S.A., have outstanding stock options at December 31, 2017,
which amounted to 316,025 shares (at December 31, 2016, the distribution of outstanding stock
options amounted to 394,698 for Multiplus S.A.).
Description
03-21-2012
04-03-2013
11-20-2013
Total
Outstanding option number as December 31, 2016
Outstanding option number as December 31, 2017
84,249
84,249
173,399
163,251
137,050
68,525
394,698
316,025
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.
The acquisition of the share's rights, in both companies is as follows:
Number of shares
Accrued options
Number of shares
Non accrued options
As of
December 31,
2017
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2016
-
-
316,025
394,698
Company
Multiplus S.A.
In accordance with IFRS 2 - Payments based on shares, the fair value of the option must be
recalculated and recorded in the liability of the Company, once cash payment is made (cash-settled).
The fair value of these options was calculated using the "Black-Scholes-Merton" method, where the
assumptions were updated with information from LATAM Airlines Group S.A. As of December 31,
2017 and December 31, 2016 there is no value recorded in liabilities and results.
(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:
a.
Invested.
Compliance with the performance goal defined by this Council as return on Capital
b.
The Beneficiary must remain as an administrator or employee of the Company for the
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.
FINANCIAL STATEMENTS
Consolidated Financial Statements
228
125
126
Number shares in circulation
From January 1
to December 31, 2016
From January 1
to December 31, 2017
Opening
balance
Granted
Exercised
Not acquired due
to breach of employment
retention conditions
175,910
138,282
(15,811)
237,856
129,218
(41,801)
(60,525)
(15,563)
Closing
balance
237,856
309,710
(c)
Dividends:
Latam Airlines Group S.A.
Multiplus S.A. (*)
Lan Perú S.A. (*)
Total dividends paid
For the periods ended
December 31,
2017
2016
ThUS$
ThUS$
(20,766)
(45,876)
-
(66,642)
-
(40,823)
(400)
(41,223)
NOTE 35 - STATEMENT OF CASH FLOWS
(*) Dividends paid to minority shareholders
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.
d)
Reconciliation of liabilities arising from financing activities:
(b)
Other inflows (outflows) of cash:
For the periods ended
December 31,
Guarantees
Fuel hedge
DOJ fine
SEC agreement
Fuel derivatives premiums
Hedging margin guarantees
Tax paid on bank transaction
Bank commissions, taxes paid and other
Change reservation systems
Currency hedge
Court deposits
Others
Total Other inflows (outflows) Operation flow
Others deposits in guarantees
Recovery loans convertible into shares
Tax paid on bank transaction
Others
Total Other inflows (outflows) Investment flow
Loan guarantee
Aircraft Financing advances
Settlement of derivative contracts
Total Other inflows (outflows) Financing flow
2017
ThUS$
59,988
19,862
-
-
(2,832)
(4,201)
(6,635)
(7,738)
(16,120)
(17,798)
(33,457)
-
(8,931)
3,754
-
(2,594)
(10,383)
(9,223)
80,615
(26,214)
(40,695)
13,706
2016
ThUS$
(51,559)
(50,029)
(12,750)
(4,719)
(6,840)
1,184
(10,668)
(769)
-
(39,534)
(33,635)
50
(209,269)
-
8,896
(3,716)
(4,337)
843
(74,186)
(125,149)
(29,828)
(229,163)
Obligations with
December 31,
Obtainment
Payment
Interest accrued
As of
Cash flows
Non-Flow Movements
financial institutions
Loans to exporters
Bank loans
Guaranteed obligations
Other guaranteed obligations
Obligation with the public
Financial leases
Other loans
Total Obligations with
financial institutions
2016
ThUS$
278,164
585,287
4,758,552
256,420
1,309,345
1,022,361
394,791
Capital
ThUS$
130,000
70,357
182,140
-
1,055,167
-
13,107
Capital
ThUS$
(99,719)
(345,552)
(486,599)
(15,022)
(797,828)
(344,005)
(124,688)
Interest
ThUS$
(7,563)
(21,127)
(154,072)
(8,890)
(128,764)
(46,874)
(22,434)
8,604,920
1,450,771
(2,213,413)
(389,724)
(e) Advances of aircraft
and others
ThUS$
Reclassifications
ThUS$
-
-
(419,085)
-
-
419,085
-
13,737
32,668
155,907
9,667
146,146
58,937
22,024
439,086
As of
December 31,
2017
ThUS$
314,619
321,633
4,036,843
242,175
1,584,066
1,109,504
282,800
-
7,891,640
Below are the cash flows associated with aircraft purchases, which are included in the statement of
consolidated cash flow, in the item Purchases of properties, plants and equipment:
Increases (payments)
Recoveries
Total cash flows
For the periods ended
December 31,
2017
MUS$
(205,143)
78,641
(126,502)
2016
MUS$
(170,684)
727,585
556,901
FINANCIAL STATEMENTS
Consolidated Financial Statements
229
127
128
NOTE 36 - THE ENVIRONMENT
NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS
Subsequent to December 31, 2017 and until the date of issuance of these financial statements, there
is no knowledge of other financial or other events that significantly affect the balances or their
interpretation.
The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of
December 31, 2017, have been approved in an Extraordinary Board Meeting on March 14, 2018.
LATAM Airlines Group S.A has a commitment to sustainable development seeking to generate
value taking into account the governance, environmental and social aspects. The company manages
environmental issues at a corporate level, centralized in the Sustainability Management. For the
company to monitor and minimize its impact on the environment is a commitment of the highest
level; where the continuous improvement and contribute to the solution of the global climate change
problem, generating added value to the company and the region, are the pillars of its management.
One of the functions of the Sustainability Management in environmental issues, together with the
various areas of the Company, is to ensure environmental compliance, implement a management
system and environmental programs that comply with the requirements every day more. demanding
worldwide; in addition to continuous improvement programs in their internal processes, which
generate environmental, social and economic benefits and which are added to those currently
carried out.
Within the sustainability strategy, the Environment dimension of LATAM Airlines Group S.A., is
called Climate Change and is based on the goal of achieving world leadership in this area, and for
which we work on the following aspects:
i. Carbon footprint
ii. Eco Efficiency
iii. Sustainable Alternative Energy
iv. Standards and Certifications
This is how, during 2017, the following initiatives have been carried out:
- Implementation of an Environmental Management System for the main operations of the
company. It is highlighted that the company during 2016 has recertified its environmental
management system in Miami facilities following the guidelines of the international standard
ISO 14.001.
- Maintenance of the Stage 2 Certification of IATA Environmental Assestment (IEnvA) whose
scope is the international flights operated from Chile, the most advanced level of this
certification; being the first in the continent and one of the four airlines in the world that have
this certification.
- Preparation of the environmental chapter for the sustainability report of the company, which
allows to measure progress in environmental issues.
- Answer to the questionnaire of the DJSI.
- Measurement and external verification of the Corporate Carbon Footprint.
- Neutralization of land operations in the operations of Colombia and Peru with emblematic
reforestation projects in the respective countries.
It is highlighted that in 2017, LATAM Airlines Group maintained its inclusion for the fourth
consecutive year in the world category of the Dow Jones Sustainability Index, with only 3 airlines
in the world belonging to this select group.
FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
230
Pursuant to the public deed dated August 20, 1985, granted
by Notary Miguel Garay Figueroa’s Office, the company
became a joint-stock corporation known as Línea Aérea
Nacional Chile S.A. (nowadays, LATAM Airlines Group S.A.)
which, by express provision of Law N° 18,400, has the quality
of legal follower of the state-owned company created in the
year 1929 under the name Línea Aérea Nacional de Chile,
pursuant to the aeronautical and radio communications
concessions, traffic rights, and other administrative concessions.
Lan Chile S.A.’s Extraoridnary Shareholders’ Meeting agreed on
July 23, 2004 to change the company’s name to “Lan Airlines
S.A.” An excerpt of the deed to which the Minutes of said Meeting
referred was recorded in the Real Estate Registry of the Registry
of Commerce on page 25,128 number 18,764 of the year 2004
and published in the Official Gazzette on August 21, 2004. The
effective date for the name change was September 8, 2004.
Lan Airlines S.A.’s Extraordinary Shareholders’ meeting held
on December 21, 2011 agreed to change the company’s
name to “LATAM Airlines Group S.A.” An excerpt of the deed
to which the Minutes of said Meeting referred was recorded in
the Real Estate Registry of the Registry of Commerce on page
4,238 number 2,921 of the year 2012 and published in the
Official Gazzette on January 14, 2012. The effective date for
the name change was June 22, 2012.
LATAM Airlines Group S.A. is ruled by the regulation applicable
to open stock companies, and registered to this effect under
Nº 0306, dated January 22, 1987, in the Commission for the
Financial Market (“CMF”), formerly the Superintendency of
Securities and Insurance.
Note: A summary of the subsidiaries’ Financial Statements is
presented herein. The full information is available to the public
in our offices and at the CMF.
and Affiliated Companies
LATAM AIRLINES GROUP S.A
Name: LATAM Airlines Group S.A., R.U.T. 89.862.200-2
Incorporation:
It was established as a limited liability company via a public deed
dated December 30, 1983 before Notary Eduardo Avello Arellano;
an excerpt of this deed is recorded in the Santiago Commerce
Registry on page 20,341 number 11,248 of the year 1983, and
published in the Official Gazzette on December 31, 1983.
FINANCIAL STATEMENTS TAM S.A. AND AFFILIATES
TAM S.A. Affiliate Companies
Subsidiaries and Affiliated Companies
231
Incorporation:
Joint Stock Corporation established in Brazil in May 1997.
Purpose:
To participate as shareholder in other companies, particularly
those operating scheduled air transport services on a national
and international level, as well as activities connected, related,
and complementary to scheduled air transport.
Paid-in Capital:
MUS$2,514,245
Profit for the period:
MUS$203,678
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
4.98%
Chairperson:
Claudia Sender Ramirez
Board Members:
Ruy Antonio Mendes Amparo
Federico Herman Germani
TAM Linhas Aereas S.A. and affiliates
ABSA: Aerolinhas Brasileiras S.A. and affiliate
Individualization:
Joint Stock Corporation established in Brazil.
Individualization:
Joint Stock Corporation established in Brazil.
Purpose:
(a) Operate scheduled air transport services for passengers,
cargo, and correspondence, pursuant to current legislation; (b)
Operate complementary activities for air transport services for
passengers, cargo, and correspondence; (c) Provide services for
maintenance, aircraft repair (own and third-party airplanes),
engines, and parts; (d) Provide aircraft storage services; (e)
Provide loza y pista, on-board provision, and aircraft cleaning
services; (f) Provide engineering, technical assistance, and
other related services for the aeronautical industry; (h) Analyze
and develop programs and systems; (i) Purchase and sell spare
parts, accessories, and aeronautical equipment; (j) Develop
and perform other related, correlated, or complementary
activities for air transport, in addition to those expressly
enumerated above; (k) Import and export finished lubricant;
and (l) Operate bank correspondent services.
Paid-in Capital:
MUS$2,148,226
Chairperson:
Claudia Sender Ramirez
Board Members:
Ruy Antonio Mendes Amparo
Daniel Levy
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
3.26596%
Purpose:
(a) Operate scheduled air transport services for domestic and
international passengers, cargo, and correspondence, pursuant
to current legislation; (b) Operate auxiliary activities for air
transport, such as service, cleaning, and hauling aircraft, load
monitoring, operational flight dispatch, check-in and check-
out, and other services established within its own legislation;
(c) commercial and operational leasing, as well as air charter
services; (d) Develop and carry out other related, correlated,
and complementary activities for air transport, in addition to
those enumerated above.
Paid-in Capital:
MUS$62,752
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.16901%
Chairperson:
Luis Quintiliano
Board Members:
Dario Matsuguma
Daniel Levy
FINANCIAL STATEMENTS TAM S.A. Affiliate Companies
Multiplus S.A.
Transportes Aereos del Mercosur S.A.
Individualization:
Joint Stock Corporation established in Brazil.
Individualization:
Joint Stock Corporation established in Paraguay.
Purpose:
i. To develop and manage the customer loyalty program
based on consumption of goods and services offered by
the Company’s business partners; ii. To trade the award
redemption rights pursuant to the framework of the customer
loyalty program; iii. To create databases of both individuals
and companies; iv. To obtain and process transaction
information regarding consumption patterns; v. To represent
other companies, both Brazilian and foreign; and vi. To
provide auxiliary services for the trade of goods and products,
including, but not limited to, importing and exporting said
goods and products and, in addition to the acquisition of
related items and products, directly or indirectly, to achieve
the abovementioned activities.
Paid-in Capital:
MUS$32,437
Stake in 2017:
72.40%
YOY variation:
0.00%
% of Holding assets:
1.49870%
Chairperson:
Roberto José Maris de Medeiros
Board Members:
Ronald Domingues
Ricardo Gazetta
Ricardo Birtel Mendes de Freitas
Purpose:
It has a broad corporate purpose that includes aeronautical,
commercial, tourist, service, financial, representation, and
investment activities, with a focus on scheduled and charter,
domestic and international, aeronautical transporation
activities for people, objects, and/or correspondence, among
others, as well as commercial and maintenance and technical
assistance services for all types of aircraft, equipment,
accessories, and material for airworthiness, among others.
Paid-in Capital:
MUS$15,708
Stake in 2017:
94.98%
YOY variation:
0.00%
% of Holding assets:
0.14770%
Chairperson:
Rosario Altgelt
Board Members:
Enrique Alcaide Hidalgo
Esteban Burt
Darío Maciel Martínez
Hernán Pablo Morosuk (Interim Member)
Subsidiaries and Affiliated Companies
232
Management:
Enrique Alcaide Hidalgo
Esteban Burt Artaza
Maria Emiliana Duarte León
Luis Galeano
Diego Martinez
Chief Executive:
Rosario Altgelt
Corsair Participações Ltda
Individualization:
Joint Stock Corporation established in Brazil.
Purpose:
(i) to participate in other civil or commercial associations as
shareholder or partner; and (ii) to manage its own assets.
Paid-in Capital:
MUS$58
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00332%
Chairperson:
Ruy Antonio Mendes Amparo
Board Members:
Euzébio Angelotti Neto
FINANCIAL STATEMENTS Subsidiaries and Affiliated Companies
233
TAM Capital 2 Inc.
Individualization:
Joint Stock Corporation established in Brazil.
Purpose:
The company may exercise any activity that is not in conflict
with the law.
Paid-in Capital:
MUS$93,216
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00%
Board Members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
TAM S.A. Affiliate Companies
TP Franchising Limited
Individualization:
Limited Liability Company established in Brazil.
Purpose:
(a) to award franchises; (b) to temporarily award its
franchisees, free of charge or for a fee, the right to use its
brands, systems, knowledge, methods, patents, actuation
technology, and any other rights, stakes, or assets,
movable or immovable, tangible or intangible, owned by the
Company, as present or future owner or licensee, for the
development, implementation, operation, or management of
the franchises that it may grant; (c) to develop any and all
necessary activities to ensure, insofar as possible, the ongoing
maintenance and perfecting of the actuation patterns of its
franchise network; (d) to develop implementation, operation,
and mangement models for its franchise network and their
transfer to the franchisees; and (e) the distribution, sale, and
marketing of airfares and related products, as well as any
related or accessory business to its main objective, while
also able to participate in other companies as partner or
shareholder, either in Brazil or Abroad, or in consortiums, as
well as to carry out its own projects, or form partnerships
with third parties in their projects, even to obtain tax benefits,
pursuant to current legislation.
Paid-in Capital:
MUS$9
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00273%
Management:
Claudia Sender Ramirez
Marcelo Eduardo Guzzi Dezem
Daniel Levy
TAM Capital Inc
Individualization:
Joint Stock Corporation established in Brazil.
Purpose:
The Company may exercise any activity that is not in conflict
with the law.
Paid-in Capital:
MUS$131,171
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00%
Board Members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
FINANCIAL STATEMENTS
TAM S.A. Affiliate Companies
LAN CARGO S.A AND AFFILIATES
TAM Capital 3 Inc.
Individualization:
Joint Stock Corporation established in Brazil.
Purpose:
The company may exercise any activity that is not in conflict
with the law.
Paid-in Capital:
MUS$210,574
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.86614%
Board Members:
José Zaidan Maluf,
Bruno Macarenco Aléssio
Euzébio Angelotti Neto
Incorporation:
Established as a private limited company via the public deed
dated May 22, 1970, before Notary Sergio Rodriguez Garces,
its incorporation was materialized through the contribution
of assets and liabilities from company Linea Aerea del Cobre
Limitada (Ladeco Limitada), established on September 3,
1958, before Notary Jaime Garcia Palazuelos. The Company
has undergone various reforms, the latest of which is set forth
in the public deed dated November 20, 1998, and an excerpt
of which was included on page 30,091 number 24,117 of the
Santiago Commerce Resgistry and published in the Official
Gazzette on December 3, 1998, whereby Ladeco S.A. was
merged into Lan Chile S.A.’s affiliate, Fast Air Carrier S.A.
In the public deed dated October 22, 2001, wherein the
Minutes from the Extraordinary Shareholders’ Meeting
of Ladeco S.A. held on the same date were recorded, the
company’s name was changed to “Lan Chile Cargo S.A." An
excerpt of said deed was recorded in the Real Estate Registry
of the Santiago Registry of Commerce on page 27,746
number 22,624 of the year 2001, and published in the Official
Gazzette on November 5, 2001. The name change became
effective as of December 10, 2001.
In the public deed dated August 23, 2004, wherein the
Minutes from the Extraordinary Shareholders’ Meeting of
Lan Chile Cargo S.A. held on August 17, 2004 were recorded,
the company’s name was changed to “Lan Cargo S.A." An
excerpt of said deed was recorded in the Real Estate Registry
of the Santiago Registry of Commerce on page 26,994
number 20,082 of the year 2004 and published in the Official
Gazzette on August 30, 2004.
Purpose:
To perform and develop, either on its own behalf or for third
parties, the following: general transportation in any form
and, specifically, air transport of passengers, cargo, and
correspondence, within the country and abroad; tourism, lodging,
Subsidiaries and Affiliated Companies
234
and other related activities, in any form, within the country
and abroad; purchase, sale, manufacture and/or integration,
maintenance, leasing, or any other form of use, be it on its
own behalf or for third parties, of airplanes, spare parts, and
aeronautical equipment, and their operation for any given
purpose; provide all sorts of services and counseling related to
transportation in general and, specifically, to air transportation
in any of its forms, be it ground support, maintenance, technical
assistance, or any other type, within the country and abroad, and
all sorts of services and activities related to tourism, lodging, and
other abovementioned activities and goods, within the country and
abroad. In order to meet the abovementioned goals, the Company
may perform investments or participate as partner in other
companies, either by purchasing stocks or rights or stakes in any
other type of corporation, be it an already established one or one
created in the future, and overall, perform all acts and enter all
contracts necessary and relevant to the purposes described.
Paid-in Capital:
MUS$83,226
Profit for the period:
MUS$ (4,639)
Stake in 2017:
99.898%
YOY variation:
0.00%
% of Holding assets:
1.93%
Board Members:
Andrés Bianchi Urdinola (LATAM Executives)
Ramiro Alfonsin Balza (LATAM Executives)
Enrique Cueto Plaza (LATAM Executives)
Chief Executive:
Andrés Bianchi Urdinola
FINANCIAL STATEMENTS
Lan Cargo S.A. Affiliate Companies
Laser Cargo S.R.L.
Individualization:
Limited Liability Company established in Argentina.
to fulfill this goal; that is: the logistics process from fetching
the raw material from the supplier to delivering the finished
product to the customer, and the information regulation to
guarantee the efficiency in this management process.
Fast Air Almacenes de Carga S.A.
Individualization:
Joint Stock Corporation established in Chile.
Subsidiaries and Affiliated Companies
235
Paid-in Capital:
MUS$68
Stake in 2017:
99.99%
YOY variation:
0.00%
% of Holding assets:
0.0000%
Board Members:
Esteban Bojanich
Management:
Esteban Bojanich,
Rosario Altgelt
María Marta Forcada,
Facundo Rocha
Gonzalo Perez Corral
Nicolás Obejero
Norberto Díaz
Purpose:
On its own behalf and/or for third parties, to provide services as
an air and sea cargo agent, operation of air and sea containers,
loading and unloading control of conventional aircraft, cargo
aircraft, conventional ships, and container ships, consolidation
and deconsolidation, operations and contracts with air, sea,
river, and land cargo transport, distribution, and promotion
companies, and related activities and services, imports and
exports: said operations will be carried out pursuant to the laws
of the country and the regulation pertaining to said professions
and activities, the legal stipulations on customs, and the rules
of the Argentine coast guard (PNA), Argentine airforce, as
well as by commissioning to third parties the performance of
tasks assigned by current legislation to customs brokers; also,
deposit and transfer of fruit, products, raw materials, general
merchandise, and documents in general on its own behalf
and/or for third parties: packaging of general merchandise,
on its own behalf and/or for third parties. To perform said
activities, the company may register as sea or air agent,
importer and exporter, sea and air contractor and supplier
before the corresponding authorities. In turn, it will carry
out postal activities destined to the admission, classification,
transportation, distribution, and delivery of correspondence,
letters, postcards, and parcels weighing up to 50 kg, within the
Argentine Republic and to or from other countries. This activity
includes the tasks carried out by so-called couriers or courier
companies, and all other assimilated or assimilable activities
pursuant to Art. 4 of Decree 1187/93. The company may also
carry out the logistics process consisting in transferring, storing,
assembling, fractioning, packaging, and conditioning of general
merchandise to be later transported and distributed to the
end customer, as well as managing the pertinent information
Purpose:
To operate or manage the warehouses or storage facilities of
customs deposits, where any type of good or merchandise can
be stored until its withdrawal, for imports, exports, or any other
customs destination, pursuant to the terms stated within the
Customs Ordinance, its rules, and other corresponding regulation.
Paid-in Capital:
MUS$6,741
Stake in 2017:
99.89%
YOY variation:
0.00%
% of Holding assets:
0.04292%
Board Members:
Ramiro Alfonsin Balza (LATAM Executives)
Andrés del Valle Eitel (LATAM Executives)
Hernan Pasman (LATAM Executives)
Chief Executive:
Position currently vacant
FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
236
Lan Cargo S.A. Affiliate Companies
Prime Airport Services Inc. and affiliate
Lan Cargo Overseas Limited and affiliates
Transporte Aéreo S.A.
Individualization:
Corporation established in the United States
Individualization:
Limited Liability Company established in Bahamas.
Individualization:
Joint Stock Corporation established in Chile.
Purpose:
To operate or manage the warehouses or storage facilities of
customs deposits, where any type of good or merchandise can
be stored until its withdrawal, for imports, exports, or other
customs destination, pursuant to the terms stated within the
Customs Ordinance, its rules, and other corresponding regulation.
Paid-in Capital:
MUS$2
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00000%
Chief Executive:
Rene Pascua
Purpose:
To participate in any act or activity that is not expressly
forbidden by any valid law in Bahamas.
Purpose:
To participate in any act or activity that is not expressly
forbidden by any existing law in Bahamas.
Paid-in Capital:
MUS$1,183
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.12644%
Board Members:
Andrés del Valle Eitel (LATAM Executive)
Management:
Andrés del Valle Eitel (LATAM Executive)
Paid-in Capital:
MUS$11,800
Stake in 2017:
99.99%
YOY variation:
0.00%
% of Holding assets:
1.17109%
Board Members:
Ramiro Alfonsin Balza
Roberto Alvo Milosawlewitsch
Management:
Ramiro Alfonsin Balza
Roberto Alvo Milosawlewitsch
FINANCIAL STATEMENTS Lan Cargo S.A. Affiliate Companies
Consorcio Fast Air Almacenes de Carga S.A. - Laser
Cargo S.R.L.
Individualization:
Transitory merger of companies established in Argentina.
Purpose:
Bidding at National and International Public Tender
N° 11/2000 to be awarded the License of Use for the
Installation and Operation of a Tax Warehouse at the Rosario
International Airport.
Paid-in Capital:
MUS$132
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00018%
Board Members:
Esteban Bojanich
Management:
Esteban Bojanich
Subsidiaries and Affiliated Companies
237
Lan Cargo Inversiones S.A. and affiliate
Connecta Corporation
Individualization:
Joint Stock Corporation established in Chile.
Individualization:
Corporation established in the United States.
Purpose:
Ownership, operating leasing, and subleasing of aircraft
Paid-in Capital:
MUS$1
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.11430%
Chief Executive:
Andrés Bianchi Urdinola
Purpose:
a) to trade in air transportation, in any of its forms, be it of
passengers, correspondence, and/or cargo, and anything
related directly or indirectly to said activity within the country
or abroad, on its own behalf or for third parties; b) to provide
services releated to the maintenance and repair of own and
third-party aircraft; c) to market and perform activities
related to travel, tourism, and lodging; d) to make and/
or participate in all types of investments, both in Chile and
abroad, in matters directly or indirectly related to aeronautical
issues and/or to any of the other corporate purposes; and e)
to carry out and operate all other activities derived from the
corporate purpose and/or related, connected, contributory, or
complementary activities thereof.
Paid-in Capital:
MUS$125
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.00000%
Board Members:
Andrés Bianchi Urdinola Plaza (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
FINANCIAL STATEMENTS Subsidiaries and Affiliated Companies
238
Management:
Jaime Antonio Gongora Esguerra
Erika Zarante Bahamon
Mas Investment Limited
(A subsidiary of LAN Overseas Limited)
Individualization:
Limited Liability Company established in Bahamas.
Purpose:
To perform all activities that are not expressily forbidden by
Bahamas law, and specifically, to hold stakes in other LAN
affiliates.
Promotora Aérea Latinoamérica S.A. and affiliates (A
subsidiary of Mas Investmet Limited)
Individualization:
Variable Capital Corporation established in Mexico.
Purpose:
To promote, establish, organize, operate, and participate in
the capital and equity of all types of trade companies, civil
associations, industrial, commercial, service, or any other type of
associations or companies, both national and foreign, as well as
to participate in their management or settlement. *Acquisition,
disposal, and overall trading in all types of stocks, equity
interests, and any other security allowed by the law… *Providing
or contracting technical, advisory, and consulting services, as well
as signing contracts or agreements to pursue these goals.
Paid-in Capital:
MUS$1,446
Stake in 2017:
100.000
YOY variation:
0.00%
% of Holding assets:
0.03554%
Board Members:
J. Richard Evans
Carlton Mortimer
Charlene Y. Wels
Geoffrey D. Andrews.
Paid-in Capital:
MUS$2,216
Stake in 2017:
49.00%
YOY variation:
0.00%
% of Holding assets:
0.02508%
Management:
Luis Ignacio Sierra Arriola
Lan Cargo S.A. Affiliate Companies
Línea Aérea Carguera de Colombia
(Subsidiary of LAN Cargo Inversiones)
Individualization:
Joint Stock Corporation established in Colombia.
Purpose:
To provide public, commercial cargo, and correspondence air
transportation within the Republic of Colombia and from and to
Colombia. As a secondary corporate purpose, the company can
offer maintenance services to itself and to third parties; run its
operations school and provide theoretical and practical instruction
services, as well as tranining for its own and third-party
aeronautical personnel in the various modes and specialties;
import spare parts and replacements related to aeronautical
activities, for itself and for third parties; provide airport services
to third parties; represent or broker national and foreign air
transport companies for passengers or cargo, and in general,
companies that provide services to the aeronautical sector.
Paid-in Capital:
MUS$774
Stake in 2017:
90.00%
YOY variation:
0.00%
% of Holding assets:
0.05192%
Board Members:
Alberto Davila Suarez (permanent member)
Santiago Alvarez Matamoros (permanent member)
Jaime Antonio Gongora Esguerra (permanent member)
Andrés Bianchi Urdinola (Interim Member)
Jorge Nicolas Cortazar Cardoso (Interim Member)
Helen Victoria Warner Sanchez
FINANCIAL STATEMENTS Lan Cargo S.A. Affiliate Companies
Inversiones Áreas S.A
(A Subsidiary of Mas Investmet Limited)
Chief Executive:
Silvana Muguerza Mori
Individualization:
Joint Stock Corporation established in Peru.
Purpose:
To promote, establish, organize, operate, and participate in
the capital and equity of all types of trade companies, civil
associations, industrial, commercial, service, or any other type of
associations or companies, both national and foreign, as well as
to participate in their management or settlement. *Acquisition,
disposal, and overall trading in all types of stocks, equity
interests, and any other security allowed by the law… *Providing
or contracting technical, advisory, and consulting services, as well
as signing contracts or agreements to pursue these goals.
Americonsul S.A de C.V. (A Subsidiary of Promotora
Aérea Latinoamérica S.A and affiliates)
Individualization:
Variable Capital Corporation established in Mexico.
Purpose:
To provide and receive all manner of technical, administrative,
or counseling services for industrial, commercial, and service
companies; Promote, organize, manage, supervise, provide,
and direct personnel training courses; Perform all types of
studies, plans, projects, and research; Engage the necessary
professional and technical personnel.
Paid-in Capital:
MUS$428
Stake in 2017:
100.00%
YOY variation:
0.00%
% of Holding assets:
0.03116%
Chairperson:
Jorge Alejandro Villa Mardel
Board Members:
Jorge Alejandro Villa Mardel
Andrés Enrique del Valle Eitel
Ramiro Diego Alfonsín Balza
Paid-in Capital:
MUS$5
Stake in 2017:
49.00%
YOY variation:
0.00%
% of Holding assets:
0.00000%
Management:
Luis Ignacio Sierra Arriola
Hector Ivan Iriarte
Claudio Torres
Subsidiaries and Affiliated Companies
239
Americonsult de Guatemala S.A. (A subsidiary of
Americonsul S.A de C.V)
Individualization:
Joint Stock Corporation established in Guatemala.
Purpose:
Powers to represent, broker, negotiate, and market; Carry out
all types of commercial and industrial activities; All manner of
trade in general. Broad purpose that allows for all manner of
operations within the country.
Paid-in Capital:
MUS$76
Stake in 2017:
99.00%
YOY var.:
0.00%
% of Holding assets:
0.00071%
Chairperson:
Luis Ignacio Sierra Arriola
Board Members:
Carlos Fernando Pellecer Valenzuela
Management:
Carlos Fernando Pellecer Valenzuela
FINANCIAL STATEMENTS
Lan Cargo S.A. Affiliate Companies
LAN PERÚ S.A
LAN INVERSIONES S.A. AND AFFILIATES
Subsidiaries and Affiliated Companies
240
Americonsult de Costa Rica S.A. (A subsidiary of
Americonsul S.A de C.V)
Incorporation:
Joint Stock Corporation established in Costa Rica.
Purpose:
General trade; industry, agriculture, and livestock.
Incorporation:
Joint Stock Corporation established in Peru on February 14, 1997.
Purpose:
Provide air transportation services for passengers, cargo, and
correspondence, both nationally and internationally, pursuant
to current civil aeronautical legislation.
Paid-in Capital:
MUS$20
Stake in 2017:
99.00%
YOY var.:
0.00%
% of Holding assets:
0.00635%
Management:
Luis Ignacio Sierra Arriola
Treasurer: Alejandro Fernández Espinoza
Luis Miguel Renguel López
Tomás Nassar Pérez
Marjorie Hernández Valverde.
Paid-in Capital:
MUS$4,341
Profit for the period:
MUS$ 1,205
Stake in 2017:
70.00%
YOY variation:
0.00%
% of Holding assets:
0.06598%
Chairperson:
Emilio Rodríguez Larraín Salinas
Board Members:
César Emilio Rodríguez Larraín Salinas
Enrique Cueto Plaza (LATAM Executive)
Enrique Cueto Plaza (LATAM Executive)
Jorge Harten Costa
Alejandro García Vargas
Emilio Rodríguez Larraín Miró Quesada
Roberto Alejandro Alvo Milosawlewitsch (LATAM Executive)
Chief Executive:
Félix Antelo
Incorporation:
Established as a private limited company through the Public
Deed dated January 23, 1990 before Notary Humberto
Quezada M., recorded in the Santiago Commerce Registry on
page 3,462 N° 1,833 of the year 1990, and published in the
Official Gazzette on February 2, 1990.
Purpose:
Perform investments in all manner of goods, be they movable or
immovable, tangible or intangible. Moreover, the Company may
establish other types of companies of any sort; acquire rights in
already existing corporations, manage, modify, and settle them.
Paid-in Capital:
MUS$459
Profit for the period:
MUS$1,588
Stake in 2017:
100.00%
YOY variation:
0.0%
% of Holding assets:
0.03447%
Chairperson:
Enrique Cueto Plaza (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Chief Executive:
Gregorio Bekes (LATAM Executive)
FINANCIAL STATEMENTS
Affiliate companies of
Inversiones Lan S.A. and stakes
Andes Airport Services S.A.
Individualization:
Joint Stock Corporation established in Chile.
Purpose:
Comprehensive counseling for companies and provision of
services for third parties, such as loading, ground handling,
staffing, and any other requirements. For this purpose, the
company will carry out its operations through personnel
expressly hired for this purpose on its own behalf, or for third
parties. Overall, the company can carry out all activities
directly or indirectly related to its specific purpose of offering
counseling or services to third parties.
Paid-in Capital:
MUS$3
Stake in 2017:
98.00%
YOY variation:
0.00%
% of Holding assets:
0.02685%
Board Members:
Enrique Cueto Plaza (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
LATAM TRAVEL CHILE S.A AND AFFILIATE
Incorporation:
Established as a private limited company through the Public
Deed dated June 22, 1987 before Santiago Notary Raul
Undurraga Laso, recorded in the Santiago Commerce Registry
on page 13,139 N° 8,495 of the year 1987, and published
in the Official Gazzette on July 2, 1987. The company has
undergone various reforms, the latest of which is recorded
in the public deed dated August 24, 1999 before Santiago
Notary Eduardo Pinto Peralta and recorded on page 21,042
N° 16,759 of the year 1999 and published in the Official
Gazzette on September 8, 1999.
Purpose:
Operation, management, and representation of national and
foregin businesses in the lodging, shipping, air, and tourism
industries; operation on its own behalf or for third parties,
automobile leasing; imports, exports, production, marketing,
and distribution on its own behalf or forth third parties, of
any type of merchandise, raw materials, inputs, or finished
products, in national and international markets.
Paid-in Capital:
MUS$235
Profit for the period:
MUS$1,833
Stake in 2017:
100.00%
YOY variation:
0.0%
% of Holding assets:
0.02433%
Subsidiaries and Affiliated Companies
241
Board Members:
Andrés del Valle Eitel (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Chief Executive:
Claudia Caceres Araya (LATAM Executive)
Affiliate Company of
Latam Travel Chile S.A. and stake
Latam Travel Chile II S.A.
Individualization:
Joint Stock Corporation established in Chile.
Purpose:
Operation, management, and representation of national or
foreign companies or businesses in the lodging, shipping, air, and
tourism activities in general; brokerage of tourist services, such
as: (a) booking seats and selling tickets for all types of national
transportation, (b) booking, acquistion, and sale of lodging
and tourism services, and tickets to all types of entertainment,
museums, monuments, and protected areas in the country,
(c) organization, promotion, and sale of tourist packages,
understood as the group of tourist services (food, transportation,
lodging, etc.), adjusted or projected at the client’s behest, at a
preset price, to be operated in national territory, (d) air, land,
sea, and river tourist transportation within the national territory;
(e) leasing and charter of planes, ships, buses, trains, and other
forms of transportation for the provision of tourist services; (f)
any other activity directly or indirectly related to the provision of
the abovementioned services.
FINANCIAL STATEMENTS Paid-in Capital:
MUS$235
Stake in 2017:
99.99%
YOY var.:
0.00%
% of Holding assets:
0.02433%
Board Members:
Andrés del Valle Eitel (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Chief Executive:
Claudia Caceres Araya (LATAM Executive)
LAN PAX GROUP S.A.
Incorporation:
Established as a private limited company through the Public
Deed dated September 27, 2001 before Santiago Notary
Patricio Zaldivar Mackenna, recorded in the Santiago Commerce
Registry on page 25,636 N° 20,794 on October 4, 2001, and
published in the Official Gazzette on October 6, 2001.
Purpose:
Perform investments in all manner of goods, be they movable
or immovable, tangible or intangible. Within its line of
business, the Company may create other types of companies
of any sort; acquire rights in already existing corporations,
manage, modify, and settle them. Overall, it may acquire and
sell all manner of goods and operate them, on its own behalf
or for third aprties, as well as perform all manner of acts
and enter into all manner of contracts conducive to its goals.
Exercise the development and operation of all other activities
derived from and/or related, connected, contributory, or
complementary to the company’s corporate purpose.
Paid-in Capital:
MUS$425
Profit for the period:
MUS$ (36,343)
Stake in 2017:
100.00%
YOY var.:
0.00%
% of Holding assets:
0.00%
Board Members:
Andrés del Valle Eitel (LATAM Executive)
Roberto Alvo Milosawlewitsch (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Subsidiaries and Affiliated Companies
242
Chief Executive:
Andrés del Valle Eitel (LATAM Executive)
Affiliate companies of
Lan Pax Group S.A. and stakes
Inversora Cordillera S.A. and affiliates
Individualization:
Joint Stock Corporation established in Argentina.
Purpose:
To perform investments on its own behalf or for third parties,
or related to third parties, in other stock companies, regardless
of corporate purpose, established or to be established, within
the Argentine Republic or abroad, via acquisition, incorporation,
or sale of stakes, shares, quotas, bonds, options, commercial
paper, convertible or otherwise, other transferrable securities,
or other forms of investment allowed by the applicable
regulation at any given moment, either to hold them in its own
portfolio, or to sell them partially or in full, as may be the case.
For this purpose, the company may carry out all transactions
that are not expressly forbidden by law in compliance with
its corporate purpose, and it has full legal capacity to acquire
rights, contract obligations, and exercise all acts that are not
expressly forbidden by law or statute.
Paid-in Capital:
MUS$215,148
Stake in 2017:
95.78%
YOY var.:
0.00%
% of Holding assets:
0.66996%
FINANCIAL STATEMENTS Affiliate companies of Lan Pax Group S.A. and stakes
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
Latam Travel S.A.
Individualization:
Joint Stock Corporation established in Argentina.
Purpose:
To perform on its own behalf or for third parties and/or
in partnership with third parties, within the country and/
or abroad, the following activities and transactions: A)
COMMERCIAL: Carry out, intervene, develop, or design
all manner of operations and activities involving the sale
of airfare, land, river, and sea tickets, both nationally and
abroad, or any other service related to the tourism industry
in general. The aforementioned services may be carried out
on its own behalf or upon request from third parties, via
mandate, commission, the use of systems or methods deemed
convenient for said purpose, be they manual, mechanical,
electronic, telephone, or internet methods, or any other type
or technology that may suit said purpose. The Company may
perform ad hoc or related activities to the purpose described,
such as purchase and sales, imports, exports, reexport,
licencing, and representation of all manner of goods, services,
know-how, and technology directly or indirectly related to
the purpose described; market, by any means the technology
created or whose licence or patent it has acquired or manages;
develop, distribute, promote, and market all types of content
for mass media of any sort. B) TOURIST: Via the performance
of all activities related to the tourist and lodging industry,
as responsible operator or third-party service operator,
or as travel agent. Via the creation of exchange, tourism,
excursion, and tour programs; the brokerage and booking
and rendering of services through any form of transportation
within the country or abroad, and ticket sales; brokerage for
hiring lodging services in the country or abroad; booking of
hotels, motels, tourist apartments, and other tourist facilities;
organization of trips and tourism for individuals or groups,
excursions, or similar activities within the country or abroad;
reception and assistance for tourists during their trip and
stay in the country, provision of tour guide services, and
forwarding of their luggage; representation of other travel and
tourist agencies, companies, corporations, or institutions, both
national and international, in order to provide any of these
services on their behalf. C) MANDATARIA: Via the acceptance,
performance, and granting of representations, concessions,
commissions, agencies, and mandates in general. D)
CONSULTING: Provide consulting, support, and management
services on all matters related to the organization, installation,
service, development, support, and promotion of companies
related to air transportation activities, but not exclusive to
said activity, in the management, industrial, commercial,
technical, and advertising areas, to be provided, when the
nature of the issue so requires, by certified professionals per
the corresponding regulation, and the provision of organization
and management, care, maintenance, and surveillance
services, and of the suitable personnel, especially prepared
to carry out said tasks. E) FINANCIAL: Via its participation
in other companies already created or to be created, either
through the acquisition of shares in established companies,
or through the establishment of new companies, via the
awarding or securing of credits, loans, cash advances secured
or unsecured by collateral o personal guarantee; the awarding
Subsidiaries and Affiliated Companies
243
of guarantees and sureties in favor of third parties for a fee
or free of charge; placement of funds in foreign currency, gold
or currencies, or bank deposits of any type. To achieve these
purposes, the company has full legal capacity to exercise
all acts not expressly forbidden by law or statue, including
making borrowings publicly or privately via the issuance of
debentures and tradable securities, and performing all manner
of financial transactions except those comprised under Law
21,526 and any others requiring a public tender process.
Paid-in Capital:
MUS$(420)
Stake in 2017:
100.00%
YOY var.:
0.00%
% of Holding assets:
0.00447%
Board Members:
Nicolás Obejero
Facundo Rocha
Management:
Rosario Altgelt
María Marta Forcada
Facundo Rocha
Sebastián Pereira
Nicolás Obejero
Norberto Díaz
FINANCIAL STATEMENTS Affiliate companies of Lan Pax Group S.A. and stakes
Atlantic Aviation Investments LLC
Individualization:
Limited Liability Company established in the United States.
Purpose:
Any and all lawful business that the company may undertake
Paid-in Capital:
MUS$1
Stake in 2017:
99.00%
YOY var.:
0.00%
% of Holding assets:
0.06092%
Board Members:
Andrés del Valle Eitel
Management:
Andrés del Valle (LATAM Executive)
Akemi Holdings S.A.
Individualization:
Joint Stock Corporation established in Panama.
Purpose:
The corporate purposes under which the company is organized
are to establish, process, and carry out the business of an
investment company anywhere in the world, buy, sell, and
trade all manner of consumer items, capital stocks, bonds,
and securities of every type, buy, sell, lease, or in any other
manner acquire or dispose of movable or immovable assets,
invest in any industrial or commercial business, either as
owner or shareholder, receive and provide cash as loans,
secured or unsecured, to agree, sign, or follow through and
carry out all manner of contracts, set up as guarantor or
guarantee and enforce compliance with any and all contracts,
to perform any lawful business not banned to a joint stock
corporation, and to execute any and all of the above as
holders, agents, or under any other representative nature.
Paid-in Capital:
MUS$0
Stake in 2017:
100.00%
YOY var.:
0.00%
% of Holding assets:
0.00000%
Board Members:
Edith O. de Bocanegra
Barbara de Rodriguez
Luis Alberto Rodriguez
Management:
Luis Alberto Rodriguez
Barbara de Rodríguez
Saipan Holdings S.A.
Individualization:
Joint Stock Corporation established in Panama.
Subsidiaries and Affiliated Companies
244
Purpose:
The corporate purposes under which the company is organized
are to establish, process, and carry out the business of an
investment company anywhere in the world, buy, sell, and
trade all manner of consumer items, capital stocks, bonds,
and securities of every type, buy, sell, lease, or in any other
manner acquire or dispose of movable or immovable assets,
invest in any industrial or commercial business, either as
owner or shareholder, receive and provide cash as loans,
secured or unsecured, to agree, sign, or follow through and
carry out all manner of contracts, set up as guarantor or
guarantee and enforce compliance with any and all contracts,
to perform any lawful business not banned to a joint stock
corporation, and to execute any and all of the above as
holders, agents, or under any other representative nature.
Paid-in Capital:
MUS$0
Stake in 2017:
100.00%
YOY var.:
0.00%
% of Holding assets:
0.00000%
Board Members:
Edith O. de Bocanegra
Barbara de Rodriguez
Luis Alberto Rodriguez
Management:
Luis Alberto Rodriguez
Barbara de Rodríguez
FINANCIAL STATEMENTS Affiliate companies of Lan Pax Group S.A. and stakes
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A.
Individualization:
Joint Stock Corporation established in Ecuador.
Purpose:
Combined air transport of passengers, cargo, and correspondence.
Paid-in Capital:
MUS$1,000
Stake in 2017:
55.00%
YOY var.:
0.00%
% of Holding assets:
0.06537%
Board Members:
Antonio Stagg
Manuel Van Oordt
Mariana Villagómez
Chief Executive:
Maximiliano Naranjo
Holdco Ecuador S.A
Individualization:
Joint Stock Corporation established in Chile.
Purpose:
Carry out all manner of investments for profitable purposes
pertaining to tanglible or intangible, movable or immovable
assets, either in Chile or abroad.
Paid-in Capital:
MUS$351,174
Stake in 2017:
99.999%
YOY var.:
0.0%
% of Holding assets:
1.85764%
Board Members:
Antonio Stagg
Manuel Van Oordt
Mariana Villagómez
Chief Executive:
Ramiro Alfonsin Balza (LATAM Executive)
Aerovias de Integración Regional, Aires SA.
Individualization:
Joint Stock Corporation established in Colombia.
Purpose:
The company’s corporate purpose shall be the operation
of national or international commercial air transportation
services, in any form, and therefore, the entering into and
execution of contracts for the transportation of passengers,
objects or luggage, correspondence, and cargo in general,
pursuant to the operating permits issued to this effect by the
Special Administrative Unit of Civil Aeronautics, or the agency
that may carry out said functions in the future, adhering fully
to the stipulations of the Code of Commerce, the Colombian
Aviation Regulations, and any other rules issued on the matter.
Likewise, to provide maintenance and adaptation services for
Subsidiaries and Affiliated Companies
245
the equipment related to the operation of air transportation
services within the country and abroad. In order to fulfill said
purpose, the company will be authorized to invest in other
national or foreign companies with purposes that are the
same, similar, or complementary to the company’s. To fulfill
its corporate purpose, the company may, among other things:
(a) review, inspect, or provide maintenance and/or repairs
to its own or third-party aircraft, as well as spare parts and
accessories, through the Company’s Aeronautical Repair
Stations, providing the necessary trainings for said purpose;
(b) organize, establish, and invest in commercial transportation
companies in Colombia or abroad to perform, industrially or
commercially, the economic activity that is its purpose, so
the company can acquire, for any purpose, airplanes, spare
parts, replacements, and accessories of any kind, necessary
for public air transportation, as well as sell them, and to set
up and operate stations to repair and give maintenance to
the aircraft;(c) enter leasing, charter, code-sharing, service
rendering, or any other contracts pertaining to aircraft to
exercise its purpose; (d) to operate scheduled air transport
lines for passengers, cargo, correspondence, and securities,
as well as the vehicle that will make it possible to coordinate
the social management; (e) merge with equal, similar, or
complementary companies to perform its activity; (f) accept
national or foreign representations of services in the same
sector or in complementary sectors; (g) acquire movable or
immovable assets to develop its corporate purposes, build
said facilities or constructions, such as warehouses, deposits,
offices, etc., sell, or encumber them;(h) carry out imports
and exports, as well as all foreign trade operations required;
(i) take money on interest and provide personal, real, and
bank guarantees, either on its own behalf or for third parties;
( j) participate in all manner of securities transactions, such
as purchase or sale of debentures acquired by third parties
when resulting in an economic or equity benefit for the
company, and obtain loans through bonds or other liability
instruments;(k) enter into contracts with third parties for the
FINANCIAL STATEMENTS Subsidiaries and Affiliated Companies
246
Board Members:
Manuel Maria Benites
Jorge Luis Perez Alati
Enrique Cueto Plaza (LATAM Executive)
Management:
Manuel María Benites
Jorge Luis Perez Alati
Rosario Altgelt
María Marta Forcada
Facundo Rocha
Sebastián Pereira
Nicolás Obejero
Norberto Díaz
Affiliate companies of Lan Pax Group S.A. and stakes
management and operation of the businesses it may organize
to achieve its corporate purposes; (l) form partnerships and
acquire shares and stakes in already established companies,
both national and foreign; make contributions to one and all;
(m) merge with other companies and form partnerships with
similar companies to ensure provision of air transportation or
for other purposes pertaining to the industry; (n) promote,
provide technical assistance, finance, or manage companies
or associations related to the corporate purpose; (o) carry
out all manner of civil or comercial, industrial or financial
contracts necessary or convenient to achieve its own purposes;
(p) do business and fulfill activities that will ensure the flow of
clients, and obtain the necessary authorizations and licenses
from the corresponding authorities to provide its services; (q)
develop and carry out any other activities resulting from and/
or related, connected, contributory, or complementary to the
corporate purpose, including the provision of tourist services
under any and all forms allowed by law, such as travel
agencies; (r) practice any business or legal activity, whether
or not related to trade, as long as it is related to its corporate
purpose, or that it enables a more rational operation of the
public service that it will provide; and (s) make any manner
of investments to employ the funds and reserves created
pursuant to law or the current bylaws.
Paid-in Capital:
MUS$3,388
Stake in 2017:
99.017%
YOY var.:
0.00%
% of Holding assets:
0.24603%
Board Members:
Jorge Nicolas Cortazar Cardoso (permanent member)
Jaime Antonio Gongora Esguerra (permanent member)
Santiago Alvarez Matamoros (permanent member)
Jorgue Enrique Cortazar Garcia (Interim member)
Alberto Davila Suarez (Interim member)
Helen Victoria Warner Sanchez
Management:
Erika Zarante Bahamon
Jaime Antonio Gongora Esguerra
Lan Argentina S.A
(A subsidiary of Inversora Cordillera S.A)
Individualization:
Joint Stock Corporation established in Argentina.
Purpose:
Carry out all manner of investments for profitable purposes
pertaining to tanglible or intangible, movable or immovable
assets, either in Chile or abroad.
Paid-in Capital:
MUS$129,589
Stake in 2017:
99.00%
YOY var.:
0.00%
% of Holding assets:
0.08762%
FINANCIAL STATEMENTS Subsidiaries and Affiliated Companies
247
TECHNICAL TRAINING LATAM S.A.
PARENT COMPANIES’ FINANCIAL STATEMENTS
Incorporation:
Established as a Joint Stock Corporation per the public deed
dated December 23, 1997 in Santiago de Chile, and then
recorded in the Santiago Commerce Registry on page 878
number 675 of the year 1998.
TAM S.A.
As of
December 31
2017
As of
December 31
2016
Purpose:
Its corporate purpose is to provide technical training and other
types of related services.
Paid-in Capital:
MUS$870
Profit for the period:
MUS$109
Stake:
100.00%
YOY var.:
0.00%
% of Holding assets:
0.00851%
Board Members:
Sebastián Acuto (LATAM Executive)
Ramiro Alfonsin Balza (LATAM Executive)
Chief Executive:
Vacant
Consolidated Classified Statement of Financial Position
MUS$
MUS$
ASSETS
Total current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total non-current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Non- controlling interest
Total equity
Total liabilities and equity
1,838,178
1,761,049
5,644
1,843,822
2,64,892
4,490,714
2,052,633
1,502,790
3,555,423
856,829
78,462
935,291
4,490,714
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
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
248
2017
MUS$
4,621,338
832,939
333,197
(129,520)
203,677
160,582
43,095
203,677
2017
MUS$
203,677
(14,098)
189,579
149,203
40,376
189,579
For the 12 months
period ended as of
2016
MUS$
4,145,951
519,223
220,677
(176,752)
43,925
2,107
41,818
43,925
For the 12 months
period ended as of
2016
MUS$
43,925
69,724
113,649
88,049
25,600
113,649
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
Profit (loss) of the period attributable to:
Controller’s owners
Non-controlling interest
Profit (loss) of the period
Consolidated Statements of Comprehensive Income
Profit (loss) of the period
Other Comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Controller’s owners
Non-controlling interest
Total comprehensive income
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
249
Equity attributable
Owners interest
Non- controlling
Equity
total
Controller’s
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Dividends
Oher increases (decreases) in equity
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Equity issue
Dividends
Oher increases (decreases) in equity
Closing balance at 31 December 2017
MUS$
423,190
88,049
-
(15,676)
495,563
495,563
149,203
210,091
-
1,972
856,829
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
2017
MUS$
141,787
280,651
Net cash flows from (used in) financing activities (373.185)
(109,240)
Net increase (decrease) in cash and cash equivalents before
effect of exchange rates variations
Effect of exchange rates variations on cash and cash equivalents
Cash and equivalents at the end of period
49,253
(7,443)
239,028
MUS$
74,140
25,600
(40,823)
MUS$
497,330
113,649
(40,823)
22,499
6,823
81,416
576,979
81,416
40,376
-
(45,876)
576,979
189,579
210,091
(45,876)
2,546
4,518
78,462
935,291
For the 12 months period
ended as of
2016
MUS$
(35,085)
78,425
(65,900)
43,097
197,218
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
LAN CARGO S.A.
(Closed joint stock company)
Subsidiaries and Affiliated Companies
250
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total non-current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Non-controlling interest
Equity
Total liabilities and equity
As of 31
December
2017
MUS$
As of 31
December
2016
MUS$
109,527
106,963
108,896
218,423
531,485
749,908
230,565
155,137
385,702
360,134
4,072
364,206
749,908
22,686
129,649
563,577
693,226
226,755
101,734
328,489
362,478
2,259
364,737
693,226
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
251
2017
MUS$
1,046,423
(14,376)
16,353
(20,992)
(4,639)
(6,200)
1,814
(4,386)
2017
MUS$
(4,386)
3,661
(725)
(2,539)
1,814
(725)
For the 12 months period
ended as of
2016
MUS$
689,153
(31,274)
(6,696)
1,463
(8,159)
(8,145)
(14)
(8,159)
For the 12 months period
ended as of
2016
MUS$
(8,159)
(459)
(8,618)
(8,604)
(14)
(8,618)
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
Profit (loss) of the period attributable to:
Controller’s owners
Non-controlling interest
Profit (loss) of the period
Consolidated Statements of Comprehensive Income
Profit (loss) of the period
Other Comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Controller’s owners
Non-controlling interest
Total comprehensive income
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
252
Equity attributable
controller’s owners
interest
Non- controlling
Equity
total
MUS$
370,791
(8,604)
291
362,478
362,478
(2,539)
195
360,134
MUS$
2,273
(14)
MUS$
373,064
(8,618)
-
291
2,259
364,737
2,259
1,814
364,737
(725)
(1)
194
4,072
364,206
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Other increases (decreases) in equity
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Oher increases (decreases) in equity
Closing balance at 31 December 2017
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents before
effect of exchange rates variations
Effect of exchange rates variations on cash and cash equivalents
Cash and equivalents at the end of period
For the 12 months period
ended as of
2017
MUS$
54,485
(10,641)
(37,925)
5,919
1
30,598
2016
MUS$
92,772
(34,003)
(51,813)
6,956
76
24,678
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
253
LAN PERU S.A.
(Closed joint stock company)
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Non-controlling interest
Total equity
As of 31
December
2017
MUS$
294,303
21,299
315,602
301,476
1,728
303,204
12,398
-
12,398
As of 31
December
2016
MUS$
283,691
22,420
306,111
293,602
1,310
294,912
11,199
-
11,199
Total liabilities and equity
315,602
306,111
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
For the 12 months period
ended as of
2016
MUS$
967,787
148,635
1,289
(3,453)
(2,164)
2017
MUS$
967,787
143,411
6,233
(5,034)
1,199
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
254
Equity
Issued
MUS$
4,341
-
-
4,341
4,341
-
4,341
Legal
Reserve
MUS$
868
1
-
869
869
-
869
Retained
earnings
MUS$
9,544
(2,165)
(1,390)
5,990
5,990
1,199
7,189
Tota
equity
MUS$
14,753
(2,164)
(1,390)
11,199
11,199
1,199
12,398
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Dividends
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Closing balance at 31 December 2017
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents before
effect of exchange rates variations
Cash and equivalents at the end of period 69.717
For the 12 months period
ended as of
2016
MUS$
(57,429)
(943)
5,887
(52,485)
2017
MUS$
(4,803)
(798)
9,426
3,825
65,892
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
INVERSIONES LAN S.A.
(Closed joint stock company)
Subsidiaries and Affiliated Companies
255
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total non-current assets different from assets or groups of assets for disposal
classified as held for sale or held for distribution to owners
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Equity
Total liabilities and equity
As of 31
December
2017
MUS$
As of 31
December
2016
MUS$
3,407
7,616
8,217
11,624
57
11,681
5,063
45
5,201
6,480
6,480
11,681
-
7,616
3,355
10,971
5,278
1,174
6,452
4,519
4,519
10,971
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
256
For the 12 months period
ended as of
2016
MUS$
34,059
7,406
3,526
(925)
2,601
2,601
2,601
For the 12 months period
ended as of
2016
MUS$
2,601
218
2,819
2,819
2,819
2017
MUS$
35,529
5,987
2,163
(575)
1,588
1,588
1,588
2017
MUS$
1,588
55
1,643
1,643
1,643
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
Profit (loss) of the period attributable to:
Controller’s owners
Profit (loss) of the period
Consolidated Statements of Comprehensive Income
Profit (loss) of the period
Other Comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Controller’s owners
Total comprehensive income
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
257
Equity
Issued
MUS$
Legal
Reserve
MUS$
458
417
-
218
(18)
-
440
635
440
635
-
55
19
459
-
690
Retained
earnings
MUS$
961
2,601
(118)
3,444
3,444
1,588
299
5,331
Total
equity
MUS$
1.836
2,819
(136)
4,519
4,519
1,643
318
6,480
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Dividends
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Oher increases (decreases) in equity
Closing balance at 31 December 2017
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rates variations on cash and cash equivalents
Cash and equivalents at the end of period
For the 12 months period
ended as of
2016
MUS$
(21)
1,469
(1,663)
(215)
24
1,410
2017
MUS$
1,192
(2,122)
-
(930)
43
523
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
258
LATAM TRAVEL CHILE S.A. AND SUBSIDIARY
(Closed joint stock company)
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Total equity
Total liabilities and equity
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
As of 31
December
2017
MUS$
As of 31
December
2016
MUS$
6,492
269
6,761
2,191
6
2,197
4,564
6,761
5,347
111
5,458
2,724
3
2,727
2,731
5,458
For the 12 months period
ended as of
2016
MUS$
11,675
7,294
3,500
(850)
2.650
2017
MUS$
9,320
6,198
2,436
(603)
1,833
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
259
Equity
Issue
MUS$
225
-
-
225
225
-
225
Retained
earnings
MUS$
(144)
2,650
-
2,506
2,506
1,833
4,339
Total
equity
MUS$
81
2,650
-
2,731
2,731
1,833
4,564
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Other increases (decreases) in equity
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Closing balance at 31 December 2017
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and equivalents at the end of period
For the 12 months period
ended as of
2016
MUS$
(2.,483)
(30)
-
(2,513)
1,066
2017
MUS$
(536)
(110)
-
(646)
420
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
260
LAN PAX GROUP S.A.
(Closed joint stock company)
Consolidated Classified Statement of Financial Position
ASSETS
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Non-controlling interest
Total equity
Total liabilities and equity
As of 31
December
2017
MUS$
220,329
279,016
499,345
894,891
206,657
1.101.548
(602,203)
-
(602,203)
499,345
As of 31
December
2016
MUS$
261,048
214,715
475,763
347,526
698,235
1,045,761
(570,638)
640
(569,998)
475,763
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
261
2017
MUS$
894,374
111,797
(49,855)
13,513
(36,342)
(34,835)
(1,507)
(36,342)
2017
MUS$
(36,343)
308
(36,035)
(35,738)
(297)
(36,035)
For the 12 months period
ended as of
2016
MUS$
877,106
132,300
(41,945)
6,028
(35,917)
(36,223)
306
(35,917)
For the 12 months period
ended as of
2016
MUS$
(35,917)
(7,118)
(43,035)
(41,575)
(1,460)
(43,035)
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
Profit (loss) of the period attributable to:
Controller’s owners
Non-controlling interest
Profit (loss) of the period
Consolidated Statements of Comprehensive Income
Profit (loss) of the period
Other Comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Controller’s owners
Non-controlling interest
Total comprehensive income
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
262
Equity attributable
to controller’s owners
Non- controlling
Equity
total
MUS$
MUS$
MUS$
(528,769)
(41,575)
(294)
(570,638)
(570,638)
(35,737)
137
(606,238)
(800)
(529,569)
(1.460)
(43,035)
2,900
2,606
640
(569,998)
640
(569,998)
(297)
(36,034)
3,696
3,833
4,039
(602,199)
Statement of Changes in Equity
Equity as of 1 January 2016
Total comprehensive income
Other increases (decreases) in equity
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Other increases (decreases) in equity
Closing balance at 31 December 2017
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents before
effect of exchange rates variations
Cash and equivalents at the end of period
For the 12 months period
ended as of
2016
MUS$
(60,254)
52,991
(10,978)
(181)
71,314
2017
MUS$
(37,387)
(5,580)
5,914
(186)
34,075
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
263
TECHNICAL TRAINING LATAM S.A.
(Limited liability Company)
Consolidated Classified Statement of Financial Position
As of 31
December
2017
MUS$
As of 31
December
2016
MUS$
ASSETS
Total current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Equity
Equity attributable to controller's owners
Total equity
Total liabilities and equity
1,869
99
1,968
116
251
367
1,601
1,601
1,968
1,597
148
1,745
284
-
284
1,461
1,461
1,745
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
264
Fort the period
Ended as of
December 31 2017
For the period
between November
26 to December 31
Consolidated Statement of Income by Function
Revenues from ordinary activities
Gross Income
Profit (loss) before tax
Income tax expenses
Profit (loss) of the period
Profit (loss) of the period attributable to:
Controller’s owners
Non-controlling interest
Profit (loss) of the period
2017
MUS$
1,633
286
134
(25)
109
109
-
109
Statement of Changes in Equity
Equity as of January 1 2016
Total comprehensive income
Other increases (decreases) in equity
Closing balance at 31 December 2016
Equity as of 1 January 2017
Total comprehensive income
Closing balance at 31 December 2017
2016
MUS$
1,784
100
103
(30)
73
73
-
73
Total
equity
MUS$
1,261
73
127
1,461
496
(72)
424
FINANCIAL STATEMENTS
PARENT COMPANIES’ FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
265
Fort the period
Ended as of
December 31 2017
For the period
between November
26 to December 31
Consolidated Statement of Cash Flow - Direct Method
Net cash flows from (used in) operating activities
Net cash flows from (used in) investment activities
Net cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents before
effect of exchange rates variations
Effect of exchange rates variations on cash and cash equivalents
Cash and equivalents at the beginning of period
Cash and equivalents at the end of period
2017
MUS$
31
-
-
31
(83)
1,241
1,301
2016
MUS$
778
(14)
-
764
(2)
479
1,241
FINANCIAL STATEMENTS
Subsidiaries and Affiliated Companies
266
CORPORATE STRUCTURE
LATAM Airlines
Group S.A.
[Chile] - [LACL]
AL 31 DE DICIEMBRE DE 2017
Minority
0,10196%
99,89395%
Lan Cargo S.A.
[Chile] - [UCCL]
0,00409%
99,98%
Lan Cargo Overseas
Limited
[Holanda] - [XOBS]
0,02%
99,71%
99,99%
99,8300%
99,90%
99,8361%
100%
100%
0,29%
Inversiones Lan S.A.
[Chile] - [W0CL]
0,01%
LATAM Travel Chile S.A.
[Chile] - [A1CL]
Technical Training LATAM S.A.
[Chile] - [A3CL]
Inversiones Heron I
Limitada
[Chile] - [W2CL]
0,10%
Lan Pax Group S.A.
[Chile] - [W1CL]
Peuco Finance Ltd.
Professional Airline
Services Inc
[Florida-USA] - [PAUS]
100%
LATAM Finance Ltd.
[Cayman] - [TFKY]
99,99987%
Transporte Aéreo
S.A.
[Chile] - [LUCL]
0,00013%
99,99%
0,01%
LATAM Travel Chile II
S.A.
[Chile] - [B2CL]
100%
Colibri Leasing LLC
[Delaware] - [S7US]
99,00%
Atlan`c Avia`on
Investments Limited LLC
[Delaware] - [X5US]
0,17%
0,1639%
1,00%
100%
100%
0,02857%
99,00%
99,97143%
Mas Investment Limited
[Holanda] - [X3BS]
Loica Leasing Limited
[Bahamas] - [U2KY]
Prime Airpot Services Inc
[Florida-USA] - [D5US]
LAN Cargo Inversiones
S.A.
[Chile] - [LA01]
Services Inc
1,00%
49,00%
100%
Lan Perú
[Perú] - [LPPE]
21,0%
Inversiones Aéreas S.A.
[Perú] - [W6PE]
49,00%
Promotora Aérea La`no
Americana SA de CV
[México]-[X4MX]
100%
Lan Cargo Repair Sta`on
[Florida-USA] - [D9US]
39,51600%
Aerotransporte Mas de
Carga SA de CV
[México] - [MYMX]
60,482%
Americonsult
SA de CV
[México] - [R3MX]
99,800%
99,00%
99,00%
Americonsult
de Guatemala SA
[Guatemala] - [Q3GT]
Americonsult
de Costa Rica SA
[Costa Rica] - [P3CR]
99,00%
1,00%
Consultoría
Administra`va Profesional
S.A. de C.V. [Mexico]
98,00%
1,60%
99,89%
Fast Air Almacenes de
Carga S.A.
[ Chile ] - [D2CL]
0,11%
85,20%
1,60%
Línea Aérea Carguera de
Colombia
[C1CO]
1,60%
50,00%
Consorcio Fast Air Laser
Cargo UTE [Argen`na] -
[D7AR]
99,999%
Laser Cargo S.R.L .
[Argen`na] - [D6AR]
50,00%
0,001%
100%
Connecta Corpora`on
[USA] - [CCUS]
1,00%
99,99999%
Manutara Leasing LLC
Andes Airport Services
S.A.
[Chile] - [A4CL]
2,00%
55,00%
Holdco
Ecuador S.A.
[Chile] - [E2CL]
45,00%
Aerolane Líneas Aereas
Nacionales del Ecuador
S.A.
[Ecuador] - [XLEC]
49,47057%
Akemi Holdings S.A.
[Panama]
0,09498%
Aerovías de Integración
Regional S.A. (Aires S.A.)
[Colombia] - [4CCO]
0,15802%
49,47057%
Saipan Holdings
[Panama]
100%
100%
95,00%
LATAM Travel S.A.
[Argen`na] - [Z6AR]
Lan Argen`na S.A.
[Argen`na] - [4MAR]
4,9711%
5,00%
95,00%
99,86060%
Inversora Cordillera S.A.
[Argen`na] - [W7AR]
99.99831%
Holdco I S.A.
[Chile] - [E3CL}
63,09013%
TAM S.A.
[Brasil]- [N2BR]
36,90987%
100%
72,74%
100%
99,99%
Fundo Spidire II
[Brasil] - [O6BR]
Mul`plus S.A.
[Brasil] - [N4BR]
Corsair Par`cipacoes S.A.
[Brasil] - [N6BR]
TAM Linhas Aereas S.A.
[Brasil] - [JJBR]
TP Franchising Ltda.
[Brasil] - [N3BR]
100%
0,01%
100%
100%
99,99%
Cruiser
[Brasil] - [O4BR]
Mul`plus Corredora de
Seguros Ltda.
[Brasil] - [N7BR]
100%
ABSA - Aerolinhas
Brasileiras S.A.
[Brasil] - [M3BR]
99,99%
Thunderbolt
[Brasil] - [O9BR]
Prismah Fidelidade Ltda.
[Brasil] - [N8BR]
94,98%
Transportes Aéreos del
Mercosur S.A.
[Paraguay] - [PZPY]
100%
100%
TAM Capital Inc.
[Cayman] - [Y1KY]
100%
100%
TAM Capital 2 Inc.
[Cayman] - [Y2KY]
100%
100%
TAM Capital 3 Inc.
[Cayman] - [Y3KY]
100%
Fidelidade Viagens e
Turismo S.A.
[Brasil] - [N1BR]
TAM Financial
Services 1 Limited
[Cayman] - [Y4KY]
TAM Financial
Services 2 Limited
[Cayman] - [Y5KY]
TAM Financial
Services 3 Limited
[Cayman] - [Y6KY]
Sapucaia Leasing Limited
100%
Zarapito Leasing LLC
100%
Guabiroba Leasing Limited
100%
Angelim Leasing Limited
100%
Tenca Leasing Limited
100%
Jatoba Leasing Limited
100%
Ype Leasing Limited
100%
Rayador Leasing Limited
100%
Bailarín Leasing LLC
100%
Tiuque Leasing LLC
100%
Mogno Leasing Limited
100%
Pilar I Leasing Limited
100%
Sibipiruna Leasing Ltd
100%
Imbuia Leasing Limited
100%
Sequoya Leasing Limited
100%
Yeco Leasing Limited
100%
Massaranduba Leasing Ltd 100%
Chucao Leasing Limited
100%
Tagua Leasing LLC
100%
Tucuquere Leasing Limited
100%
Pau Brasil Leasing Limited
100%
Amendoeira Leasing Ltd
100%
Azalea Leasing Limited
100%
Sumauma Leasing Limited
100%
Gaviota Leasing LLC
100%
Figueira Leasing Limited
100%
Jacaranda Leasing Ltd
100%
Manaca Leasing Limited
100%
Amarillys Leasing Limited
100%
Tarumarana Leasing Ltd
100%
Fragata Leasing LLC
100%
Tortola Leasing LLC
100%
Golondrina Leasing LLC
100%
Pilar II Leasing Limited
100%
Cuclillo Leasing Limited
100%
Araucaria Leasing Limited
100%
Parina Leasing Limited
100%
Jacana Leasing Limited
100%
Canastero Leasing Limited
100%
Manutara Leasing LLC
99%
FINANCIAL STATEMENTS
Analysis of the Financial Statements
267
1. CONSOLIDATED FINANCIAL STATEMENT
At December 31, 2017, the Company’s assets totaled US$18.797
billion which, compared to the value at December 31, 2016,
represents a US$400.222 million decrease, equivalent to 2.1%.
The Company’s current assets increased by US$118.724
million (3.3%), compared to yearend 2016. The main
increases were seen in the following segments: Cash and cash
equivalents for US$192.677 million (20.3%); Trade debtors
and other accounts receivable for US$106.161 million (9.6%);
and current tax assets for US$12.610 million (19.3%). These
items were compensated by the decreases in: Other current
financial assets worth US$152.909 million (21.5%), and Non-
current assets or disposable groups of assets classified as held
for sale worth US$46.092 million (13.7%).
The Company’s liquidity index rose from 0.58 times at
yearend 2016 to 0.64 times at December 2017. Current
assets increased 3.3% while Current liabilities decreaby 6.1%.
Moreover, the acid-test ratio increased from 0.15 times at
yearend 2016 to 0.20 times at the end of the current period.
The Company’s non-current assets decreased by
US$518.946 million (3.3%) compared to yearend 2016.
The main decreases were seen in the following line items:
Property, plants, and equipment, worth US$432.814 million
(4.1%), which corresponds mainly to depreciation expenses
in the period totaling US$765.204 million, and additions
worth US$325.513 million, among others; Goodwill worth
US$37.832 million (1.4%), and Deferred tax assets worth
US$20.559 million (5.3%).
At December 31, 2017, the Company’s liabilities totaled
US$14.53 billion which, compared to the value as at
December 31, 2016, represents a US$482.154 million
decrease, equivalent to 3.2%.
of the Financial Statements
Comparative analysis and explanation
of main trends:
FINANCIAL STATEMENTS Analysis of the Financial Statements
268
The Company’s current assets decreased by US$379.477 million
(3.3%) compared to yearend 2016. The main decreases were
seen in the following line items: Other financial liabilities worth
US$538.579 million (29.3%), explained mainly by the payment
of US$137 million, corresponding to the last installment on the
financing obtained by Tam Linhas Aéreas S.A. in September of
the previous year; the payment of US$300 million corresponding
to long-term bonds issued by Tam Capital Inc., among other
movements in the period; and current tax liabilities worth
US$10.775 million (75.4%). All this was partially compensated
by the increase in Trade and other accounts payable in the
amount of US$102.134 million (6.4%) and Other non-financial
liabilities worth US$61.718 million (2.2%).
The Company’s current liabilities’ indebtedness indicator
decreased 7.88%, from 1.52 times at yearend 2016 to 1.4 times
at December 31, 2017. The impact of current liabilities on total
debt decreased by 1.24 percentage points, from 41.45% at
yearend 2016 to 40.21% at the end of the current period.
The Company’s non-current liabilities decreased by
US$102.677 million (1.2%), compared to the value as
at December 31, 2016. The main decreases were seen
in the following line items: Other financial liabilities worth
US$191.444 million (2,8%), the net variation explained by
the bond issuance via Latam Finance worth US$700 million;
issuance of UF local bond worth US$358 million; payment
of TAM Capital 3 Inc. bond for US$500 million; and payment
of TAM Capital Inc. Bond for US$300 million, among other
movements in the period, and Other non-financial liabilities
worth US$55.476 million (25.9%). This was compensated by
the US$139.441 million increase in Accounts payable (38,8%)
and the US$33.938 million rise in deferred tax liabilities (3,7%).
The Company’s non-current liabilities’ indebtedness indicator
shows a 3.3% decrease from 2.15 times at December 31, 2016
to 2.08 times at December 31, 2017. The impact of non-current
liabilities on total debt rose by 1.24 percentage points from
58.55% at yearend 2016 to 59.79% at December 2017.
The indicator of the Company’s total indebtedness over Equity
decreased by 4.9% from 3.66 times at yearend 2016 to 3.48
times at the end of the current period.
In an Ordinary Board Meeting held on April 4, 2017, a
US$3.299 million capitalization for cost of issuance of shares
was approved.
At December 31, 2017, roughly 63% of the debt has a fixed
rate or is linked to one of the abovementioned instruments.
The average rate on the debt is 4.14%.
The Equity attributable to the controlling shareholders
increased by US$79.429 million, from US$4.096 billion
at December 31, 2016 to US$4.176 billion at December
31, 2017. The increase is reflected in the higher accrued
result, due to the US$155.304 million profit generated in
the period from January to December 2017 attributable to
the controlling shareholders. This is slightly countered by the
decrease in Other reserves worth US$25.986 million, mainly
resulting from the negative effect of the variation in Currency
translation reserve for US$45.036 million, largely explained
by the translation adjustment caused by the Goodwill
recognized in the combined businesses with TAM and Affiliates.
2. CONSOLIDATED INCOME STATEMENT
At December 31, 2017, the controlling company reported
a US$155.304 million gain, translating into an US$86.081
million increase in income vs. the previous year’s US$69.22
million. Net margin increased from 0.7% to 1.5% in 2017.
Operating income at December 31, 2017 totaled US$714.534
million, translating into a US$146.631 million increase from
2016, equivalent to 25.8%, whereas operating margin reached
7.0%, representing a 1.0 percentage-point increase.
Operating income at December 31, 2017 grew 6.7% vs. 2016,
totaling US$10.163 billion. This was due to a 7.8% increase
in PAX revenues, a 0.8% rise in Cargo revenues, and a 2.1%
advance in Other income. The effect of the Brazilian Real’s
appreciation translated into higher ordinary revenues by around
US$236 million.
FINANCIAL STATEMENTS PAX REVENUES TOTALED US$8.494 BILLION
WHICH, COMPARED TO THE US$7.877 BILLION
FROM 2016, TRANSLATES INTO A 7.8% INCREASE.
This change is mainly due to a 6.7% increase in RASK,
given a 5.9% rise in yields, which were boosted by a better
macroeconomic scenario in South America, and by the
appreciation of local currencies (especially the Brazilian Real
and the Chilean Peso). This was partly compensated by the
1.1% increase in capacity as measured in ASK. Moreover, the
load factor reached 84.8%, translating into a 0.6 percentage-
point increase from the previous year.
At December 31, 2017, Cargo revenues reached US$1.119
billion, translating into a 0.8% increase vs. 2016. This hike was
due to a 2.1% increase in yields and a 1.3% decrease in traffic
in terms of RTK. The rise in yields reflects an optimistic cargo
environment worldwide, and the positive effect of the Brazilian
Real on Brazil’s local market. On the other hand, capacity in ATK
terms decreased 7.1%.
Moreover, the Other Income line item showed an US$11.14
million increase, mainly due to the effect of the Brazilian Real’s
appreciation on revenues from the loyalty program in Brazil,
as well as to higher income from leasing of aircraft to third
parties. This was partially countered by lower income from
aircraft sales and ground services compared to 2016.
At December 31, 2017, Operating costs totaled US$9.449
billion which, compared to the previous year, translate into
US$490.077 million higher costs, equivalent to a 5.5%
increase, whereas unit cost per ASK-equivalent rose 7.0%.
Furthermore, the effect of the Brazilian Real’s appreciation on
this line item translates into higher costs by roughly US$195
million. Item variations are explained as follows:
a) Compensation and benefits increased by US$72.501 million,
mainly due to the appreciation of the Brazilian Real and
the Chilean Peso, by 4.8% and 6.5%, respectively. This was
partially countered by a 9.7% decrease in the average staff for
the period, in line with the Company’s cost control initiatives.
b) Fuel increased 12.7%, equivalent to an additional
US$262.173 million in costs. The increase is mainly due
to a 21.1% hike in unhedged prices, partially countered
by a 2.5% decrease in consumption measured in gallon
terms. During 2017, the Company recognized a gain
of US$15.167 million from fuel hedges (compared to
a US$48.094 million loss in the previous year), and a
US$9.87 million loss on currency hedges.
c) Commissions decreased by US$16.822 million, translating
into a 6.2% variation from the previous year.
d) Depreciation and Amortization increased by US$41.297
million in 2017. This change is mainly explained by the
incorporation of 2 Airbus A320 airplanes, and 2 Boeing
787, and by the appreciation of the Brazilian Real. This was
partially countered by the exit of 17 Airbus A320, 2 Airbus
A330, 2 Boeing 767, and 2 Boeing 777.
e) Other Leasing and Landing Fees increased by US$94.722
million, mostly due to higher costs resulting from the
increase in aeronautical charges in Brazil and Argentina,
as well as to a hike in handling costs related to increased
operations.
f) Passenger Service increased by US$2.041 million,
translating into a 0.7% change, mainly due to an increase
in passenger compensation and indemnification.
g) Aircraft Leasing rose US$10.572 million mainly due to the
incorporation of 1 Airbus A320 and 2 Boeing 787. This was
partially compensated by the return of 17 Airbus A320, 2
Boeing 767, and 2 Boeing 777.
Analysis of the Financial Statements
269
h) Maintenance reported higher costs by US$64.672 million,
equivalent to a 17.7% change, explained mainly by higher
costs related to the return of the aircrafts during 2017.
i) Other Operating Costs decreased by US$41.079 million,
largely due to costs from ground services related to the Rio
2016 Olympic Games and costs related to the valuation at
fair value of the inventory as part of a sales plan driven by
inventory reduction initiatives, recognized during the second
half of the previous year. This was partially countered by
the effect of the Brazilian Real’s appreciation, and the
increase in costs related to point redemption through third
parties, as part of the loyalty program in Brazil.
Financial revenues totaled US$78.695 million which,
compared to the US$74.949 million from the same period of
2016, translates into higher revenues by US$3.746 million,
mainly due to the increase in cash at hand.
Financial costs decreased by 5.5%, totaling US$393.286
million at December 31, 2017, mainly due to lower costs
related to lower debt levels.
Other income/costs reported a negative US$25.725 million,
mainly explained by losses recognized as a result of the
depreciation of the Brazilian Real during 2017.
The main line items in the Consolidated Financial Statement
of TAM S.A. and Affiliates, which caused a US$15.162 million
currency exchange loss at December 31, 2017, were: Other
financial liabilities; US$31.243 million profit from USD-
denominated financial loans and leasings for fleet acquisitions;
and currency exchange variations in accounts receivable from
related companies, totaling a loss of US$14.621 million.
The other net assets and liabilities line items generated a
US$31.784 million loss.
FINANCIAL STATEMENTS
Multiplus S.A. Results
Multiplus’ net result at December 31, 2017 showed a
US$158.784 million profit which, compared to the US$152.873
million from 2016, translates into a 3.87% increase.
REVENUES INCREASED 20.75%, MAINLY
EXPLAINED BY THE EFFECT OF THE BRAZILIAN
REAL’S 4.8% APPRECIATION, AND BY A 9.7%
INCREASE IN POINT REDEMPTION COMPARED TO
THE SAME PERIOD OF THE PREVIOUS YEAR.
Moreover, expired points increased by 5.8%. Operating costs
increased by 25.44%, mainly due to the appreciation of the
Brazilian Real and a 27.1% hike in point redemption through
partner businesses.
Financial revenues/costs showed a negative change of 14.5%,
mainly due to the depreciation of the Brazilian real during
2017, but partially countered by the placement of part of the
company’s cash at hand in USD-linked currency hedges.
3. ANALYSIS AND EXPLANATION OF CONSOLIDATED
NET CASH FLOW GENERATED BY OPERATING,
INVESTMENT, AND FINANCING ACTIVITIES
Operating cash flow at December 31, 2017 showed a positive
change of US$685.856 million compared to the previous year,
mainly due to the rises in the following concepts: Collections from
asset sales and service rendering worth US$677.129 million
and Other cash revenue (expenses) worth US$200.338 million.
This was partially countered by the negative variations in the
following line items: Payments to and on behalf of employees
worth US$135.031 million, and net effect on Other receipts and
payments from operating activities worth US$57.558 million.
Investment flows showed a positive change of US$144.367
million vs. the previous year. This variation is mainly due to
the increase in the following line item: Purchases of property,
plant, and equipment worth US$290.704 million, mainly due
to fewer down payments for aircraft acquisitions and other
fixed asset acquisitions.
In 2017, one Airbus A319 was acquired, compared to 2016,
when we acquired: one Boeing 787, one Airbus A320, 4
Airbus A321, and 4 Airbus A350. The positive change
described above was partially countered by the decrease in:
Other receivables and payables on the sale of equity or debt
instruments from other companies totaling US$120.716
million, where the investments made by TAM S.A. and
Affiliates in private equity funds were recognized.
Financing flows showed a negative variation of US$782.809
million vs. the previous year, mainly explained by decreases
in: Amounts from short- and long-term loans, totaling
US$661.945 million; Sums from the issuance of stocks
totaling US$608.496 million, from the capital increase in
2016, and from loan payments worth US$291.939 million.
The flows from loans described above include the following events:
a) On April 10, 2017, a private issuance and placement of
debt securities worth US$140 million was made under the
current Enhanced Equipment Trust Certificates (“EETC”)
structure, issued and placed in 2015.
b) On April 11, 2017, an unsecured long-term bond worth
US$700 million maturing in 2024 was issued and placed
on the international market, pursuant to Rule 144-A and
Regulation S of the US Securities Act.
c) On April 25, 2017, the TAM Capital I Inc. Bond was paid.
The sums paid totaled US$300 million in capital and
US$11 million in interest.
Analysis of the Financial Statements
270
d) On August 17, 2017, LATAM issued Bonds on the local
market (Santiago Stock Exchange), corresponding to the
first bond issuance charged to the line inscribed in the
Securities Register of the Superintendency of Securities
and Insurance (“SVS”) under number 862.
The total sum placed is equivalent to UF8,700,000
(US$358 million).
e) On September 1, 2017, TAM Capital 3 Inc. made an early
redemption of the total bonds issued abroad on June 3, 2011 for
US$500 million, maturing on June 3, 2021.
f) On September 27, 2017, TAM Linhas Aereas S.A. paid the
capital and corresponding interest on the last installment
of the financing obtained in September a year earlier
(US$200 million, guaranteed by roughly 18% of the stocks
of Multiplus S.A.) The sum paid was US$137 million.
Last, the Company’s net cash flow at December 31, 2017
showed a positive change of US$192.677 million vs. the
previous year.
FINANCIAL STATEMENTS Analysis of the Financial Statements
271
4. FINANCIAL RISK ANALYSIS
The goal of the Company’s global risk management program
is to minimize the adverse effects of the financial risks that
affect the company.
(a) Market risk
Given the nature of its business, the Company is exposed to
market factors, such as: (i) fuel price risk, (ii) interest rate
risk, and (iii) local exchange rate risk.
(i) Fuel price risk
To carry out its operations, the Company purchases fuel
known as Jet Fuel grade 54 USGC, which is subject to
variations in international fuel prices.
To hedge against fuel risk exposure, the Company trades in
derivatives instruments (Swaps and Options) whose underlying
assets may be different from Jet Fuel, whereby it is possible
to hedge in West Texas Intermediate crude oil (“WTI”), Brent
crude oil (“BRENT”), and distilled Heating Oil (“HO”), which are
closely related to Jet Fuel and have greater liquidity.
At December 31, 2017, the Company recognized a
US$15.134 million gain from fuel hedges net of premiums.
Part of the spreads resulting between the lower and
higher market value of these contracts is recognized as
a component of hedge reserves in the Company’s net
equity. At December 31, 2017, the market value of existing
contracts stood at US$10.710 million (positive).
(ii) Exchange rate risk
The functional currency, also used in presenting the
Parent Company’s Financial Statements, is the US dollar;
therefore, Transactional and Conversion exchange rate
risks are mainly a result of the operating activities of
the business, as well as the Company’s strategic and
accounting activities, which are presented in monetary units
other than the functional currency. Likewise, TAM S.A. and
LATAM’s Affiliates are also exposed to exchange rate risk
whose impact affects the Company's Consolidated Result.
The greatest exposure to exchange rate risk for LATAM
comes from the concentration of businesses in Brazil, as
they are mainly denominated in Brazilian Real (BRL), and it
is managed actively by the company.
(iii) Interest rate risk
The Company is exposed to variations in interest rates on the
markets, affecting the future cash flows of its current and
future financial assets and liabilities.
THE COMPANY MINIMIZES EXCHANGE RISK
EXPOSURE BY CONTRACTING DERIVATIVE
INSTRUMENTS OR THROUGH NATURAL HEDGES OR
THE EXECUTION OF INTERNAL TRANSACTIONS.
At December 31, 2017, the market value of FX positions
totaled US$4.37 million (positive).
The Company has signed cross-currency swaps (CCS) to
dollarize the cash flows of existing obligations, both in Chile’s
inflation-linked units (Unidades de Fomento, UF), with a
fixed interest rate. Through this financial instrument, it is
possible to pay an interest rate in dollars, both fixed and
floating (LIBOR plus a fixed spread).
At December 31, 2017, the market value of the CCS
positions totaled US$39.217 million (positive).
The Company is mainly exposed to the London Inter Bank
Offer Rate (“LIBOR”) and other less relevant interest rates,
such as Brazilian Interbank Deposit Certificates (“CDI”).
In order to reduce the risk from an eventual hike in
interest rates, the Company has entered interest rate
swap contracts. With regard to said contracts, the
Company pays and receives, or only receives, as may be
the case, the spread between the agreed fixed rate and
the floating rate calculated on the capital outstanding
in each contract. For these contracts, the Company
recognized in the results of this period a US$9.065
million loss. Losses and gains on interest rate swaps are
recognized as a component of the financial expense on
the basis of the hedged loan amortization. At December
31, 2017, the market value of the existing interest rate
swap contracts was US$6.628 million (negative).
FINANCIAL STATEMENTS Analysis of the Financial Statements
272
Latin America has continued to experience a recovery in its
economies, mainly thanks to the recovery of Brazil. Ahead,
this recovery is expected to gain further strength, given the
favorable effects of hikes in raw material prices, resulting in an
increase in projections for 2018 and 2019. For 2017, growth is
expected to reach 1.3% (a 0.7% contraction in 2016).
Specifically, in Brazil, the economy started to enter positive
ground in the first half of 2017, gaining further strength
in the second half of the year. This was mainly thanks
to greater consumer spending, even though investment
remains weak as a result of the political uncertainty still
prevailing in the country. For 2017, growth is expected to
reach 1.1% (a 3.5% contraction in 2016).
On the other hand, in Chile, economic growth has remained
stable, albeit at lower levels than the average for the last
few years, mainly because of the weakness in private fixed
investment, mining production, and public consumption, thus
resulting in 1.4% growth expected for 2017. In the next few
years, economic growth is expected to recover thanks to
improved confidence, a hike in copper prices, and the cuts in
interest rates in the last few months.
In this economic environment, the flexibility of the business
model that the Company has implemented is essential to
better face the economic fluctuations.
At December 31, 2017, roughly 63% of the debt has a fixed
rate or is linked to one of the abovementioned instruments.
The average rate on the debt is 4.14%.
(b) Concentration of credit risk
A high percentage of the Company’s accounts receivable
comes from PAX, cargo services for individuals, and
various trade companies that are spread out both
economically and geographically; thus, they are generally
short term. Thereby, the Company is not exposed to a
significant concentration of credit risk.
5. ECONOMIC ENVIRONMENT
In order to analyze the economic environment in which the
Company exists, below we present a brief explanation of the
situation and evolution of the main economies that affect it,
nationally, regionally, and internationally.
During 2017, the world’s economies continued on the cyclical
rebound that started in mid-2016, showing a strengthening
compared to the previous year.
IN 2017, WORLD OUTPUT SHOWED 3.7% GROWTH,
WHICH WAS ABOVE MARKET PROJECTIONS
AND HALF A PERCENTAGE POINT HIGHER THAN
THE GROWTH WITNESSED IN 2016. THE HIGHER
GROWTH WAS DRIVEN BY THE REBOUND OF
ECONOMIES IN EUROPE AND ASIA.
The recovery of the European economy is mainly attributed
to the acceleration in exports, and the constant intensity
of internal demand growth, given more flexible financial
conditions and an easing of political risk. The growth rates
of various economies in the Eurozone have been upwardly
revised—particularly Germany, Italy, and the Netherlands—
thanks to the spike in internal and external demand. For 2017,
growth is expected to reach 2.3% (1.5% in 2016).
US growth projections were revised upwards, as economic
activity in 2017 outdid expectations. The changes in US tax
policy should stimulate activity, resulting in a hike in investment.
For 2017, growth should be close to 2.3% (1.7% in 2016).
FINANCIAL STATEMENTS Analysis of the Financial Statements
273
a) Below, we are presenting the main financial indicators in the Consolidated Financial Statement:
Liquidity Indicators
Current liquidity (times) (Current operating assets/Current liabilities)
Acid test (times) (Funds available/current liabilities)
Indebtedness Indicators
Debt ratio (times) (Current liabilities+non-current liabilities/Net equity)
Current debt/ Total debt (%)
Non-current debt/ Total debt (%)
Hedging of financial expenses (E.B.I.T. / financial expenses)
Activity Indicators
Total Assets
Investments
Disposals
12-31 -2017
12-31-2016
0.64
0.20
3.48
40.21
59.79
2.19
0.58
0.15
3.66
41.45
58.55
1.80
18,797,972
19,198,194
3,510,077
3,401,103
3,290,786
3,046,658
Profitability Indicators
Profitability indicators are calculated on equity and income attributable to Majority Shareholders.
Return on Equity (Net income/average net equity)
Return on assets (Net income/average assets)
Return on operating assets (Net income/operating assets (**) Average
12-31-2017
12-31-2016
0.04
0.01
0.01
0.02
0.00
0.00
(**) Total assets less deferred taxes, personnel current accounts, permanent and temporary investments, and goodwill.
Earnings per share (Net income/ no. of shares subscribed and paid)
Dividend yield (Dividends paid/ market price)
12-31-2017
12-31-2016
0.26
0.00
0.11
0.00
FINANCIAL STATEMENTS
Analysis of the Financial Statements
274
b) Below, we are presenting the main financial indicators in the Consolidated Financial Statement:
For the twelve month period ended December 31
Revenue
Passenger
Cargo
Other
Operating 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
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
Total Shares
Earnings per share (US$)
EBITDA
2017
MUS$
10,163,796
8,494,477
1,119,430
549,889
2016
MUS$
9,527,088
7,877,715
1,110,625
538,748
(9.449.262)
(8.959.185)
(2,023,634)
(1,951,133)
(2,318,816)
(2,056,643)
(252,474)
(1,001,625)
(269,296)
(960,328)
(1,172,129)
(1,077,407)
(288,662)
(579,551)
(430,825)
(286,621)
(568,979)
(366,153)
(1,381,546)
(1,422,625)
714,534
567,903
7.0%
78,695
6.0%
74,949
(393,286)
(416,336)
(25,725)
374,218
47,358
273,874
(173,504)
(163,204)
200,714
155,304
45,410
155,304
1.5%
46.4%
110,670
69,220
41,450
69,220
0.7%
59.6%
606,407,693
606,407,693
0.25610
0.11415
1,716,159
1,528,231
FINANCIAL STATEMENTS
Sworn Statements
275
Sworn
A s Directors, Chief Exectutives Officer, and Chief
Financial Officer of LATAM Airlines Group, we declare
under our responsibility on the veracity of the
information contain in the Annual Report 2017.
FINANCIAL STATEMENTS