-AsAs filed with the Securities and Exchange Commission on March 29, 20179, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
FORM20-F☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 20162022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:1-14728
LATAM Airlines Group S.A.
(Exact name of registrant as specified in its charter)
LATAM Airlines Group S.A. | Republic of Chile | |
(Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Presidente Riesco 5711, 20th Floor
Las Condes
Santiago, Chile
(Address of principal executive offices)
Gisela Escobar
Andrés del Valle
Tel.:56-2-2565-3944 •56-2-2565-3844E-mail: InvestorRelations@latam.com
Presidente Riesco 5711, 20th Floor
Las Condes
Santiago, Chile
(Name, telephone,e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class: | Name of each exchange on which registered: | |
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one share of Common Stock, without par value | ||
Common Stock, without par value | Santiago Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 606,407,693.605,231,854,725.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒☐ No ☐☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):
Large Accelerated filer ☒ | Accelerated filer ☐ | Non-Accelerated filer ☐ |
Emerging Growth Company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Accelerated filer
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Non-Accelerated filer
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
TABLE OF CONTENTS
EXPLANATORY NOTE | iv | ||||||
PRESENTATION OF INFORMATION | vii | ||||||
FORWARD LOOKING STATEMENTS | viii | ||||||
GLOSSARY OF TERMS | ix | ||||||
1 | |||||||
ITEM 1 | |||||||
| 1 | ||||||
ITEM 2 | |||||||
| 1 | ||||||
KEY INFORMATION | 1 | ||||||
A. | Reserved | 1 | |||||
| |||||||
Capitalization and Indebtedness | 1 | ||||||
C. | Reasons for the Offer and Use of Proceeds | 1 | |||||
| |||||||
D. | Risk Factors | 1 | |||||
ITEM 4 | INFORMATION ON THE COMPANY | 21 | |||||
History and Development of the Company | 21 | ||||||
B. | Business Overview | 23 | |||||
| |||||||
C. | Organizational Structure | 57 | |||||
D. | Property, Plant and Equipment | 58 | |||||
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 59 | |||||
ITEM 5 | |||||||
| 59 | ||||||
Operating Results | 59 | ||||||
B. | Liquidity and Capital Resources | 71 | |||||
| |||||||
C. | Research and Development, Patents and Licenses, etc. | 75 | |||||
D. | Trend Information | 76 | |||||
E. | Critical Accounting Estimates | 76 |
i
ii
iii
EXPLANATORY NOTE
COVID-19 Pandemic
On March 11, 2020, the World Health Organization (the “WHO”) declared COVID-19 a pandemic and, that same month, governments around the world, including those of the United States, Chile and most Latin American countries, declared states of emergency in their respective jurisdictions and implemented measures to halt the spread of the virus, including enhanced screenings, quarantine requirements and severe travel restrictions. The government-imposed travel restrictions (both domestic and international), flight cancellations, and a dramatic decline in worldwide air travel, resulted in a significant reduction in the group’s passenger service, which comprises the vast majority of LATAM’s operating revenues. By April of 2020, the group had reduced its operations to a mere 5.7% of the capacity (measured in ASKs) as compared to the same month of the prior year.
In 2022, the group saw a notable recovery of its passenger operations in line with the easing of travel restrictions both in the domestic markets and in the regions where the Company operates internationally. As a result, the recovery during the year was mainly driven by the ramp up of operations that had been lagging in the previous years, especially internationally. LATAM’s consolidated operations in December 2022, reached 85.2% of December 2019 capacity levels (measured in ASKs).
In response to the pandemic, the Company has implemented numerous changes to its operations related to health safety, as well as modifications to commercial policies and customer relations. For more information regarding these changes and the economic impact of the pandemic on our operations, see “Item 4. Information of the Company-B. Business Overview-Passenger Operations-Passenger Marketing and Sales” and “Item 3. Key Information-D. Risk Factors-Risks Relating to our Company-The continuing effects of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on the group’s business and results of operations.”
Chapter 11 Proceedings
On May 26, 2020 (the “Initial Petition Date”), LATAM Airlines Group S.A. and 28 affiliates (collectively, the “Initial Debtors”) filed their petitions for relief under Chapter 11 (“Chapter 11”) of title 11 of the United States Code, 11 U.S.C. §§ 101-1532, (as amended, the “Bankruptcy Code”), with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On July 7, 2020 and July 9, 2020 (as applicable, the “Subsequent Petition Date”), nine additional affiliates of LATAM (the “Subsequent Debtors” and together with the Initial Debtors, the “Debtors”) filed their petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. We refer to these proceedings in this annual report as our “Chapter 11 proceedings.” As of November 3, 2022 (the “Effective Date”), the Plan (as defined below) was substantially consummated and the Debtors have each emerged from the Chapter 11 proceedings as the “Reorganized Debtors.” The Bankruptcy Court continues to administer the Chapter 11 proceedings for the Reorganized Debtors on a consolidated basis in order to resolve the few remaining matters therein, including reconciling remaining claims. The information in this annual report is presented as of December 31, 2022, unless expressly stated otherwise, and is subject to and qualified in its entirety by our Chapter 11 proceedings and developments related thereto.
The following is a series of relevant milestones and chronological summary of LATAM’s Chapter 11 proceedings:
As part of their overall reorganization process, the Reorganized Debtors have sought and received relief in certain non-U.S. jurisdictions. Parallel and ancillary proceedings were filed in the Cayman Islands, Chile and Colombia. On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of certain of the Reorganized Debtors for the appointment of provisional liquidators pursuant to section 104(3) of the Companies Law (2020 Revision). On June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11 proceedings with respect to the LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. All remedies filed against the order have been rejected and the decision is, therefore, final. In addition, on June 12, 2020, the Superintendence of Companies of Colombia granted recognition to the Chapter 11 proceedings. On July 10, 2020, the Grand Court of the Cayman Islands granted the Reorganized Debtors’ application for the appointment of JPLs to Piquero Leasing Limited.
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On November 26, 2021, the Reorganized Debtors filed an initial proposed plan of reorganization under our Chapter 11 proceedings (as it has been and may be subsequently supplemented, revised or amended, or otherwise modified in accordance with its terms, the “Plan of Reorganization” or “Plan”) resulting from the negotiation of a restructuring support agreement (as amended, restated, amended and restated, supplemented or otherwise modified, the “Restructuring Support Agreement” or “RSA”), also dated as of November 26, 2021, with an ad hoc group of LATAM Airlines Group S.A. general unsecured creditors, certain of the Reorganized Debtors’ large existing equity holders, and Andes Aerea SpA, Inversiones Pia SpA and Comercial Las Vertientes (the “Eblen Group”). The Reorganized Debtors filed the solicitation version of the Plan of Reorganization on March 25, 2022.
In accordance with the RSA, on January 12, 2022 LATAM entered into a backstop commitment agreement with certain shareholders, which the group refers to as the “Shareholder Backstop Agreement” and the “Backstop Shareholders”, respectively and certain of our creditors, which the group refers to as the “Creditor Backstop Agreement” and the “Backstop Creditors”, respectively. The group refers to the Shareholder Backstop Agreement and the Creditor Backstop Agreement collectively as the “Backstop Agreements.” On March 15, 2022, the Bankruptcy Court issued a memorandum decision approving the Reorganized Debtors’ entry into the Backstop Agreements, and issued a corresponding order on March 22, 2022. On March 24, 2022, the Unsecured Creditors Committee (“UCC”) and certain other creditors filed a notice to appeal this ruling to the United States District Court for the Southern District of New York.
Pursuant to the Backstop Agreements, the Backstop Shareholders agreed to backstop up to US$400 million of an issuance of new common stock by the Company and the placement of approximately US$1,373 million of New Convertible Notes Class B to be issued by the Company. The Backstop Creditors agreed to backstop the remaining US$400 million of the common stock issuance and up to approximately US$6,816 million of the New Convertible Notes Class C to be issued by the Company; which reflects a total cash commitment of approximately US$3,269 million, considering that a portion of the New Convertible Notes Class C was designed to be delivered as payment of claims held by the Backstop Creditors. According to the Plan, the Backstop Creditors agreed to receive a fee of 20% of the committed cash amount of their investment pursuant to the Creditor Backstop Agreement, whereas the Backstop Shareholders agreed not to receive a fee for the Shareholder Backstop Agreement. All new common stock and all new convertible notes were preemptively offered to LATAM’s shareholders as required by applicable law. New Convertible Notes Class B and New Convertible Notes Class C, together with New Convertible Notes Class A (whose issuance was also contemplated by the Plan), are convertible into shares of the Company that, together with the new common stock issued by the Company according to the Plan, substantially diluted the equity interests of existing shareholders.
Furthermore, following execution of the RSA, we continued to engage in discussions with members of a separate ad hoc group of certain of the Reorganized Debtors’ creditors, each of whom executed a joinder agreement to the RSA, effective as of February 10, 2022.
The Reorganized Debtors received objections to the Plan from certain parties, including the United States Trustee, the Official Committee of Unsecured Creditors (the “Committee”), Banco del Estado de Chile in its capacity as indenture trustee under certain Chilean local bonds issued by LATAM (“BancoEstado”), an ad hoc group of unsecured claimants and a group of holders of claims against LATAM affiliate TAM Linhas Aéreas S.A. Following the Plan objection deadline, the Reorganized Debtors participated in mediation with BancoEstado, the Committee and the parties to the RSA in an effort to resolve their objections to the Plan and related disputes, which proved successful. On May 11, 2022, the Reorganized Debtors filed a revised version of the Plan reflecting the terms of a settlement with the parties.
At a hearing held on May 17, 18 and 20, 2022, the Bankruptcy Court considered the remaining objections that had not been resolved pursuant to the settlement. On June 18, 2022, the Bankruptcy Court issued a memorandum decision approving the Plan and overruling all remaining objections (the “Memorandum Decision”), and entered an order confirming the Plan (the “Confirmation Order”).
v
Certain parties in interest appealed the Bankruptcy Court’s decisions. On June 21, 2022, the Ad Hoc Group of Unsecured Claimants filed a notice of appeal of the memorandum decision and order approving entry into the Backstop Agreements, as well as the Memorandum Decision approving the Plan and the Confirmation Order.
On June 27, 2022, the Ad Hoc Group of Unsecured Claimants filed a motion seeking to stay the Confirmation Order pending appeal. On July 16, 2022, the motion to stay was denied by the Bankruptcy Court. On June 23, 2022, the TLA Claimholders Group also filed a motion seeking to stay the Confirmation Order pending appeal or, in the alternative, an affirmative injunction requiring the Reorganized Debtors to fund an escrow account in the amount of the outstanding post-petition interest. On July 8, 2022, the Bankruptcy Court issued a bench memorandum and order denying the TLA Claimholders Group’s motion to stay. On June 28, 2022, Columbus Hill Capital Management (“Columbus Hill”) filed a notice of appeal of the Memorandum Decision and the Confirmation Order, which it later withdrew on July 5, 2022. On July 13, 2022, the Reorganized Debtors filed a motion to approve a settlement agreement with Columbus Hill, which was granted by the Bankruptcy Court on July 21, 2022, bringing full and final resolution to the Columbus Hill appeal and any other potential objections from this claimant.
On August 31, 2022, after briefing and oral argument by the parties, the District Court issued an opinion denying the appeals of both the Ad Hoc Group of Unsecured Claimants and the TLA Claimholders Group. The District Court rejected the Ad Hoc Group of Unsecured Claimants’ arguments that the Plan and Backstop Agreement violated the Bankruptcy Code and held that the Backstop Agreement did not constitute impermissible vote buying. The Ad Hoc Group of Unsecured Claimants did not further appeal the District Court’s decision.
With respect to the TLA Claimholders Group’s appeal, the District Court denied its request for payment of post-petition interest on its claims and found that the Bankruptcy Court did not err with respect to its factual finding that TLA was insolvent. The District Court also denied the TLA Claimholders Group’s motion to stay the Confirmation Order. On September 2, 2022 the TLA Claimholders Group filed a notice of appeal in the District Court (the “Second Circuit Appeal”) further appealing the Confirmation Order to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). Both parties filed briefs regarding the merits of the Second Circuit Appeal, oral argument occurred on October 12, 2022, and on December 14, 2022, the Second Circuit unanimously affirmed the District Court’s decision rejecting the Second Circuit Appeal.
As of the Effective Date, the Plan was substantially consummated and became binding on all parties in interest. Pursuant to the Plan, the Company received an infusion of approximately US$ 8.19 billion through a mix of new equity, convertible notes, and debt, which enabled the Company to exit Chapter 11 with appropriate capitalization to effectuate its business plan. Upon emergence, the Company had total debt of approximately US$ 6.8 billion, cash and cash equivalents of approximately US$1.1 billion and revolving facilities fully undrawn in the amount of US$1.1 billion..
Pursuant to the Plan and Backstop Agreements, LATAM raised up to US$ 500 million through a new revolving credit facility and approximately US$ 2.25 billion in total new money debt financing, consisting of a new term loan and new notes.
As a result of our Chapter 11 proceedings, the New York Stock Exchange (the “NYSE”) filed with the SEC a notice on June 10, 2020 in order to delist our American Depositary Shares (ADSs). The delisting became effective on June 22, 2020. Our ADSs continue to trade in the over-the-counter market under the ticker “LTMAY.”
For more information regarding the Chapter 11 filings and proceedings, see “Item 3. Key Information-D. Risk Factors-Risks Relating to Our Emergence from Chapter 11 Bankruptcy” and “Item 4. Information on the Company - B. Business Overview - Chapter 11 Proceedings through 2022.”
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PRESENTATION OF INFORMATION
Throughout this annual report on Form20-F, we make numerous references to “LATAM”.“LATAM.” Unless the context otherwise requires, references to “LATAM Airlines Group” are to LATAM Airlines Group S.A., the unconsolidated operating entity, and references to “LATAM,” “we,” “us”“us,” “our,” the “group” or the “Company” are to LATAM Airlines Group S.A. and its consolidated affiliates:affiliates including: Transporte Aéreo S.A. (which does business under the name “LATAM(“LATAM Airlines Chile”), LATAM Airlines Perú S.A. (f/k/a LAN Perú S.A. (“LATAMS.A, “LATAM Airlines Peru”), LATAM-Airlines Ecuador S.A. (f/k/a Aerolane Líneas Aéreas Nacionales del Ecuador S.A. (“LATAM, “LATAM Airlines Ecuador”), LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), Aerovías de Integración Regional Aires S.A. (which does business under the name “LATAM(“LATAM Airlines Colombia”), TAM S.A. (“TAM”), TAM Linhas Aéreas S.A. (“LATAM Airlines Brazil”), Transporte Aéreos del Mercosur S.A. (“LATAM Paraguay”), LAN Cargo S.A. (“LATAM Cargo”) and its threetwo regional affiliates: Aero Transportes Mas de Carga S.A. de C.V. (“MasAir”) in Mexico, Linea Aerea Carguera de Colombia S.A. (“LANCO” or “LATAM Cargo Colombia”) in Colombia and Aerolinhas Brasileiras S.A. (“ABSA” or LATAM Cargo Brazil”) in Brazil. Other references to “LATAM”, however,as the context requires, are to the LATAM brand which was launched in 2016 and brings together, under one internationally recognized name, all of the affiliate brands such as LATAM Airlines Chile, LATAM Airlines Peru, LATAM Airlines Argentina, LATAM Airlines Colombia, LATAMLATAM- Airlines Ecuador S.A. and LATAM Airlines Brazil.
LATAM Airlines Argentina continues to be a consolidated affiliate, however, on June 17, 2020, it announced the indefinite cessation of its passenger and cargo operations.
References to “LATAM” and all references to “LAN” are to LAN Airlines S.A., currently known as LATAM Airlines Group S.A., and its consolidated affiliates, in connection with circumstances and facts occurring prior to the completion date of the combination between LAN Airlines S.A. and TAM S.A. See “Item 4. Information on the Company—A.Company-A. History and Development of the Company—Combination of LAN and TAM.Company.”
In this annual report on Form20-F, unless the context otherwise requires, references to “TAM” are to TAM S.A., and its consolidated affiliates, including TAM Linhas Aereas S.A. (“TLA”), which does business under the name “LATAM Airlines Brazil”, Multiplus S.A. (“Multiplus”), Fidelidade Viagens e Turismo Limited (“TAM Viagens”) and Transportes Aéreos Del Mercosur S.A. (“TAM Mercosur”).
LATAM Airlines Group and the majority of our affiliates maintain their accounting records and prepare their financial statements in U.S. dollars. Some of our other affiliates, however, maintain their accounting records and prepare their financial statements in Chilean pesos, Argentinean pesos, Colombian pesos or Brazilian reais.real. In particular, TAM maintains its accounting records and prepares its financial statements in Brazilian reais.real. Our audited consolidated financial statements include the results of these affiliates translated into U.S. dollars. The International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), require assets and liabilities to be translated atperiod-end exchange rates, while revenue and expense accounts are translated at each transaction date, although a monthly rate may also be used if exchange rates do not vary widely.
In this annual report on Form20-F, all references to “Chile” are references to the Republic of Chile. This annual report contains conversions of certain Chilean peso and Brazilian real amounts into U.S. dollars at specified rates solely for the convenience of the reader. These conversions should not be construed as representations that the Chilean peso and the Brazilian real amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we specify otherwise, all references to “$”, “US$,”, “U.S. dollars” or “dollars” are to United States dollars, references to “pesos,” “Chilean pesos” or “Ch$” are to Chilean pesos. References to “reais,“real,” “Brazilian reais”real” or “R$” are to Brazilian reais,real, and references to “UF” are toUnidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate. Unless we indicate otherwise, the U.S. dollar equivalent for information in Chilean pesos used in this annual report and in our audited consolidated financial statements is based on the “dólar observado” or “observed” exchange rate published byBanco Central de Chile (which we refer to as the Central(the “Central Bank of Chile)Chile”) on December 31, 2016,2022, which was Ch$669.47859.51 = US$1.00. The observed exchange rate on February 28, 2017,2023, was Ch$645.19=831.24 = US$1.00. Unless we indicate otherwise, the U.S. dollar equivalent for information in Brazilian reaisreal used in this annual report and in our audited consolidated financial statements is based on the average “bid and offer rate”published by Banco Central do Brasil (which we refer to as the Central(the “Central Bank of Brazil)Brazil”) on December 31, 2016,2022, which was R$3.259 =5.22= US$1.00. The observed exchange rate on February 28, 20172023, was $R$3.099R$5.21 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos or Brazilian reais.real. Unless we indicate otherwise, the Chilean peso equivalent for information in UF used in this annual report and in our audited consolidated financial statements is based on the UF rate published by Central Bank of Chile on December 31, 2022, which was Ch$35,110.98 = UF1.00.
LATAM has a single series of shares of Common Stock, without par value, listed on Chilean Stock Exchange and American Depositary Shares (evidenced by American Depositary Receipts), each representing one share of Common Stock, that were listed on the New York Stock Exchange until June 22, 2020, and currently trade in the over-the-counter market.
We have rounded percentages and certain U.S. dollar, Chilean peso and Brazilian reaisreal amounts contained in this annual report for ease of presentation. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
LATAM’s audited consolidated financial statements for the periods ended December 31, 2012, 2013, 2014, 20152020, 2021 and 20162022 were prepared in accordance with IFRS.
This annual report contains certain terms that may be unfamiliar to some readers. You can find a glossary of these terms on page 4ix of this annual report.
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FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. Such statements may include words such as “anticipate,” “could” “estimate,” “expect,” “project,” “intend,” “plan,” “believe”, “forecast” or other similar expressions. Forward-looking statements, including statements about our beliefs and expectations, are not statements of historical facts. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. There is no assurance that the expected events, trends or results will actually occur. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:
● | the impact of our recent emergence from Chapter 11 on our business and relationships; |
● | conflicting interests among our major shareholders; |
● | developments relating to the COVID-19 pandemic or any other pandemic and measures to address them; |
● | the factors described in “Item 3. Key Information-Risk Factors”; |
● | our ability to service our debt and fund our working capital requirements; |
● | future demand for passenger and cargo air services in Chile, Brazil, other countries in Latin America and the rest of the world; |
● | the determination of relationships with customers; |
● | our ability to attract and retain key personnel following our emergence from bankruptcy; |
● | the state of the Chilean, Brazilian, other Latin American and world economies and their impact on the airline industry; |
● | the effects of competition in the airline industry; |
● | future terrorist incidents, cyberattacks or related activities affecting the airline industry; |
● | future outbreak of diseases, or the spread of already existing diseases, affecting travel behavior and/or exports; |
● | natural disasters affecting travel behavior and/or exports; |
● | the relative value of the Chilean peso and other Latin American currencies compared to other world currencies; |
● | inflation; |
● | competitive pressures on pricing; |
● | our capital expenditure plans; |
● | changes in labor costs, maintenance costs and insurance premiums; |
● | fluctuation of crude oil prices and its effect on fuel costs; |
● | cyclical and seasonal fluctuations in our operating results; |
● | defects or mechanical problems with our aircraft; |
● | our ability to successfully implement our growth strategy; |
● | increases in interest rates; and |
● | changes in regulations, including regulations related to access to routes in which the group operates and environmental regulations. |
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update publicly any of them, whether in light of new information, future events or otherwise. You should also read carefully the risk factors described in “Item 3. Key Information—RiskInformation-Risk Factors.”
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GLOSSARY OF TERMS
The following terms, as used in this annual report, have the meanings set forth below.
Consolidated Affiliates of LATAM: | ||
| ||
“ABSA or LATAM Cargo Brazil” | Aerolinhas Brasileiras S.A., incorporated in Brazil. | |
“LANCO” or LATAM Cargo Colombia | Línea Aérea Carguera de Colombia S.A., incorporated in Colombia. | |
“LATAM Airlines Argentina” | LAN Argentina S.A., incorporated in Argentina. | |
“LATAM Airlines Brazil” | TAM Linhas Aéreas S.A., incorporated in Brazil. | |
“LATAM Airlines Chile” | Transporte Aéreo S.A., incorporated in Chile. | |
“LATAM Airlines Paraguay” | Transporte Aéreos del Mercosur S.A., incorporated in Paraguay. | |
“LATAM Airlines Colombia” | Aerovías de Integración Regional S.A., incorporated in Colombia. | |
“LATAM Airlines Ecuador” | LATAM-Airlines Ecuador S.A. (f/k/a Aerolane Líneas Aéreas Nacionales del Ecuador S.A.), incorporated in Ecuador. | |
“LATAM Airlines Peru” | LATAM Airlines Perú S.A. (f/k/a LAN Perú S.A.), incorporated in Perú. | |
“LATAM Cargo” | LAN Cargo S.A., incorporated in Chile. | |
“TAM” | TAM S.A., incorporated in Brazil. | |
Capacity Measurements: | ||
“available seat kilometers” or “ASKs” | The sum, across our network, of the number of seats made available for sale on each flight multiplied by the kilometers flown by the respective flight. | |
“available ton kilometers” or “ATKs” | The sum, across our network, of the number of tons available for the transportation of revenue load (cargo) on each flight multiplied by the kilometers flown by the respective flight. | |
“revenue passenger kilometers” or “RPKs” | The sum, across our network, of the number of |
“revenue ton kilometers” or “RTKs” | The sum, across our network, of the load (cargo) in tons on each flight multiplied by the kilometers flown by the respective flight. | |
“traffic revenue” | Revenue from passenger and cargo operations. |
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Yield Measurements: |
“cargo yield” | Revenue from cargo operations divided by RTKs. | |
“passenger yield” | Revenue from passenger operations divided by RPKs. | |
Load Factors: | ||
“cargo load factor” | RTKs expressed as a percentage of ATKs. |
“passenger load factor” | RPKs expressed as a percentage of ASKs. | |
“Airbus A320-Family Aircraft” | The | |
“m²” | Square meters. | |
“ton” | ||
A metric ton, equivalent to 2,204.6 pounds. | ||
“utilization rates” | The actual number of | |
“operating expenses” | Operating expenses, which are calculated in accordance with IFRS, comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include: wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses. | |
“MiSchDynamicDT” | Market Intelligence Schedule Dynamic Table. | |
“Diio Mi” | Data In Intelligence Out Market Intelligence. | |
“CO2” | Carbon Dioxide Gas |
x
PART I
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 KEY INFORMATION
Reserved |
A. Selected Financial Data
LATAM’s Historical Financial Information
The summary consolidated annual financial information of LATAM as of December 31, 2016, 2015, 2014, 2013 and 2012 has been prepared in accordance with IFRS(*). On June 22, 2012, LATAM Airlines Group was formed through the business combination of LAN and TAM. Following the combination, LAN Airlines S.A. became “LATAM Airlines Group S.A.” and TAM continues to exist as a subsidiary of LATAM Airlines Group. Financial statements for LATAM fully consolidate TAM’s results since June 23, 2012.
LATAM’s Annual Financial Information
Year ended December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(in US$ millions, except per share and capital stock data) | ||||||||||||||||||||
The Company(1)(2) | ||||||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 7,877.7 | 8,410.6 | 10,380.1 | 11,061.5 | 7,966.8 | |||||||||||||||
Cargo | 1,110.6 | 1,329.4 | 1,713.4 | 1,863.0 | 1,743.6 | |||||||||||||||
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Total operating revenues | 8,988.3 | 9,740.0 | 12,093.5 | 12,924.5 | 9,710.4 | |||||||||||||||
Cost of sales | (6,967.0 | ) | (7,636.7 | ) | (9,624.5 | ) | (10,054.2 | ) | (7,634.5 | ) | ||||||||||
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Gross margin | 2,021.3 | 2,103.3 | 2,469.0 | 2,870.3 | 2,075.9 | |||||||||||||||
Other operating income(3) | 538.7 | 385.8 | 377.6 | 341.6 | 220.2 | |||||||||||||||
Distribution costs | (747.4 | ) | (783.3 | ) | (957.1 | ) | (1,025.9 | ) | (803.6 | ) | ||||||||||
Administrative expenses | (873.0 | ) | (878.0 | ) | (980.7 | ) | (1,136.1 | ) | (888.7 | ) | ||||||||||
Other expenses | (373.7 | ) | (324.0 | ) | (401.0 | ) | (408.7 | ) | (311.8 | ) | ||||||||||
Other gains/(losses) | (72.6 | ) | (55.3 | ) | 33.5 | (55.4 | ) | (45.8 | ) | |||||||||||
Financial income | 74.9 | 75.1 | 90.5 | 72.8 | 77.5 | |||||||||||||||
Financial costs | (416.3 | ) | (413.4 | ) | (430.0 | ) | (462.5 | ) | (294.6 | ) | ||||||||||
Equity accounted earnings | 0.0 | 0.0 | (6.5 | ) | 2.0 | 1.0 | ||||||||||||||
Exchange rate differences | 121.7 | (467.9 | ) | (130.2 | ) | (482.2 | ) | 66.6 | ||||||||||||
Result of indexation units | 0.3 | 0.6 | 0.1 | 0.3 | 0.0 | |||||||||||||||
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Income (loss) before income taxes | 273.9 | (357.1 | ) | 65.2 | (283.8 | ) | 96.7 | |||||||||||||
Income (loss) tax expense/benefit | (163.2 | ) | 178.4 | (292.4 | ) | 20.0 | (102.3 | ) | ||||||||||||
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Net (loss) income for the period | 110.7 | (178.7 | ) | (227.2 | ) | (263.8 | ) | (5.6 | ) | |||||||||||
Income (loss) attributable to the parent company’s equity holders | 69.2 | (219.3 | ) | (260.0 | ) | (281.1 | ) | (19.1 | ) | |||||||||||
Income (loss) attributable tonon-controlling interests | 41.5 | 40.5 | 32.8 | 17.3 | 13.5 | |||||||||||||||
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Net income (loss) for the year | 110.7 | (178.7 | ) | (227.2 | ) | (263.8 | ) | (5.6 | ) | |||||||||||
Earnings per share | ||||||||||||||||||||
Average number of Shares | 549,559,559 | 545,547,819 | 545,547,819 | 487,930,977 | 412,267,624 |
Basic earnings (loss) per share (US$) Diluted earnings (loss) per share (US$) Balance Sheet Data: Cash, and cash equivalents Other current assets in operation Non-current assets and disposal groups held for sale Total current assets Property and equipment Othernon-current assets Totalnon-current assets Total assets Total current liabilities Totalnon-current liabilities Total liabilities Issued capital Net equity attributable to the parent company’s equity holders Non-controlling interest Total net equity Shares Outstanding Year ended December 31, 2016 2015 2014 2013 2012 (in US$ millions, except per share and capital stock data) 0.12665 (0.40193 ) (0.47656 ) (0.57613 ) (0.0463 ) 0.12665 (0.40193 ) (0.47656 ) (0.57613 ) (0.0463 ) At December 31, 2016 2015 2014 2013 2012 (in US$ millions, except per share and capital stock data) 949.3 753.5 989.4 1,984.9 650.3 2,340.3 2,067.4 2,644.1 2,992.2 2,626.2 337.2 2.0 1.1 2.4 47.7 3,626.8 2,822.9 3,634.6 4,979.5 3,324.2 10,498.1 10,938.7 10,773.1 10,982.8 11,807.1 5,073.3 4,339.8 6,076.7 6,668.8 7,195.0 15,571.4 15,278.5 16,849.8 17,651.6 19,002.1 19,198.2 18,101.4 20,484.4 22,631.1 22,326.3 6,222.2 5,641.0 5,829.7 6,509.1 6,297.5 8,790.7 9,522.9 10,151.0 10,795.6 10,808.1 15,012.9 15,163.9 15,980.7 17,304.7 17,105.6 3,149.6 2,545.7 2,545.7 2,389.4 1,501.0 4,096.7 2,856.5 4,401.9 5,238.8 5,112.1 88.6 81.0 101.8 87.7 108.6 4,185.3 2,937.5 4,503.7 5,326.5 5,220.7 606,407,693 545,547,819 545,547,819 535,243,229 479,107,860
B. | Capitalization and Indebtedness |
Not applicable.
(*)Law No. 20,780 issued on September 29, 2014, introduced modifications to the income tax system in Chile and other tax matters. On October 17, 2014 the Chilean Superintendence of Securities and Insurance (the “SVS”) issued Circular No. 856, which established that the effects of the change in the income tax rates on deferred tax assets and liabilities must be recognized directly on the Balance Sheet within “Retained earnings” instead of on the Income Statement as required by IAS 12. In order to comply with IAS 12, the financial statements in this document for the period ended December 31, 2014 are different from those presented to the SVS as the modifications introduced by Law No. 20,780 have been recognized within the income statement. For more information on the reconciliation of such differencessee Note 2.1 and Note 18 to our audited consolidated financial statements.
The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2012 (which includes TAM’s data since June 23, 2012), and as of and for the years ended December 31, 2013, December 31, 2014, December 31, 2015 and December 31, 2016. LATAM believes this operating data is useful in reporting the operating performance of its business and may be used by certain investors in evaluating companies operating in the global air transportation sector. However, these measures may differ from similarly titled measures reported by other companies, and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS. This unaudited operating data is not included in or derived from LATAM’s financial statements.
Operating Data: ASKs (million) RPKs (million) ATKs (million) RTKs (million) ASK Equivalent (million) For the year ended and as of December 31, 2016 2015 2014 2013 2012 134,967.7 134,167.1 130,200.9 131,690.9 132,186.0 113,626.9 111,509.9 108,534.0 106,466.5 103,886.1 6,704.1 7,082.8 7,219.7 7,651.9 7,645.9 3,465.9 3,797.0 4,317.2 4,466.7 4,488.3 205,537.5 208,722.5 206,197.9 212,237.0 212,669.6
Dividend Policy
In accordance with theLey sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation Act”) andReglamento de Sociedades Anónimas(“Regulation to the Chilean Corporation Act”) (collectively, the “Chilean Corporation Law”), we must pay annual cash dividends equal to at least 30.0% of our annual consolidated net income for the prior year, subject to limited exceptions. LATAM Airlines Group’s board of directors has the authority to declare interim dividends.Year-end dividends, if any, are declared by our shareholders at our annual meeting. For a description of our dividend policy, see “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Dividend Policy” and “Item 10. Additional Information—Dividend and Liquidation Rights”. LATAM did not pay dividends in 2014, 2015 or 2016. Dividend reserves of US$20,766,199 have been set aside in 2016, to be paid in 2017.
We declare cash dividends in U.S. dollars, but make dividend payments in Chilean pesos, converted from U.S. dollars at the observed exchange rate two business days prior to the day we first make payment to shareholders. Payments of cash dividends to holders of ADSs, if any, are made in Chilean pesos to the custodian, which converts those Chilean pesos into U.S. dollars and delivers U.S. dollars to the depositary for distribution to holders. The amount of U.S. dollars distributed to holders of ADSs may be adversely affected by a devaluation of the Chilean currency that may occur before such dividends are converted and remitted.
Chilean Peso Exchange Rates
The following table sets forth, for the periods indicated, the high, low, average andperiod-end observed exchange rate for the purchase of U.S. dollars, expressed in Chilean pesos per U.S. dollar. The rates have not been restated in constant currency units. On February 28, 2017 the observed exchange rate was Ch$645.19 = US$1.00.
Daily Observed Exchange Rate | ||||||||||||||||
Year Ended December 31, | High | Low | Average(1) | Period-End | ||||||||||||
Ch$ per US$ | ||||||||||||||||
2012 | 519.69 | 469.65 | 486.75 | 478.60 | ||||||||||||
2013 | 533.95 | 466.50 | 495.00 | 523.76 | ||||||||||||
2014 | 621.41 | 524.61 | 570.01 | 607.38 | ||||||||||||
2015 | 715.66 | 597.10 | 654.25 | 707.34 | ||||||||||||
2016 | 730.31 | 645.22 | 676.83 | 669.47 | ||||||||||||
2016 | ||||||||||||||||
October | 670.88 | 651.65 | 663.92 | 651.65 | ||||||||||||
November | 679.24 | 650.72 | 666.12 | 675.48 | ||||||||||||
December | 677.11 | 649.40 | 667.17 | 669.47 | ||||||||||||
2017 |
Year Ended December 31, January February Daily Observed Exchange Rate High Low Average(1) Period-End Ch$ per US$ 673.36 648.31 661.19 648.87 646.97 638.35 643.21 645.19
Source: Central Bank of Chile
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
D. | Risk Factors |
Not applicable.
D. Risk Factors
The 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 anon-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.
Risk Factors
Risks Relating to our Emergence from Chapter 11 Bankruptcy
We recently emerged from bankruptcy, which could adversely affect our business and relationships.
Our having filed for bankruptcy, notwithstanding our recent emergence from the Chapter 11 bankruptcy proceedings, could adversely affect our business and relationships with customers, suppliers, vendors, contractors or employees. Many risks exist due to uncertainties around our recent emergence from bankruptcy, including the following:
● | Key suppliers, vendors or other contract counterparties could, among other things, renegotiate the terms of our agreements, attempt to terminate their relationships with us or require financial assurances from us; |
● | Our ability to renew existing contracts and obtain new contracts on reasonably acceptable terms and conditions may be adversely affected; |
● | Our ability to attract, motivate and retain executives and employees may be adversely affected; and |
● | Competitors may take business away from us, and our ability to compete for new business and attract and retain customers may be negatively impacted. |
The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation and we cannot assure you that having been subject to bankruptcy proceedings will not adversely affect our operations in the future.
Upon emergence from bankruptcy, the composition of our board of directors changed significantly.
The composition of our board of directors changed significantly upon emergence from bankruptcy. Our new board is comprised of the following members: Ignacio Cueto Plaza, Sonia J.S. Villalobos, Bouk van Geloven, Antonio Gil Nievas, Alexander D. Wilcox, Bornah Moghbel, Enrique Cueto Plaza, Michael Neruda and Frederico Curado (as independent director). While there has been an orderly transition process as we integrate newly appointed board members, our new board of directors may change views on strategic initiatives and a range of issues that will determine the future of the Company. As a result, the future strategy and plans of the Company may differ materially from those of the past.
The ability to attract and retain key personnel is critical to the success of our business and may be affected by our emergence from bankruptcy.
The success of our business depends on key personnel. The ability to attract and retain these key personnel may be affected by our emergence from bankruptcy, the uncertainties currently facing the business and the changes we may make to the organizational structure to adjust to changing circumstances. We may need to enter into retention or other arrangements that could be costly to maintain. If executives, managers or other key personnel resign, retire or are terminated or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity.
Risks 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 February 28, 2017, the ownership structure of TAM is as follows:
The continuing effects of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on the Amaro family (the “Amaro Group”) own approximately 51%group’s business and results of operations.
The COVID-19 pandemic and accompanying fear of widespread outbreaks of contagious illnesses that may occur in the future have materially reduced, and may continue to further reduce, demand for, and availability of, worldwide air travel. As a result, our business, operations and financial performance have been, and may continue to be, materially adversely affected by COVID-19.
The COVID-19 pandemic and its variants has negatively affected global economic conditions, disrupted supply chains and otherwise negatively impacted aircraft manufacturing operations and may reduce the availability of aircraft spare parts. The effect on our results may be material and adverse if supply chain disruptions persist and preclude our ability to adequately maintain our fleet.
Although vaccines have generally proved to be effective and certain of the outstanding Holdco I voting shares through TEP Chile (a Chilean entity wholly owned bygovernment-imposed travel restrictions associated with the TAM Controlling Shareholders)COVID-19 pandemic have been eased, the ongoing pandemic, including large outbreaks, resurgences of COVID-19 in various regions and LAN owns the remainderappearances of new variants of the voting shares;
return with some measures. As a result of this ownership structure:
LATAM Airlines Group and TEP Chile and other partiessanitation measures that we 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 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 mattersimplemented as a shareholdergroup also may not be sufficient to prevent the spread or contagion of affiliates
COVID-19 or other infectious diseases to our passengers or employees on our aircraft or the airports in which we operate, which could result in adverse reputational and financial impacts for the group. These issues have had and could continue to have a material adverse effect on the group’s business and results of TAM. Actions requiring supermajority shareholder approval of Holdco I or TAM include, among others, certain changes to theby-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.operations. For morefurther information on the shareholders’ agreements,health safety and sanitation measures implemented by the group, see “Item 7. Controlling Shareholders“Explanatory Note-COVID-19 Pandemic,” above. However, it is possible that these measures could prove insufficient and Related Party Transactions—Shareholders’ Agreements.”COVID-19 or other diseases could be transmitted to passengers or employees in an airport or on an aircraft.
Our assets include
As a significant amountresult of goodwill.the COVID-19 pandemic and its variants, the airline industry may experience consumer behavior changes, regarding corporate travel, long-haul travel, and travel demand.
Our assets included US$2,710.4 million of goodwill as of December 31, 2016, US$2,582.5 million of which results
The potential for mid- to long-term changes to consumer behavior resulting from the combinationCOVID-19 pandemic and its variants exists and could lead to adverse financial impacts for the Company. Corporate travel increased during 2022, thanks to the lift of LANtravel restrictions, but has not yet fully recovered to prior COVID-19 levels. It is not possible to predict the potential consequences of the increased use of technology as a substitute for travel and TAM. Under IFRS, goodwill is subjectwhether or when corporate travel, long-haul travel and travel demand could return to an annual impairment testthe levels existing prior to the COVID-19 pandemic. Furthermore, travelers may be less prone to travel or be more price conscious and may be required to be tested more frequently if events or circumstances indicate a potential impairment. In 2016, mainlychoose low-cost alternatives as a result of the appreciation of the Brazilian real against the U.S. dollar, the value of our goodwill increased by 18.8% as compared with 2015. Any impairment could result in the recognition of a significant charge to earnings in our statement of income, which could materially and adversely impact our consolidated results for the period in which the impairment occurs.COVID-19 pandemic.
A failure to successfully implement ourthe group’s strategy or a failure adjusting theto adjust such strategy to the current economic situation would harm ourthe group’s 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 bestmost 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 continuing adoption of a new travel model for domestic and international 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 who wish to fly more frequently. This model requires continued cost reduction efforts and in order to achieve thisincreasing revenues from ancillary activities. In connection with these efforts, the Company is implementingcontinues to implement a series of initiatives to reduce cost per ASK in all its domestic operations.operations as well as developing new ancillary revenue initiatives.
Difficulties in implementing our strategy may adversely affect ourthe group’s 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.
It may take time to combine the frequent flyer programs of LAN and TAM.
We have integrated the separate frequent flyer programs of LAN and TAM so that passengers can use frequent flyer miles earned with either LAN or TAM interchangeably. 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 operatethe group operates could adversely affect ourthe business, financial condition and results of operations..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 ourthe business, financial condition, results of operations and the return to our shareholders on their common shares or ADSs. For further information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk-Risk of Variation in Foreign Exchange Rates.”
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 47.9% of our total costs of sales in 2022. For additional information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk-Risk of Fluctuations in Fuel Prices.” 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 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, labor actions such as the 2018 trucking strike in Brazil, the continued unrest in the Middle East, the conflict in Ukraine or other events could result in higher fuel prices or reductions in scheduled airline services. We dependcannot ensure that we would be able to offset any increases in the price of fuel. 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. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk-Risk of Fluctuations in Fuel Prices.”
The group depends on strategic alliances or commercial relationships in many ofdifferent countries, and 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,deteriorate, or any of these agreements are terminated, ourthe group’s business, financial condition and results of operations could be adversely affected.
Our
The group’s 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
LATAM’s 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. OurThe group’s operations could be constrained by any delay or inability to gain access to key routes or airports, including:
● | limitations on our ability to transport more passengers; |
● | the imposition of flight capacity restrictions; |
● | the inability to secure or maintain route rights in local markets or under bilateral agreements; or |
We operate
● | the inability to maintain our existing slots and obtain additional slots. |
The group operates numerous international routes subject to bilateral agreements, and also internalas well as domestic flights within Chile, Peru, Brazil, Argentina, Ecuador Colombia and other countries,Colombia, subject to local route and airport access approvals. See “Item 4. Information on the Company—B.Company-B. Business Overview—Regulation.Overview-Regulation.”
There can be no assurance that existing bilateral agreements with the countries in which ourthe group’s companies are based and permits from foreign governments will continue.continue to be in effect. 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 inat certain airports, destinations or slots, or the imposition of other sanctions could also have a material adverse effect. A change in the administration of current laws and regulations or the adoption of new laws and regulations in any of the countries in which we operatethe group operates that restrict our route, airportroutes, airports 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 International and Congonhas Airports, Brasilia’s International Airport and Lima’s Jorge Chavez International Airport. Airports may face challenges to meet their capex programs, after suffering significant financial deterioration stemming from the COVID-19 pandemic. Delays or cancellations of capex programs could impact our operations or ability to grow in the future.
Santiago’s Comodoro Arturo Merino Benítez International Airport is undergoing an important expansion, which was expected to be completed by 2021, but opened in February 2022. There is currently a dispute between the airport operator and the government arising from the impact of the COVID-19 pandemic and deceleration of airport operations on revenues, which placed additional stress on the operator’s liquidity in light of ongoing investments required for the expansion project. In order to mitigate the impact of the financial loss, the current operator is requesting to extend the concession period, which expires in 2035, or to renegotiate the current income percentage of participation that they must share with the government. This dispute implies a risk to future OPEX and CAPEX investments and adverse effects to the airport’s operations.
Santiago’s International Airport opened its new International Terminal, called Terminal 2, at the end of February 2022. One of the most challenging issues with the new terminal is that the check-in process considers a 50% reduction in assisted check-in counters, which obligates airlines to implement self-service models, where the success depends on the companies but is also associated with the government restrictions of the destination country. Additionally, Terminal 1 is currently undergoing remodeling to adapt its infrastructure into a national operations dedicated terminal. These works are scheduled to be completed by 2025.
Due to the previous airport concessions provided by the Chilean government in 2019, there are two airports currently undergoing construction in Chile: Iquique’s Diego Aracena International Airport and Arica’s Chacalluta International Airport, which are both undergoing terminal and platform expansions. These works are expected to be completed by 2023 and they imply a risk of adverse effects to the airports’ operations. In addition, there are three other new concessions in Chile planning to start terminal work during the years 2023 and 2024: Balmaceda Airport, La Florida International Airport and Presidente Carlos Ibáñez del Campo International Airport.
In Peru, one of the major operational risks that we currently face at the Jorge Chávez International Airport in Lima is the limitation of growth capacity on the airside (including with respect to runway and apron, as well as parking spaces), and challenges relating to the interior infrastructure of the airport, which has collapsed in most of its processes (AVSEC, boarding & migrations). Jorge Chávez International Airport in Lima is currently in the process of building a second runway in 2024 and a new terminal in early 2025. Any delay or limitation due to ongoing works could negatively affect our operations, limit our ability to grow and affect our competitiveness in the country and region.
Brazilian airports, such as the Brasilia and São Paulo (Guarulhos) International Airports, have limited the number of takeoff and landing 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 ability to maintain our existing slots and obtain additional slots, could materially adversely affect our operations.
In 2023, after two years of delay due to the COVID-19 pandemic, GRU Airport, concessionaire of Guarulhos Airport, will start the last phase of infrastructure expansion works, including the construction of a new fast exit on the main runway and a new taxiway. In addition, the construction of a new pier and the expansion of the apron are planned, which will operate until 2025 and will allow an increase in operations at the busiest airport in the country.
In 2022, continuing the state government airport concession program in Brazil (the “Concession Program”), 15 Airports in Brazil were granted concessions in 3 blocks, 8 of which are operated by LATAM, including Congonhas Airport, which is located in downtown São Paulo. The acceleration of the Concession Program makes possible important investments in infrastructure, but it implies a high volume of work to be undertaken simultaneously. Over the next 5 years, 29 of the 55 Airports operated by LATAM in Brazil will undergo infrastructure improvement works, which may generate temporary restrictions, especially in terms of paid cargo.
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
The group’s 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, and asparagus from Peru and exports of 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 transportare transported and may have a significant impact on ourthe results of operations. Future trade protection measures by or against the countries for which we provide cargo services may have an impact on cargo traffic volumes and adversely affect our financial results. Some of ourthe 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 23.0% of our operating expenses in 2016. Both the cost and availability of fuel are subject to many economic and political factors and events that we can neither control nor predict. We have entered into fuel hedging arrangements, but there can be no assurance that such arrangements will be adequate to protect us from an increase in fuel prices in the near future or in the long term. Also, while these hedging arrangements are designed to limit the effect of an increase in fuel prices, our hedging methods may also limit our ability to take advantage of any decrease in fuel prices, as was the case in 2015 and, to a lesser extent, in 2016. Although we have implemented measures to pass a portion of incremental fuel costs to our customers, our ability to lessen the impact of any increase in fuel costs using these types of mechanisms may be limited.
We rely on maintaining a high aircraft utilization rate to increase our revenues and absorb our fixed costs, which makes us especially vulnerable to delays.
A
Generally, a key element of our strategy is to maintain a high daily aircraft utilization rate, which measures the number of flight 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, catering and ground handling. If an aircraft fallsfall behind schedule, the resulting delays could cause a disruption in our operating performance.
We flyperformance and dependhave a financial impact on our results.
LATAM flies and depends upon Airbus and Boeing aircraft, and our business could suffer if we do not receive timely deliveries of aircraft, if aircraft from these companies becomesbecome unavailable or if the public negatively perceives our aircraft.
As our fleet has grown, our reliance on Airbus and Boeing has also grown.
As of December 31, 2016,2022, LATAM Airlines Group has a total fleet of 250237 Airbus and 8273 Boeing aircraft.aircraft (34 of these aircraft were classified as non-current assets available for sale). 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, aircraft delivery backlog 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; |
● | 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; or |
● | the delay, for any reason, to conclude cabin upgrade projects that could result in aircraft unavailability for a certain period of time. |
During 2022, Airbus and Boeing or for a third-party providerannounced delays in some of their models due to deliver this aircraft.
several reasons including supply chain problems and the rapid increase in demand due to the recovery of the airline industry. 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. For further information related to current contractual obligations, see “Item 5. Operating and Financial Review and Prospects-E. Contractual Obligations-Long Term Indebtedness.”
If we are unable to incorporate leased aircraft into ourthe fleet at acceptable rates and terms in the future, our business could be adversely affected.
A large portion of ourthe aircraft fleet is subject to long-term operating leases. Our operatingThe leases typically run from three to 12 years from the date of delivery.execution. 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 ourthe current operating leases or to lease additional capacity required for ourthe 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 ourthe fleet, our profitability could be adversely affected.
We face reputational risks related to the use of social media.
LATAM frequently uses social media platforms as marketing tools. These platforms provide LATAM, as well as individuals, with access to a broad audience of consumers and other interested persons. Negative commentary regarding LATAM or the products it sells may be posted on social media platforms and similar devices at any time and may be adverse to LATAM’s reputation or business. Further, as laws, regulations, and different platforms’ terms of service rapidly evolve to govern the use of social media, the failure by LATAM, its employees or third parties acting at LATAM’s direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact the LATAM’s business, financial condition, and results of operations or subject it to fines or other penalties.
We have substantial liquidity needs and continue to pursue various financing options. 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. Following the combination of LAN and TAM, Fitch Ratings Inc. and Standard and Poor’s downgraded LATAM Airlines Group S.A.’s credit rating to levels that are below investment grade. Any further securities rating agencies downgrades could increase our financing costs. Higher financing costs could affect our ability to expand or renew our fleet, which in turn could adversely affect our business.
In addition, the majoritya substantial portion of our property and equipment is subject to liens securing our indebtedness.indebtedness, including our secured bonds and loans. In the event that we fail to make payments on secured indebtedness,our bonds and loans, 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. For further information, related to current contractual obligations, see “Item 5. Operating and Financial Review and Prospects-E. Contractual Obligations-Long Term Indebtedness.”
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 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, reductionreductions in our credit rating or in that of our credit rating,issuances, and other potential market disruptions.
Upon exiting Chapter 11, we restructured our debt decreasing it by approximately 35% as of emergence to a total gross debt of approximately US$6.8 billion, and improved our liquidity conditions, comprised of cash and cash equivalents of approximately US$1.1 billion and revolving facilities fully undrawn in the amount of US$1.1 billion. For further information related to our debt restructuring, see “Item 4B. Chapter 11 Proceedings through 2022.”
We have significant exposure to LIBORSOFR and other floating interest rates; increases in interest rates will increase our financing costscost and may have adverse effects on our financial condition and results of operations.
We are exposed
On July 27, 2017, the head of the United Kingdom Financial Conduct Authority (“FCA”) (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021 the FCA announced in a public statement that LIBOR for certain tenors would cease to be published on June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (ARRC), a group of private-market participants, to help ensure a successful transition from U.S. dollar (USD) LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate (SOFR). Although the adoption of SOFR is voluntary, the impending discontinuation of LIBOR makes it essential that market participants consider moving to alternative rates such as SOFR and that they have appropriate fallback language in existing contracts referencing LIBOR. In this regard, our derivative and debt contracts may be affected by the change in the relevant rate.
Because the publication of LIBOR will cease for June 2023, we have migrated to the riskadoption of interest rate variations, principally in relation to the U.S. dollar London Interbank Offer Rate (“LIBOR”). ManySOFR as an alternative rate. The impact of such a transition away from LIBOR could be significant for us because of our operatingsubstantial indebtedness. SOFR will fluctuate with changing market conditions and, financial leases are denominated in U.S. dollars and bearas SOFR increases, our interest at a floating rate. 36.9% of our outstanding consolidated debt as of December 31, 2016 bears interest at a floating rate after giving effect to interest rate hedging agreements. Volatility in LIBOR or other reference ratesexpense will mechanically increase, which 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. In addition, there is no guarantee that SOFR or other replacement rates for LIBOR will maintain market acceptance. See also the discussion of interest rate risk in “Item 11. Quantitative and Qualitative Disclosures About Market Risks-Risk of Fluctuations in Interest Rates.”
Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results of operations.
Major
Significant events affecting the aviation insurance industry (such as terrorist attacks, hijackingsairline crashes or airline crashes)accidents and health epidemics and the related widespread government-imposed travel restrictions) may result in significant increases of airlines’ insurance premiums and/or in significantrelevant decreases of insurance coverage, as occurred after the September 11, 2001 terrorist attacks. Increasescoverage. Further increases in insurance costs and/or significant reductions in available insurance coverage could harmhave a material impact on our financial conditionresults, change the insurance strategy, and results of operations and increasesalso increase the risk that we experienceof 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
The operations, including ourthe ability to deliver customer service, are dependent on the effective operation of ourthe equipment, including our aircraft, maintenance systems and reservation systems. OurThe 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.the group operates. 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 in unscheduled maintenance requirements, in customer avoidance or in actions by the aviation authorities resulting in an inability to operate our aircraft. During the year 2022, LATAM Airline Group’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 Canada, MTU Maintenance, Rolls-Royce, General Electric Commercial Aviation Services Ltd., General Electric Celma, General Electric Engines Service, CMF International and Honeywell, among others.
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 in 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, performance of business processes, including purchasing and cash management, 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 service performance commitments, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and/or travel agencies via third-party GDSs (Global Distribution Systems) may be adversely affected by disruptions in our business relationships with GDS operators.operators or by issues in the GDS’s operations. 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 ourthe operations, compromise passenger or employee information, and expose us to liability, possibly causing our business and reputation to suffer.
A serious internal technology error, failure, or failurecybersecurity incident impacting systems hosted internally at our data centers, or externally at third-party locations or cloud providers, or large-scale interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network with potential impactonimpact on our operations. 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, hackerscyber-attacks, security breaches in the supply chain (suppliers) and other security issues. While we have in place,These systems include our computerized airline reservation system, flight operations system, telecommunications systems, website, customer, self-service applications (“apps”), maintenance systems, check-in kiosks, in-flight entertainment systems and continue to invest in, technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly so as to prevent a business disruption and its adverse financial and reputational consequences to our business.data centers.
In addition, as a part of our ordinary business operations, we collect and store sensitive data, including personal information of our passengerscustomers 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, deception, or deception.cybersecurity incidents. 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.
Rapid technological advancements and digitalization could generate risks in implementation and regulatory control.
Globally, there have been large advances in processes of digitization and technological innovation, some of them as a result of the COVID-19 pandemic. These new technologies could generate new risks in their implementation that could impact us directly or indirectly. As an example, at the beginning of 2022, the implementation of 5G in the United States had a temporary impact on operations at certain airports and generated a review by the FAA on the specific requirements for its implementation. All processes of digitization and technological innovation may be exposed to this risk.
Similarly, the rapidly increasing technological transformation may advance faster than the review and control capacity of the authorities and the knowledge about the effects of their possible impacts, which could affect us directly or indirectly in ways we cannot foresee.
Increases in our labor costs, which constitute a substantial portion of our total operating expenses, could directly impact our earnings.
Labor costs constitute a significant percentage of our total operating expenses (21.8%cost of sales (12% in 2016)2022) 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.
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 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 employees who are represented by any of these unions could have an adverse impact on 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 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.
In November 2022, a union representing the majority of our pilots in Chile voted to begin a strike, initiating a mediation process mandated by Chilean law. On November 9, 2022, we announced that we had reached an agreement averting a strike. There is no guarantee, however, that we will be able to reach a mutually beneficial agreement in the event of future disagreements with our employees.
Our business may experience adverse consequences if we are unable to reach satisfactory collective bargaining agreements with our unionized employees.
As of December 31, 2016,2022, approximately 72.9%49% of ourthe 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. OurThe 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 usthe group from competing effectively with other airlines.
Collective action by For further information regarding the unions representing employees could cause operating disruptionsin each country in which the group operates and adversely impact our business.
Certain employee groups such as pilots, flight attendants, mechanicswith which there are established collective bargaining agreements, see “Item 6. Directors, Senior Management 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.Employees-D. Employees-Labor Relations.”
We
LATAM may experience difficulty finding, training and retaining employees.
Our
The business is labor intensive. We employThe group employs 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.technicians, which has somewhat intensified during the recovery phase of air traffic following the peak of the pandemic. Such shortage of qualified personnel is further exacerbated by our recent emergence from bankruptcy and the resulting uncertainties facing the business. In addition, as is common with most of our competitors, wethe group 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. ALATAM cannot assure that it will be able to recruit, train and retain the managers, pilots, technicians and other qualified employees that are needed to continue the 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 ourthe business, financial condition, and results of operations. The group may also experience increased levels of employee attrition associated with the recent emergence from Chapter 11 proceedings. A loss of key personnel or material erosion of employee morale could impair the ability to execute strategy and implement operational initiatives, thereby adversely affecting the group.
Risks RelatedRelating to the Airline Industry and the Countries in Which We Operatethe Group Operates
Our performance is heavily dependent on economic conditions in the countries in which we dothe group does business. Negative economic conditions in those countries could adversely impact ourthe group’s 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, recessionrecessions in Brazil and Argentina, and poor economic performance in certain emerging market countries in which we operate.the group operates. The occurrence of similar events in the future could adversely affect our business. We planThe group plans to continue to expand our operations based in Latin America, and ourwhich means that performance will therefore, continue to depend heavily on economic conditions in the region.
Any of the following factors could adversely affect ourthe business, financial condition and results of operations in the countries in which we operate:
the group operates:
● | changes in economic |
● | changes in regulatory, legal or administrative practices; |
● | weak economic performance, including, but not limited to, a slowdown in the Brazilian economy, 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 wethe group may take in response to weakened demand will be adequate to offset any future reduction in our cargo and/or air travel demand in Brazil or in other markets in which we operate.the group operates. Sustained weakenedweak demand may adversely impact our revenues, results of operations or financial condition.
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 the cargo business, and could also impact the ability to set 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.
Airlines
The group must pay fees to airport operators for the use of their facilities. Any substantial increase in airport facilities.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 increased substantially in recent years. We cannot assure you that the airports in which we operatethe group operates will not increase or maintain high passenger taxes and service charges in the future. Any substantial increase in airport chargessuch 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 takeoff and landing slot restrictions during certain periods of the day and limits on aircraft noise levels. We cannot be certain that the group will be able to obtain a materialsufficient number of slots, gates and other facilities at airports to expand 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, the group may have to amend schedules, change routes or reduce aircraft utilization. It is also possible that aviation authorities in the countries in which the group operates, change the rules for the assignment of takeoff and landing slots, as was the case with the São Paulo airport (Congonhas) where the slots previously operated by Avianca Brazil were reassigned mostly to Azul, and where Agência Nacional de Aviação Civil in Brazil (“ANAC”) has approved new rules to the distribution of new slots. Any of these alternatives could have an adverse financial impact on 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 results of operations. In addition, anyability to continue to provide or to increase in passenger taxes could negatively impact demand for air travel and affect our results.services at such airports.
Our
The business is highly regulated and changes in the regulatory environment in which we operatethe different countries may adversely affect our business and results of operations.
Our business is highly regulated and depends substantially upon the regulatory environment in the countries in which we operatethe group operates or intendintends 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 common 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 the group operates, 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 has 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.
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 common 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 the group operates, 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. Certain bilateral agreements also include provisions that require substantial ownership or effective control. 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 ownership or effective control or 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; |
● | our insurance coverage will fully cover all of our liabilities; 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 operations or 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 onethat affected our Peruvian affiliate. On November 18, 2022, LATAM Airlines Peru reported that during the take-off of our alliance partners or other airlines.flight LA 2213 at Lima’s Jorge Chávez International Airport a fire engine entered the runway and collided with its aircraft. Authorities subsequently confirmed fatalities of two firefighters who were in the fire engine that struck the aircraft. There were no fatalities among the 102 passengers and 6 crew members. The investigation of the cause of the accident is still in progress. LATAM Airlines Peru is cooperating with the relevant investigations. The aircraft damage is covered by insurance. We are not yet able to make a final conclusion as to the financial impact of this incident.
High levels of competition in the airline industry, such as the increase of low-cost carriers and the consolidation or mergers of competitors in the markets in which the group operates, may adversely affect ourthe 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.the group operates. 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. For more information regarding our main competitors, see “Item 4. Information of the Company-B. Business Overview-Passenger Operations-International Passenger Operations” and “Item 4. Information of the Company-B. Business Overview-Passenger Operations-Business Model for Domestic Operations.”
Low-cost carriers have an important impact on the industry’s revenues given their low unit costs. Lower costs allow low-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 market, Sky Airline, 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, and in April 2019, another low-cost airline, Sky Airline Peru, started operations, followed by the entrance of JetSmart in June 2022. In Colombia, low-cost competitor VivaColombia has been operating in the domestic market since May 2012. Due to the impacts associated to the COVID-19 pandemic, some of these airlines have adopted strategies to consolidate in alliances or mergers with legacy airlines, such as Avianca and Gol (Abra Group), Avianca and Viva in Colombia, or JetSmart where American Airlines had been approved by authorities without any conditions to acquire minor participation. In the Cargo business, and also due to some effects of COVID-19 pandemic and the scarcity of containers, companies such as Maersk, CMA CGM and MSC have begun to compete in air transportation; CMA CGM and Air France-KLM airlines agreed to share cargo space in their airplanes; and American Airlines Cargo and Web Cargo have partnered to increase their destinations. These consolidations, mergers or new alliances might continue to appear, increasing the concentration and levels of competition. Specifically, in February 2023, LATAM expressed its interest in initiating negotiations to acquire VivaColombia. Any transaction is subject to a financial analysis, an agreement between the parties, and the corresponding regulatory approvals.
International strategic growth plans rely, in part, upon receipt of regulatory approvals of the countries in which we plan to expand our operations with joint business agreements (JBA). The group 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.
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 usthe group at a competitive disadvantage and adversely affect our operations and financial performance. For example, Aerolineas Argentinas has historically been government subsidized. Additionally, during the COVID-19 pandemic, some of our competitors on long-haul routes received government support.
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
Some of the countries where the group operates may not comply with international agreements previously established, which could increase the risk perception of doing business in that specific market and as a consequence impact the business and financial results.
Rulings by a bankruptcy court in Brazil and a Chapter 15 ruling by the Bankruptcy Court related to the bankruptcy proceedings of Avianca Brazil may appear to be inconsistent with the timeline set out for a debtor to cure a default or to return an aircraft in the Cape Town Convention (CTC) treaty that Brazil has signed, thus raising concerns about timings for remedies by creditors in respect of financings secured by aircraft. Accordingly, creditors may perceive that an increased business risk is created by these rulings for leasing or other financing transactions involving aircraft in Brazil and there is a possibility that rating agencies may issue lower credit ratings in respect of financings that are secured by aircraft in Brazil. As a result, business and financial results may be adversely affected if our financing activities in Brazil are impacted by such events.
LATAM’s 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
LATAM’s operations are coveredaffected 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 ourthe 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 ourthe group’s reputation.
In 2016, the ICAOInternational 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 aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). The CORSIA will be implemented in phases, starting with the participation of ICAO member states on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027). 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. ToIn order to comply with this strategy, we have developed sustainability strategies focused on climate change and we have taken different measures, such as the alliance with the Cataruben foundation in Colombia, with the objectives of offsetting CO2 through reducing deforestation and switching to sustainable agriculture practices, amongst others, thus contributing to improve the communities’ life quality and the protection of biodiversity. In addition, we have other initiatives in place such as the promotion of SAF (green fuel produced with vegetable bases and mixed with conventional fossil fuels) with local governments and the lean fuel program. Nevertheless, to the extent most of the countries in which we operatethe group operates continue to be ICAO member states, in the future we may be affected by regulations adopted pursuant to the CORSIA framework. In addition, frameworks such as the Emissions Trading System, both in the EU and UK (“EU-ETS” and “UK-ETS”), are regulations related to the European market, where airlines have a pre-established amount of CO2 emissions for each year, which are then reduced over time, similar to a “cap and trade” system. Airlines must report and verify emissions related to this scheme and surrender the allocated allowances in time in order to comply. Should operations exceed the maximum allocated emissions, airlines must either acquire more from the market or pay the corresponding fee to the authority.
The proliferation of national regulations and taxes on CO2 emissions in the countries that we have domestic operations, including recent enviromentalenvironmental regulations that the airline industry is facing in Colombia, where limits on offsetting programs were included in the new Tax Reform of 2022, may also affect our coststhe cost of operations and ourthe 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) and pandemics (such as the COVID-19 pandemic), terrorist attacks, war or political and social instability. Increasing geopolitical tensions and hostilities in connection with the conflict in Ukraine, and the trade and monetary sanctions that have been imposed in connection with those developments, have affected, and could significantly affect, worldwide oil prices and demand, cause turmoil in the global financial system and negatively impact air travel. Situations such as these in one or more of the markets in which we operate could have a material impact on ourthe business, financial condition and results of operations. Furthermore, these types of situationsthe COVID-19 pandemic and its variants and other adverse public health developments could have a prolonged effect on air transportation demand and on certain cost items.any prolonged or widespread effects could significantly impact operations.
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 the business, financial condition and results of operations.
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 or natural disasters outside of our control, some or all of our flights may be cancelledcanceled or significantly delayed, affecting and disrupting our operations and reducing profitability. For example, in 2011, a volcanic eruption in Chile had a prolonged adverse effect on air travel, halting flights in Argentina, Chile, Uruguay and the southern part of Brazil for several days. As a result, our revenues.operations to and from these regions were temporarily disrupted, including certain aircraft being grounded in the affected regions. In 2012, an incident with an aircraft from a cargo airline caused the closing of a runway at Viracopos airport for 45 hours, which negatively impacted our operations and forced us to re-accommodate our passengers to new flights. In 2022, a LATAM aircraft was severely damaged after flying through stormy weather on approach to Asuncion Airport in Paraguay, having to make an emergency landing. Increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons, floods or other severe weather events, including from changes in the global climate and rising global temperatures, could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could result in loss of revenue and higher costs. 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, byoil-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
Our business may be adversely affected by the consequences of climate change.
There are regulatory risks associated with the management of climate change in the short and medium term, due to the fact that, in an effort of different countries to contribute to the fight against climate change, there is a tendency to impose economic instruments such as carbon taxes or emissions trading systems that seek to regulate emissions from different industries, including the aviation industry. These mechanisms seek to discourage the consumption of fossil fuels, through imposing an additional cost. However, in the case of the airline industry, especially in the South American region, there is no viable substitute fuel that would allow the industry to migrate to other types of fuels. The related risks present an opportunity to work hand in hand with the relevant governments to implement public policies allowing for progress in the production of sustainable aviation fuels in the region, thus promoting the migration away from fossil fuels and creating policies and instruments relevant to industries such as aviation, which currently has no substitute fuel available in South America. In the long term, there are physical risks associated with climate change, including the risk for greater intensity of meteorological phenomena, such as storms, tornados, hurricanes, floods and others, which in turn may pose a risk to infrastructure (destinations, airports) and communities. As a consequence, it may be necessary to modify routes and destinations.
An accumulation of ticket refunds could have an adverse effect on our financial results.
The COVID-19 pandemic and the corresponding widespread government-imposed travel restrictions that were outside of LATAM’s control resulted in an unprecedented number of requests for ticket refunds from customers due to changed or canceled flights. Although at this time the issue has been managed, we cannot assure that the COVID-19 pandemic or other outbreak of contagious illness will not result in additional changed or canceled flights, and we cannot predict the total amount of refunds that customers might request as a result thereof. If the group is required to pay out a substantial amount of ticket refunds in cash, this could have an adverse effect on our financial results or liquidity position. Furthermore, the Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require cash or other collateral reserves to be established or withholding of payments related to receivables to be collected, including if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments. Refunds lower our liquidity and put us at risk of triggering liquidity covenants in these processing agreements and, in doing so, could force us to post cash collateral with the credit card companies for advance ticket sales.
LATAM is subject to risks relatedrelating to litigation and administrative proceedings that could adversely affect ourthe business and financial performance in the event of an unfavorable ruling.
The nature of ourthe 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 accounting provisions as we deem necessary, the amounts that we reserve could vary significantly from any amounts we actually have to pay due to the inherent uncertainties in the estimation process. We cannot assure you that these or other legal proceedings will not materially affect the business. For further information, see “Item 8. Financial Information-Legal and Arbitration Proceedings” and Note 30 to our business.audited consolidated financial statements included in this report.
We are
The group is subject to anti-corruption, anti-bribery, anti-money laundering and antitrust laws and regulations in Chile, Brazil, Peru, the United States and in the various other countries we operate.in which it operates. 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 Chile, Brazil, the United States and certain otherall jurisdictions where we operate.the group operates. 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 anti-corruption laws or sanctions regulations could have a material adverse effect on ourthe business, reputation, results of operations and financial condition.
The Brazilian government hasLatin American governments have exercised and may continue to exercise significant influence over their economies.
Governments in Latin America frequently intervene in the Brazilian economy, which mayeconomies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions have an adverse impactoften involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on ourwages and employee benefits, capital controls and limits on imports. Our business, financial condition and results of operations.
The Brazilian economy has been characterizedoperations may be adversely affected by the significant involvementchanges in government policies or regulations, including such factors as exchange rates and exchange control policies, inflation control policies, price control policies, consumer protection policies, import duties and restrictions, liquidity of the Brazilian government, which often changes monetary, credit, fiscaldomestic capital and lending markets, electricity rationing, tax policies, including tax increases and retroactive tax claims, and other policies to influence Brazil’s economy. Thepolitical, diplomatic, social and economic developments in or affecting the countries where the group operates.
For example, 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. In the future, the level of intervention by Latin American governments may continue or increase. We cannot assure that these or other measures will not have no control over,a material adverse effect on the economy of each respective country and, consequently, will not adversely affect our business, financial condition and results of operations.
Political instability and social unrest in Latin America may adversely affect the business.
LATAM operates primarily within Latin America and is thus subject to a full range of risks associated with our operations in this region. These risks may include unstable political or social 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.
Although political and social conditions in one country may differ significantly from another country, events in any of our key markets could adversely affect the business, financial conditions or results of operations.
For example, in Brazil, in the last couple of years, as a result of the ongoing Lava Jato investigation (“Operation Car Wash”), a number of senior politicians have resigned or been arrested and other senior elected officials and public officials are being investigated for allegations of corruption. One of the most significant events that elapsed from this operation was the impeachment of the former President Rousseff by the Brazilian Senate on August, 2016, for violations of fiscal responsibility laws and the governing of its Vice-President, Michel Temer, during the last two years of the presidential mandate, which, due to the development of the investigations conducted by the Federal Police Department and the General Federal Prosecutor’s Office, indicted President Temer on corruption charges. Along with the political and economic uncertainty period the country was facing, in July 2017, former and recently re-elected President Luiz Inácio Lula da Silva was convicted of corruption and money laundering by a lower federal court in the State of Paraná in connection with Operation Car Wash. Operation Car Wash is still in progress by Brazilian authorities and additional relevant information may come to light affecting the Brazilian economy.
Furthermore, former President Jair Bolsonaro is being investigated by the Brazilian Supreme Court for alleged misconduct. Several impeachment procedures have been filed in relation to the management of the response to the COVID-19 pandemic by the president.
In addition, after having his criminal convictions related to Operation Car Wash overturned and his political rights restored by the Brazilian Supreme Court, former President Luiz Inácio Lula da Silva ran for office in the presidential election of October 2022 and narrowly defeated President Bolsonaro. Former President Bolsonaro questioned the results of the elections, resulting in demonstrations across the country. Luiz Inácio Lula da Silva was sworn in as president in January 2023. We cannot predict what measureswhich policies the incoming president Luiz Inácio Lula da Silva may adopt or change during his term in office, or the effect that any such policies might have on our business and on the Brazilian economy.
In Peru, on December 7, 2022, President Pedro Castillo announced the dissolution of the congress and called for new elections as soon as possible, provoking an attempted coup d’état. Subsequently, he was removed from office and arrested. On the same day, Vice President Dina Boluarte assumed the presidency of Peru, to serve the remaining presidential term until 2026. However, on December 11, 2022, President Boluarte announced she would introduce a bill to move the general elections up to April 2024, which proposal is under discussion and may be subject to change. Since then, there has been considerable political unrest in Peru, and demonstrations related to the political situation have led to multiple clashes between protestors and security forces, resulting in casualties and deaths. The political unrest has also given rise to many roadblocks across the country. In addition, some smaller airports such as Andahuaylas, Cusco, Juliaca and Arequipa across Peru have seen their operations interrupted.
On December 14, 2022, the Peruvian government declared a national state of emergency for 30 days. No assurance can be given as to how long the unrest and blockades will continue. The effect of any such disruption or interference cannot accurately be predicted and could have a significant adverse effect on our business, financial conditions or results of operations.
In October 2019, Chile saw significant protests associated with economic conditions resulting in the declaration of a state of emergency in several major cities. The protests in Chile began over criticisms about social inequality, lack of quality education, weak pensions, increasing prices and low minimum wage. If social unrest in Chile were to continue or intensify, it could lead to operational delays or adversely impact our ability to operate in Chile.
Furthermore, current initiatives to address the concerns of the protesters are under discussion in the Chilean Congress. These initiatives include labor reforms, tax reforms and pension reforms, among others. On October 25, 2020 (postponed from April 26, 2020 due to the impact of the COVID-19 pandemic), Chile widely approved a referendum to redraft the constitution via constitutional convention. The election for selecting the 155-member constitutional convention took place on May 15 and 16, 2021. On July 4, 2021, the constitutional convention was installed, having 9 months, with the possibility of a one-time, three-month extension, to present a new constitution. The proposed constitution was finalized on July 4, 2022. On September 4, 2022, a referendum was held, in which the proposed constitution was rejected by a margin of 62% to 38% of voters. On December 12, 2022, Chilean lawmakers announced that they had agreed to a document entitled “Acuerdo por Chile” (Agreement for Chile). This document constitutes a new consensus and a starting point to begin drafting a new constitution. On December 26, 2022, the Constitutional Commission of the Senate started working on this document. In addition, Chile held presidential elections in December 2021, with leftist Gabriel Boric winning by a wide margin. Mr. Boric was sworn in as president in March 2022. There can be no assurance that the recent changes in the Chilean administration, its constitution or any future civil unrest will not adversely affect our business, operating results and financial condition in Chile.
Presidential elections were held in Colombia in 2022, and Gustavo Petro was narrowly elected president in Colombia, becoming the country’s first elected leftist president. Such elections recorded the lowest abstention percentages ever in Colombia. On August 7, 2022, Gustavo Petro was sworn in as the new president of Colombia.
In Ecuador, during June of 2022, people took to the streets of Guayaquil. There was a mixture of claims ranging from high prices, lack of medicines, insecurity and even voices calling for the resignation of the current president, Guillermo Lasso.
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.
Latin American countries have experienced periods of adverse macroeconomic conditions.
The business is dependent upon economic conditions prevalent in Latin America. Latin American countries have historically experienced economic instability, including uneven periods of economic growth as well as significant downturns. High interest, inflation (in some cases substantial and prolonged), and unemployment rates generally characterize each economy. Because commodities such as agricultural products, minerals, and metals represent a significant percentage of exports of many Latin American countries, the economies of those countries are particularly sensitive to fluctuations in commodity prices. Investments in the region may also be subject to currency risks, such as restrictions on the flow of money in and out of the country, extreme volatility relative to the U.S. dollar, and devaluation.
For example, in the past, Peru has experienced periods of severe economic recession, currency devaluation, high inflation, and political instability, which have led to adverse economic consequences. LATAM cannot ensure 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. LATAM cannot ensure 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. In Brazil, the Brazil Real gross domestic product increased 1.2% in 2019, decreased 3.9% in 2020, and increased 4.6% in 2021, according to the Brazilian government may takeInstitute for Geography and Statistics (Instituto Brasileiro de Geografia e Estadística, or “IGBE”). In addition, the credit rating of Perú was downgraded in 2021 and in 2022 is rated as BBB with a negative outlook. Ecuador and Chile were also downgraded in 2020, and Colombia in 2021, but keep a stable outlook. Brazil has a stable outlook but in monitoring due to recent events and protests related to the transition of government.
Accordingly, any changes in the future.economies of the Latin American countries in which LATAM and its affiliates operate or the governments’ economic policies may have a negative effect on the business, financial condition and results of operations.
Risks RelatedRelating to our Common Shares and ADSs
Holders of ADRs may be adversely affected by the substantial dilution of the shares represented by ADRs.
On June 18, 2022, the United States Bankruptcy Court for the Southern District of New York entered an order confirming the joint plan of reorganization (as amended, restated, modified, revised or supplemented from time to time, the “Plan”) filed by the Reorganized Debtors and dated as of May 25, 2022 [ECF No. 5753]. Pursuant to the Plan, on September 13, 2022, the Reorganized Debtors commenced the preemptive rights offerings for the New Convertible Notes Class A, New Convertible Notes Class B, New Convertible Notes Class C (collectively, “New Convertible Notes”) and ERO New Common Stock (each as defined in the Plan), which offerings concluded on October 12, 2022. On November 3, 2022, the Plan became effective pursuant to its terms and we emerged from bankruptcy. In connection with our emergence and the conversion of the New Convertible Notes into shares of the Company, the equity interests of existing shareholders were substantially diluted. The shares represented by ADRs currently amount to a small portion of our capital. The market prices of the shares represented by ADRs may be adversely affected by such dilution and may experience significant fluctuation and volatility.
Our major shareholders may have interests that differ from those of our other shareholders.
One
As of February 28, 2023, Sixth Street Partners beneficially owned 27.9% of our major shareholder groups,common shares; Strategic Value Partners beneficially owned 16.0% of our common shares, Delta Air Lines owned 10.0% of our common shares; Qatar Airways Investments (UK) Ltd. owned 10.0% of our common shares (9.999999992% over LATAM’s statutory capital), Sculptor Capital beneficially owned 6.5% of our common shares; and the Cueto Group (the “LATAM Controlling Shareholders”“Cueto Group”),which as of February 28, 2017, beneficially owned 28.27%5.0% 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 Shareholdersshares. These shareholders could have entered into a shareholders agreement with the Amaro Group, which as of January 31, 2017, held a 3.02% of LATAM shares through TEP Chile, in addition to the indirect stake they have through the 21.88% interest they hold 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 proposal made by our board of directors. Decisions by the Companyinterests 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 January 31, 2017, held 10.03%1 of our outstanding 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. See “Item 7. ControllingMajor Shareholders and Related Party Transactions—A.Transactions-A. Major Shareholders.”
Under the terms of the deposit agreement governing the ADSs, if holders of ADSs do not provide JP Morgan Chase Bank, N.A., in its capacity as depositary for the ADSs, with timely instructions on the voting of the common shares 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 controllingmajor shareholders, which may differ from those of our other shareholders. Historically, our board of directors has designated its chairman currently Mauricio Amaro,to exercise this right, which is however no guarantee that it will do so in the future. The members of the board of directors elected by the shareholders in 2022 designated Mr. 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.
As a result of our Chapter 11 proceedings, on June 10, 2020, the NYSE notified the SEC of its intention to remove the ADSs from listing and registration on the NYSE, effective at the opening of business on June 22, 2020. As of the date of this annual report, the ADSs are traded in the over-the-counter market, which is a less liquid market, and our ADR program, with JP Morgan Chase Bank, N.A. as depositary, is not open for issuances. There is no defined timeline for re-opening the ADR program or for returning to the U.S. public markets. In addition, there can be no assurance that the ADSs will continue to trade in the over-the-counter market or that any public market for the ADSs will exist in the future, whether broker-dealers will continue to provide public quotes of the ADSs, whether the trading volume of the ADSs will be sufficient to provide for an efficient trading market, whether quotes for the ADSs may be blocked in the future or that we will be able to relist the ADSs on a securities exchange.
Our common shares are listed on the various Chilean stock exchanges.Santiago Stock Exchange. 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.ADSs, which could also result in price disparity between the trading prices of the two.
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 affectnon-Chilean residents that invest in our shares.
Equity investments in Chile bynon-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,imposed such exchange controls. Nevertheless, foreign investors acquiring securities instill have to provide the secondary market in ChileCentral Bank with information related to maintain a cash reserve or to pay a fee upon conversion of foreign currency to purchaseequity investments and must conduct such securities.operations within the formal exchange market. Furthermore, futureany changes in withholding taxes could negatively affectnon-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. For further information, see “Item 10. Additional Information—D.Information-D. Exchange Controls—ForeignControls-Foreign Investment and Exchange Controls in Chile.”
Our ADS holders may not be able to exercise preemptive rights in certain circumstances.
The Chilean Corporation Law provides
As described further in “Item 10. Additional Information-Preemptive Rights and Increases in Share Capital,” to the extent that a holder of our ADSs is unable to exercise its preemptive rights shall be grantedbecause a registration statement has not been filed, the depositary may attempt to all shareholders whenever a company issues new shares for cash, giving such holderssell the right to purchase a sufficient numberholder’s preemptive rights and distribute the net proceeds of shares to maintain their existing ownership percentage. We will not be able to offer shares to holdersthe sale, net of ADSsthe depositary’s fees and shareholders located in the United States pursuantexpenses, to the holder, provided that a secondary market for those rights exists and a premium can be recognized over the cost of the sale. A secondary market for the sale of preemptive rights grantedcan be expected to shareholdersdevelop if the subscription price of the shares of our common stock upon exercise of the rights is below the prevailing market price of the shares of our common stock. However, we cannot assure you that a secondary market in preemptive rights will develop in connection with any future issuance of shares unlessof our common stock or that if a registration statement undermarket develops, a premium can be recognized on their sale. Amounts received in exchange for the U.S. Securities Actsale or assignment of 1933, as amended, (the “Securities Act”), is effective with respectpreemptive rights relating to such rightsshares of our common stock will be taxable in Chile 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 StatesStates. See “Item 10. Additional Information-E. Taxation-Chilean Tax-Capital Gains.” As described further in “Item 10. Additional Information-B. Memorandum and Articles of Association-Preemptive Rights and Increases in Share Capital,” the inability of holders of ADSs to exercise preemptive rights in respect of common shares underlying their ADSs could result in a change in their percentage ownership of common shares following a preemptive rights offering. If a secondary market for the sale of preemptive rights does not develop and such rights cannot be sold, they will expire and a holder of our ADSs will not realize any value from the grant of the preemptive rights. In either case, the equity interest of a holder of our ADSs in us will be diluted proportionately. Pursuant to the Registration Rights Agreement, we have entered into with the Backstop Creditors and the Backstop Shareholders, we have reached an agreement to amend the terms of the deposit agreement governing our ADSs, to provide for (a) full flexibility (subject to applicable fees and procedures contained in the deposit agreement) to deposit and withdraw, at the election of the respective holders of ADS, any ordinary shares from time to time held by the backstop parties or their transferees into or out of the ADS program; (b) participation in dividends and distributions subject to the procedures of the depositary as wellset forth in the deposit agreement and subject to compliance with applicable law (including, without limitation, Chilean law); (c) participation in voting at the instruction of the respective holders of ADS, subject to the procedures of the depositary as any other factors that may be considered appropriate at that time,set forth in the deposit agreement and we will then make a decision assubject to whether we will file a registration statement. We cannot assure you that we will decidecompliance with applicable law (including, without limitation, Chilean law); and (d) participation in preemptive rights offerings in the form of additional ADS subject to file a registration statement orcompliance with applicable law (including, without limitation, Chilean law) and the procedures of the Depositary set forth in the deposit agreement; provided that such rights will be availableofferings are for ordinary shares constituting at least two percent (2%) of the outstanding ordinary shares (excluding any Ordinary Shares subject to ADS holders and shareholders located in the United States.lock-up).
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.
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 “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. For further information, see “Item 16. G. Corporate Governance.”
ITEM 4 INFORMATION ON |
A. HISTORY AND DEVELOPMENT OF THE COMPANY
A. | History and Development of the Company |
General
LATAM Airlines Group S.A. is a Chilean-based airline and holding company formed by thethat changed its name from LAN Airlines S.A. after its combination of LAN of Chile andwith TAM of Brazil in 2012. Following the combination, LAN AirlinesTAM S.A. became “LATAM Airlines Group S.A.” and TAM continues to exist as a subsidiary of LATAM. The Company is primarily involved in the transportation of passengers and cargo and operates as one unified business enterprise. During 2016, we began the transition of unifying LAN and TAM into a single brand: LATAM.
LATAM’s airline holdings include LATAM and its affiliates in Chile, Peru, Argentina, Colombia and Ecuador, and LATAM Cargo and its affiliates MasAir (in Mexico) andaffiliate LANCO (in Colombia), as well as TAM S.A. and its affiliates TAM Linhas Aereas S.A (LATAMLATAM Airlines Brazil), TAM Transportes Aereos del MercosurBrazil, LATAM Airlines Paraguay, ABSA and Multiplus S.A., (LATAM (“Multiplus”). LATAM Airlines Paraguay), LATAM Cargo and Multiplus. LATAMGroup is a publicly traded corporation listed inon the Santiago Stock Exchange (“SSE”), the Valparaiso Stock Exchange, the Chilean Electronic Exchange, and its ADSs currently trade in the New York Stock Exchange (“NYSE”).over-the-counter market. LATAM Airlines Group has a market capitalization of US$ 4,565 million as of February 28, 2023.
LAN was founded in
LATAM’s history goes back to 1929, bywhen the Chilean government.government founded LAN. In 1989, the Chilean government sold 51.0% of LAN’s capital stock to Chilean investors and to the Scandinavian Airlines System. In 1994, the Cueto Group, one of LATAM’s current controlling shareholders, together with other major shareholders, acquired 98.7% of LAN’s stock, including the remaining shares then held by the Chilean government. In 1997, LAN became the first Latin American airline to list its shares (which trade in the form of ADRs)ADSs) on the New York Stock Exchange.
Over the past decade, the LATAM group has significantly expanded its passenger operations in Latin America, initiating services in Peru in 1999, Ecuador in 2003, Argentina in 2005, Ecuador in 2009, and in Colombia in 2010 through2010. Moreover, since June 2012 the acquisition of Aerovias de Integracion Regional, AiresBrazilian affiliate, TAM Linhas Aéreas S.A. (dba “LAN Colombia”(“TLA” or “LATAM Airlines Brazil”), and the combination with TAM in 2012.
LATAM Airlines Brazil is one of thehas been a leading domestic and international airlines in the Brazilian market,airline offering flights throughout Brazil with a strong domestic market share, international passenger services and significant cargo operations. The company was founded in 1997 (under
As a result of the name CIT—Companhia de Investimentos em Transportes), for the purpose of participating in, managingCOVID-19 pandemic and consolidating shareholdings in airlines. In 2002, its name was changed to TAMprofound impact on worldwide travel and our operations, on May 26, 2020, LATAM Airlines Group S.A. and 28 affiliates filed their petitions for relief under Chapter 11 of the Bankruptcy Code, with the Bankruptcy Court. On July 7, 2020 and July 9, 2020 nine additional affiliates of LATAM Airlines Group S.A. filed their petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. Additional parallel and ancillary proceedings were filed in the Cayman Islands, Colombia, Perú and Chile. In June 2020, LATAM Airlines Argentina announced its shares were listedindefinite cessation of passenger and cargo operations.
Throughout the Chapter 11 proceedings, the Reorganized Debtors worked on Bovespa in June 2005. From 2006 untildifferent fronts, among other things, right-sizing our fleet and executing our fleet strategy, reducing our total headcount, reviewing claims filed against the combinationReorganized Debtors and refining the total claims pool, and streamlining the Reorganized Debtors’ prepetition agreements by rejecting executory contracts and leases and negotiating favorable post-petition and post-emergence agreements with LAN in 2012, TAM American Depositary Shares werekey vendors across our business. The Reorganized Debtors also listedworked steadily to develop a long-term business plan, obtaining new sources of financing to support their exit financing as part of their emergence from Chapter 11 and building a new capital structure according to the terms of their plan of reorganization.
Following a series of relevant milestones with respect to LATAM’s Chapter 11 proceedings, the Company emerged from its reorganization process on November 3, 2022 (the “Effective Date”). For more information on the New York Stock Exchange.Chapter 11 proceedings see “Item 3. Key Information-D. Risk Factors-Risks Relating to Our Emergence from Chapter 11 Bankruptcy Proceedings” and “Item 4. Information on the Company - B. Business Overview - Chapter 11 Proceedings through 2022.” As of the Effective Date, the Plan was substantially consummated and became binding on all parties in interest. Pursuant to the Plan, the Company received an infusion of approximately US$ 8.19 billion through a mix of new equity, convertible notes, and debt, which enabled the Company to exit Chapter 11 with appropriate capitalization to effectuate its business plan. Upon emergence, the Company had total debt of approximately US$ 6.8 billion, cash and cash equivalents of approximately US$1.1 billion and revolving facilities fully undrawn in the amount of US$1.1 billion.
Our principal executive offices are located at Presidente Riesco 5711, 20th floor, Las Condes, Santiago, Chile and our general telephone number at this location is(56-2) 2565-2525. 2565-3844. We have designated LATAM Airlines Group as our agent in the United States, located at 970 South Dixie Highway,6500 NW 22nd Street, Miami, Florida 33156.33122. Our Investor Relations website address is www.latamairlinesgroup.net. Information obtained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of this annual report. For more information, contact Gisela Escobar,Andrés del Valle, Senior Vice President of Corporate ControllerFinance and Investor Relations, at InvestorRelations@latam.com.
Combination of LAN
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and TAM
On June 22, 2012, LAN and TAM successfully completed an exchange offer resulting inother information regarding issuers that file electronically with the combination of the two businesses and the creation of LATAM Airlines Group.SEC.
Following the combination, on July 18, 2012, the registration of TAM as a publicly listed company in Brazil was cancelled and TAM was delisted from Bovespa.
In order to implement this combination, the Amaro Group controlling shareholders formed four newsociedades anónimas cerradas with limited liability under the laws of Chile: TEP Chile, Holdco I, Holdco II and Sister Holdco. After the transaction was completed, Holdco II and Sister Holdco ceased to exist. The beneficial ownership and organizational structure of LATAM Airlines Group as of January 31, 2017 was as follows:
Capital Expenditures
For a description of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B.Prospects-B. Liquidity and Capital Resources—CapitalResources-Capital Expenditures.”
B. BUSINESS OVERVIEW
B. | Business Overview |
General
LATAM Airlines Group is the largest passenger and cargo airline group in South America.America as measured by ASKs for the year ended December 31, 2022. We are also one of the largest airline groups in the world in terms of network connections, as of December 31, 2022, providing passenger transport services to approximately 135144 destinations in 2422 countries and cargo services to approximately 139154 destinations in 2925 countries, with aan operating fleet of 332310 aircraft and a set of bilateral
alliances. In total, LATAM Airlines Group has near to 46,000approximately 32,500 employees.
For the year 2022, LATAM transported approximately 62 million passengers. LATAM Airlines Group and its affiliates currently provide domestic services in Brazil, Chile, Perú, Argentina,Peru, Colombia and Ecuador; weand also provide intra-regional and long-haul operations. The cargo affiliate carriers of LATAM in Chile, Brazil, Colombia and MexicoColombia carry out cargo operations through the use of belly spacesspace on the passenger flights and dedicated cargo operations using freightfreighter aircraft. WeThe group also offeroffers other services, such as ground handling, courier, logistics and maintenance.
As of December 31, 2016, we2022, the group provided scheduled passenger service to 1617 destinations in Chile, 19 destinations in Peru, 8 destinations in Ecuador, 17 destinations in Peru, five destinations in Ecuador, 15 destinations in Argentina, 14 destinations in Colombia, 4154 destinations in Brazil, 1214 destinations in other Latin American countries and the Caribbean, five5 destinations in North America, six8 destinations in Europe, threeand 2 destinations in Oceania, an increase from last year as the South PacificCOVID-19 restrictions both within the region and one destination in Africa. the international markets where we operate continued to ease during the year, accompanied by strong levels of demand for air travel.
In addition, as of December 31, 2016,2022, through our various code-sharing and interline agreements, we offerthe group offers service to 84105 destinations in North America, 4632 destinations in South America, 86 destinations in Europe, 2217 destinations in Australasia, 938 destinations in Asia and 411 destinations in Africa.
Competitive Strengths
Our strategy is to maintain LATAM Airlines Group’s position as the leading airline group in South America by leveraging our unique position in the airline industry. LATAM Airlines Group is the only airline group in the region with a localdomestic presence in sixfive markets, as well as intra-regional and long-haul operations.operations to three continents. As a result, the CompanyLATAM group has moregeographical diversity and operational flexibility, as well as a proven track record of acting quickly to adapt ourits business to economic challenges. Moreover, LATAM’s unique leadership positionnetwork and market share in a region with growth potential and the focus inon our existing competitive strengths, will allow us to continue building our business model and to fuel our future growth. We believe our most important competitive strengths are:
Leader in the South America Airlines space, with a Unique Leadership Position among Global Airlines
● | Leader in the South America Airlines Space, with a Unique Network and Market Share among Global Airlines |
Through a successful regional expansion strategy, LATAM Airlines Group has become the leading international and domestic passenger airline group in South America as well as the largest cargo operatormeasured by ASKs in Latin America.2022 full year. LATAM and its affiliates have domestic passenger operations in Chile, Brazil, Peru, Argentina, Colombia and Ecuador. These six countries are among the most significant passenger markets in South America and represent approximately 96% of the domestic ASKs in the region. We are also the largest operatorgroup of operators of intra-regional routes as measured by ASKs in 2022, connecting the main cities and also some secondary cities in South America. Furthermore, through our significant presence in the largest hubs in South America—America-Santiago, Lima and São Paulo—Paulo-we believe that we are able to offer the best connectivity options between South America and the rest of the world. In addition, our cargo companies are the largest air cargo operators within, to and from Latin America, and particularly in Brazil.
Geographically Diversified Revenue Base, including both Passenger and Cargo Operations
The operations of
● | Geographically Diversified Revenue Base, including both Passenger and Cargo Operations |
LATAM Airlines Groupgroup’s operations are highly geographically diversified, including domestic operations in six differentfive countries, as well as operations within South America and connecting South America with various international destinations. As measured by ASKs, 43.5% of the group’s operations are international, 20.5% domestic Spanish speaking countries and 35.9% domestic Brazil. We believe this provides resilience to external shocks that may occur in any particular market. Furthermore, we believe that one of our distinct competitive advantages is ourthe ability to profitably integrate our scheduled passenger and cargo operations. We take into account potential cargo services when planning passenger routes, and also serve certain dedicated cargo routes using our freighter aircraft when needed. By adding cargo revenues to our existing passenger service, there is an increase in the productivity of assets and we are able to increase the productivity of our assets and maximize revenue, contributing to our fixed operating expenses per flight, loweringreducing the break-even load factors and enhancing the per flight profitability. Additionally, we believe that this revenue diversification helps offset seasonal revenue fluctuations and reduces the volatility of ourthe business over time. For the year ended December 31, 2016,2022, passenger, cargo and other revenues accounted for 82.7%80.2%, 11.7%18.1% and 5.7%1.6% of total revenues respectively.
Modern Fleet and Optimized Fleet Strategy
● | Modern Fleet and Optimized Fleet Strategy |
The average age of our passenger fleet iswas approximately seven11.2 years making it oneas of December 31, 2022, a reflection of the most modern in Latin Americafleet restructuring performed during Chapter 11, which includes an ambitious fleet renewal plan based entirely on new technology aircraft (including 83 new Airbus A-320neo family aircraft and in the world. A younger2 Boeing 787-9 to be delivered until 2029) and existing fleet makes us more cost competitive because it reduces fuel consumption and maintenance costs, and enables us to enjoy a high degree of performance reliability. In addition, a modern and fuel-efficient fleet reflects our strong commitment to the environment as new aircraft incorporate the industry’s latest technology, allowing for a substantial reduction in emissions, and also decreasing noise levels.lease re-negotiations under improved terms.
We select our
LATAM selects aircraft based on their ability to effectively and efficiently serve ourthe short- and long-haul flight needs, while still striving to minimizereduce operational complexity by minimizing the number of different aircraft types we operate.that the group operates.
The Company’s current fleet plans envisageplan as of December 31, 2022, includes a short-haul fleet formed exclusively by aircraft from the A320 family, with a focus on the A321 and A320neo. InA320neo (Neo: New Engine Option), a more efficient version of the A320; which we introduced into our fleet in 2016, LATAM incorporated two A320neo, are-engined A320, becoming then the first airline in Latin America to fly this model.
For long-haul passenger flights, we operate the Boeing767-300ER, 787-8, the Boeing787-8 and Boeing787-9, aircraft, the Boeing777-300ER aircraft 767-300ER, and the AirbusA350-900 that started operation in 2016.Boeing 777-300ER. The Boeing 787 and Airbus A350 models allow usmodel allows LATAM to achieve important savings in fuel consumption, while incorporating modern technology to deliver the best travel experience for ourLATAM’s passengers. For cargo flights, we operate Boeing 767-300F aircraft.
● | Strong Brand Teamed with Key Global Strategic Alliances |
In 2016, we incorporated five Boeing787-92022, despite the continued challenging global conditions, LATAM was recognized as South America’s Leading Airline Brand and six Airbus350-900 into our fleet.
South America’s Leading Airline in the World Travel Awards 2022. In addition, LATAM continues to take a flexible approach to its fleet planAirlines Group was recognized as the ‘Best Airline in order to better align it to market conditions. During 2016, we achieved a significant reductionSouth America’ in our fleet commitmentsSkytrax World Airline Awards in 2022 for the coming years, allowing us to defer capital expenditures and continue to strenghten our Balance Sheet.
Strong Brand Teamed with Key Global Strategic Alliances
In May 2016 our new brand,third year in a row. Furthermore, in the 2022 edition of the APEX Passenger Choice Awards LATAM was officially launched. We believe that our new brand is associated with superior service, aircraft and technologically advanced operations, and is well recognized and respected in the markets in which we operate. In 2016, our operations in Chile, Argentina, Ecuador, Peru and Colombia were awarded the top prize as the “Best AirlinesSeat Comfort in South America” by the SkyTrax World Airline Awards. These awards are considered a global barometer for customer satisfaction within the industry, thanks to their exclusive reliance on the opinion of passengers.
LAN joined theoneworld®alliance, one of the world’s leading airline alliances,and “Best Food & Beverage in 2000. TAM (now LATAM Airlines Brazil) joinedoneworld®in 2014, marking a significant milestone and completing the entry of all LATAM Airlines into oneworld®. To our passengers, this means greater convenience when traveling, since they will have the same standard of high-quality customer service, regardless of their international destination. South America.”
Our strategic global alliances and existing commercial agreements provide our customers with access to more than 1,000 destinations worldwide, a combined reservations system, itinerary flexibility and various other benefits, which substantially enhance our competitive position within the Latin American market.
In 20162020, LATAM entered into twoa Trans-American Joint Venture Agreement with Delta Air Lines Inc, following the framework agreement signed in 2019, which we expect to unlock new joint business agreements: an agreement withgrowth opportunities, building upon Delta’s and LATAM’s global footprint. During 2022, LATAM and Delta Air Lines obtained the regulatory approvals for their Joint Venture Agreement from the respective authorities in all South American Airlinescountries involved and an agreement with British Airways and Iberia. These agreements further strengthen our relationship with otheroneworld® partners. Both agreements will allow LATAM to expand its network to more than 420 destinations worldwide, operating routes from South America to the United States and Canada with American Airlines and routes from South America to Europe with British Airways and Iberia. The agreements remain subject to regulatory approval in different countries. Some approvals have already been granted: in March, 2017, the administrative courtU.S. Department of economic defenseTransportation (“DOT”). As of the CADE (Administrative Council for Economic Defense) in Brazil, approveddate of publication, both companies find themselves working together on the agreement with British Airways and Iberia, representing the final stage of an evaluation process that began in June 2016. During the review, the CADE evaluated the scopefull implementation of the Joint Venture Agreement. For more information on the framework agreement in terms of free competitionsee “Item 4. Information on the Company-B. Business Overview-Passenger Alliances and the benefits that it will bring to passengers, including improved connectivity, an expansion of the destination network and reduced prices. Both agreements have been approved in Uruguay.Commercial Agreements.”
Financial Flexibility
We have historically managed our business to maintain financial flexibility and a strong balance sheet, seeking to accommodate our growth objectives while having the ability to respond to changing market conditions.
● | Recognized Loyalty Program |
Our financial flexibility has allowed us to secure large aircraft deliveries, including an important part of our currentre-fleeting program, at attractive financing rates.
Recognized Loyalty Programs
On March 1, 2016, we announced our rebranded and improved frequent flyer programs namedprogram, LATAM Pass, (corresponding to the previous LAN Pass) and LATAM Fidelidade (corresponding to the former TAM Fidelidade). The change is part of the process of consolidating our new brand identity (LATAM) and the evolution of our loyalty programs.
LATAM Fidelidade and LATAM Pass together represent the leading frequent flyer programsprogram in South America as measured by total number of members as of the end of 2022, with strong participation rates and brand recognition by our customers. Customers in eachthe program earn miles and points or kilometers based on distance flown,the price paid for the ticket, class of ticket purchased, and elite level, as well as by using the services of outside partners in the program. In addition, in 2009 TAM launched its affiliate Multiplus, a coalition of loyalty programs, which allows members to accumulate points not just by flying with LATAM, but also by making purchases through credit cards or using services and products at partner establishments, and allows members to redeem points for LATAM Airlines Brazil flights and other products at partner establishments.
We believe these flexible programs arethat our program is attractive to customers because they doit does not impose restrictions on those flights for which points can be redeemed, or limit the number of seats available on any particular flight to members using the loyalty program. LATAM Pass and LATAM Fidelidade members can also accrue and redeem points for flights on otheroneworld® member airlines. airlines with whom we have bilateral commercial agreements.
Business Strategy
Our mission is to connect people safely, with operational excellence and a personal touch, seeking to become one of the bestmost admired airline groups in the world. In order to achieve our mission, the principal areas on which we plan to focus our efforts going forward are as follows:
Continually Strengthen Our Network
● | Continually Strengthen Our Network |
We intend
LATAM intends to continue to strengthen ourits route network in South America, offering the best connectivity within the region at competitive prices and ensuring that we areLATAM is the most convenient option for our passengers. We areLATAM is the only airline group in the worldSouth America with a local presence in sixfive home markets and an international and intra-regional operation. This position is bolstered by ourLATAM’s enhanced infrastructure in several of our key hubs, allowing usLATAM to further strengthen our network and connection. We intendits network. LATAM intends to leverage our positionits extensive network to create a leading portfolio of services and destinations, providing more options to ourfor its passengers and building a platform to support continued growth.
Enhance Brand Leadership and Customer Experience
● | Enhance Brand Leadership and Customer Experience |
We will always seek to be the preferred choice of passengers in South America. Our efforts are supported by a differentiated passenger experience and our leveraging of mobile digital technologies. We continue working on the implementation of our single, unified brand, culture, product and value proposition for our passengers. Additionally, we are focused on definingthe evolution of LATAM’s digitalE-business strategy, including applications to achieve ancillary revenues and improving the management of contingencies, so that we are able to provide information and solutions to our customers in a timely and transparent manner. We continually assess opportunities to incorporate service improvements in order to respond effectively to our customers’ needs.
Improving Efficiency and Cost Competitiveness
● | Improving Efficiency and Cost Competitiveness |
We are continually working to maintain a competitive cost structure and further improve our effectiveness,efficiency, simplify our organization and increase flexibility and speed in decision-making. As previously announced, LATAM is embarked on an important projectWe look to introduceimplement cost savings, including reductions in fuel and fees, procurement, operations, overhead and distribution costs, among others, as well as the implementation of a new travel model for itscustomized service offering in domestic passenger services in South America, in order to increase competitiveness and ensure the sustainability of the domestic business modelinternational markets. In 2022 and 2021, and in the long term. This model requires continued cost effortscontext of our Chapter 11 proceedings, we worked to reduce sellingour fixed costs and distribution expenses, increaseto convert them to variable costs, specifically fleet utilizationcosts and operational productivitywages and simplify back-office and support functions, while controlling fixed costs.benefits.
Organizational Strength
● | Organizational Strength |
We aspire to be a group of passionate people, working in a simple and aligned manner, with inspiring leaders makingthat make agile decisions.decisions, while addressing security policies to ensure the health of our employees and customers, and sustainability practices that reflect our responsibility towards the communities and countries where we operate. This will allow us to deliver a distinctive value proposition to our customers surpass our competitors consistently and operate sustainably forover the long term.
Proactive
COVID-19 Effects
As government-imposed travel restrictions and requirements continued to loosen throughout 2022, LATAM group continued gradually restarting its operations. During 2022, LATAM group operated 68.3% more ASKs than in 2021, though compared to 2019 and a pre-pandemic context recovered 76.3% of ASKs. LATAM Cargo continued to play a key role during 2022 in terms of supporting the communities in which LATAM group operates by transporting medical supplies and vaccines to the region from all over the world. Notably, as part of the Solidary Plane program, by December 2022, LATAM group had transported more than 300 million vaccines within the region free of charge since the beginning of the COVID-19 pandemic.
Since the LATAM group cargo operation transports the majority of goods in the bellies of the group’s passenger aircraft, complementing the 16 dedicated cargo freighters, the worldwide decline in air travel, especially during 2020 and 2021, led to a drastic decline in cargo capacity. Therefore, cargo operated many passenger planes adapted for cargo in order to compensate for the capacity reduction and continue to support companies and industries that depend on the network to sustain their own business operations, including, for example, the Chilean salmon industry. In 2019, cargo revenues represented 10.2% of LATAM’s revenues. During 2020 this figure increased to 27.9% of our total revenues, in 2021 to 30.2%, and in 2022 it decreased to 18.1%, following the relative increase in our passenger operations.
In response to the COVID-19 pandemic, LATAM also implemented a series of changes to the operations related to aircraft sanitation, changes in boarding and disembarking procedures, installation of HEPA filters in cabin ventilation systems in all of the group’s aircraft, among others, all of the foregoing in accordance with the recommendations of international organizations such as the International Air Transport Association (IATA), the WHO, and local governments.
For more information regarding the economic impact of the pandemic on LATAM’s operations, see “Item 4. Information of the Company-B. Business Overview-Passenger Operations-Passenger Marketing and Sales” and “Item 3. Key Information-D. Risk Management
We striveFactors-Risks Relating to our Company-The continuing effects of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on the group’s business and results of operations.”
Chapter 11 Proceedings through 2022
As a holisticresult of the COVID-19 pandemic and responsible viewits profound impact on worldwide travel and LATAM group’s operations, the Reorganized Debtors filed petitions for relief under Chapter 11 of riskthe Bankruptcy Code with the Bankruptcy Court on May 26, 2020.
The Bankruptcy Filing initiated Chapter 11 proceedings in decision-making. We put special focusthe United States for each of the Debtors, which are being jointly administered under the caption “In re LATAM Airlines Group S.A., et al.” Case Number 20-11254. Prior to November 3, 2022, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Bankruptcy Filing is intended to permit the Company to reorganize and improve liquidity, wind down unprofitable contracts and amend its capacity purchase agreements to enable sustainable profitability. As of November 3, 2022, the Plan was substantially consummated and the Debtors have each emerged from the Chapter 11 proceedings as the “Reorganized Debtors.” The Bankruptcy Court continues to administer the Chapter 11 proceedings for the Reorganized Debtors on risksa consolidated basis in order to resolve the few remaining matters therein, including reconciling remaining claims.
As part of their overall reorganization process, the Reorganized Debtors also have sought and received relief in certain non-U.S. jurisdictions. On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of certain of the Reorganized Debtors for the appointment of JPLs pursuant to section 104(3) of the Companies Law (2020 Revision). On June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11 proceedings with respect to the LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. All remedies filed against the order have been rejected and the decision has become final. Finally, on June 12, 2020, the Superintendence of Companies of Colombia granted recognition to the Chapter 11 proceedings. On July 10, 2020, the Grand Court of the Cayman Islands granted the Reorganized Debtors’ application for the appointment of JPLs to Piquero Leasing Limited.
● | Operation and Implication of the Bankruptcy Filing |
As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Reorganized Debtors are permitted to operate their businesses and manage their properties without supervision of the Bankruptcy Court and free of the restrictions of the Bankruptcy Code.
● | Plan of Reorganization |
On November 26, 2021, the Reorganized Debtors filed the Plan and the related Disclosure Statement with the Bankruptcy Court. As detailed in the Disclosure Statement, the Plan was supported by the Restructuring Support Agreement executed among the Reorganized Debtors, creditors holding more than 70% of the general unsecured claims asserted against LATAM Airlines Group S.A., and holders of more than 50% of LATAM Airlines Group S.A.’s existing equity. From time to time in the Chapter 11 Cases, the Reorganized Debtors filed revised versions of the Plan and associated Disclosure Statement. On February 10, 2022 the Reorganized Debtors executed a joinder Agreement to the RSA, effective as of February 10, 2022 under which certain creditors agreed to commitments made by the Commitment Parties under the RSA.
On March 21, 2022, the Bankruptcy Court entered an order approving the adequacy of the Disclosure Statement and procedures for the solicitation with respect to the Plan. Pursuant to the Disclosure Statement Order, the Reorganized Debtors distributed the solicitation version of the Plan, the Disclosure Statement (as approved), voting ballots and certain other solicitation materials to creditors.
In accordance with the Restructuring Support Agreement, on January 12, 2022 the Reorganized Debtors filed a motion seeking approval to enter into the Backstop Agreements. On March 15, 2022, the Bankruptcy Court issued a memorandum decision approving the Reorganized Debtors’ entry into the Backstop Agreements, and issued a corresponding order on March 22, 2022.
The Reorganized Debtors received objections to the Plan from certain parties, including the United States Trustee, the Committee, BancoEstado, an ad hoc group of unsecured claimants and a group of holders of claims against LATAM affiliate TAM Linhas Aéreas S.A. Following the Plan objection deadline, the Reorganized Debtors participated in mediation with BancoEstado, the Committee and the parties to the RSA in an effort to resolve their objections to the Plan and related disputes, which proved successful. On May 11, 2022, the Reorganized Debtors filed a revised version of the Plan reflecting the terms of a settlement with the parties.
At a hearing held on May 17, 18 and 20, 2022, the Bankruptcy Court considered the remaining objections that had not been resolved pursuant to the settlement. On June 18, 2022, the Bankruptcy Court issued a memorandum decision approving the Plan and overruling all remaining objections, and entered an order confirming the Plan.
Certain parties in interest appealed the Bankruptcy Court’s decisions. On June 21, 2022, the Ad Hoc Group of Unsecured Claimants filed a notice of appeal of the memorandum decision and order approving entry into the Backstop Agreements, as well as the Memorandum Decision approving the Plan and the Confirmation Order.
On June 27, 2022, the Ad Hoc Group of Unsecured Claimants filed a motion seeking to stay the Confirmation Order pending appeal. On July 16, 2022, the motion to stay was denied by the Bankruptcy Court. On June 23, 2022, the TLA Claimholders Group also filed a motion seeking to stay the Confirmation Order pending appeal or, in the alternative, an affirmative injunction requiring the Reorganized Debtors to fund an escrow account in the amount of the outstanding post-petition interest. On July 8, 2022, the Bankruptcy Court issued a bench memorandum and order denying the TLA Claimholders Group’s motion to stay. On June 28, 2022, Columbus Hill filed a notice of appeal of the Memorandum Decision and the Confirmation Order, which it later withdrew on July 5, 2022. On July 13, 2022, the Reorganized Debtors filed a motion to approve a settlement agreement with Columbus Hill, which was granted by the Bankruptcy Court on July 21, 2022, bringing full and final resolution to the Columbus Hill appeal and any other potential objections from this claimant.
On August 31, 2022, after briefing and oral argument by the parties, the District Court issued an opinion denying the appeals of both the Ad Hoc Group of Unsecured Claimants and the TLA Claimholders Group. The District Court rejected the Ad Hoc Group of Unsecured Claimants’ arguments that the Plan and Backstop Agreement violated the Bankruptcy Code and held that the Backstop Agreement did not constitute impermissible vote buying. The Ad Hoc Group of Unsecured Claimants did not further appeal the District Court’s decision.
With respect to the TLA Claimholders Group’s appeal, the District Court denied its request for payment of post-petition interest on its claims and found that the Bankruptcy Court did not with respect to its factual finding that TLA was insolvent. The District Court also denied the TLA Claimholders Group’s motion to stay the Confirmation Order. On September 2, 2022 the TLA Claimholders Group filed a notice of appeal in the District Court further appealing the Confirmation Order to the United States Court of Appeals for the Second Circuit. Both parties filed briefs regarding the merits of the Second Circuit Appeal, oral argument occurred on October 12, 2022, and on December 14, 2022, the Second Circuit unanimously affirmed the District Court’s decision rejecting the Second Circuit Appeal.
As of the Effective Date, the Plan was substantially consummated and became binding on all parties in interest. Pursuant to the Plan, the Company received an infusion of approximately US$ 8.19 billion through a mix of new equity, convertible notes, and debt, which enabled the Company to exit Chapter 11 with appropriate capitalization to effectuate its business plan. Upon emergence, the Company had total debt of approximately US$ 6.8 billion, cash and cash equivalents of approximately US$1.1 billion and revolving facilities fully undrawn in the amount of US$1.1 billion. Specifically, the Plan provided that:
● | The Company conducted a US$ 800 million common equity rights offering, open to all shareholders in accordance with their preemptive rights under applicable Chilean law, and fully backstopped by the parties participating in the RSA; |
● | Three distinct classes of convertible notes were issued by the Company, all of which were preemptively offered to shareholders. The preemptive rights offering period closed on October 12, 2022. For those securities not subscribed by the Company’s shareholders during the respective preemptive rights period: |
o | New Convertible Notes Class A were provided to certain general unsecured creditors of the Company in settlement of their allowed claims under the Plan; |
o | New Convertible Notes Class B were subscribed and purchased by the Backstop Shareholders; and |
o | New Convertible Notes Class C were provided to certain general unsecured creditors in exchange for a combination of a new money contribution to the Company and the settlement of their allowed claims under the Plan, subject to certain limitations and holdbacks by backstopping parties. |
● | The election period for the New Convertible Notes Class A and New Convertible Notes Class C ended on October 6, 2022. |
● | General unsecured creditors that elected to receive New Convertible Notes Class A or New Convertible Notes Class C were entitled to receive a one-time cash distribution in an aggregate amount of approximately US$175 million, distributed among the general unsecured creditors that opted to receive New Convertible Notes Class A and C. |
● | The convertible notes belonging to the New Convertible Notes Classes B and C are provided, totally or partially, in consideration of a new money contribution for the aggregate amount of approximately US$ 4.64 billion fully backstopped by the parties to the RSA. |
● | In lieu of receiving New Convertible Notes Class A or New Convertible Notes Class C (and the aforementioned one-time cash distribution), general unsecured creditors were provided with the alternative of opting to receive New Local Notes issued by LATAM. As set forth in the Plan, and based on the elections made by general unsecured creditors, such notes were issued in the amount of UF 3,818,042 (equal to approximately US$ 130 million as of the date of their issuance). |
Pursuant to the Plan and Backstop Agreements, LATAM raised up to US$ 500 million through a new revolving credit facility and US$ 2.25 billion in total new money debt exit financing, consisting of a new term loan and new notes.
On September 2, 2022 the CMF approved the registration of the New Convertible Notes Classes A, B and C and of the shares contemplated in the Plan. The CMF approved the New Local Notes on September 5, 2022. The Reorganized Debtors established September 12, 2022 as the record date to claimholders for the New Convertible Notes Class A and New Convertible Notes Class C, and commenced the offering of the New Convertible Notes to claimholders on the same day.
As of December 31, 2022, almost the entirety of the convertible notes had been converted into shares; a total of 18,820,511,197 shares underlying New Convertible Notes Class A (94.14% of the total), 126,657,203,849 shares underlying New Convertible Notes Class B (99.997% of the total) and 385,337,856,192 shares underlying New Convertible Notes Class C (99.999% of the total) had been delivered as a result of the exercise of the applicable conversion option. As a result, and as of the same date, LATAM had a total of 605,231,854,725 shares subscribed and paid, representing more than 99.8% of the group’s statutory capital, represented by 606,407,693,000 shares.
On November 17, 2022 the Reorganized Debtors filed a motion to consolidate the administration of certain remaining matters, including the reconciliation of claims that have highnot yet been allowed or disallowed, in the lead Chapter 11 case of LATAM and for entry of a final decree closing the Chapter 11 cases of LATAM’s debtor-affiliates. The Bankruptcy Court entered an Order on December 14, 2022 granting the motion to consolidate the administration of remaining matters in the lead Chapter 11 case of LATAM. As a result, the dockets for all 37 debtor-affiliates of LATAM were marked “closed” on December 23, 2022.
Debtor-in-Possession Financing
In connection with our Chapter 11 proceedings, the Bankruptcy Court approved our initial debtor-in-possession (“DIP”) financing agreement on September 19, 2020 (the “Initial DIP Credit Agreement”), providing the group with access to US$2.45 billion for working capital and other purposes approved by the Bankruptcy Court.
The terms of the initial DIP financing included three tranches: Tranche A for a principal amount of up to US$1.3 billion, a potential impactTranche B for up to an additional amount of US$750 million, which would be subject to further authorization of the Bankruptcy Court and low probabilityother conditions customary for this type of occurrence,transactions, and a Tranche C for a principal amount of up to US$1.15 billion. Only Tranches A and C were initially committed.
On October 18, 2021, the Bankruptcy Court approved a Tranche B facility of up to US$750 million. On November 10, 2021, we entered into an amendment to the Initial DIP Credit Agreement implementing, among other things, certain amendments to the maturity date definition and effectuating the terms and conditions of the Tranche B facility.
In January and February of 2022, we initiated the process of seeking financing proposals from financial institutions, funds, and other entities for certain amendments, extensions to the Initial DIP Credit Agreement and certain increases to the DIP financing thereunder.
On February 18, 2022, we filed a motion requesting Bankruptcy Court approval for certain amendments to the Initial DIP Credit Agreement, providing for, among other things, a new replacement Tranche C facility in an aggregate principal amount of up to $1,245,436,360.42 (including pursuant to a cashless roll of a partition of the existing Tranche C loans held by certain Tranche C Lenders), the proceeds of which were applied, among other things, to repay in full the existing Tranche C facility, an extension of the existing maturity date, and certain modifications and reductions to the existing fees and interest rates applicable to the Tranche A and Tranche B facilities, with such terms reflected in an amended and restated DIP credit agreement (the “A&R DIP Credit Agreement”). On March 7, 2022, we filed a supplement to the motion reflecting new terms agreed with the prospective DIP lenders with respect to the A&R DIP Credit Agreement.
Notwithstanding the foregoing, we continued to engage in a marketing process for an amendment and restatement of the Initial DIP Credit Agreement with the expectation of obtaining improved terms and conditions than those included in the A&R DIP Credit Agreement as supplemented. In this regard, we agreed to an alternative proposal provided by a different group of prospective lenders with such proposal reflected in an amendment and restatement of the Initial DIP Credit Agreement (the “New A&R DIP Credit Agreement”). On March 15, 2022, we filed a motion requesting Bankruptcy Court approval of the New A&R DIP Credit Agreement. The New A&R DIP Credit Agreement (i) repaid in full the existing Tranche A, Tranche B and Tranche C facilities under the Initial DIP Credit Agreement from the proceeds of a new Tranche A facility and new Tranche C facility; (ii) provided an extended maturity date to align with the prospective timeline for our emergence from our Chapter 11 proceeding; and (iii) provided for certain reductions in fees and interest as compared to the Initial DIP Credit Agreement and the A&R DIP Credit Agreement. On March 18, 2022 the Bankruptcy Court entered an order approving our entry into the A&R DIP Credit Agreement.
The A&R DIP Credit Agreement closed on April 8, 2022 and its proceeds were used to repay the obligations under the Initial DIP Credit Agreement in full.
On June 10, 2022, we entered into debt commitment letters (the “Exit Financing Commitment Letters”) providing commitments from various lenders for (i) an approximately US$1.17 billion junior debtor-in-possession term loan facility (the “Junior DIP Facility”); (ii) a $500,000,000 debtor-in-possession and exit revolving credit facility (the “Revolving Facility”), (iii) a $750,000,000 debtor-in-possession and exit term loan B credit facility (the “Exit Term Loan B Facility”; together with the Revolving Facility, the “Credit Facilities”), (iv) a five year $750,000,000 debtor-in-possession and exit bridge loan facility (the “Bridge to 5Y Notes Facility”) and (v) a seven year $750,000,000 debtor-in-possession and exit bridge loan facility (the “Bridge to 7Y Notes Facility” together with the Bridge to 5Y Notes Facility, the “Bridge Facilities”; together with the Credit Facilities, the “Debt Facilities”). The principal amounts of certain Debt Facilities could significantly affect LATAM’s strategic objectives.be increased so long as any such increase was offset by a corresponding decrease in other Debt Facilities, subject to certain requirements under the documentation governing such Debt Facilities. On June 24, 2022, the Bankruptcy Court entered an order authorizing us to enter into the commitment letters for the Junior DIP Facility and the Debt Facilities and on September 12, 2022 the Bankruptcy Court entered an agreed amended order authorizing us to enter into the commitment letters with respect to the Junior DIP Facility and the Debt Facilities. The Debt Facilities were structured as debtor-in possession facilities which closed during the pendency of the Chapter 11 Cases and converted to exit financing on our emergence from bankruptcy. The Reorganized Debtors executed the loan agreement with respect to the Junior DIP Facility in an aggregate amount of approximately $1.14 billion on October 3, 2022. On October 3, LATAM executed the Junior DIP facility, but did not close or fund the Junior DIP facility. On October 12, LATAM (a) closed and funded the Exit Term Loan B Facility, (b) closed the Revolving Facility, (c) closed and funded the Bridge to 5Y Notes Facility, (d) closed and funded the Bridge to 7Y Notes Facility and (e) closed and funded the Junior DIP Facility. LATAM used the proceeds of the foregoing to repay the A&R DIP Credit Agreement in full. On October 18, LATAM (a) issued the 5Y Notes under the corresponding indenture, (b) issued the 7Y Notes under the corresponding indenture and (c) used the proceeds of these notes issuances to partially repay $450,000,000 of the Bridge to 5Y Notes Facility and $700,000,000 of the Bridge to 7Y Notes Facility. On November 3, the effective date of the plan (i.e., the day the company emerged from bankruptcy), LATAM (a) converted the DIP Revolving Facility into an exit Revolving Facility, (b) converted the DIP Term Loan B Facility into an Exit Term Loan B Facility, (c) executed an incremental amendment to the Exit Term Loan B Facility which increased the principal amount of the Exit Term Loan B Facility by $350,000,000, (d) converted the 5Y Notes and the 7Y Notes from “DIP” to “Exit” notes, (e) repaid the remaining Bridge to 5Y Notes Facility, (e) repaid the remaining Bridge to 7Y Notes Facility, and (f) repaid the Junior DIP Facility.
Airline Operations and Route Network
The following tables setsset forth our operating revenues by activity and point of sale for the periods indicated:
Year ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(in US$ millions) | ||||||||||||
Total passenger revenues | 7,877.7 | 8,410.6 | 10,380.1 | |||||||||
Total cargo revenues | 1,110.6 | 1,329.4 | 1,713.4 | |||||||||
Total traffic revenues | 8,988.3 | 9,740.0 | 12,093.5 | |||||||||
Year ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(in US$ millions) | ||||||||||||
Peru | 627.2 | 681.3 | 660.1 | |||||||||
Argentina | 1,031.0 | 979.3 | 813.5 | |||||||||
United States | 933.1 | 1,025.5 | 1,224.3 | |||||||||
Europe | 714.4 | 723.1 | 935.9 | |||||||||
Colombia | 343.0 | 353.0 | 391.7 | |||||||||
Brazil | 2,974.2 | 3,464.3 | 5,361.6 | |||||||||
Ecuador | 198.2 | 238.5 | 248.6 | |||||||||
Chile | 1,512.6 | 1,575.5 | 1,589.2 | |||||||||
Asia Pacific and rest of Latin America | 654.6 | 699.5 | 868.6 | |||||||||
Total Operating Revenues | 8,988.3 | 9,740.0 | 12,093.7 |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
(in US$ millions) | ||||||||||||
Total passenger revenues | 7,636.4 | 3,342.4 | 2,713.8 | |||||||||
Total cargo revenues | 1,726.1 | 1,541.6 | 1,209.9 | |||||||||
Total traffic revenues | 9,362.5 | 4,884.0 | 3,923.6 |
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
(in US$ millions) | ||||||||||||
Peru | 859.0 | 503.6 | 297.5 | |||||||||
Argentina | 206.9 | 75.5 | 172.2 | |||||||||
United States | 1,058.1 | 578.0 | 505.1 | |||||||||
Europe | 769.0 | 376.9 | 338.6 | |||||||||
Colombia | 540.2 | 368.5 | 177.0 | |||||||||
Brazil | 3,724.5 | 1,664.5 | 1,304.0 | |||||||||
Ecuador | 248.5 | 163.0 | 112.6 | |||||||||
Chile | 1,514.6 | 794.1 | 638.2 | |||||||||
Asia Pacific and rest of Latin America | 441.8 | 360.0 | 378.4 | |||||||||
Total Operating Revenues | 9,362.5 | 4,884.0 | 3,923.6 |
Passenger Operations
General
As of December 31, 2016, our2022, LATAM passenger operations were performed through airlinesby airline affiliates in Chile, Brazil, Peru, Argentina, Colombia and Ecuador, where we operatethe group operates both domestic and international services. We collectLATAM collects and reportreports operating data for ourits passenger operations in three categories: international (connecting more than one country), Domestic operations in Spanish speakingSpanish-speaking countries or “SSC” (including Chile, Peru, Argentina, Colombia, and Ecuador), and Domestic Brazil (wholly(entirely within Brazil).
The following table sets forth certain of our passenger operating data for international and domestic routes for the periods indicated:
Year ended and as at December 31 | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
ASKs (million) (at period end) | ||||||||||||
International | 73,541.9 | 69,615.9 | 65,574.6 | |||||||||
SSC | 23,847.1 | 22,072.8 | 21,065.8 | |||||||||
Domestic Brazil | 37,578.7 | 42,478.5 | 43,560.5 | |||||||||
Total | 134,967.7 | 134,167.1 | 130,200.9 | |||||||||
RPKs (million) | ||||||||||||
International | 63,392.6 | 59,003.4 | 55,980.1 | |||||||||
SSC | 19,293.7 | 17,858.4 | 16,964.3 | |||||||||
Domestic Brazil | 30,940.5 | 34,648.1 | 35,589.7 | |||||||||
Total | 113,626.9 | 111,509.9 | 108,534.0 | |||||||||
Passengers (thousands) |
International SSC Domestic Brazil Total Passenger RASK (passenger revenues/ASK, in US cents) International(1) SSC(1) Domestic Brazil(1) Combined Passenger RASK(2) Passenger load factor (%) International SSC Domestic Brazil Combined load factor Year ended and as at December 31 2016 2015 2014 15,107 14,156 13,630 22,829 21,540 20,735 29,024 32,139 33,468 66,960 67,835 67,833 US¢5.8 US¢6.5 US¢7.6 US¢6.9 US¢8.3 US¢9.1 US¢5.8 US¢5.9 US¢8.6 US¢5.8 US¢6.3 US¢8.0 86.2 % 84.8 % 85.4 % 80.9 % 80.9 % 80.5 % 82.3 % 81.6 % 81.7 % 84.2 % 83.1 % 83.4 %
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
ASKs (million) (at period end) | ||||||||||||
International | 49,575.7 | 20,461.0 | 23,883.3 | |||||||||
SSC | 23,384.7 | 17,847.8 | 10,974.5 | |||||||||
Domestic Brazil | 40,891.8 | 29,326.8 | 20,830.2 | |||||||||
Total | 113,852.2 | 67,635.7 | 55,688.0 | |||||||||
RPKs (million) | ||||||||||||
International | 41,140.5 | 13,500.5 | 17,620.4 | |||||||||
SSC | 18,942.6 | 13,359.8 | 8,346.3 | |||||||||
Domestic Brazil | 32,504.8 | 23,456.3 | 16,657.8 | |||||||||
Total | 92,587.8 | 50,316.5 | 42,624.5 | |||||||||
Passengers (thousands) | ||||||||||||
International | 8,607 | 2,852 | 4,016 | |||||||||
SSC | 25,288 | 17,513 | 9,822 | |||||||||
Domestic Brazil | 28,573 | 19,830 | 14,461 | |||||||||
Total | 62,467 | 40,195 | 28,299 | |||||||||
Passenger RASK (passenger revenues/ASK, in US cents) | ||||||||||||
International(1) | US¢6.5 | US¢4.6 | n.a | |||||||||
SSC(1) | US¢7.7 | US¢5.8 | n.a | |||||||||
Domestic Brazil(1) | US¢6.7 | US¢4.8 | n.a | |||||||||
Combined Passenger RASK(2) | US¢6.8 | US¢4.9 | n.a | |||||||||
Passenger load factor (%) | ||||||||||||
International | 83.0 | 66.0 | 73.8 | |||||||||
SSC | 81.0 | 74.9 | 76.1 | |||||||||
Domestic Brazil | 79.5 | 80.0 | 80.0 | |||||||||
Combined load factor | 81.3 | 74.4 | 76.5 |
(1) | RASK information for each of our business units is provided because LATAM believes that it is useful information to understand trends in each of our operations. We use our revenues as defined under IFRS to calculate this metric. The revenues per business unit include ticket revenue, breakage, excess baggage fee, frequent flyer program revenues and other revenues. These operating measures may differ from similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS. This unaudited operating data is not included in or derived from LATAM’s financial statements. |
(2) | The combined Passenger RASK for LATAM is calculated by dividing passenger revenues by total passenger |
International Passenger Operations
Our
LATAM group’s international network combinesincludes the international operations of our Chilean, Peruvian, and Ecuadorian, Argentinean, Colombian and Brazilian affiliates. WeLATAM Airlines Group and its affiliates have operated international services out of Chile since 1946 and have since greatly expanded our international services, offering flights out of Peru, Ecuador, Argentina, Colombia and Brazil. As of December 31, 2016, we offer 272022, LATAM offers 46 international destinations in 1822 countries, in addition to ourthe domestic destinations and international flights and connections between ourthe domestic destinations. As of 2016, we combined all of our operations under the LATAM brand.
Our
The general strategy to expand ourthe international network is aimed at enhancing ourLATAM’s value proposition by offering customers more destinations and routing alternatives, and promoting tourism to and within South America.alternatives. Sustained development of ourLATAM’s international network has beenis a crucial factor in ourthe long-term strategy. The group provides long-haul services out of Santiago, Lima, Guayaquil, Buenos Aires, Bogota, SaoSão Paulo and Rio de Janeiro.Fortaleza. The group also provides regional services from Chile, Peru, Ecuador, Argentina, Colombia and Brazil.
During 2014, after the necessary infrastructure investments were made, we completed our move to the new Terminal 3 at Guarulhos Airport in Sao Paulo, with new slots for takeoff and landing, which has allowed us to significantly decrease our connection times. This is a key milestone in the development of our most important hub at Guarulhos airport. In addition, the group has continued to consolidate our secondary hubs in Lima and Santiago.
During 2016, we received five Boeing787-9 Dreamliners (we have orders for nine more), which will allow us to achieve important savings on fuel consumption, while incorporating modern technology to deliver the best travel experience for our passengers and reduce our carbon footprint, as the Dreamliner produces up to 20% less CO2 than similar aircraft. We also took delivery of six Airbus A350 aircraft (we have orders for 20 more). In addition, we received the first two Airbus A320neo, out of an order of 34 aircraft of this model, becoming the first airline in Latin America to fly this model.
As part of our mission, LATAM seeks to promote tourism to South America. Due to our large network of services, visitors from around the world can experience world-renowned destinations such as Machu Picchu and Cusco Easter Island,in Peru, the Galapagos Islands, Iguazu Falls in Brazil, and the Atacama Desert and Patagonia in Chile, and Argentina, including the cities of Punta Arenas and Puerto Natales, Ushuaia, El Calafate and Bariloche.Natales.
Market Share Information
The following table presents air passenger traffic information for international flights (including intra-regional flights) and LATAM’s market share in each geographic market in which we operate:the group operates:
Country | Industry passenger figures | LATAM’s Market Share | ||||||||||||||
% variation 2016-2015 | 2016 | 2015 | % variation | |||||||||||||
Brazil(1) | -0.3 | % | 78.9 | % | 78.5 | % | +0.4 p.p. | |||||||||
Chile(2) | +11.5 | % | 61.7 | % | 62.5 | % | -0.8 p.p. | |||||||||
Argentina(3) | +9.9 | % | 11.9 | % | 11.8 | % | +0.1 p.p. | |||||||||
Peru(4) | +9.8 | % | 44.0 | % | 43.9 | % | +0.1 p.p | |||||||||
Colombia(5) | +12.0 | % | 8.0 | % | 8.0 | % | 0.0 p.p | |||||||||
Ecuador(3) | +11.5 | % | 17.2 | % | 18.9 | % | -1.7 p.p. |
LATAM passenger figures % variation | LATAM’s Market Share | |||||||||||||||
Country | 2022-2021 | 2022 | 2021 | % variation | ||||||||||||
Brazil(1) | 287.3 | % | 20.3 | % | 19.6 | % | 0.7p.p. | |||||||||
Chile(2) | 223.3 | % | 38.9 | % | 40.7 | % | -1.8p.p. | |||||||||
Peru(3) | 106.8 | % | 42.9 | % | 40.7 | % | 2.2p.p. | |||||||||
Colombia(4) | 113.6 | % | 5.2 | % | 4.1 | % | 1.1p.p. | |||||||||
Ecuador(5) | 174.1 | % | 8.5 | % | 2.5 | % | 6.0p.p. |
(1) | Source: ANAC Brazil’s website. |
(2) | Source: JAC Chile’s website. |
(3) | Source: DGAC Peru’s website. Passenger figures considers passengers carried in 2022 vs 2021. Market share considers the number of passengers |
(4) | Source: Diio.net. |
(5) | Source: |
Competitors in international routes
The following tableshows LATAM’s main competitors during 2022 in each geographic market in which we operate:it operates:
Country | Route | Competitors | ||
Brazil | North America | American Airlines, United Airlines, Azul Linhas Aereas, Delta Air Lines, | ||
Latin America | Copa, | |||
Europe | TAP Portugal, AirFrance-KLM, IAG, Lufthansa, | |||
Chile | North America | American Airlines, Air Canada, | ||
Latin America | Copa, Sky Airline, Avianca, JetSmart, Aeromexico and | |||
Europe | ||||
South Pacific | Qantas Airways | |||
Argentina | North America | American Airlines, Aerolíneas Argentinas, | ||
Latin America | Aerolineas Argentinas, | |||
Peru | North America | American Airlines, Avianca, United Airlines, | ||
Latin America | Avianca, Copa, | |||
Europe | AirFrance-KLM | |||
Colombia | North America | Avianca, American Airlines, Spirit Airlines, Aeromexico, JetBlue Airways, United Airlines, | ||
Latin America | Avianca, | |||
Ecuador | North America | American Airlines, | ||
Latin America | Avianca, Copa | |||
Europe | AirFrance-KLM and |
Source: Diio.net considering ASKs.
Domestic Passenger Operations
As of December 31, 2016,2022, domestic passenger services within Chile, Brazil, Peru, Ecuador Argentina and Colombia were operated by LATAM Airlines Chile, LATAM Airlines Brazil, LATAM Airlines Peru, LATAM Airlines Ecuador LATAM Airlines Argentina and LATAM Airlines Colombia, respectively.
Business Model for Domestic Operations
In November 2016, theLATAM group announced an important project to revamp theimplemented a new business model in all of ourits domestic services offering in the six domestic markets where the group operates in South America. The purpose of this change is to increase our competitiveness
and ensure the long-term sustainability of our domestic business model. This project seeks to increase our operational efficiency,operations, allowing usthem to provide more competitive fares and contributing to the development of tourism and the growth of air travel per capita in the region. Our newThe domestic service model requires continuous cost reduction efforts, and we are implementingthe group continues to implement a series of initiatives to reduce cost per ASK in all domestic operations. These efforts are aimed at significantly reducing selling and distribution expenses, increasing fleet utilization and operational productivity and simplifying back-office and support functions, thereby allowing usthe LATAM group to expand our operations while controlling fixed costs.
Another key elementelements of this business model are the initiatives to increase our ancillary revenues while allowingand others that allow passengers to customize their journey. Customers will beon domestic flights are now able to access a simpler sales platform, which will allowallows them to choose their fare depending on the type of journey they want, and to purchase additional services such as extra luggage, a variety of food and beverage options on board, preferred seating options and the flexibility to change tickets.
We continue
In March 2020, LATAM group introduced its superior cabin class, Premium Economy, in all domestic and international flights within Latin America operated by the Airbus A320 family (A319, A320, A320neo and A321; “short-/medium-haul”) aircraft. This cabin class offers premium services both at the airport and in-flight, including priority check-in and boarding, VIP lounge access in airports where available, a differentiated onboard service including complimentary snacks and drinks, an exclusive overhead bin for carry-on luggage and a blocked middle seat, providing greater space and privacy.
LATAM group continues to develop digital initiatives to empower passengers providing them with an enhanced digital experience withend-to-end control of their reservation. LATAM customers will increasingly be able to buy,check-in and manage the after sale service in a simpler and faster manner through their smartphones.
We will implement our new
The following table shows LATAM’s number of destinations, passengers transported, market share and main competitors in each domestic strategy by country,market in stages starting in the first half of 2017.which we operate:
Brazil | Chile | Argentina | Peru | Colombia | Ecuador | |||||||||||||||||||
Destinations | 41 | 16 | 15 | 17 | 14 | 5 | ||||||||||||||||||
Fleet | 100 | 27 | 15 | 18 | 17 | 6 | ||||||||||||||||||
Passengers Transported (million) | 29.0 | 7.9 | 2.6 | 6.6 | 4.8 | 1.0 | ||||||||||||||||||
Change (YoY) | (9.7 | %) | 8.1 | % | 7.0 | % | 6.7 | % | 4.4 | % | (8.3 | %) | ||||||||||||
Market share | 35 | %(1) | 76 | %(2) | 25 | %(3) | 62 | %(4) | 21 | %(5) | 31 | %(6) | ||||||||||||
Main competitors | | Gol, Azul, Avianca Brazil | | Sky Airlines | | Aerolíneas Argentinas | | | Avianca, Peruvian Airlines, Star Perú | | | Avianca, Viva Colombia, Santena | | Tame, Avianca |
Brazil | Chile | Peru | Colombia | Ecuador | ||||||||||||||||
Destinations | 54 | 17 | 19 | 17 | 8 | |||||||||||||||
Passengers Transported (million) | 28.6 | 7.7 | 7.9 | 8.4 | 1.3 | |||||||||||||||
Change (YoY) | 44.1 | % | 42.7 | % | 45.3 | % | 43.0 | % | 60.0 | % | ||||||||||
Market share | 36.1 | %(1) | 57.1 | %(2) | 61.3 | %(3) | 23.0 | %(4) | 41.0 | %(4) | ||||||||||
Main competitors | Gol, Azul | Sky Airlines, JetSmart | Sky Airlines Peru, Star Peru, JetSmart Peru, Viva Airlines Peru | Avianca, Viva Colombia, EasyFly, Utra Air, Copa Airlines Colombia (“Wingo”) | Avianca, Equair |
(1) | Source: ANAC Brazil’s website. Market share considers |
(2) | Source: JAC Chile’s website. Market share considers |
(3) | Source: |
(4) | Source: |
Passenger Alliances and Commercial Agreements
Strategic Alliance with Delta
On September 30, 2022, LATAM is currently a memberand Delta Air Lines obtained the final regulatory approvals from the US Department of Transportation, allowing them to implement their Joint Venture Agreement (JVA). The approval enables Delta and LATAM to work together, coordinating capacity and pricing strategies and sharing corporate accounts in the United States/Canada and South America (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay) markets within the scope of the global marketing allianceoneJVA.
This agreement allows the airlines to develop an unparalleled network with expanded route offerings and to connect the Americas to the world which includes Airberlin, American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, Malaysia Airlines, Qantas, Qatar, Royal Jordanian, Sri Lankan and S7. In the aggregate,oneworld® members servelike never before with access to more than 1,000300 destinations. Also, the airlines will deepen their level of cooperation in these markets strengthening their codeshare routes and the reciprocal loyalty benefits.
It is in this context that, in November 2022, LATAM and Delta made their first operational announcement after the approval of the JVA, launching a new non-stop flight between São Paulo (Brazil) and Los Angeles (United States) starting on July 1, 2023. LATAM will be the only airline in Brazil with a direct flight to Los Angeles, where customers will be able to connect to several popular Delta West Coast destinations in 157 countries, operating over 13,000 daily departures.the United States, including San Francisco, Las Vegas and Seattle. Additionally, in January 2023, LATAM and Delta announced the launch of a second route under the JVA, connecting Bogota (Colombia) with Orlando (United States) starting on July 1, 2023, helping Delta and LATAM to further strengthen their presence between North America and South America.
Termination of previous arrangements and alliances, and subscription of new codeshare agreements
In January 2022, LATAM Airlines Group and LATAM Airlines Colombia signed and implemented codeshare agreements with Virgin Atlantic. This new agreement seeks to increase the offerings and connectivity of both networks.
On June 23, 2022, LATAM Airlines Group, LATAM Airlines Brazil and Siberia Airlines terminated the frequent flyer agreement subscribed in 2010 and 2014 respectively.
Other alliances and material commercial agreements
In addition, LATAM and its affiliates have ongoing passenger commercial agreements with several airlines, including AmericanQatar Airways, Air France/KLM, Lufthansa, Ethiopian Airlines, Iberia, Quantas, British Airways, Lufthansa, Swiss, Interjet, All Nippon Airways, Cathay Pacific, Japan Airlines, and Jetstar Airways, among others. These commercial agreements allow us to provide additional benefits to our passengers, including access to a wider network, more flight options with better connection times, more competitive fares to destinations not served by LATAM, and increased potential for developing new routes and adding direct flights to new destinations and to destinations already served by LATAM.
Moreover, on January 14, 2016, we entered into two new joint business agreements: an agreement with American Airlines and an agreement with British Airways and Iberia. These agreements further strengthen our relationship with theseoneworld® partners.
The agreements remain subject to regulatory approval in different countries. Some approvals have already been granted: on March, 2017, the administrative court of economic defense of the CADE (Administrative Council for Economic Defense) in Brazil, approved the agreement with British Airways and Iberia, representing the final stage of an evaluation process that began in June 2016. During the review, the CADE evaluated the scope of the agreement in terms of free competition and the benefits that it will bring to passengers, including improved connectivity, an expansion of the destination network and reduced prices. Both agreements have been approved in Uruguay.
Passenger Marketing and Sales
Our long-haul marketing strategy emphasizes attributes valued
Given the current global situation resulting from the COVID-19 pandemic, the group has made several adjustments to its services, implementing additional hygiene and safety measures in all of the customer’s touchpoints and adjusting commercial policies as needed.
With regard to hygiene and safety measures, various implementations were made to comply with authorities’ requirements and to maximize hygiene and safety for customers and crews when flying. Some of those measures include social distancing while checking in, contactless boarding, deplaning by row, improvements to cabin hygiene, hand sanitizer availability, and other onboard procedure adjustments to limit physical interactions. Because the pandemic has changed customers’ behavior and increased their desire to avoid or minimize contact with others, the group intends to use technology to change the passenger experience when traveling and meet these expectations. LATAM had the opportunity to implement and test some of these technologies in its main airports, such as automatic check-in, self-bag tag and drop, digital signage and biometrics (testing only), with promising results that encourage us to accelerate the digital transformation in the upcoming year.
In 2022, LATAM group continued transforming the travel experience of its passengers through cabin retrofits. As of December 31, 2022, we have 10 B777, 9 B767, 2 B787-9, and 177 A319/A320/A321 aircraft with renovated interiors. (during the year 2022, LATAM retrofitted 81 aircraft). Additionally, the group continued equipping aircraft with Wi-Fi connectivity in Brazil, reaching 98 aircraft in total. In addition, 33 B787 are currently in development to be retrofitted with the new cabin interior between 2023 and 2025.
Although the COVID-19 pandemic impacted services, customer experience continues to be a key driver of success for the group. In recent years the group implemented the “Net Promoter System” in an effort to create a culture focused on earning the passionate loyalty of customers while inspiring the energy, enthusiasm and creativity of employees and ultimately accelerate profitable and sustainable organic growth. This system’s primary key performance indicator is the Net Promoter Score (“NPS”). To calculate NPS, we have a customer survey, where we ask “How likely are you to recommend us to a friend or colleague?” Customers score answers on a zero-to-ten scale and we then calculate the NPS as the percentage of customers who are promoters (those who scored 9 or 10) minus the percentage of customers who are detractors (those who scored 0 to 6).
LATAM’s Net Promoter Score for 2022 showed a decrease of 5 points over the previous year (46 NPS points in 2022 versus 51 points in 2021). For the first time we achieved a higher NPS for our high value customers than for the overall LATAM score (+4 points), thereby reaching the highest level for HVCs since we started measuring NPS. This result was mainly driven by the differentiated services offered by our international customers: reliable, high-quality service centered on comfortpremium cabins, the targeted offering of upgrades and entertainment for long-haul travel. We also highlightenhanced services to our extensive network, which covers the most important destinations in South Americaelite members and the Caribbeanresumption of services previously affected by the Covid restrictions. According to NPS survey customer comments, customer satisfaction is primarily driven by the on-time performance of our operations, the care and provides frequent service offered by our crew and the COVID-19 prevention measures implemented by the airline.
Working on the evolution of the customer’s digital experience was the main focus of the E-business area this year and the result was 50 points of Digital NPS for 2022. With the objective of improving the online experience of our customers, we launched LATAM Airlines’ new website for the Ecuadorian market in May 2020, Chile and Colombia in the second half of 2020, Brazil and Peru in the first half of 2021, and Multipos during the second half of 2021. The new experience includes, among other features, a notifications system that allows customers to major overseas gatewayschoose how they want to receive their flight information, a more seamless booking process, automatic check-in (boarding passes are automatically sent to customers before arriving at the airport) and LATAM Wallet, our virtual payment method. We intend to keep working in 2023 to incorporate additional markets and features such as New York, Los Angeles, Miami, Orlando, Washington, DC, London, Madrid, Paris, Frankfurt, Milan, Barcelonaincrease digital services coverage, automation of financial processes, and Sydney. boost LATAM.com as the marketplace that attends all travel needs such as flight, insurance, lodging and flight ancillaries.
In a continuing effort to strengthen our network, during 2016 we launched three new direct routes: Sao Paulo—Johannesburg, Lima—Barcelona2022, LATAM was recognized as “South America’s Leading Airline Brand” and Santiago—Melbourne (the last being our longest flight).
Our short-haul operations are designed to fit our customers’ needs: punctuality, reliability, frequency, modern aircraft and efficient operations. To deliver this value proposition, we have been increasing our fleet and frequencies with morepoint-to-point flights, improved punctuality, and streamlined processes including Internet sales, web and mobilecheck-in and airportself-check-in.
We strive to deliver our promise to our customers. Therefore, we constantly monitor customer satisfaction within-flight surveys and research, and measure our performance against the highest standards. This commitment to excellence is reflected“South America’s Leading Airline” in the numerous prizes and recognitions earned byWorld Travel Awards 2022. LATAM Airlines Group was also recognized as the Company, including Skytrax’s “2016, Best“Best Airline in South America” in Skytrax World Airline Awards in 2022 for the third year in a row and “2016, Best Airline to“Best Seat Comfort in South America” and “Best Food & Beverage in South America” in the 2022 edition of the APEX Passenger Choice Awards. Additionally, in early 2023, LATAM was ranked second place in Latin America on the “Punctuality League 2023” compiled by Global Travelers.the Official Airline Guide (OAG).
Branding
Our new
The challenging context of 2020 to 2022 meant that as a brand “LATAM”, was officially launchedwe had a leading role in May 2016. The new brand brings togetherthe development of communications that kept our employees, customers and all the passengerCompany’s stakeholders informed. We established a three-phase strategy to build our communications that focused first on communicating our commitment to safety, the flexibilization of commercial policies, and cargo airline operationsour support channels.
As part of the strategy of working to achieve closeness and recover our engagement with our customers, we worked on developing partnerships with important entities for the community. During 2022, for example, LATAM Airlines Group carriers:held partnerships with the new brand, we will continue the legacy of leadership started decades ago by LAN, TAMChilean, Peruvian, Ecuadorian and their respective affiliate carriers.Paraguayan National Soccer Teams.
We are committed to the future of South America and to connecting it to the world. The new brand allows us to offer a better, consistent service throughout our network, which in turn strengthens our position in the region.
Using a single brand enables LATAM’s customers to better understand the common service and operating standards among its airlines. LATAM’s unified image has improved its visibility, thereby increasing the efficiency of its marketing efforts.
Since the launch of our new brand, we have made significant progress on its implementation, making our brand visible to our passengers. The new brand has been adopted at 15 airports, and we now offer a new single website for all of our different points of sale. The LATAM brand has also been applied to 43 aircraft, representing approximately 13% of our fleet. We also launched new uniforms for our crew, adopting the Company’s colors of indigo and coral while providing elegance and comfort for our crew.
During 2016, LATAM Airlines Brazil was the official airline sponsor of the Rio 2016 Olympic Games, reinforcing our brand positioning as a leader in the region through our presence in one of the most important sport events worldwide.
Distribution Channels
We are committed to being the preferred choice of our customers, placing the passenger at the center of our decision making. Our distribution structure is divided into direct and indirect distribution channels, both focused on improving their respective platforms to allow for easy interaction for our client in sales and services alike. Direct channels owned by LATAM are comprised of city ticket offices, contact-centers ande-Business (including website, mobile and smart business), and accounted for approximately 52%45% of total passengerssales in 2016.2022 (including award passengers). These direct channels support sales and service, both before and after the flight.
Thee-Business channel is an integral part
Our city ticket offices include additional services in order to complement the experience of our commercial, marketingcustomers. Our contact centers are a multi-service channel providing support in 6 languages (Spanish, English, Portuguese, French, German and service efforts, and during 2016Italian).
We are committed to constantly improving the way we offer our Internet-related sales achieved a better channel mix with an increaseproducts via our distribution channels, including the adoption of 0.5 percentage points out of our total sales. The Company willnew technology. LATAM intends to continue to improve ourits e-Business platforms to support expected future growth.growth and simplify our customers’ online experience.
Our digital strategy includes mobile applications that provide trip information to our passengers regarding their trip.passengers. These applications improve our management of contingencies, enable us to provide information and solutions to our customers in a timely and transparent manner and will serve as a new direct sales channel.
Our city ticket offices support the growth of our operations, providing a sales channel. Our contact centers are a multi-service channel providing support in six languages (Spanish, English, Portuguese, French, German and Italian).
Indirect channels currently include travel agencies, general sales agencies, direct channels from other airlines and online agencies, and accounted for a 48%55% of total passengerssales in 2016.2022. LATAM offers travel agencies different options to connect to our systems and provide their customers our best product offering. These options include Global Distribution Systems as well as our direct connection “eLATAM,” which we are continuously expanding and improving.
LATAM is strongly committed to the digital transformation of distribution in agencies during 2023, through the IATA’s New Distribution Capability (“NDC”) standard.
Frequent Flyer ProgramsProgram
Our frequent flyer programs areprogram, LATAM Pass, is a key element of our marketing and loyalty strategy. These programs rewardstrategy. The program rewards customer loyalty, and, as a result, generatewe believe it generates incremental revenue and promotes customer retention.
During 2016, we announced our revamped frequent flyer programs named
In 2019, LATAM Pass and LATAM Fidelidade. This change is part of the process of consolidating the airline group’sestablished a new brand identity (LATAM) and the evolution of the programs, which enhances existing benefits and introduces new benefitsway to qualify for program members.
We continued working on the homologation of“Elite” status in our programs’ features and benefits. Among other improvements, our initiatives include cross-level recognition of all members, for example, by allowing LATAM Pass members to upgrade on TAM flights and and LATAM Fidelidade members to upgrade on LAN flights, in addition to having the same services at the airport.
During 2017 LATAM Pass and LATAM Fidelidade will continue their harmonization efforts and will offer new cross benefits for their members, with the goal of remaining or becoming the leading loyalty program in all of LATAM’s home markets. Moreover, beginning on April 22, 2017, LATAM’s frequent flyer program will change the way our members earn kilometers from the current system (based on the distance flown) to a new method based on the price paid for the ticket.
ticket, which is aligned with a simpler methodology for mileage accrual, generating simplicity and efficiency to our frequent flyer program. LATAM Pass members can access superior categories and enjoy better benefits by earning Qualifying Points on all their flights. Qualifying Points are different from LATAM Pass Points, which members can use to redeem for tickets and on-board benefits. The number of Qualifying Points that members earn depends on the dollars spent on purchasing the ticket (discounting charges, taxes and additional services) and the multiplier of the destination (domestic or international).
During 2020 LATAM also introduced another rule to access superior categories, the “Segment rule,” under which a passenger can qualify for “Elite Status” by earning Qualifying Points (the existing rule, where they accumulate points depending on the dollars spent on purchasing the ticket), or by reaching a goal of number of segments flown. Introducing this new rule makes it possible for more customers to qualify for our categories, especially for those domestic passengers who fly many segments a year that generally have lower rates.
The frequent flyer program is a strategic asset for the airline group, and a core source of value that differentiates LATAM from other carriers. The acquisition of the Multiplus loyalty program in 2019 and its full integration into LATAM’s network, together with LATAM Pass, created what LATAM estimates to be one of the top frequent flyer and loyalty programs in the world (measured by the number of members). This acquisition was consistent with recent transactions in the industry, and with the strategy of in-house frequent flyer business models of the largest global airlines.
In addition, a new tier category, Gold Plus, was launched in its market with focus on recovering Brazilian’s domestic corporate market share delivering to a specific type of customer a better experience at the airport, and also a better mileage accrual. Improvements to the Gold category include priority check-in in all flights (for Gold category only in international flights) and free same day changes for Brazilian domestic flights. In February 2020, this new category was also launched in all Spanish-speaking countries, improving the value proposition of all our domestic corporate passengers, and also introducing new benefits for all of our high-value customers such as seat selection, preferred check-in and boarding in all markets.
As of December 31, 2016,2022, LATAM Pass had 13approximately 42 million members, representing an increase of 17%5.5% compared to 2015.
2021. Members of the LATAM Pass members earn LATAM Pass kilometersprogram receive benefits and accrue miles for ticket purchases in accordance with their accounts based on distance flown, class of ticket purchased and theirelite level status, level, as well as by purchasing the services of other partners in the the LATAM Pass program. Customers of the program can redeem kilometersmiles or points for free tickets as well as for other productsproducts. LATAM Pass members are classified in an online catalogue. Under our current frequent flyer program, our passengers are grouped into four differentfive elite levels based on their flying behavior:levels: Gold, Gold Plus, Platinum, Black and Black Signature. These different groups determine which benefits customers are eligible to receive, including kilometers earningsmile earning bonuses, free upgrades, on a space-available basis, VIP lounge access and preferred boarding andcheck-in. These categories have their equivalent in theoneworld® alliance: Ruby for Gold, Sapphire for Platinum, and Emerald for both Black and Black Signature.
In 2016 check-in privileges. Also, this year LATAM Pass had increases of 32 % in award tickets redeemed, and 9% innon-flight products redeemed. LATAM Pass has highly rated partners, including other airlines, hotels, car rental agencies, retailers, and credit card issuers from the main financial institutions in Chile, Peru, Ecuador, Argentina, Uruguay, the United States and Colombia, including Banco Santander in Chile and Banco de Bogotá and Occidente (both members of Grupo Aval) in Colombia. These commercial agreements give our customers the opportunity to earn additional kilometers for using their services.
In thenon-banking segment, LATAM Pass continues to leverage its members’ purchase behavior to partner with leading players in its markets and become the most attractive loyalty program. In recent years, LATAM Pass has expanded intoannounced new industries, such as retail, supermarkets, automotive, real estate, drugstores and health care centers.
In the past few years, we have implemented a number of marketing initiatives to increase customer engagement and activity with the program in all of its markets. In 2016, membership in LATAM Pass continued growing, expanding by 10% in Chile, 14% in Perú, 38% in Argentina, 6% in Ecuador, 14% in Colombia and 6% in the United States.
LATAM Fidelidade
LATAM Fidelidade was the first loyalty program launched by a Brazilian airline and represents a key element of LATAM’s marketing strategy. LATAM believes LATAM Fidelidade, like LATAM Pass, is one of the most flexible loyalty programs in the market because it imposes no restrictions on flight availability or on the number of seats available when members redeem accumulated points. LATAM Fidelidade currently has more than 13.2 million members, which represents an increase of 14% compared to 2015. Members of LATAM Fidelidade, like those of LATAM Pass, receive benefits and increased points for kilometers flown depending on their elite level, allowing them to accrue redeemable points for free travel more quickly. LATAM Fidelidade customers are classified in the same four elite levels as LATAM Pass: Gold, Platinum, Black and Black Signature.
Multiplus
In 2009, TAM launched Multiplus, a company designed to create a broader network in which LATAM Airlines Brazil’s customers can earn points through the LATAM Fidelidade program. Multiplus is a coalition of loyalty programs that permits the accrual of points that can be redeemed for products and services offered by many different partner companies, in addition to LATAM Airlines Brazil. We believe this expanded network acts as a sales channel for LATAM Airlines Brazil, helping to capture and retain customers and increase sales. Multiplus is attractive to our less-frequent flyers because it allows them to accrue loyalty points in many ways besides flying. In 2016,non-air accrual reached 15% of the total points. At the end of 2016, Multiplus had more than 400 partners and approximately 16.5 million participants that can accrue Multiplus points directly (through LATAM Fidelidade,co-branded cards, apps, retail partners, etc.) and indirectly (by transferring points from a partner program).
Multiplus became a publicly traded company in Brazil following its initial public offering in February 2010. TAM S.A continues to own 72.74% of the ordinary shares of Multiplus.
On December 10, 2009, Multiplus entered into an Operating Agreement with LATAM Airlines Brazil, effective as of January 1, 2010, which established the terms and conditions governing the relationship with TLA (the “Operating Agreement”). Under the Operating Agreement, Multiplus became responsible for, among other tasks, processing information on accumulating and redeeming points under the LATAM Airlines Brazil Loyalty Program, and delivering awards to the members of said program, in accordance with the rules of the TAM Loyalty Program and the Multiplus network. The Operating Agreement is valid for 15 years and is automatically renewed every five years thereafter.
Aiming to increase the value created to Multiplus and LATAM shareholders, and to improve the alignment of interests between Multiplus and TLA, on May 4, 2015, the companies approved a new amendment to the Operating Agreement, effective on that date. This amendment provides that the cost for each 10,000 points redeemed on TLA air tickets shall be approximately 3% less than Multiplus’s current prices paid for those 10,000 points. Furthermore, the amendment establishes that from December 1, 2015, fixed prices for air tickets will come into force with objective rules for annual price adjustments for the purchase of air tickets, paid by Multiplus to TLA. The fixed prices of each are determined by both companies as a function of the market (domestic and international), fare class, demand, season, distance and flight origin/destination.
The remaining provisions established in the original Operating Agreement, including, without limitation, those relating to reciprocal exclusivity, term of effectiveness and situations for termination with or without cause, remain, in their essence, unchanged.
On December 14, 2015, Multiplus’ Board of Directors approved a management proposal for the establishment of a limited liability company, with the name of “Multiplus Corretora de Seguros Ltda.”, for the purpose of developing an insurance brokerage business. This project is in line with Multiplus’ main objectives of providing a differentiated experience for its participants, offering a new source for accrual of points and generating value to its shareholders.
On July 5, 2016, Multiplus S.A. and Banco Itaucard S/A (“Itaucard”) signed a Commercial Partnership Contract for the offering, promotion, distribution and sale ofco-branded credit cards (“Multiplus cards”), throughout Brazil’s national territory. The partnership’s key objective is to offer its network members a product which permits the direct accumulation of Multiplus Points by means of conversion and differentiated bonuses.
On July 12, 2016, Multiplus S.A. signed a partnership with the Expedia Affiliate Network, making 270,000 hotel options available to members, allowing them to accumulate Multiplus points when making their reservations.
On August 25, 2016, “Multiplus Corretora de Seguros Ltda.” started operations as “Pontus Corretora”. Pontus Corretora debuted with two types of insurance policies offered with different partners: residential insurance, in partnership with Seguradora Porto Seguro, and travel insurance through Assist Card. Pontus Corretora offers a totally original digital experience, with flexibility, innovation and excellent products from the main insurance companies in the market.
On December 27, 2016, Multiplus announced that it is expanding its “Points + Cash” offering to allow the redemption of points fornon-air products and services. This allows members who do not have sufficient accumulated points to redeem with network partners totop-up their points with a cash payment. The objective is to ensure the availability of attractive offersbenefits: priority contact center for all ’Multipluselite members, with constant incentiveseliminate redemption fee, roll over for them to increasingly use2023 and experienceimprovement in upgrade priority for elite members that have the loyalty network.cobrand credit card.
Cargo Operations
Our
The Cargo division operatesbusiness is operated internationally and domestically through our affiliatesby affiliate airlines under the unified LATAM Cargo brand, which has acquired significant market recognition. OurThe Cargo operations are made under four of the LATAM group affiliates: LATAM Cargo Colombia, LATAM Cargo and LATAM Cargo Brazil, dedicated exclusively to cargo transport, and LATAM Airlines Ecuador, which, in addition to its passenger operations, as of 2022 was certified as a cargo operator and incorporated dedicated cargo freighters to its operations.
The cargo business generally operates on the same route network used by ourthe passenger airline business. It includes approximately 138154 destinations, of which around 127144 are served by passenger and/or freighter aircraft and approximately 1110 are served only by freighter aircraft.
The following table sets forth certain of our cargo-operating statistics for domestic and international routes for the periods indicated:
Year ended and as at December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
ATKs (millions) | 6,704.1 | 7,082.8 | 7,219.7 | |||||||||
RTKs (millions) | 3,465.9 | 3,797.0 | 4,317.2 | |||||||||
Weight of cargo carried (thousands of tons) | 944.3 | 1,008.7 | 1,102.2 | |||||||||
Total cargo yield (cargo revenues/RTKs, in U.S. cents) | 32.0 | 35.0 | 39.7 | |||||||||
Total cargo load factor (%) | 51.7 | % | 53.6 | % | 59.8 | % |
For the year ended and as of December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
ATKs (millions) | 6,255.7 | 4,788.1 | 4,708.3 | |||||||||
RTKs (millions) | 3,532.5 | 3,034.9 | 3,077.8 | |||||||||
Weight of cargo carried (thousands of tons) | 900.6 | 801.5 | 784.6 | |||||||||
Total cargo yield (cargo revenues/RTKs, in U.S. cents) | 48.9 | 50.8 | 39.3 | |||||||||
Total cargo load factor (%) | 56.5 | % | 63.4 | % | 65.4 | % |
We derive our revenues roughly equally betweenfrom the transport of cargo as follows:
1)Belliesthrough our dedicated freighter fleet and in the bellies of our passenger aircraft. We consider ouraircraft.
LATAM considers its passenger network to be a key competitive advantage due to the synergies between passenger and cargo operations and, accordingly, we have developed a strategy to increase ouraimed at increasing competitiveness by enhancing ourthe belly offering.
2)Dedicated LATAM primarily uses the belly of the passenger aircraft for cargo operations. During the first quarter of 2022 LATAM also flew passenger freighter fleet. flights where the main deck was also utilized for cargo transportation.
As of December 31, 2016, our dedicated2022, the cargo affiliates’ freighter fleet under operation consisted of eight9 Boeing767-300 freighters and 7 Boeing 767-300BCF, each with a capacity for 58 structural tons of freight each, and two Boeing777-200 freighters, each with a capacity of 102 structuralchargeable tons of freight. In 2016 we continued ourThe group expects to continue to grow its freighter fleet optimization efforts, subleasing three B767-300F aircraft and one B777-200F to a third party (reclassified from property, plant and equipmenttotal of 20 aircraft by 2024 through the conversion of passenger Boeing 767-300 aircraft to held for sale as of December 31, 2016). Ourfreighters. The freighter fleet program has two main focus areas: first, to support the group’s belly business, improving its load factor by feeding cargo into our passenger routes, and second, to provideenhance our product offering by providing our customers flexibility in scheduling, origins, destinations and destinations. With these two objectivestypes of cargo.
The United States is the main market for cargo traffic to and from Latin America. Besides being the main market for Latin American exports by air, cargo consolidated in mind,the United States accounts for the majority of the goods transported by air to Latin American countries. Accordingly, we are complementing and enhancinghave headquartered our network. Ininternational cargo operations in Miami. This geographical location is a natural gateway between Latin America and the principalUnited States. We also utilize passenger flights to and from New York, Los Angeles and Orlando and our seasonal dedicated freighter service to Chicago. Additionally, using different trucking companies LATAM offers a road-feeder network, connecting our hub in Miami and other online destinations with the main gateways in the United States (Los Angeles, New York, Chicago, Houston and Atlanta), in between the cities in which we operate and to secondary origins ofand destinations.The LATAM group also transports cargo to and from 10 destinations in Europe: Barcelona, Lisbon, London, Milan, Paris, Rome, Frankfurt, Madrid, Amsterdam and Zaragoza. The first six points are served only via passenger aircraft. Frankfurt and Madrid are served by both passenger and freighter aircraft, while Amsterdam and Zaragoza are only served through freighter operations. The group offers a road-feeder service within Europe to expand our cargo are footprint and balance traffic between our different origins.
Chile, Colombia, Perú,Peru, Ecuador, Brazil and Argentina, whichBrazil represent a large part of ourthe northbound traffic. This demand is mainly concentrated on a small number of product categories, such as exports of fish, sea products and fruits from Chile, asparagus and fruits from Peru, and exports of fresh flowers from Ecuador and Colombia.
For our
The main destinations for southbound flights,traffic are Brazil, is the main import market.Chile, Colombia and Peru. Southbound demand is mainly concentrated on a small number of product categories including high-tech equipment, mining equipment, electronics, auto parts and pharmaceuticals.
Our
The largest domestic cargo operations are in Brazil, where LATAM Cargo remainsBrazil is the market leader there,only wide body freighter operator, carrying cargo for a variety of customers, including other international air carriers, freight-forwarding companies, export-orientedlogistics operators, e-commerce companies and individual consumers. In order
During 2022, cargo revenues increased by 12%. Total cargo capacity increased 30.7% with a 20.8% increase in freighter capacity. Cargo traffic increased 16.4%, resulting in a 6.9 percentage point decrease of the cargo load factor. This capacity increase was mainly driven by the recovery of industry capacity returning to maintain its leadership, LATAMpre-pandemic levels. Cargo continuesyield fell 3.8% year-over-year. As a result, revenues per ATK decreased 14.3% in comparison to investthe previous year. Over 235 passenger freighter flights were operated; resulting in infrastructure, service and securityover 901 cargo tons transported on passenger freighters during this year. As part of our solidarity plane program, in key cargo terminals.
The United States accounts for the majority2022 we flew over 117 million doses in our domestic markets free of cargo traffic to and from Latin America. Besides being the main market for Latin American exports by air, the United States is also the main supplier of goods transported by air to Latin American countries. We have thus headquartered our international cargo operations in Miami. This geographical location is a natural gateway between Latin America and the United States. We also transport cargo to and from eight destinations in Europe: London, Madrid, Milan, Paris, Barcelona, Frankfurt, Amsterdam and Basel. The first six are served via passenger aircraft, and we also serve Amsterdam, Frankfurt and Basel through freighter operations. In October 2016 LATAM Cargo added a new operation to its belly network: Sao Paulo, Brazil – Johannesburg, South Africa, opening a gateway between Latin American markets and the African continent.
During 2016, cargo traffic decreased 8.7%, mainly duecharge, amounting to a strong decline in Brazilian imports resulting from economic weakness and currency depreciation in Brazil. However, Latin American exports remain at healthy levels, despite a contraction in productiontotal of fresh salmon in Chile.more than 300 million since the start of the pandemic.
The cargo business in the region is highly competitive, as international and regional carriers often have spare capacity in their cargo operations. Despite this, we haveIn the region, LATAM group has been able to maintain solid market shares through an efficient utilization of ourthe fleet and network. Today, on Latin America-United States routes, ourThe main competitors are Centurion, Avianca Cargo,can be divided into three categories. Hybrid carriers, operating mixed fleets of belly and freighters such as AirFrance-KLM, Lufthansa, Qatar, Ethiopian, Korean Airlines and Avianca; pure freighters such as Atlas, AirCargolux and Centurion; and, full belly such as IAG, American Airlines and United Airlines. On the Latin America-Europe routes, our main competitors are Cargolux, Lufthansa Cargo, MartinairCarriers operating freighters have greater flexibility and Emirates Airlines.
Marketing and Sales
Our cargo sales and marketing efforts are carried out directly in cities where we havemixed routings that allows them to serve a local office, or through general sales agents. In total, we have over 30 international offices. In Latin America, we have our own offices in all key markets. In the United States, we have offices in Miami, New York and Los Angeles, and work with representatives in various other cities. In Europe, we have offices in Frankfurt, Amsterdam, Madrid and Paris and use agents in other key cities. In Asia our sales efforts are conducted through general sales agents. In total, we maintain a network of more than 30 independent cargo sales agencies domestically and internationally.
Our cargo marketing strategy emphasizes the combination of our unique freighter and passenger aircraft cargo network, which offers a widewider variety of reliable cargo routing possibilities with different pricing options; strong connectivitymarkets, diversifying their portfolio while pure belly carriers tend to fromhave more stable service and within Latin America; and a clear focus on providing high-quality service for our clients. Our offering allows our customersare usually limited to ship large, bulky freight, as well as smaller, high-density cargo, fresh products, express shipments and other typestheir countries of cargo.origin.
During 2016 we focused on various aspects of our value chain to improve our customer experience. We developed a new portfolio of LATAM Cargo products with an innovative proposition aligned to the needs of customers, allowing us to deliver greater consistency and a clear service offering to the market. In line with this, we made progress in transforming the Company’s internal processes to ensure they are aligned with our commitments to clients.
Cargo Agreements
During 2016 we maintained our Enhanced Cargo Transfer Interline and other commercial agreements with Asian carriers such as Air China, Korean Air and Cathay Pacific, among others. Under these agreements, we receive space allocations to move our cargo from the main gateways in Asia to hubs in the United States—Los Angeles, New York and Miami—and in Europe, where we can connect with our cargo network. In exchange, we provide these airlines with space from these same hubs in the United States and Europe to all of our Latin American destinations and also provide them with westbound cargo. These agreements have allowed us to achieve greater visibility, improved support and allowed us to provide better service recovery, further expanding our network between Latin America and Asia.
Cargo-Related Investigations
See “Item 8. Financial Information—A.Information-A. Consolidated Financial Statements and Other Financial Information—LegalInformation-Legal and Arbitration Proceedings.”
Fleet
General
Following the emergence from our Chapter 11 proceedings and from the Initial Petition Date to December 31, 2022, the group rejected a total of 42 aircraft, agreed on stipulations with its lessors for more favorable rent terms, negotiated lease amendments and new lease agreements and reincorporated 16 aircraft with new leases. As of December 31, 2016, we operated2022, LATAM had a total fleet of 329310 aircraft, comprised of 319294 passenger aircraft and 10 cargo aircraft. Additionally, we subleased four16 cargo aircraft, (this includes 34 aircraft that are classified as non-current assets available for sale; see Note 13 of our audited consolidated financial statements). The group’s fleet may continue to third parties (one of them not included inchange after the table below as it was reclassified from property plantdate hereof. For further information, see “Item 4. Information on the Company-B. Business Overview-Chapter 11 Proceedings through 2022” and equipment held for sale).“Item 4. Information on the Company-B. Business Overview-Recent Developments After January 1, 2023.”
Number of aircraft in operation | ||||||||||||||||||||
Total | Owned(1) | Operating Lease | Average term of lease remaining (years) | Average age (years) | ||||||||||||||||
Passenger aircraft(2) | ||||||||||||||||||||
Airbus A320-Family Aircraft | ||||||||||||||||||||
AirbusA319-100 | 48 | 36 | 12 | 3.4 | 9.2 | |||||||||||||||
AirbusA320-200 | 146 | 93 | 53 | 2.6 | 8.6 | |||||||||||||||
AirbusA321-200 | 47 | 30 | 17 | 9.3 | 2.7 | |||||||||||||||
Airbus A320-200neo | 2 | 1 | 1 | 9.7 | 0.2 | |||||||||||||||
Airbus A350-Family Aircraft | ||||||||||||||||||||
AirbusA350-900 | 7 | 5 | 2 | 11.8 | 0.5 |
Boeing Aircraft Boeing767-300ER Boeing787-8 Boeing787-9 Boeing 777-300ER Total passenger aircraft Cargo aircraft Boeing767-300 Freighter(3) Boeing777-200 Freighter(4) Total cargo aircraft Total fleet 37 34 3 2.6 8.5 10 6 4 9.2 3.1 12 4 8 10.8 1.2 10 4 6 2.1 5.7 319 213 106 4.8 7.0 11 8 3 2.0 13.1 2 2 0.4 7.6 13 8 5 1.4 12.2 332 221 111 4.7 7.2
Number of aircraft in operation | ||||||||||||||||||||
Total | Aircraft included in Property, plant and equipment | Aircraft included as Rights of use assets | Average term of lease remaining (years) | Average age (years) | ||||||||||||||||
Passenger aircraft(1) | ||||||||||||||||||||
Airbus A320-Family Aircraft | ||||||||||||||||||||
Airbus A319-100 | 41 | (3) | 40 | (3) | 1 | 2.78 | 14.65 | |||||||||||||
Airbus A320-200 | 131 | (4) | 91 | (4) | 40 | 6.50 | 12.89 | |||||||||||||
Airbus A321-200 | 49 | 19 | 30 | 6.53 | 8.61 | |||||||||||||||
Airbus A320-neo | 16 | 1 | 15 | 10.80 | 3.30 | |||||||||||||||
Boeing Aircraft | ||||||||||||||||||||
Boeing 767-300ER | 16 | (5) | 16 | (5) | 0 | 0 | 12.87 | |||||||||||||
Boeing 787-8 | 10 | 4 | 6 | 6.54 | 9.12 | |||||||||||||||
Boeing 787-9 | 21 | 2 | 19 | 7.92 | 6.14 | |||||||||||||||
Boeing 777-300ER | 10 | 4 | 6 | 4.57 | 11.68 | |||||||||||||||
Total passenger aircraft | 294 | 177 | 117 | 7.19 | 11.22 | |||||||||||||||
Cargo aircraft | ||||||||||||||||||||
Boeing 767-300 Freighter | 16 | (2) | 15 | (2) | 1 | 8.04 | 17.52 | |||||||||||||
Total cargo aircraft | 16 | 15 | 1 | 8.04 | 17.52 | |||||||||||||||
Total fleet | 310 | 192 | 118 | 7.20 | 11.55 |
All passenger aircraft bellies are available for cargo. |
(2) | This includes 2 Boeing 767-300 Freighter aircraft that are classified as non-current assets available for sale. For more information, see Note 13 of our audited consolidated financial statements. |
(3) |
(4) |
(5) | This includes 1 Boeing B767-300ER aircraft that is classified as non-current assets available for sale. For more information, see Note 13 of our audited consolidated financial statements. |
LATAM Airlines Group and its affiliates operate various different aircraft types that are suited for our different services, which include short-haul domestic and intracontinental trips as well as long-haul intercontinental flights. The aircraft have been selected based on their ability to effectively and efficiently serve all of these routes while trying to minimize the number of aircraft families that we operate.
For short-haul domestic and continental flights, LATAM Airlines Group and its affiliates operate Airbus A320-Family aircraft. The Airbus A320-Family has been incorporated into our fleet pursuant to leases and has been acquired directly from Airbus pursuant to various purchase agreements since 1999. For long-haul passengers LATAM Airlines Group and its affiliates operate Boeing 767-300ER, Boeing 787-8 and 787-9, Boeing 777-200ER and 777-300ER.For cargo flights, we operate Boeing 767-300F aircraft.
Utilization
The average utilization rates of LATAM’s aircraft for each of the periods indicated are set forth below, in hours per day.day(1).
2016 | 2015 | 2014 | ||||||||||
Passenger aircraft | ||||||||||||
Boeing767-300ER | 10.0 | 11.3 | 10.5 | |||||||||
Boeing787-8/9 | 11.0 | 11.7 | 10.5 | |||||||||
Airbus A320-Family | 8.9 | 9.5 | 9.8 | |||||||||
Boeing777-300ER | 11.7 | 12.2 | 12.9 | |||||||||
AirbusA330-200 | 4.4 | 6.2 | 7.0 | |||||||||
AirbusA350-900 | 8.5 | 0.8 | — | |||||||||
Cargo aircraft | ||||||||||||
Boeing767-300 Freighter | 12.1 | 10.9 | 9.5 | |||||||||
Boeing777-200 Freighter | 13.7 | 13.0 | 13.2 |
2022 | 2021 | 2020(4) | ||||||||||
Passenger aircraft (2) | ||||||||||||
Boeing 767-300ER | 5.9 | 3.8 | 3.7 | |||||||||
Boeing 787-8/9 | 9.0 | 4.2 | 4.0 | |||||||||
Airbus A320-Family | 8.9 | 6.0 | 4.1 | |||||||||
Boeing 777-300ER | 9.8 | 3.3 | 3.2 | |||||||||
Airbus A350-900 (3) | 0.0 | 0.1 | 3.5 | |||||||||
Total passenger aircraft | 8.7 | 5.4 | 4.0 | |||||||||
Cargo aircraft | ||||||||||||
Boeing 767-300 Freighter | 12.5 | 13.3 | 12.9 | |||||||||
Total cargo aircraft | 12.5 | 13.3 | 12.9 | |||||||||
Total passenger and cargo | 8.9 | 5.7 | 4.3 |
We operate various different aircraft types that are best suited for our different services, which include short-haul domestic and regional trips as well as long-haul transcontinental flights. We have selected our aircraft based on their ability to effectively and efficiently serve these missions while trying to minimize the number of aircraft families we operate.
For short-haul domestic and regional flights, we principally operate Airbus A320-Family Aircraft. The Airbus A320-Family has been incorporated into our fleet pursuant to operating leases or has been acquired directly from Airbus pursuant to various purchase agreements since 1999. In 2016, we received our first two A320neo,re-engined A320s, which incorporate the latest technologies including new generation engines and Sharklet wing tip devices, resulting in approximately 15% in fuel savings compared with the original A320. LATAM was the first airline in the Americas, and the fifth on the world, to operate the A320neo.
For long-haul passenger and cargo flights, we operate Boeing767-300 passenger and cargo aircraft, Boeing787-800 and787-900 aircraft, Boeing 777 passenger and cargo aircraft and the AirbusA350-900 passenger aircraft that started operations in 2015. LATAM is the firstA350-900 operator in the Americas.
(1) | Utilization rates are calculated by dividing total block hours by total aircraft, excluding subleased aircraft. |
(2) | Passenger Utilization excluded Flights in passenger aircraft with only cargo. |
(3) | LATAM retired its A350s in 2021 and they are no longer currently part of the fleet. |
(4) | The value for Total passenger and cargo utilization rate for 2020 was corrected to 4.3 in this filing. |
Fleet Leasing and Financing Arrangements
LATAM’s fleet financing and leasing structures include borrowing from financial institutions and leasing under financial leases, tax leases, sale-leaseback transactions and pure operating leases. As of December 31, 2016,2022, LATAM had 332a total fleet of 310 aircraft, of which three were subleased to third parties1 B767 aircraft, 2 B767 Freighter aircraft, 28 Airbus A319 aircraft, and 3 A320 aircraft are classified as non-current assets available for sale, resulting in 329276 aircraft in operation. Of the aircraft in operation, 156 are operated by LAN and 163 aircraft are operated by TAM and 10 are operated by LATAM Airlines Cargo.
As of December 31, 2016,2022, LATAM’s operating fleet was comprised of 19274 financial leases, 123 tax leases, 102 operating134 operational leases, and 1031 aircraft provided as loan guaranteescollateral, 27 aircraft reserved as collateral for the RCF and 1341 unencumbered aircraft. Most of LATAM’s financial and tax leases are structured with a 12- year12-year initial term. LATAM has 4224 financial aircraft leases supported by the U.S. Export-Import Bank (“EXIM Bank”) and 8537 supported by the European Export Credit Agencies (the “ECAs”). LATAM’s operating lease maturities initially range from threeseven to 12twelve years. Moreover, as of December 31, 2022, LATAM had a total of 153 spare engines, comprising 36 operational leases, 44 engines provided as loan collateral, 18 engines reserved as collateral for the RCF and 55 unencumbered engines.
LATAM’s aircraft debt, which is comprisedconsists of financial and tax leases, is denominated in U.S. dollars and typically has quarterly amortization payments. Both the financial leases and tax leases have a bank (or a group of banks) as counterparty; however, the tax leases also include third parties. 63.1%47% of our aircraft debt has a fixed interest rate and the balanceremaining portion has a floating rate based on USD LIBOR.
In order to reduce TAM’sLATAM Airlines Brazil’s balance sheet FXcurrency exchange exposure to the Brazilian real, as part of the integration plan following the combination with TAM, we haveLATAM Airlines Brazil sought to transfer the majority of the TAMits aircraft under financial leases to the LATAM level.Airlines Group SA. As of December 31, 2016, we have transferred 512022, only 1 aircraft is subject to financial lease by LATAM including 13 transferred during 2016. This program has helped reduce the exposure to approximately US$1.2 billion equivalent.Airlines Brazil. See “Item 5. Operating and Financial Review and Prospects—B.Prospects-B. Liquidity and Capital Resources—SourcesResources-Sources of financing” and “Item 5. Operating and Financial Review and Prospects—B.Prospects-B. Liquidity and Capital Resources—CapitalResources-Capital Expenditures” for a description of expected sources of financing and expected expenditures on aircraft.
The leases provide us with flexibility to adjust our fleet to any demand volatility that may affect the airline industry and therefore we consider such arrangements to be of great value to our strategy and financial performance. The aircraft lease obligation as of December 31, 2022 for all remaining periods through maturity (the latest of which expires in December 2033) was US$1,904 million. See “Item 5. Operating and Financial Review and Prospects-E. Contractual Obligations-Long Term Indebtedness.”
Under the aforementioned leases, LATAM is responsible for all maintenance, insurance and other costs associated with operating these aircraft. The Company has not made any residual value or similar guarantees to our lessors. There are certain guarantees and indemnities to other unrelated parties that are not reflected on the Company’s balance sheet, but we believe that these will not have a significant impact on our results of operations or financial condition.
See Note 31 to our audited consolidated financial statements for a more detailed discussion of these commitments.
Maintenance
LATAM Maintenance
Our
The heavy maintenance, line maintenance and component shops are equipped and certified to service our entirethe group’s fleet of Airbus and Boeing aircraft. OurLATAM’s maintenance capabilities allow usthe group flexibility in scheduling airframe maintenance, offering us an alternative to third-party maintenance providers.
More than 3,900 LATAM Line Maintenance
Our Line Maintenance Network (the “Network”) provides a full range of aircraft maintenance services toprofessionals ensure ourthe fleet operates safely and in compliance with all local and international regulations. We striveLATAM group strives to provide the best experience to ourits passengers through the highest standards of on timesafety, on-time performance and cabin condition.image and functionality.
The heavy maintenance and component repair shop facilities are located in São Carlos (Brazil) and Santiago (Chile), adding up to a total of eleven heavy maintenance production lines, including painting capabilities, and component repair shops, including landing gear, hydraulics, pneumatics, avionics, electroplating, composites, wheels and brakes, emergency equipment, galleys and structures.
In 2022, LATAM Maintenance’s continuous improvement efforts were focused on reducing costs and cash outflows. Therefore, our Digital and LEAN-Six Sigma projects were aimed to raise technician productivity, optimize inventory, diminish repair TATs and develop new internal repair capabilities.
LATAM Line Maintenance
The Line Maintenance Network serves over 190160 locations which are staffed by over 4,000 LATAM maintenance professionals. In 2016, the Network effectivelyand carried out over 2.12.2 million man hours of preventive and corrective maintenance tasks on the LATAM fleet.fleet during 2022. We also rely on certified third party services in a fewmany of our international destinations where it is economically convenient, such as in Frankfurt, (where we are served by Lufthansa Technik)Nayak), Milanand London (served by AirFrance-KLM), and Johannesburg (served by South African Airways).KLM) among others.
LATAM Maintenance has used LEAN methodology and developed computerized systems to achieve improved automation and integration processes, offering sustainable and scalable planning, productive and operational processes.We have deployed more than 600 tablets in order to:
LATAMgroup’s Line Maintenance Network has hangar facilities in Santiago, São Carlos, São Paulo (CGH)(CGH and GRU), Lima, Miami Buenos Aires (AEP) and Brasilia,Bogota, among others. These multiple locations improve the flexibility of the Line Maintenance Network by allowing the execution of tasks that previously might be restricted because of adverse weather conditions and environmental authority restrictions.
In 2022, the GRU station further expanded its capabilities to perform heavy maintenance in its hangar. These capabilities included the landing gear’s replacement for the B777 fleet, in addition to the B777’s C Checks and A320´s landing gear’s replacement performed in 2021. Given the success of this initiative, an additional line was developed at LIM to carry out special 24MO stops for the A320 fleet, taking advantage of the experience and available infrastructure at this hangar.
In order to strictly comply with applicable regulations, all of our maintenance operations are supervised and audited by the local authorities and international entities around the Network, such as DGACDirección General de Aeronáutica Civil in Chile ANAC(“DGAC”), Agência Nacional de Aviação Civil in Brazil (“ANAC”), the Federal Aviation Administration in the United States (“FAA”), the International Air Transport Association Operational Safety Audit (“IOSA”) (from(by the International Air Transport Association or “IATA”) and the International Civil Aviation Organization (“ICAO”), among others. The audits are conducted in connection with each country’s certification procedures and enable us to perform maintenance for the aircraft types registered in the certificating jurisdictions. Our repair stations hold FAAPart-145 certifications under these approvals.
In addition, to ensure the most qualified personnel as needed for safe, accurate andon-time Line Maintenance, we seekLATAM group seeks to improve our technicians’ skills through extensive training programs at our LATAM group Technical Training CenterCenters in Chile and Brazil, and through specific training programs designed and conducted by our partnerships. Our Fleet and Engineering teams participate actively in periodic airline Fleet Reliability meetings, where we share best industry practices and updates of the latest Line Maintenance trends and top technical issues.
LATAM MRO
Our
The two main MRO (“Maintenance, repairRepair and Operations”Overhaul”) facilities, one in São Carlos (Brazil) and one in Santiago (Chile), are equipped and certified to service our fleet of Airbus and Boeing aircraft and provide 76%provided 88.8% of all heavy maintenance services that LATAM demands.demanded in 2022, effectively executed 1.60 million man-hours. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries. The services not executed internally are contracted to our extensive network of MRO partners around the globe. Both MRO facilities are FAAPart-145 certified repair stations. WeLATAM occasionally performperforms certain heavy maintenance and component services for other airlines or OEMs. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries.
In
The MRO São Carlos (LATAM Airlines Brazil MRO), we areis prepared to service up to eightnine aircraft (narrow and wide body) simultaneously with a dedicated hangar for stripping and painting. In this facility we also have 2223 technical component shops, including a full landing gear repair & overhaul shop, hydraulics, pneumatics, electronics, (ATEC), electrical components, electroplating, composites, wheels & brakes, interiors and emergency equipment shops. This facility has a total area of 400 hectares and a hangar area of 100,000 m², with a dedicated runway of 1,720 meters. MRO São Carlos is certified and audited by major international aeronautical authorities such as the FAA, the European Aviation Safety Agency (“EASA”), ANAC Brazil, the Chilean DGAC, the ArgentineanAdministración Nacional de Aviación Civil (“ANAC Argentina”), the EcuadorianDirección General de Aviación Civil(“DGCA”DGAC”), the ParaguayanDirección Nacional de Aeronautica Civil (“DINAC”), and Transport Canada (“TC”), among others, for Heavy Maintenance and Components Repair and Overhaul for the AirbusA-320 family (A318, A319, A320 and A321) and Airbus A330, Boeing 767,ATR-42/72 and the EmbraerE-Jet 170/190 families.767. The MRO also has some minor capabilities for the repair and overhaul of Boeing 777 components. MRO São Carlos includes its own support engineering capabilities and a full technical training center.
In MRO Santiago, located near Comodoro Arturo Merino Benítez International Airport in Santiago, we have two hangars capable of servicing one wide body aircraft and two narrow body aircraft simultaneously. MRO Santiago is certified and audited by FAA, ANAC Brazil, DGAC, ANAC Argentina and DGCA,DGAC Ecuador, among others, for Heavy Maintenance for the Airbus A320-Family (A318, A319, A320 and A321) and Boeing 767.B767 - B787. MRO Santiago has eight11 shops prepared to support hangar activities such as cabin shops, galleys, structures, and composite materials. We also have the capability to retrofit aircraft interiors, including the installation of IFE(in-flight entertainment) equipment and blended winglets in the Boeing 767 fleet.materials, avionic, wheels & brakes.
During 2016,2022, LATAM MRO effectively executed 1.2 millionman-hours in more than 300479 services, including C checks (114)(105) and Special Checks (209)(374) for the LATAM fleet, maintaining our 2015 labor production. Our shops delivered more than 50,000 components and performed 17 landing gear overhauls.fleet.
LATAM Safety and Security
Our most important priority is
In terms of Safety and Security, LATAM has faced an unprecedented scenario during the COVID-19 pandemic and industry recovery. Given this situation, and in order to ensure the health of our employees and customers, LATAM has integrated standards and guidelines set out by world authorities, as well as those established by the different countries where we currently operate. At present, LATAM group exercises constant communication with all of our collaborators and clients in regards to health and safety measures resulting from the COVID-19 pandemic. The safety of our passengers and employees. LATAM has been workingemployees remains LATAM’s highest priority. It is for this reason that we constantly strive to standardize our operational indicators regardingfurther develop and improve standards in order to mitigate everyday risks, and to guarantee an acceptable level of safety audits and emergency response throughoutsecurity in our operations.
The divisions that currently support these functions are Safety Management, Emergency Response Management, and Security Management. These divisions function on the basis
Organizational Structure of uniform policies and procedures issued from the Corporate Safety and Security Vicepresidency located in Santiago, Chile, and that are represented in each affiliated company.
Organization of the LATAM Safety and Security VicepresidencyVice-Presidency
Safety Management
The Safety Management Corporate
We give the highest priority toDepartments ensure that providing safe and reliable air service. We have unified our Safety Managementservice remains LATAM’s highest priority. Given the operational complexity, as well as the multicultural challenges that we face, LATAM group concentrates its safety management activities under the umbrella of a single organization (Corporate) thatcoordinated structure, which is responsible for the definitionimplementation and oversight of processesunified policies and procedures for LATAMthroughout the group.
The core foundation of this department lies within its robust Safety Management and for the oversight of the affiliates that apply and implement those processes and procedures.
All LATAM affiliates have safety management systemSystem (“SMS”) documentation that, which is built upon four main components (Policies and Objectives, Risk Management, Safety Assurance, and Safety Promotion). These components give the SMS a proper structure and provide management with the necessary tools to oversee the safety of our operations. For example, through Flight Data Monitoring (“FDM”), also known as Flight Operations Quality Assurance (“FOQA”), we are able to capture, analyze and even visualize the data recorded during revenue flights and compare it with the company’s Standard Operating Procedures (“SOPs”). In parallel, the Line Operations Monitoring Program (LOMP) permits us to monitor Flight Crew performance and detect errors ahead of time. As a result of these proactive activities, we intend to improve overall safety, increase maintenance effectiveness, and reduce operational costs. The company’s SMS is documented, available internally to all employees, and it provides clear definitions of the functionsguidelines and responsibilities regarding operationalthat each employee must meet, regardless of function or hierarchy, which in turn assures our commitment towards safety for all persons involved, fromas a whole. Furthermore, IOSA certification ensures the top toproper qualification of our employees, including the bottomprovision of the operational structure in the airline.
All systems are IOSA certified and have a Senior Safety Manager who is responsible for each system implementation and for settingwithin the Safety Department, as well as defining standardized procedures for measuring the quality and safety of services provided by third party companies or professional contractorsand contractors.
In 2020, Safety Management has implemented a new approach: Safety II is a new model that affectseeks to learn from good practices of daily operations, rather than focusing merely on operational mistakes and pitfalls. This type of system requires the integration of LATAM’s operational and SMS data, which must be analyzed thoroughly (advanced analytics) in order to predict a safety occurrence. In summary, it is a proactive and predictive method that continuously anticipates potential catastrophic events.
In 2021, several milestones were reached in the Safety II project, including the development of the entire Monitoring, Advanced Qualification Program (Flight Operations Training program), Weather Information, Maintenance reports, Flight Crew Alertness levels and other. This database currently includes more than 660 thousand flights and has the capacity to process and run analysis of approximately 600 thousand flights in just one hour. In September 2021, the project’s Minimum Value Product was successfully presented, as well as operational safety analyzes correlating different variables and more than 10 dashboards for data analysis.
In 2022, LATAM has sought to further strengthen the data collection and processing of LATAM.data from different databases, as well as to strengthen the development of its tools to improve its analysis capacity within the large volume of information.
Security Management
The Security Management Departments are responsible for coordinating the security of LATAM’s passengers, employees, aircraft, equipment and facilities. This department secures LATAM’s infrastructure and patrimony while protecting people against any threat or unlawful action.
Corporate Security Policies and a Security Management System have been implemented to enhance LATAM’s security culture, resource utilization as well as regulatory collaboration and compliance, in order to detect any vulnerabilities within the operation and to prevent unlawful acts. These policies, as well as all the critical aspects of the Management System, are constantly reviewed and analyzed by qualified Corporate Security Managers, who are responsible for risk assessment and the creation of new security protocols or modification of current ones, which are controlled through security personnel, field audits, inspections, technological development (camera circuits, access control, among others) and key performance indicators.
Health Safety Environmental Management (HSE)
Occupational health, safety and environmental management is responsible for defining guidelines to assess and mitigate labor, environmental and employees health risks. It is responsible for setting HSE standards, supporting and implementing procedures defined, and monitoring effective compliance. It also ensures compliance with applicable HSE regulations and promotes the well-being and safety of employees through training and awareness programs, as well as always seeking initiatives focused on mitigating critical risks and new proactive monitoring and control methodologies. Moreover the area supports the implementation of LATAM’s sustainability strategy through a technical expert team.
The biggest milestone of last year was the implementation of a new environmental management system (IEnvA Stage 2) which is currently in process of certification by IATA.
Emergency Response Management
LATAM Emergency Response Management Corporate
The emergency response management team is responsible for the administration of theoverall corporate Emergency Response Plan (“ERP”). implementation. It has been developeddesigned to comply with airline responsibilities (as defined by ICAO) and for overall management, command and control of the effective management ofcrisis response. LATAM ERP sets procedures to deal with different kinds of emergencies (aircraftscenarios, such as aircraft accidents, serious incidents, natural disasters, union strikes and pandemics) withpandemics. ERP establishes specific teams, procedures, and resources to mitigate the purposeimpact of mitigating the impacts ofthese emergencies on our passengers, their families and their relatives, as well as onfor caring about others affected, besides ensuring the continuity of our operations. The ERP includes, among others,is an essential tool to meet the needs for those who need most, and we have different levels of teams prepared to be activated (but is not limited to): Emergency Process and Procedures, Emergency Control Centers, a Relatives & Passengers Assistance Team, a Notification Team, Aircraft Recovery, and a dedicated “Go Team” which is a special team that can be dispatched in the case ofactivated and address an emergency and assume responsibility for emergency management.situation.
Security Management Corporate
The Company ensures the highest levels of security for all of its passengers, employees, aircraft, equipment and facilities against any threats or unlawful action.
Corporate Security policies and a Security Management System (“SeMS”) have been implemented to detect any vulnerabilities in our security operations and to prevent acts of unlawful interference. Through the use of audits, inspections and risk analysis, we are able to establish the different security protocols required in our international and domestic operations. The results of the SeMS are evaluated, analyzed and assigned a risk level (high, medium or low) by LATAM Corporate Security Managers, who are in turn responsible for determining security protocols. In addition, Corporate Security Management oversees all of the security processes and procedures through the execution of annual audits.
Furthermore, every LATAM affiliate has to abide by a Security Program approved by the relevant local authority. These Security Programs provide clear definitions of the security functions required for every operation.
Fuel Supplies
Fuel costs comprise one of the single largest categories of our operating expenses. Over the last years, our fuel consumption and operating expenses have increased due to the significant growth in our operations. However, in 2016 due to the significant drop in the international price of crude oil, LATAM saw a drop in its jet fuel costs. In 2016,2022, total fuel costs represented 23.0%40.3% of our total operating expenses. As of December 31, 2022, crude oil prices increased significantly compared both to December 31, 2021, and December 31, 2019. Our average into-wing price for 20162022 (fuel price plus taxes and transportation costs, including hedge)hedging and gains/losses) was US$1.703.81 per gallon, representing a decreasean increase of 22.2%73% from the 20152021 into-wing average fuel price. We can neither control nor accurately predict the volatility of fuel prices. Despite the foregoing, we believe it is possible to partially offset the price volatility risk through our hedging and fuel surcharge programs, which is in place in both our passenger and cargo business. For more information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—RiskRisk-Risk of Fluctuations in Jet Fuel Prices.”
The following table details our consolidated fuel consumption and operating expenses, after related hedging gains and losses (which exclude fuel costs related to charter operations because fuel expenses are covered by the entity that charters the flight) duringfor the last three years.
Year ended December 31,(1) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Fuel consumption (thousands of gallons) | 1,185,508.8 | 1,221,096.9 | 1,219,882.7 | |||||||||
ASK equivalents (millions) | 205,537.5 | 208,722.5 | 206,197.9 | |||||||||
Fuel gallons consumed per 1,000 ASK equivalents | 5.77 | 5.85 | 5.92 | |||||||||
Total fuel costs (US$ thousands) | 2,056,643 | 2,651,067 | 4,167,030 | |||||||||
Cost per gallon (US$) | 1.70 | 2.19 | 3.42 | |||||||||
Total fuel costs as a percentage of total operating expenses | 23.0 | % | 27.6 | % | 34.8 | % |
Year ended December 31, 2022 (1) | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Fuel consumption (thousands of gallons) | 1,017,158.6 | 677,110.0 | 586,191.5 | |||||||||
ASK (millions) | 113,851.9 | 67,635.7 | 55,688.0 | |||||||||
Fuel gallons consumed per 1,000 ASK | 8.9 | 10.0 | 10.5 | |||||||||
Total fuel costs (US$ thousands) | 3,882,505 | 1,487,776 | 1,045,343 | |||||||||
Cost per gallon (US$) | 3.8 | 2.2 | 1.8 | |||||||||
Total fuel costs as a percentage of total operating expenses | 40.3 | % | 23.9 | % | 17.4 | % |
OurIn our fuel supply arrangementsagreements, we manage different price structures and price update calculations. The main price structure is Jet Fuel plus fixed fees and taxes, and the main fuel price updates are on a weekly, bi-weekly and monthly basis. Brazil, our largest market, bases its price on a refinery posting updated every month, which is set in Brazilian real per liter, plus fees and taxes. Refinery prices in Brazil have stabilized and matched a more transparent import parity model, creating a more competitive and predictable market for the region.
The fuel supply agreements vary by airport and are distributed among 34 providers, but are23 suppliers. Our fuel consumption volume is mainly concentrated in Brazil (42%(43%), Chile (15%(16%), the United States (10%), Peru (11%) and Peru (11%Colombia (7%). During 2016,In 2021, as part of the Chapter 11 proceedings and due to the expiration of some Fuel Supply contracts, were-negotiated negotiated fuel supply in Chile, Perú, USA, Brazil, Argentina and certain major European airports. This negotiation strengthened our relations with global fuel suppliers with long term agreements and generally favorable commercial conditions that are expected to contribute to LATAM´s business plan. In 2022, the fuel supply contracts that were part of long term agreements negotiated in all North American,Chapter 11 continued to be in effect, some of them without inflation escalation, putting LATAM in a favorable competitive position. Finally, at the end of 2022, fuel supply in Chile, Peru, Argentina and major European airports was negotiated for 2023’s operation.
In Chile and certain South American airports.
Regarding our operationsPeru, a fuel import model is used in the United States, we changed our strategy relatedaddition to the term of our agreements. While previously we relied only on short term agreements, in 2016 we established medium term agreements, securingtraditional local refinery supply, creating a more competitive market and ensuring our supply with different sources. During 2018 we implemented the fuel import model in Brazil, by creating a jet fuel import project that will allow imported jet fuel to reach the Terminal of San Sebastian in São Paulo and move from there to Guarulhos, São Paulo’s International Airport. LATAM was awarded pipeline capacity to move product from the Terminal into Guarulhos and became the first airline to do so. In 2019, refinery prices in Brazil stabilized as a result of the fuel import project from LATAM. During 2019 LATAM also worked along with the Latin American and Caribbean Air Transport Association (“ALTA”) to ensure a more competitive refinery price in Uruguay and reached an agreement that lowered its price by approximately 50 cents per gallon and which achieved competitive parity with the rest of the region. During 2020, LATAM worked along with IATA and ALTA in initiatives and financial incentives to help the industry during the crisis, and managed to accomplish a significant price reduction for international prices in Bolivia and a VAT reduction for domestic flights in Colombia. During 2022, the political environment in Europe resulted in a complex market.decrease of jet fuel refining and lack of product, and although the region did not suffer any disruption, it saw an increase in international freight prices and therefore resulted in higher import parity costs for the countries that have that pricing model (Chile, Peru, Brazil, for example).
As part of a comprehensive energy efficiency initiative, LATAM Airlines Groupgroup worked with a team of stakeholders to generate a streamlined fuel efficiency program (the “LATAM Fuel Efficiency Program”), which encompassessencompasses a wide range of different innovations and technologies for fuel efficiency:
● | Investments in more modern and efficient aircraft, such as the Boeing 787 and the Airbus A320neo. Investment has been carried out to perform retrofits to a portion of our Airbus A320 fleet, allowing more efficient standard operational procedures. In 2022, LATAM committed the acquisition of 17 A321Neo to the company’s operations, which will be added to the 70 A320Neo previously acquired, reducing fuel consumption, CO2 and NO emissions for each flight. |
● | Weight reduction measures, such as minimizing unnecessary onboard water, using ultra-light service carts, optimizing fuel according to destination, improving the distribution of weight to have an optimal center of gravity and the improvement of freight factor (the combination of passenger and cargo services). During late 2019 and early 2020, the in-flight magazine was removed from all aircraft, reducing nearly 50 kg from each flight. In addition, work with local authorities in Brazil have allowed for changes in fuel policy regulations, reducing unnecessary route reserve fuel and standardizing said fuel policy with the rest of the region. |
● | As of 2019, LATAM deployed LATAM Pilot Tools, an in-house developed mobile app. This app allows personalized feedback to flight crews, focusing on captain fuel requests and usage, and ground fuel consumption, among other efficiency and safety indicators. As of December 2019, fuel efficiency initiatives were added to the pilot app, giving more visibility to their KPIs and adding significant savings. |
● | Standardized operational procedures on every stage of the flight (taxiing, climb, cruise, approach and landing); for example, changes in climb profiles that generate savings with minimum changes in the workload of the flight crew, or minimizing the use of the auxiliary power unit when aircraft is on the ground. |
● | Monitoring maintenance and performance of the fleet, including frequent engine washes, which allow more efficient combustion of fuel and reduce emissions in airport areas. |
● | Various aircraft retrofits have taken place, among them, engine wiring that allows the reduction of fuel consumption during taxi operations, Auxiliary Power Units replacements for more efficient models, and software updates on them that improve fuel consumption. |
● | Improvements of the flight plan management, including continuous feedback using a post flight analysis tool called Full Tracks developed by the Fuel Team with the support and collaboration of Operations and Safety. This tool allows us to better program and optimize our flight plans. During 2019, we implemented policy changes, optimizing fuel planning according to destination, standardizing policies for all dispatch centers, allowing for centralized performance tracking and unified criteria. |
● | During 2020, in the context of the COVID-19 pandemic, operational parameters flight speed/fuel cost relations (Cost Index) were revised to take into account the new variable cost structure, thus generating optimal Cost Indices for each aircraft to assure the most efficient operation. Regarding flight planning, route optimization was introduced, given the overflight cost reduction presented by some governments, hence allowing for shorter trajectories to be flown between long haul city pairs. |
● | Since 2020, the work together with the Advanced Analytics department has begun in order to generate Machine Learning models, allowing more accurate weight and extra fuel forecasts, as well as the flight route optimization. The department will continue working in this line in order to generate more tools for flight dispatch planning and even for pilots that give them critical recommendations both in flight plan and during flight that directly influence fuel consumption. |
● | During 2022 LATAM implemented the new software from Airbus DPO (Descent Profile Optimization), optimizing the landing trajectory in 200 A320 airplanes. For each year, each airplane is expected to reduce 300 tons of CO2 emissions and 100 tons of fuel consumption. |
● | As a consequence of the COVID-19 pandemic, some operational restrictions related to the efficient Auxiliary Power Unit (also known as “APU”) and air packs usage during on ground, taxiing and in flight operations were established by governments. Between 2020 and the first months of 2022, the fuel consumption of these units increased considerably, still LATAM started conversations with the governments to remove the restrictions, getting back to the pre-pandemic conditions. |
As a direct result of this program, LATAM Airlines Group has beenwas recognized sincebetween 2014 and 2019 by the Dow Jones Sustainability Index as one of the world’s leading companies ineco-efficiency. eco-efficiency (due to LATAM Airlines Group and several of its affiliates filing for Chapter 11 and the LATAM ADRs delisting from the New York Stock Exchange, the group was not eligible to be considered for the Dow Jones Sustainability Index between 2020 and 2022). The magnitude of this program has allowed us to reduce operational costs along with the Company to improve itsimprovement of environmental performance, and to enhance environmental awareness both within the Company and externally.
Ground Facilities and Services
Our
The main operations are based at the Guarulhos Airport in São Paulo, Brazil. The Brazilian affiliate also operates significant ground facilities and services at its headquarters located at Congonhas International Airport in São Paulo, Brazil.
LATAM also has significant operations at the Comodoro Arturo Merino Benítez International Airport in Santiago, Chile, where we operate hangars, aircraft parking and other airport service facilities pursuant to concessions granted by the DGAC.DGAC and other outsourced concessions. We also maintain a customs warehouse at the Comodoro Arturo Merino Benítez International Airport, additional customs warehouses in Chile (Iquique, Antofagasta and Punta Arenas) and Argentina (Aeroparque) and operate cargo warehouses at the Miami International Airport to service our cargo customers. Our facilities at Miami International Airport include corporate offices for our cargo and passenger operations and temperature-controlled and freezer space for imports and exports. We also operate from various other airports in Chile and abroad.
We also operate significant ground facilities and services at LATAM Airlines Brazil’s headquarters located at Congonhas International Airport in São Paulo, Brazil. In 2013, LATAM Airlines Brazil inaugurated two new facilities for ground handling equipment maintenance and repair (at São Paulo’s Guarulhos Airport with 9,000 m² and at Rio de Janeiro’s Galeão Airport with 4,000 m²).
We incur certain airport usage fees and other charges for services performed by the various airports where we operate, such as air traffic control charges,take-off and landing fees, aircraft parking fees and fees payable in connection with the use of passenger waiting rooms andcheck-in counter space.
Ancillary Airline Activities
In recent years, LATAM group has been developing different initiatives to increase its ancillary revenues generated by its airline operations. The implementation of these initiatives aims to offer a better on-board experience, while allowing passengers to customize their journey. LATAM’s customers are able to purchase additional services such as extra luggage, preferred seating options, upgrades to our Premium cabins, among others.
In addition to our airline operations, we generateLATAM generates revenues from a variety of other activities, including aircraft leases (including subleases,dry-leases,wet-leases and capacity sales to certain alliance partners) and charter flights, tours, duty-freein-flight sales, maintenance services for third parties, handling, storage, and customs services, handlingincome from other non-airline products (LATAM Pass) and activities and revenues of Multiplus and the sale of certain LATAM Pass kilometers to third parties.other miscellaneous income. In 2016,2022, LATAM generated other revenues of US$538.7154.3 million from ancillarythese activities.
Insurance
We maintain
LATAM maintains aviation insurance policies as required by law, and in accordance with the terms of all aircraft financing, and leasing agreements, for aircraftits entire fleet (aircraft that LATAM and its affiliates own, operate, and are responsible for or operate. The scope of thesefor).
These policies includes all riskprovide all-risk coverage for aircraft hulls including(including war risks and spares), third-party legal liability for passengers, cargo, baggage, injuries, property damage, and injuriesloss of cargo. LATAM’s policies are in full force and are renewed annually along with IAG Group (British Airways, Iberia, and their affiliates), which allows LATAM to third parties onobtain better premiums and improved coverage at the ground. We also maintain insurance in respectbest level of the assets against the risk ofaviation industry.
LATAM also insures its physical properties and equipment from theft, fire, flood, electrical damageearthquake, hurricane, and similar events for equipment and buildings we own or for which weother damages. In general, LATAM’s vehicles are responsible, including airport areas where we have operations. Similarly, we have contracted for vehicle insuranceinsured against the risk of robbery, theft,damages, fire, and civil liability against third parties forand general liabilities. Additionally, LATAM maintains a casualty insurance policy that provides coverage worldwide.
Information and Digital Technologies
During 2020 and 2021, LATAM launched a new website and mobile app in selected regions to help customers complete their purchases in less time than it took before, and manage payments, refunds and compensations through a digital wallet, all vehicleswhile seeking to strengthen its ancillary offering.
The group is also working on a new airport experience, with automatic check-in, new layouts, and a new kiosk experience. During 2022, we own or for which we are responsible. Our current policies, which are in force through April 1, 2017 and are renewed annually, follow the best practices adopted by the international civil aviation industry.
We have negotiated common terms for Hull All Risk, Aviation Legal Liabilities and Spares coverage, togetherkept expanding airport digitization with IAG Group (the parent of British Airways, Iberia and their affiliates and franchises), which allows us to obtain premium reductions and coverage improvements.
Information Technology
Passenger Service Systems
As part ofseveral projects that positively impacted our agenda of transformation of the customercustomers’ experience, at LATAM, we have redefined our travel experience model and will continue to redesign our passenger service systems with the aim of providing a unified experience to our customers. Since the 2012 combination of LAN and TAM, a series of projects have been implemented to communicate the unification of the companies to our customers. Intense efforts have been made to standardize processes such as passenger recognition, attentionautomatic check-in (used by more than 86% of customers at contact centers, sales officesthe end of 2022), self-bag tag (74% of customers in December) and airports,in-flight services,e-commerceadvancing with self-bag drop implementation (37% of customers in December). Besides that, the flexibility and loyalty programs. However, manyopening of these efforts are partial pending full unificationborders allowed the re-opening and expansion of the two companies’ processes and systems, which is still ongoing.
In 2014, we redefinedseveral international routes, after more than 12 months of impact. Following this trend, our travel experience model based on the needs of our target customer, reinforcing six key elements: transparency of information, early solutions, passenger choice, digital simplicity,end-to-end rapidity, and care for our customer. In ordercustomers can now send their documents digitally prior to implement this model, during 2016 we continued the work of previous years, adopting several measures for the unification of our processes and systems:
From the integration perspective, we continue working to reach a simplified and consistent technological platform. For example, we implemented a unified Revenue Accounting System for the passenger business, and we have improved our airport management, loyalty program, contact center, customer database, and marketing tools applications. We continue to work with SABRE to unify the Passenger Service Platform in an effort to obtain operational and financial synergies, as set forth below.
Fly (Pre-Flight check documentation). During 2017,2023 we expect to continue developing solutions aimed athave an advanced implementation of digital products on customer experience for all the journey, and will face some innovations such as self-boarding (biometric). For more information on other measures, see “Item 4. Information of the Company-B. Business Overview-Passenger Operations-Passenger Marketing and Sales.”
LATAM has also incorporated a dedicated analytics and AI taskforce, focused on network optimization and flight offer personalization, fuel consumption and predictive maintenance.
Regarding compliance, LATAM has periodic reviews by internal and external advisors, alignment with best international practices and approved industry standards such as SOx (Sarbanes-Oxley Law), PCI-DSS (Payment Card Industry Data Security Standard), ISO/IEC 27001 Information Security Management, GDPR (General Data Protection Regulation - Europe) and LGPD (General Data Protection Law - Brazil), Data Protection - Colombia (Law No. 1581, 2012, and Decree No. 1377, 2013), and any other local data privacy laws of each country where LATAM group operates.
LATAM has been preparing itself for cybersecurity challenges, committing resources to tools and capabilities. We have also made progress on improving our customers’ experience.
LATAM PSS Migrationsystems reliability, by adopting industry practices. Finally, we have reduced our technology vendor footprint, and Digital Platform
Priorre-negotiated key contracts to the 2012 combination, LANensure flexibility and TAM used different passenger service platform (“PSP”) solutions, TAM used Amadeus and LAN used SABRE. LATAM has since decided to unify the Passenger Service Platform in an effort to obtain operational and financial synergies. As a result, the PSS Migration Program began in 2014.cost efficiency.
After running a Request for Proposal (“RFP”) process with both providers (SABRE and Amadeus) in May 2015, LATAM signed a10-year contract with SABRE. Since June 2015, LATAM and SABRE have jointly started the execution of PSS Migration, which should be fully implemented by 2018.
Maintenance
In 2013, LATAM Airlines Brazil began a Maintenix implementation project which was completed in the first quarter of 2016. This project included standardization of all of our network’s maintenance processes, permitting optimization of stocks of components and seeking to take advantage of synergies in the maintenance process, while maintaining operational safety as the key pillar.
Disaster Recovery Plan
As of December 2016, LATAM has two data centers in Chile and one in Brazil. Design and configuration of two data centers and a Disaster Recovery Plan for LATAM was completed in 2015 and implementation and testing was done during 2016.
Regulation
Below is a brief reference to the material effects of aeronautical and other regulations in force in the relevant jurisdictions in which we operate.
We are subject to the jurisdiction of various regulatory and enforcement agencies in each of the countries where we operate. We believe we have obtained and maintainmaintained the necessary authority, including authorizations and operative certificates where required, which are subject to ongoing compliance with statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
The countries where we carry out most of our operations are contracting states and permanent members of the ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transportation. The ICAO establishes technical standards for the international aviation industry. In the absence of an applicable local regulation concerning safety or maintenance, the countries where we operate have incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.
Environmental and Noise Regulation.Regulation
There are no material environmental regulations or controls in the jurisdictions in which we operate imposed upon airlines, applicable to aircraft, or that otherwise affect us, except for environmental laws and regulations of general applicability.
In Argentina, Brazil, Colombia, Ecuador, Peru and the United States, aircraft shouldmust comply with certain noise restrictions. We believe ourLATAM’s aircraft substantially compliescomply with all such restrictions. Chilean authorities are planning to pass a noise-related regulation governing aircraft that fly to and within Chile, observing a standard known as “Stage 3 requirements”.requirements.” Our fleet already complies with such standards, so we do not believe that enactment of the proposed standards would impose a material burden on us.
In 2016, the ICAO adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), providing a framework for a global market-based measure to stabilize CO2 emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). With the adoption of this framework, the aviation industry became the first industry to achieve an agreement with respect to its CO2 emissions. The scheme, which defines a unified standard to regulate CO2 emissions in international flights, will beis being implemented in various phases by ICAO member states starting in 2020.2021 (with the voluntary member states).
Safety and Security.Security
Our operations are subject to the jurisdiction of various agencies in each of the countries where we operate, which set standards and requirements for the operation of aircraft and its maintenance.
In the United States, the Aviation and TransporationTransportation Security Act requires, among other things, the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security required under the Aviation Security Act is provided in part by a US$5.60 per segment passenger security fee, subject to a US$11.20 per roundtripround-trip cap; however, airlines are responsible for costs in excess of this fee. Implementation of the requirements of the Aviation Security Act has resulted in increased costs for airlines and their passengers. Since the events of September 11, 2001, the United States Congress has mandated, and the TSA has implemented, numerous security procedures and requirements that have imposed and will continue to impose burdens on airlines, passengers and shippers.
Below are some specific aeronautical regulations related to route rights and pricing policy in the countries where we operate.
Chile
Aeronautical Regulation
Both the Dirección Nacional de Aeronáutica Civil (“DGAC”)DGAC and the Junta de Aeronáutica Civil (“JAC”) oversee and regulate the Chilean aviation industry. The DGAC reports directly to the Chilean Air Force and is responsible for supervising compliance with Chilean laws and regulations relating to air navigation. The JAC is the Chilean civil aviation authority. Primarily on the basis of Decree Law No. 2,564, which regulates commercial aviation, the JAC establishes the main commercial policies for the aviation industry in Chile and regulates the assignment of international routes and the compliance with certain insurance requirements, while the DGAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authority from the Chilean government to conduct flight operations, including authorization certificates from the JAC and technical operative certificates from the DGAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
Chile is a contracting state, as well as a permanent member, of the ICAO. Chilean authorities have incorporated ICAO’s technical standards for the international aviation industry into Chilean laws and regulations. In the absence of an applicable Chilean regulation concerning safety or maintenance, the DGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.
Route Rights
Domestic Routes.Routes: Chilean airlines are not required to obtain permits in order to carry passengers or cargo on any domestic routes, but only to comply with the technical and insurance requirements established respectively by the DGAC and the JAC. There are no regulatory barriers that would prevent a foreign airline from creating a Chilean subsidiary and entering the Chilean domestic market using that subsidiary. On January 18, 2012 the Secretary of Transportation and the Secretary of Economics of Chile announced a unilateral opening of the Chilean domestic skies. This was confirmed onin November 2013, and has been in force since that date.
International Routes.Routes: As an airline providing services on international routes, LATAM is also subject to a variety of bilateral civil air transportation agreements that provide for the exchange of air traffic rights between Chile and various other countries. There can be no assurance that existing bilateral agreements between Chile and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.
International route rights, as well as the corresponding landing rights, are derived from a variety of air transportation agreements negotiated between Chile and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Chile, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the JAC awards it through a public auction for a period of five years. The JAC grants route frequencies subject to the condition that the recipient airline operateoperates them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the JAC may terminate its rights to that route. International route frequencies are freely transferable. In the past, we have generally paid only nominal amounts for international route frequencies obtained in uncontested auctions.
Airfare Pricing Policy.Policy
Chilean airlines are permitted to establish their own domestic and international fares without government regulation. For more information, see “—Antitrust“-Antitrust Regulation” below. In 1997, the Antitrust Commission approved and imposed a specific self-regulatory fare plan for our domestic operations in Chile consistent with the Antitrust Commission’s directive to maintain a competitive environment. According to this plan, we must file notice with the JAC of any increase or decrease in standard fares on
routes deemed“non-competitive” “non-competitive” by the JAC and any decrease in fares on “competitive” routes at least 20 days in advance. We must file notice with the JAC of any increase in fares on “competitive” routes at least 10 days in advance. In addition, the Chilean authorities now require that we justify any modification that we make to our fares onnon-competitive routes. We must also ensure that our average yields on anon-competitive route are not higher than those on competitive routes of similar distance.
Argentina
Peru
Aeronautical Regulation
Both the Administración Nacional de Aviación Civil (“ANAC”) and the Ministry of Transport oversee and regulate the Argentinean aviation industry. ANAC regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management, and reports directly to the Ministry of Transport. ANAC also is responsible for supervising compliance with Argentinean laws and regulations relating to air navigation. The Ministry of Transport regulates the assignment of international routes and matters related to tariff regulation policies. We have obtained and maintain the necessary authorizations from the Argentinean government to conduct flight operations, including authorization certificates and technical operative certificates from ANAC, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
Argentina is a contracting state and a permanent member of the ICAO, an agency of the United Nations established in 1947 to assist in the planning and development of international air transport. The ICAO establishes technical standards for the international aviation industry, which Argentinean authorities have incorporated into Argentinean laws and regulations. In the absence of applicable Argentinean regulation concerning safety or maintenance, the ANAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all such relevant technical standards.
Route Rights
Domestic Routes. In Argentina, airlines are required to obtain permits in connection with carrying passengers or cargo on any domestic routes, and to comply with the technical requirements established by the local authority. There are no regulatory barriers preventing a foreign airline from creating an Argentine subsidiary and entering the Argentine domestic market using that subsidiary. However, ownership of such subsidiary by the foreign airline may not be direct, but through a subsidiary formed in Argentina, which in turn may be directly or indirectly owned by the foreign company. However, such subsidiary should operate Argentine-registered aircraft and employ Argentine aeronautical personnel.
International Routes. As an airline providing services on international routes, LATAM Argentina is also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Argentina and various other countries. There can be no assurance that existing bilateral agreements between Argentina and foreign governments will continue. Furthermore, a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.
International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Argentina and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Argentina, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. ANAC grants route frequencies subject to the condition that the recipient airline operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the ANAC may terminate its rights to that route.
Airfare Pricing Policy. Argentine airlines are permitted to establish their own international fares without government regulation, as long as they do not abuse any dominant market position they may enjoy. However, there are government-fixed minimum prices for domestic flights. Government-fixed maximum prices were in place until February 3, 2016, when the government eliminated the controls that limited maximum prices, while retaining the minimum prices.
Peru
Aeronautical Regulation
The Peruvian DGAC (“PDGAC”Dirección General de Aeronáutica Civil (the “PDGAC”) oversees and regulates the Peruvian aviation industry. The PDGAC reports directly to the Ministry of Transportation and Communications and is responsible for supervising compliance with Peruvian laws and regulations relating to air navigation. In addition, the PDGAC regulates the assignment of national and international routes, and the compliance with certain insurance requirements, and it regulates flight operations, including personnel, aircraft and security standards, air traffic control and airport management. We have obtained and maintain the necessary authorizations from the Peruvian government to conduct flight operations, including authorization and technical operative certificates, the continuation of which is subject to the ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
Peru is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Peruvian authorities have incorporated into Peruvian laws and regulations. In the absence of an applicable Peruvian regulation concerning safety or maintenance, the PDGAC has incorporated by reference the majority of the ICAO’s technical standards. We believe that we are in material compliance with all relevant technical standards.
Route Rights
Domestic Routes.Routes: Peruvian airlines are required to obtain permits in connection with carrying passengers or cargo on any domestic routes and to comply with the technical requirements established by the PDGAC.Non-Peruvian airlines are not permitted to provide domestic air service between destinations in Peru.
International Routes.Routes: As an airline providing services on international routes, LATAM Airlines Peru is also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Peru and various other countries. There can be no assurance that existing bilateral agreements between Peru and foreign governments will continue, and a modification, suspension or revocation of one or more bilateral treaties could have a material adverse effect on our operations and financial results.
International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Peru and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Peru, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency, the PDGAC awards it through a public auction for a period of four years. The PDGAC grants route frequencies subject to the condition that the recipient airline operateoperates them on a permanent basis. If an airline fails to operate a route for a period of 90 days or more, the PDGAC may terminate its rights to that route. In recent years the PDGAC has revoked the unused route although that has never happened in practice.frequencies of several Peruvian operators.
Ecuador
Aeronautical Regulation
There are two institutions that control commercial aviation on behalf of the State: (i) The NationalConsejo Nacional de Aviación Civil Aviation Board (“CNAC”(the “CNAC”), which directs aviation policy; and (ii) ( the General Civil Aviation Bureau (“EDGAC”“DGAC”), which is a technical regulatory and control agency. The CNAC issues operating permits and grants operating concessions to national and international airlines. It also issues opinions on bilateral and multilateral air transportation treaties, allocates routes and traffic rights, and approves joint operating agreements such as wet leases and shared codes.
Fundamentally, the EDGACDGAC is responsible for:
● | ensuring that the national standards and technical regulations and international ICAO standards and regulations are observed; |
● | keeping records on insurance, airworthiness and licenses of Ecuadorian civil aircraft; |
● | maintaining the National Aircraft Registry; |
● | issuing licenses to crews; |
● | controlling air traffic control inside domestic air space; |
● | approving shared codes; and |
● | modifying operations permits. |
The EDGACDGAC also must comply with the standards and recommended methods of ICAO since Ecuador is a signatory of the 1944 Chicago Convention.
Route Rights
Domestic Routes.Routes: Airlines must obtain authorization from CNAC (an operating permit or concession) to provide air transportation. For domestic operations, only companies incorporated in Ecuador can operate locally, and only Ecuadorian-licensed aircraft and dry leases are authorized to operate domestically.
International Routes.Routes: Permits for international operations are based on air transportation treaties signed by Ecuador or, otherwise, the principle of reciprocity is applied. All airlines doing business in Latin America that are incorporated in countries that are members of theComunidad Andina de Naciones (the Andean Community, or “CAN”) obtain their traffic rights on the basis of decisions currently in force under that regime, in particular decision N°582 of 2004, which guarantee free access to markets, with no type of restriction except technical considerations.
Airfare Pricing Policy.Policy
On October 13, 2011, The Statutory Law of Regulation and Control of the Market Power was passed with a purpose to avoid, prevent, correct, eliminate and sanction the abuse of economic operators with market power, as well as to sanction restrictive, disloyal and agreements involving collusive practices. This Law creates a new public entity as the maximum authority of application and establishes the procedures of investigation and the applicable sanctions, which are severe. Rates are not regulated and are subject only to registration. In general, bilateral treaties regarding air transportation provide for airfares to be regulated by the regulation of the country of origin.
Brazil
Aeronautical Regulation
The Brazilian aviation industry is regulated and overseen by the ANAC. The ANAC reports directly to the Civil Aviation Secretary, which is subordinated by the Federal Executive Power of this country. Primarily on the basis of Law No. 11.182/2005, the ANAC was created to regulate commercial aviation, air navigation, the assignment of domestic and international routes, compliance with certain insurance requirements, flight operations, including personnel, aircraft and security standards, air traffic control, in this case sharing its activities and responsibilities with theDepartamento de Controle do Espaço Aéreo (Department of Airspace Control) (“DECEA”Control or “DECEA”),which is a public secretary also subordinated to the Brazilian Defense Ministry, and airport management, in this last case sharing responsibilities with theEmpresa Brasileira de Infra-Estrutura Aeroportuária (the Brazilian Airport Infrastructure Company, or “INFRAERO”), a public company that was created by Law No. 5862/72, and is responsible for administrating, operating and exploring Brazilian airports industrially and commercially (with the exception of Guarulhos International Airport, Viracopos International Airport and Brasilia International Airport, which were privatized in 2012 and are administrated by concession agreement)airports granted to private initiative).
We have
LATAM group has obtained and maintainmaintains the necessary authority from the Brazilian government to conduct flight operations, including authorization and technical operative certificates from ANAC, the continuation of which is subject to ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future.
ANAC is the Brazilian civil aviation authority and it is responsible for supervising compliance with Brazilian laws and regulations relating to air navigation. Brazil is a contracting state and a permanent member of the ICAO. The ICAO establishes technical standards for the international aviation industry, which Brazilian authorities, represented by the Brazilian Defense Ministry, have incorporated into Brazilian laws and regulations. In the absence of an applicable Brazilian regulation concerning safety or maintenance, ANAC has incorporated by reference the majority of the ICAO’s technical standards.
Route Rights
Domestic Routes.Routes: Brazilian airlines operate under a public services concession, and for that reason Brazilian airlines are not required to obtain permits in connection witha concession to provide passenger and cargo air transportation services from the Brazilian authorities. In addition, an Air Operator Certificate (“AOC”) is also required for Brazilian Airlines to provide regular domestic passenger or cargo transportation but onlyservices. Brazilian Airlines also need to comply with theall technical requirements established by ANAC.the Brazilian Aviation Authority (ANAC). Based on the Brazilian Aeronautical Code (“CBA”) established by Brazilian Federal Law No. 7.565/7,565/86, there are no limitations to ownership of Brazilian airlines by foreign investors. The CBA also states that non-Brazilian airlines are not permittedauthorized to provide domestic air service between destinationstransportation services in Brazil. The same law prevents a foreign airline from creating aBrazil
International Routes: Brazilian subsidiary and entering the Brazilian domestic market using that subsidiary.
International Routes. Brazilian andnon-Brazilian airlines providing services on international routes are also subject to a variety of bilateral civil air transport agreements that provide for the exchange of air traffic rights between Brazil and various other countries. International route rights, as well as the corresponding landing rights, are derived from a variety of air transport agreements negotiated between Brazil and foreign governments. Under such agreements, the government of one country grants the government of another country the right to designate one or more of its domestic airlines to operate scheduled services to certain destinations of the former and, in certain cases, to further connect to third-country destinations. In Brazil, when additional route frequencies to and from foreign cities become available, any eligible airline may apply to obtain them. If there is more than one applicant for a route frequency ANAC must carry out a public bid and award it to the elected airline. ANAC grants route frequencies subject to the condition that the recipient airline operateoperates them on a permanent basis. If an airline failsANAC’s resolution 491/18 indicates the requirements to operateestablish the underuse of a route for a period of six months or more, ANAC may terminate its rights to that route. ANAC may also terminate its right if the recipient airline does not operate at least 80%frequency, and how it could be revoked and reassigned. This provision of the frequency given for that specific route.resolution came into force in September 2019.
Airfare Pricing Policy.
Brazilian andnon-Brazilian airlines are permitted to establish their own international and domestic fares, in this last case only for Brazilian airlines, without government regulation, as long as they do not abuse any dominant market position they may enjoy. Airlines may file complaints before the Antitrust Court with respect to monopolistic or other pricing practices by other airlines that violate Brazil’s antitrust laws.
Colombia
Aeronautical Regulation
The governmental entity in charge of regulating, directing and supervising civil aviation in Colombia is the Aeronáutica Civil (“AC”(the “AC”), a technical agency ascribed to the Ministry of Transportation. The AC is the aeronautical authority for the entire domestic territory, in charge of regulating and supervising the Colombian air space. The AC may interpret, apply and complement all civil aviation and air transportation regulation to ensure compliance with the Colombian Aeronautical Regulations (“RAC”). The AC also grants the necessary permits for air transportation.
Route Rights
The AC grants operation permits to domestic and foreign carriers that intend to operate in, from and to Colombia. In the case of Colombian airlines, in order to obtain the operational permit, the company must comply with the RAC and fulfill legal, economic and technical requirements, in order to later be subject to public hearings where the public convenience and necessity of the service is considered. The same process must be followed to add national or international routes,routes; whose concession is subject to the bilateral instruments entered into by Colombia. The only exception for not complying with the public hearing procedure is that the application comes from a country member of the CAN, or that the route or permit being applied for is part of a deregulated regime. Even if it does not go through the public hearing process, the airline must submit a complete study to the AC and the request is made public on the website of the authority. Routes cannot be transferred under any circumstance and there is no limit to foreign investment in domestic airlines.
Airfare Pricing Policy.Policy
Since July 2007, as stated in resolution 3299 of the Aeronautical Civil entity, bottom level airfares for both international and domestic transportation were eliminated. Under resolution 904 issued in February 2012, the Aeronautical Civil authority ceased to impose the obligation of charging a fuel surcharge for both domestic and international transportation of passengers and cargo. As of April 1, 2012, air carriers may now freely decide whether or not to charge a fuel surcharge. In the case that a fuel surcharge is charged, it must be part of the fare, but shall be informed separately on the tickets, advertising or other methods of marketing used by the company.
In the same line, as of April 1, 2012, there is no longer any restriction on maximum fares published by the airlines or with respect to the obligations for air carriers to report to the Aeronautical civil authority the fares and conditions the day after being published.
Administrative fares are not subject to any changes, and its charge is mandatory for the transport of passengers under Aeronautical Civil Regulations. Differential administrative fares apply to ticket sales made through internetInternet channels.
Antitrust Regulation
Chile
The Chilean antitrust authority, which we refer to as the Antitrust Court (previously the Antitrust Commission)National Economic Prosecutor Office (“FNE” by its Spanish name), oversees and investigates antitrust matters, which are governed by Decree Law No. 211 of 1973, as amended, or the Antitrust“Antitrust Law.” The Antitrust Law prohibitsstates as anticompetitive, any entity from preventing, restrictingconduct that prevents, restricts or distortinghinders competition, in any market or any part of any market. sets out to produce said effects.
The Antitrust Law also prohibits any businesscontinues by giving examples of the following anticompetitive conducts: (i) cartels; (ii) abuse of dominance; and (iii) interlocking. The Antitrust Law defines abusive practices as “The abusive exploitation on the part of an economic agent, or businesses that havea group thereof, of a dominant position in anythe market, fixing sale or purchase prices, imposing on a substantial partsale the acquisition of anyanother product, allocating territories or market from abusing thatquotas or imposing similar abuses on others; as well as predatory practices, or unfair competition, carried out with the purpose of reaching, maintaining or increasing a dominant position. position.”
An aggrieved person may sue for damages arising from a breach of Antitrust Law and/or file a complaint withby suing in the AntitrustChilean Competition Court requesting an order to enjoin the violation of the Antitrust Law.(the “TDLC” by its Spanish name). The Antitrust CourtTDLC has the authority to impose a variety of sanctions for violations of the Antitrust Law, includingincluding: (i) the amendment or termination of contracts contraryacts and contracts; (ii) the amendment or dissolution of legal entities involved in the punished conducts; and/or (iii) the imposition of a fine up to 30% of the sales of the infringing entity corresponding to the Antitrust Law, dissolutionline of products and/or services associated to the infraction, during the entire term for which the infringement lasted; alternatively, a companyfine equal to the double of the economic benefit obtained by the infringing company; and impositionwhen none of fines and daily penalties on businesses. Courts may award damages and other remedies (such as an injunction) in appropriate circumstances. these alternatives can be applied, a fine up to USD 50,000,000 approximately (60,000 UTA).
As described above under “—Route Rights—Airfare“-Route Rights-Airfare Pricing Policy,” in October 1997, the Antitrust CourtResolution N°445 of August 1995, the TDLC approved a merger control transaction between LAN Chile and LADECO, but imposed a specific self-regulatory fare plan for usdomestic air passenger market consistent with the Antitrust Court’sTDLC’s directive to maintain a competitive environment within the domestic market. This Airfare Pricing Policy Plan was updated by the TDLC particularly to maintain its objective which consists of a tariff regulation, through which maximum rates are established on non-competitive routes under a monthly compliance scheme.
Since October 1997, LATAM and LATAM Chile follow a self-regulatory plan, which was modified and approved by the Tribunal de la Libre Competencia (the Competition Court)TDLC in July 2005, and further in September 2011. In February 2010, the Fiscalía Nacional Economica (the National Economic Prosecutor’s Office) finalizedFNE closed the investigation initiated in 2007 regarding our compliance with this self-regulatory plan and no further observations were made.
As a condition to the combination between LAN and TAM in
In June 2012, the antitrust authorities in Chile and in Brazil each imposed certain mitigation measures as part of their approval of the combination .LAN - TAM transaction. Furthermore, the association was also submitted to the antitrust authorities in Germany, Italy, Spain and Spain.Argentina. All these jurisdictions granted unconditional clearances for this transaction. The association was filed with the Argentinean antitrust authorities, which approval is still pending. For more information regarding these mitigation measures please see below:
Chile
On September 21, 2011, the TDLC issued a decision (the “Decision”) with respect to the consultation procedure initiated on January 28, 2011, in connection with the proposed combination between LAN and TAM. The TDLC, in the Decision, approved the proposed combination between LAN and TAM, subject to 14 conditions, as generally described below:
1. exchange of certain slots in the Guarulhos Airport at São Paulo, Brazil;
2. extension of the frequent flyer program to airlines operating or willing to operate the Santiago-São Paulo, Santiago-Río de Janeiro, Santiago-Montevideo and Santiago-Asunción routes during the five-year period from the effective time of the combination;
3. execution of interline agreements with airlines operating the Santiago-São Paulo, Santiago-Río de Janeiro and Santiago-Asunción routes;
4. certain capacity and other transitory restrictions applicable to the Santiago-São Paulo route;
5. certain amendments to LAN’s self-regulatory fare plan approved by the TDLC with respect to LAN’s domestic passenger business;
6. the obligation of LATAM to renounce to one global airline alliance within 24 months from the date in which the combination becomes effective, except in the case that the TDLC approves otherwise, or to elect not to participate in any global airline alliance;
7. certain restrictions on code-sharing agreements outside the global airline alliance to which LATAM belongs for routes with origin or destination in Chile or that connect to North America and Europe, or with Avianca/TACA or Gol for international routes in South America, including the obligation to consult with, and obtain approval from, the TDLC prior to its execution of certain of those codeshare agreements;
8. the abandonment of four air traffic frequencies with fifth freedom rights between Chile and Peru and limitations on acquiring in excess of 75%, as applicable, of the air traffic frequencies in that route and the period that certain air traffic frequencies may be granted by the Chilean air transport authorities to LATAM;
9. issuance of a statement by LATAM supporting the unilateral opening of the Chilean domestic skies (cabotage) and abstention from any actions that would prevent such opening;
10. promotion by LATAM of the growth and normal operation of the Guarulhos (Brazil) and Arturo Merino Benítez (Chile) airports, to facilitate access thereto to other airlines;
11. certain restrictions regarding incentives to travel agencies;
12. to maintain temporarily 12 round trip flights per week between Chile and the United States and at least seven round trip non-stop flights per week between Chile and Europe;
13. certain transitory restrictions on increasing fares in the Santiago-São Paulo and Santiago-Río de Janeiro routes for the passenger business and for the Chile-Brazil routes for the cargo business; and
14. engaging an independent consultant, expert in airline operations, which for 36 months, and in coordination with the FNE, will monitor and audit compliance with the conditions imposed by the Decision. |
On or about
Around June 2015, the FNE initiated a legal claim against LATAM before the TDLC alleging that LATAM was not complying with certain mitigation conditions related to the code share agreements with airlines outside LATAM’s global alliance as referenced above. Although LATAM opposed this allegation and responded to the claim accordingly, a settlement agreement was reached between the FNE and LATAM.LATAM (the “Settlement Agreement”). The Settlement Agreement approved by the TDLC on December 22, 2015 terminated the legal proceeding initiated by the FNE and did not establish any violation of the TDLC resolutions or any applicable antitrust regulations by LATAM. The Settlement Agreement did establish the obligation of LATAM to amend/terminate certain code share agreements and contract an independent third party consultant, which would act as an advisor to the FNE to monitor the compliance by LATAM of the Seventh Condition and the Settlement Agreement.
On October 31, 2018, the TDLC approved the joint business agreements between LATAM and American Airlines, and between LATAM and IAG, subject to nine mitigation measures. On May 23, 2019 the Supreme Court of Chile revoked the TDLC decision, and both agreements were rejected. On September 26, 2019, LATAM announced that the JBA with American Airlines would be terminated and, on December 6, 2019, LATAM announced that the JBA with IAG would not be implemented.
As of October 15, 2019, LATAM Airlines Group S.A. was notified that Fiscalía Nacional Económica (“FNE”) begun the investigation Rol N° 2585-19, regarding the Agreement between LATAM Airlines Group S.A. and Delta Airlines Inc. On August 13, 2021, FNE, Delta and LATAM reached an out-of-court-agreement by which the investigation was closed.
On January 31, 2022, LATAM Airlines Group S.A. received a resolution issued by TDLC regarding a LATAM request for clarification about the Seventh Condition of the Decision. This resolution says that paragraphs VII.1 and VII.3 of the mentioned Condition apply to LATAM even if it does not belong to a global airline alliance.
LATAM Airlines Group S.A. and Delta Air Lines successfully reached an agreement on the implementation, along with certain mitigation measures for their Joint Venture Agreement (JVA) with FNE and on October 28, 2021 received approval of the agreement from Chile’s Tribunal de la Libre Competencia (“TDLC”).
Brazil
The Brazilian Council for Economic Defense – CADE approved the LAN/TAM mergerassociation by unanimous decision during theits hearing session ofon December 14, 2011, subject to the following conditions: (1) the new combined group (LATAM) should leave one of the two global alliances to which it was part (Star Alliance oroneworld) oneworld); and (2) the new combined group (LATAM) should offer to swap two pairs of slots in Guarulhos International Airport, to be used by an occasional third party interested in offering directnon-stop flights between São Paulo and Santiago, Chile. These impositions are in line with the mitigation measures adopted by the TDLC, in Chile.
C. ORGANIZATIONAL STRUCTURE
On February 24, 2021 the CADE approved without remedies the joint venture between Delta Air Lines and LATAM Airline Group. Previously, in a separate case, the CADE approved without remedies the acquisition by Delta of up to 20% of LATAM common shares on March 18, 2020.
Uruguay
On December 14, 2020 the antitrust authority of Uruguay (Comisión de Promoción y Defensa de la Competencia) approved the joint venture between LATAM and Delta Air Lines. The same agreement was filed before the aeronautical authority of Uruguay (the Dirección Nacional de Aviación Civil e Infraestructura Aeronáutica) on September 21, 2020 and approved by default on December 20, 2020, as the timeframe provided by the Aeronautical Code Law to the authority in order to resolve on the matter expired (90 days after filing).
United States
On July 8, 2020 LATAM and Delta Air Lines filed their joint venture before the DOT applying for approval of and antitrust clearance for all the alliance agreements.
On September 30, 2022, the U.S. Department of Transportation (“DOT”) approved the joint venture between Delta Air Lines and LATAM Airline Group.
Colombia
On September 4, 2020 LATAM and Delta filed the joint venture before Aerocivil, applying for an approval of the agreement, which was finally received on May 10, 2021.
C. | Organizational Structure |
LATAM operates through seven main airlines:Airlines Group and LATAM Airlines Brazil ownership structure as of February 28, 2023 is as follows:
(*) Qatar owns 9.999999992% of shares over LATAM’s statutory capital, represented by 606,407,693,000 shares.
The LATAM group is composed of LATAM Airlines Group S.A., incorporated in Chile;Chile, and ten main affiliates: Transporte Aéreo S.A. (“LATAM Airlines Chile”), a Chilean subsidiary; LANLATAM Airlines Peru S.A. (“LATAM( “LATAM Airlines Peru”), a Peruvian subsidiary,subsidiary; LATAM-Airlines Ecuador S.A. (“LATAM Airlines Ecuador,” previously Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. (“LATAM Airlines Ecuador”), andan Ecuadorian subsidiary,subsidiary; LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), an Argentinian subsidiary,Argentine subsidiary; Aerovías de Integración Regional Aires S.A. (“LATAM Airlines Colombia”), a Colombian subsidiary; TAM Linhas Aereas S.A. (“LATAM Airlines Brazil”) incorporated in Brazil; and TransportesTransporte Aéreos del Mercosur S.A. (“LATAM Airlines Paraguay”), a Paraguayan subsidiary.incorporated in Paraguay; LAN Cargo S.A. (“LATAM Cargo”); Linea Aerea Carguera de Colombia S.A. (“LANCO” or “LATAM Cargo Colombia”) in Colombia and Aerolinhas Brasileiras S.A. (“ABSA” or LATAM Cargo Brazil”) in Brazil.
As of JanuaryDecember 31, 20172022 we held a 100% stake in Transporte Aéreo S.A. through direct and indirect interests, a 70%23.62% stake in LANLATAM Airlines Peru through direct and indirect interests, a 55.00% stake of the voting shares of LANLATAM-Airlines Ecuador and a 100% of thenon-voting shares of Holdco Ecuador S.A., who has 45.00% of the voting shares of LANLATAM-Airlines Ecuador, a 95%99.20% indirect stake in LAN Argentina, a 99.19% indirect stake in LANLATAM Airlines Colombia and a 100.00%100% stake of thenon-voting shares of TAM, and 48.99%51.04% of the voting shares and 100% oftheof the non-voting shares of Holdco I S.A., whowhich has 100.00%100% of the voting shares of TAM. Following changes in Brazilian law, which now permitpermits foreign persons to own up to 49%100% of the voting capital of Brazilian airlines, on April 20, 2016,in February 2019, we increased our ownership of the voting shares of Holdco I S.A. to 48.99%51.04%. For a description of the 2012 combination with TAM, including TAM’s operating structure, see “Item 4. Information on the Company—A. History and Development of the Company—Combination of LAN and TAM.”
Our
The cargo operations are carried out by our affiliates under the new brand LATAM Cargo. Our cargo operations are complemented by the operations of certain related companies, such as Aero Transportes Mas de Carga S.A. de C.V. (“MasAir”) in Mexico, Aerolinhas Brasileiras S.A. (“ABSA”) inCargo, LATAM Cargo Brazil and Linea Aérea Carguera de Colombia S.A. (“LANCO”) inLATAM Cargo Colombia. As of JanuaryDecember 31, 2016,2022, we indirectly held 100% of thenon-voting shares and 24.99% of the voting shares of MasAir, 100% of thenon-voting shares and 20% (preferred) of TAM S.A. (a total of 63.09% of TAM S.A.) which is the voting sharessole shareholder of ABSA,LATAM Cargo Brazil and a 90% stake in LANCOLATAM Cargo Colombia through direct and indirect participations.participation. TAM S.A. has 100% of thenon-voting shares and 100% of the voting shares of ABSA. Following the combination between LAN and TAM, we have coordinated the operations of ABSA and TAMLATAM Cargo in Brazil. In theThe cargo business we market ourselvesis marketed internationally primarily under the LATAM Cargo brand internationally.brand.
D. PROPERTY, PLANT AND EQUIPMENT
D. | Property, Plant and Equipment |
Chile
Headquarters
Our main facilities arecorporate facility is located on approximately five acres of land thatin Las Condes, where we own near the Comodoro Arturo Merino Benítez International Airport. The complex includes approximately 150,695 square feet of office space, 32,292 square feet of conference space and training facilities, 9,688 square feet of dining facilities andmock-up cabins used for crew instruction.
In addition, we occupy 17,715 square feetrent 8,100 m2 for our executive offices in a more central location of Santiago, Chile. This space includes fiveis distributed in nine floors owned by LATAM in one building and 16 leased floors in an adjacent building. We also own one additional floor of 11,840 square feet at the Arrau Building in Santiago, Chile.along two buildings.
Maintenance Base
Our 877,258 square foot82,000 m2 maintenance base is located on a site that we own inside Comodoro Arturo Merino Benítez International Airport. This facility contains our aircraft hangar, warehouses, workshops and offices, as well as a 559,720 square feet52,000 m2 aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We have a 53,820 square foot5,000 m2 office building plus a 10,000 square foot1,000 m2 office and workshop space. We also lease from the DGAC 193,750 square feetSociedad Concesionaria Nuevo Pudahuel S.A. approximately 10,700 m2 of space inside the Comodoro Arturo Merino Benítez International Airport for operational and service purposes. OurThe lease has a duration of 14 years.30 days and is renewed monthly.
Other Facilities
We own sixteen acres of land and a building on the west side of the Comodoro Arturo Merino Benítez International Airport that houses a flight-training center. This facility features three full-flight simulators (which are not property of LATAM), one for Boeing 767,787 and two for Airbus A320 and Boeing 737 aircraft.
Fast Air Almacenes de Carga S.A. (“Fast Air”), one of our affiliates that operates import customs warehouses, utilizes an importa 10.500 m² warehouse and office building at the Comodoro Arturo Merino Benítez International Airport. This 172,000 square foot building was developed in conjunction with two other operators. We have leased these facilities since 2004 and we will continue to operate there until March 2017. During April 2017, we will transfer our operations to a 5,600 m² warehouses located at Comodoro Arturo Merino Benítez International Airport.
Brazil
Headquarters
LATAM Airlines Brazil’s main facilities are located in São Paulo, in hangars within the Congonhas Airport and nearby. At Congonhas Airport, LATAM Airlines Brazil leases office facilities in converted hangars belonging to INFRAERO (the Local Airport Administrator). These facilities comprise 60,380an area of approximately 38,807 m².
The LATAM Service Academy is located at Rua Atica, about 2.5 km from Congonhas Airport. This property, which LATAM Airlines Brazil owns, is used for human resources selection, medical services, training,mock-ups and offices- The Service Academy comprises 15,342 m² of land area and 9,032 m² of building area.
We also lease office space for corporate purposes in the city of São Paulo, where we operate 1,500 workstations distributed in 11 floors.
Base Maintenance
At Hangars II and V in Congonhas Airport, which TAM leases from INFRAERO, LATAM Airlines Brazil has 21,727 m² of offices and hangars with about 1,300 workstations. This site also houses the aircraft maintenance, procurement, aeronautical materials logistics and retrofitting departments.
Headquarters of the Presidency
Completed in 2013, the
The Headquarters of the Presidency has an area of 5,066 m², space for 641 workstations. The headquartersand Service Academy is located at Rua Atica, about 2.5 km from Congonhas Airport. This property, which LATAM Airlines Brazil owns, is used for human resources selection, medical services, training, mock-ups and offices- The Service Academy comprises 15,342 m² of land area and 9,032 m² of building area.
Maintenance Base
At Hangars II and V in Congonhas Airport, which LATAM Airlines Brazil leases from INFRAERO, LATAM Airlines Brazil has 23,886 m² of offices and hangars with about 1,300 workstations. This site also houses the Tower Bridge Building in the Brooklin region of São Paulo.aircraft maintenance, procurement, aeronautical materials logistics and retrofitting departments.
Other Facilities
In São Paulo, LATAM Airlines Brazil has other facilities, including: Uniform Building, used for storage and delivery of uniforms; a Call Center Building with 3,199 m2, distributed over 5five floors (plus a ground floor and a basement) that currently holds about 400272 workstations and support rooms (meetings / training / dining room / coordination) of the operations of Call Center Reservations, Talk to People and LATAM Cargo BrazilABSA back office.
In Guarulhos, LATAM has a total area of approximately 12,89412,649 m2 distributed within the Passenger Terminal, including areas such asCheck-in, Ticket Sales, Check Out, Operations Areas, a VIP Lounges,Lounge and Aircraft Maintenance GSE, Cargo Terminal, Distribution Centers, etc.spaces. The Cargo TerminalHangar Complex adds an area of 65,080 m². The cargo terminal has 164 m2252 m² of office and 8,534 m217,215 m² of open area. Our Distribution CentreCenter Supplies area occupies 3,030 m2m².
New Facilities
TAM
LATAM Airlines Brazil completed several infrastructure projects in Brazil during 2016. The main highlights are:2022, including:
1. New Cargo WarehousesOpening of 6 new bases: Montes Claros (MG), Juiz de Fora (MG), Presidente Prudente (SP), Caxias do Sul (RS), Cascavel (PR) and Sinop (MT).
2. Optimization of spaces in Fortaleza and Rio de Janeiro: total of 3,500 m².34 Airports.
2. Terminal transfers in São Paulo- Viracopos and Goiânia: total of 250 m².
3. Relocation of office areas in Rio de Janeiro and São José do Rio Preto: total of 650 m².
4. Improvement of Hangar 3 at Congonhas: 4,060 m2.
Other locations
We occupy a 36.3 acre36.3-acre site at the Miami International Airport that has been leased to us under a concession agreement by the Miami Dade Aviation Department. Our facilities include a 44,650 square feet13,609 m² corporate building, a 380,000 square feet115,824 m² cargo warehouse (including an 116,670 square meter cooling35,561 m² refrigerated area) and a 783,000 square feet238,658 m² aircraft-parking platform. These facilities were constructed and are now leased to us under a long-term contract by Aero Term,Aeroterm, a division of Real Term Global. TheRealterm. For the year ended 2022, we paid US$10.5 million in rent we pay annually for all facilities totals US$9.6 million.under the foregoing leases.
In June 2016 we receivedFebruary 2014, the final occupancy permit forCompany entered into a new hangar atlease agreement with Miami-Dade County covering approximately 1.81 acres of land located on the grounds of the Miami International Airport. The lease has a term of 30 years with a total annual land cost of US$172,080.
Under the lease, we retained the right to construct a hangar facility on the leased premises. The Company completed construction in November 2015 and the hangar has been operational since June 2016. The property has a 50,785 square feet15,479 m² aircraft maintenance space, sufficient to house a Boeing B777 aircraft, in addition to a 32,440 square feet9,888 m² area designated for office space.
In addition, Total investment in this hangar in construction and related expenditures by LATAM holds leases to airport concessions, administrative and sale offices, hangars and maintenance areas in Argentina, Colombia, Ecuador, and Peru.was US$16.5 million.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Operating Results |
None.
A. Operating Results
You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and the accompanying notes beginning on pageF-1 of this annual report.
The summary consolidated annual financial information as of December 31, 2016 and 20152022, 2021 and for the years ended December 31, 2016, 20152022, 2021 and 2014,2020, has been prepared in accordance with IFRS and has been derived from our audited consolidated annual financial statements included in this annual report. 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.
Overview
We derive our revenues primarily from transporting passengers on our passenger aircraft, as well as from transporting cargo in the belly of our passenger aircraft and in our dedicated freighter aircraft. In 2016, 82.7%2022, 80.2% of our total revenues (including in the total for this purpose other income from operating activities) came from passenger revenues and 11.7%18.1% came from our cargo business. The remaining 5.7%1.6% was classified as other operating income, which consists primarily of revenues generated from our coalition and loyalty program Multiplus, tour operator services,subleases of aircraft leasing, customs and warehouseing services, third-party maintenance, duty free salesto third parties and other miscellaneous income.
Our operating environment in 2016 was marked by a generally weak macroeconomic environment in Latin America, including slower GDP growth or GDP contraction. In Brazil specifically, where GDP declined by 3.5% in 2016, the macroeconomic environment was marked by political corruption issues leading to a marked decrease in business and consumer confidence levels. LATAM Airlines Group successfully managed capacity throughout its markets in order to address this challenging environment, and2022 continued to rationalize capacity in line with demand conditions on both domestic and international operationsbe affected by volatility in the Brazilian market.region resulting from the COVID-19 pandemic, however, our operations showed a clear recovery trend along the year, mostly following the recovery of the international capacity, which had been notably lagging behind the domestic segments during 2020 and 2021.
Passenger Operations
In general, ourLATAM’s passenger revenues are driven by international and country-specific political and economic conditions, competitive activity, and the attractiveness of the destinations that we serve.are served. Passenger revenues are also affected by our capacity, traffic, load factors, yield and unit revenue. OurThe capacity is measured in terms of available seat kilometers or ASKs,(“ASKs”), which represents the sum, across ourthe network, of the number of seats we makemade available for sale on each flight, multiplied by the kilometers flown by the respective flight. We measure trafficTraffic in RPKs is measured, as the sum, across ourthe network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight. Load factors represent RPKs (traffic) as a percentage of ASKs (capacity), or the percentage of our capacity that is actually used by paying customers. Last, we use yield,Yield, revenue from passenger operations divided by RPKs, is used to measure the average amount that one passenger pays to fly one kilometer and unit revenue, or revenue per ASK, to measure the effect of capacity on revenues. See “Item 3. Key Information—A. Selected Financial Data.”
Year ended December 31, | ||||||||||||
2022 | 2021 | Var. % | ||||||||||
ASKs (million) (at period end) | ||||||||||||
International | 49,575.7 | 20,461.0 | 142.3 | % | ||||||||
SSC | 23,384.7 | 17,847.8 | 31.0 | % | ||||||||
Domestic Brazil | 40,891.8 | 29,326.8 | 39.4 | % | ||||||||
Total | 113,852.2 | 67,635.7 | 68.3 | % | ||||||||
RPKs (million) | ||||||||||||
International | 41,140.5 | 13,500.5 | 204.7 | % | ||||||||
SSC | 18,942.6 | 13,359.8 | 41.8 | % | ||||||||
Domestic Brazil | 32,504.8 | 23,456.3 | 38.6 | % | ||||||||
Total | 92,587.8 | 50,316.5 | 84.0 | % | ||||||||
Passenger load factor (%) | ||||||||||||
International | 83.0 | 66.0 | 17.0 | p.p. | ||||||||
SSC | 81.0 | 74.9 | 6.2 | p.p. | ||||||||
Domestic Brazil | 79.5 | 80.0 | (0.5) | p.p. | ||||||||
Combined load factor | 81.3 | 74.4 | 6.9 | p.p. |
Passenger demand over
In terms of passengers transported by LATAM, during 2022 we carried 22.3 million more passengers than in 2021, totaling 62.5 million passengers. For the past years has been affected as a result of weaker economic environments in some Latin American countries, reflected in slower GDP growth trendsfull year 2022, passenger traffic increased 84.0% and depreciated currencies, and increases in competition from operators to South America and within the region.total passenger capacity increased 68.3%
During 2016,2022, ASKs for domestic operations in Brazil increased by 39.4% compared to the previous year. Passenger traffic as measured by RPKs increased by 38.6% in 2022 with regard to 2021, resulting in a stable passenger load factor, remaining at 79.5%
The domestic operations of our affiliate carriers based in SSC, which accounted for 20.5% of total passenger capacity (measured by ASKs) in 2022, showed an increase of 41.8% in passenger traffic (measured by RPKs) in the Spanish speaking countries (“SSC”, which includes Chile, Peru, Argentina, Colombia and Ecuador) continued to show growth in terms of traffic and remained profitable, in spite of the economic slowdown in some countries. Our SSC business in 2016 grew at a higher pace than in 2015; weyear while capacity increased capacity (as measured in ASKs) by 8.0%31.0% as compared to 2015, in line with our 8.0% growth in2021. As a result, the passenger traffic (as measured in RPKs), maintaining our load factors at 80.9%factor increased by 6.2 percentage points to 81.0%. However, yields
The group’s international operations were still affected by the pandemic’s resulting government-imposed requirements, travel restrictions, and the willingness to travel from passengers. Despite the above, the ease of restrictions in the SSC domesticdifferent markets continuewhere we operate has allowed our international segment to be under pressure, due largelyrecover notably during 2022. Compared to the decline of fuel prices, the depreciation of local currencies, (mainly the Argentinian Pesoprevious year, capacity in international operations increased by 142.3% and the Colombian Peso, which depreciatedtraffic by 59.2% and 11.0% respectively, during 2016), and increased competition in certain markets. The combination of these factors resulted204.7% compared to 2022, resulting in a 16.5% decline in revenue per ASK in US dollars as compared to 2015.
In our domestic operations in Brazil, we continued to adjust capacity in response to a weak demand environment. LATAM Airlines Brazil reduced capacity (as measured by ASKs) by 11.5%, while passenger traffic (as measured in RPKs) decreased by 10.7%, allowing for an improvementnotable increase of 0.817.0 percentage points in passenger load factors, which reached a healthy 82.3%83.0%. LATAM Airlines Brazil ended the year with an increase of 6.3% in our revenues per ASK in Brazilian Reais as compared to 2015. Moreover, during the fourth quarter of 2016, revenues per ASK (RASK) increased by 34.8% as compared to the same quarter of 2015, driven by a 14.8% increase in RASK in BRL as well as by the 14.3% average appreciation of the Brazilian Real.
In our international operations, we increased our passenger capacity by adding new destinations and strengthening the use of our regional hubs, consistent with the Company’s focus on network improvements. Brazilian international demand was also adversely affected by the weak macroeconomic conditions in the country. For this reason, LATAM Airlines Brazil reduced its capacity on routes with weaker demand, specifically between Brazil and the US, with a significant recovery in unit revenues as compared to 2015, especially in the second half of the year. On the other hand, the other affiliates added capacity on healthy routes, primarily from the Spanish Speaking Countries to destinations in the US and Europe. As a result, capacity in those markets (as measured by ASKs) increased by 5.6%, while traffic (as measured in RPKs) increased 7.4%, resulting in an improvement of 1.4 percentage points in load factors, which reached 86.2%, while the revenue per ASK (RASK) declined 9.9% in US dollars. A portion of the RASK decline is related to lower fuel prices and devaluation of local currencies during 2016 as compared to 2015.
Although 2016 was a challenging year, with weakening regional economies and recession in Brazil, devalued local currencies and high inflation rates in certain countries, LATAM continues to be the best positioned airline group in Latin America to respond to these challenging conditions, as we continue to improve our margins, generate cash flow and deleverage our balance sheet, showing the resilience of our business model. Our management has been proactive in addressing these economic challenges. We continue to pursue initiatives to further reduce costs, and we also successfully restructured our fleet commitments to adapt fleet deliveries to the current demand environment in the region, reaching historically low levels of fleet commitments for 2017.
Cargo Operations
Our cargo
Cargo operations depend on exports from South America to North America and Europe, and imports from North America and Europe to South America, where Brazil is the main import market. Cargo markets are affected by economic conditions, foreign exchange rates, changes in international trade, the health of particular industries and competition and fuel prices (which we usually pass on to our customers through a cargo fuel surcharge). Cargo revenues are affected by ourthe capacity, traffic, cargo load factors and yield. OurThe capacity is measured in terms of available ton kilometers or ATKs,(“ATKs”) which represents the number of tons available across ourthe network for the transportation of cargo on each flight, multiplied by the kilometers flown by the respective flights. We measure trafficTraffic in revenue ton kilometers or RTKs,(“RTKs”) is measured as the amount of cargo loads (measured in tons) on each flight multiplied by the number of kilometers flown by the respective flights. Load factors represent RTKs (traffic) as a percentage of ATKs (capacity), or the percentage of ourthe cargo capacity that is actually used to transport cargo for ourthe customers.
Finally, we use cargo yield, or revenue from cargo operations divided by RTKs, is used to measure the average amount that ourthe customers pay to transport one ton of cargo oneper kilometer.
During 2016,2022, cargo traffic decreased 8.7%, reflecting a challenging scenario in Latin Americanincreased by 16.4% compared to 2021, while cargo markets mainly duecapacity increased 30.7% year-over-year, which led to a strong declinedrop of 6.9 percentage points in Brazilian imports affected by recessionary conditions and currency devaluation. However, Latin American exports remain at healthy levels, notwithstanding lower production in the salmon industry in Chile. Revenuescargo load factors to 56.5%. Cargo yield decreased 3.8% year-over-year. As a result, revenues per ATK declined by 8.5% as fares continueddecreased 14.3% in comparison to be pressured by the competitive landscape and low fuel prices. The Company continued its rational and disciplined approach toward freighter capacity utilization, while focused on maximizing the belly utilization of our passenger fleet. Consistent with this approach, we are currentlysub-leasing three of our767-300Fs and one of our777-200Fs to a third party operating in a different market.Our cargo capacity decreased by 5.3% in 2016, resulting in a load factor of 51.7%.previous year.
Cost Structure
LATAM Airlines Group’s
LATAM’s costs are largely driven by the size of ourits operations, fuel prices, fleet costs and exchange rates. Our operatingOperating expenses are calculated in accordance with IFRS and comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other gains/(losses)” plus “restructuring activities” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses. Restructuring activities expenses are those costs related to the Initial and Subsequent debtors’ filing for Chapter 11 voluntary protection and associated restructuring. The following is a discussion of the drivers of the most important costs.
As an airline group, we are subject to fluctuations in costs that are outside of our control, particularly fuel prices. At the end of 2015,During 2022, average jet fuel prices were relatively low, principally due to an aggregate excess supply from exporter countries (mainly OPEC members and Russia), which offset the lower production by shale oil companies in the U.S. In 2016, fuel prices followed the same trend largely due to the agreement reached by Iran and the largest economies regarding Iran’s nuclear program, ending the penalties imposed on that country’s oil exports. However, the concerns and speculations regarding the actual implementation of this agreement put pressure on fuel prices toward the end of 2016.increased 73.4%. LATAM Airlines Group has a hedging policy to protect medium term liquidity risk from fuel price increases, while participating ofin the benefits fromof fuel price reduction.reductions. Upon filing for Chapter 11, counterparties terminated all of our hedging contracts. Subsequently, LATAM has entered into new fuel hedging contracts in accordance with orders from the Bankruptcy Court. Cost of fuel is also affected by the amount of gallons we consume, which depends on the size of our operation, the efficiency of our fleet and the impact of our efficiency programs.
Personnel expenses are another significant component of our overall costs. Because a significant portion of our labor costs isare denominated in Chilean pesos and in Brazilian reais,Reals, appreciation of these currencies against the U.S. dollar as well as increases in local inflation rates can result in increased costs in U.S. dollar terms and can negatively affect our results. Depreciation of local currencies results in decreases in costs in dollars. Other important drivers of personnel expenses are average headcount and average wages.
Commissions paid to travel and cargo agents are also a significant cost to the Company. We competeLATAM. LATAM group competes with other airlines over the amount of commission we paypaid per sale, particularly in connection with special programs and marketing efforts, and to maintain competitive incentives with travel agents.
Fleet related expenses, namely aircraft rentals, aircraft maintenance and depreciation, are another significant cost, and mainly depend on the number and type of aircraft that are owned and that are under operating leases. TheseGenerally, these costs are largely fixed and can be reduced on a per unit basis by achieving higher aircraft utilization rates. In 2023, only a fraction of LATAM’s wide-body fleet will continue to operate on a payment-by-use basis (known as Power-by-the-Hour, “PBH”), resulting from the company’s Chapter 11 proceedings and negotiations with financiers and lessors by then.
The Aircraft Rentals expense line is used to account for the expenses associated with the group’s variable payments related to aircraft with operating leases whose long-term agreements have been signed and approved by the US Court. Starting in 2021, the Company amended its Aircraft Lease Contracts which included lease payment based on Power by the Hour (PBH) at the beginning of the contract and then switches to fixed-rent payments. A right of use asset and a lease liability was recognized as result of those amendments at the date of modification of the contract, even if they initially have a variable payment period. As a result of the application of the lease accounting policy, the right of use assets continues to be amortized on a straight-line basis over the term of the lease from the contract modification date. The expenses for the year include both: the lease expense for variable payments (Aircraft Rentals) as well as the expenses resulting from the amortization of the right of use assets from the beginning of the contract (included in the Depreciation line) and interest from the lease liability (included in Lease Liabilities).
Restructuring activities refer to the gains/losses in connection with the Chapter 11 proceedings, including costs related with the rejection of aircraft lease contracts, rejection of IT contracts, renegotiation of fleet contracts and legal advice fees, among others; as well as gains on the settlement of Chapter 11 claims for accounts payable. For more information on the restructuring activities gains/losses, please see Note 2, 16 and 26 of our audited consolidated financial statements.
Results of Operations
LATAM Airlines Group Financial Results Discussion: Year ended December 31, 20162022 compared to year ended December 31, 2015.2021.
The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2016,2022, and December 31, 2015. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”2021.
Year Ended December 31, | ||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016/2015 % change | ||||||||||||||||
(in US$ millions, except per share and capital stock data) | As a percentage of total operating revenues | |||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 7,877.7 | 8,410.6 | 87.6 | % | 86.4 | % | (6.3 | %) | ||||||||||||
Cargo | 1,110.6 | 1,329.4 | 12.4 | % | 13.6 | % | (16.5 | %) | ||||||||||||
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Total operating revenues | 8,988.3 | 9,740.0 | 100.0 | % | 100.0 | % | (7.7 | %) | ||||||||||||
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Cost of sales | (6,967.0 | ) | (7,636.7 | ) | (77.5 | %) | (78.4 | %) | (8.8 | %) | ||||||||||
Gross margin | 2,021.3 | 2,103.3 | 22.5 | % | 21.6 | % | (3.9 | %) | ||||||||||||
Other operating income | 538.7 | 385.8 | 6.0 | % | 4.0 | % | 39.6 | % | ||||||||||||
Distribution costs | (747.4 | ) | (783.3 | ) | (8.3 | %) | (8.0 | %) | (4.6 | %) | ||||||||||
Administrative expenses | (873.0 | ) | (878.0 | ) | (9.7 | %) | (9.0 | %) | (0.6 | %) | ||||||||||
Other operating expenses | (373.7 | ) | (324.0 | ) | (4.2 | %) | (3.3 | %) | 15.4 | % | ||||||||||
Financial income | 74.9 | 75.1 | 0.8 | % | 0.8 | % | (0.3 | %) | ||||||||||||
Financial costs | (416.3 | ) | (413.4 | ) | (4.6 | %) | (4.2 | %) | 0.7 | % | ||||||||||
Share of profit of investments accounted for using the equity method | 0.0 | 0.0 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
Foreign exchange gains/(losses) | 121.7 | (467.9 | ) | 1.4 | % | (4.8 | %) | (126.0 | %) |
Result of indexation units Other gains/(losses) Income (loss) before income taxes Income (loss) tax expense Net income (loss) for the period Income (loss) for the period attributable to the parent company’s equity holders Income (loss) for the period attributable tonon-controlling interests Net income (loss) for the period Earnings per share Basic earnings per share (US$) Diluted earnings per share (US$) Year Ended December 31, 2016 2015 2016 2015 2016/2015
% change (in US$ millions, except per
share and capital stock data) As a percentage of total
operating revenues 0.3 0.6 0.0 % 0.0 % (50.0 %) (72.6 ) (55.3 ) (0.8 %) (0.6 %) 31.3 % 273.9 (357.1 ) 3.1 % (3.5 %) (17.7 %) (163.2 ) 178.4 (1.8 %) 1.8 % (16.2 %) 110.7 (178.7 ) 1.3 % (1.7 %) (38.1 %) 69.2 (219.3 ) 0.8 % (2.3 %) (131.6 %) 41.5 40.5 0.5 % 0.4 % 2.2 % 110.7 (178.7 ) 1.3 % (1.7 %) (38.1 %) 0.12665 (0.40193 ) n.a. n.a. (131.5 %) 0.12665 (0.40193 ) n.a. n.a. (131.5 %)
Year Ended December 31, | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2022/2021 % change | ||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 7,636.4 | 3,342.4 | 81.6 | % | 68.4 | % | 128.5 | % | ||||||||||||
Cargo | 1,726.1 | 1,541.6 | 18.4 | % | 31.6 | % | 12.0 | % | ||||||||||||
Total operating revenues | 9,362.5 | 4,884.0 | 100.0 | % | 100.0 | % | 91.7 | % | ||||||||||||
Cost of sales | (8,103.5 | ) | (4,963.5 | ) | (86.6 | )% | (101.6 | )% | 63.3 | % | ||||||||||
Gross margin | 1,259.0 | (79.5 | ) | 13.4 | % | (1.6 | )% | n.a. | ||||||||||||
Other operating income | 154.3 | 227.3 | 1.6 | % | 4.7 | % | (32.1 | )% | ||||||||||||
Distribution costs | (426.6 | ) | (291.8 | ) | (4.6 | )% | (6.0 | )% | 46.2 | % | ||||||||||
Administrative expenses | (576.4 | ) | (439.5 | ) | (6.2 | )% | (9.0 | )% | 31.2 | % | ||||||||||
Other operating expenses | (531.6 | ) | (535.8 | ) | (5.7 | )% | (11.0 | )% | (0.8 | )% | ||||||||||
Restructuring activities gains/(losses) | 1,679.9 | (2,337.2 | ) | 17.9 | % | (47.9 | )% | (171.9 | )% | |||||||||||
Financial income | 1,052.3 | 21.1 | 11.2 | % | 0.4 | % | 4,885.5 | % | ||||||||||||
Financial costs | (942.4 | ) | (805.5 | ) | (10.1 | )% | (16.5 | )% | 17.0 | % | ||||||||||
Foreign exchange gains/(losses) | 26.0 | 131.4 | 0.3 | % | 2.7 | % | (80.2 | )% | ||||||||||||
Result of indexation units | (1.4 | ) | (5.4 | ) | 0.0 | % | (0.1 | )% | (73.8 | )% | ||||||||||
Other gains/(losses) | (347.1 | ) | 30.7 | (3.7 | )% | 0.6 | % | (1,231.5 | )% | |||||||||||
Income (loss) before income taxes | 1,346.0 | (4,084.2 | ) | 14.4 | % | (83.6 | )% | (133.0 | )% | |||||||||||
Income (loss) tax expense | (8.9 | ) | (568.9 | ) | (0.1 | )% | (11.6 | )% | (98.4 | )% | ||||||||||
Net income (loss) for the period | 1,337.1 | (4,653.1 | ) | 14.3 | % | (95.2 | )% | (128.7 | )% | |||||||||||
Income (loss) for the period attributable to the parent company’s equity holders | 1,339.2 | (4,647.5 | ) | 14.3 | % | (95.2 | )% | (128.8 | )% | |||||||||||
Income (loss) for the period attributable to non-controlling interests | (2.1 | ) | (5.7 | ) | 0.0 | % | (0.1 | )% | (63.3 | )% | ||||||||||
Net income (loss) for the period | 1,337.1 | (4,653.1 | ) | 14.3 | % | (95.2 | )% | (128.7 | )% | |||||||||||
Earnings per share | ||||||||||||||||||||
Basic earnings per share (US$) | 0.01386 | (7.66397 | ) | n.a | n.a | (100.2 | )% | |||||||||||||
Diluted earnings per share (US$) | 0.01359 | (7.66397 | ) | n.a | n.a | (100.2 | )% |
* | The abbreviation “n.a.” means not available. |
Net Income
Net incomeOperating Revenues
Our total operating revenues increased by 91.7% to US$9,362.5 million for the year ended December 31, 2016 equaled US$110.7 million, representing an improvement of US$289.4 million from a net loss of US$178.7 million in 2015. Net income attributable to the parent company’s shareholders was US$69.2 million in 2016, compared with a net loss of US$219.3 million in 2015. Results were positively impacted by a foreign exchange gain of US$ 121.7 million, compared to a net foreign exchange loss of US$467.9 million in 2015.
Operating Revenues
Our total operating revenues decreased by 7.7% to US$8,988.3 million in the year ended December 31, 20162022 compared to revenues of US$9,740.04,884.0 million in 2015.2021. The 2016 decrease2022 increase in operating revenues was mainly attributable to a 6.3% decreasethe recovery in passenger revenues,air travel and a 16.5% decrease in cargoits direct impact on passenger revenues. Passenger and cargo revenues accounted for 87.6%81.6% and 12.4%18.4% of total operating revenues in 2016,2022, respectively.
Our consolidated passenger revenues decreasedincreased by 6.3%128.5% to US$7,877.77,636.4 million in 20162022 from US$8,410.63,342.4 million in 2015,2021, as a result of a decreasethe easing of 6.9%travel restrictions both in our unitthe region and worldwide, and its subsequent impact on passenger operations. This was driven by the increase in passenger traffic, which increased 84% (measured in RPKs) with respect to 2021.
Cargo revenues (“RASK”). Ourincreased by 12.0%, to US$1,726.1 million in 2022 from US$1,541.6 million in 2021, mainly driven by the increase in cargo dedicated capacity also accompanied by the healthy trend in yields as compared with the pre-pandemic context. Cargo capacity increased by 0.6%. The increase30.7% and traffic increased by 16.4%, resulting in capacity was a result of an 8.0% increase in our domestic Spanish-speaking countries operations6.9 p.p. load factor decrease. Cargo yields fell 3.8% year over year and a 5.6% increase in our international operations, partially offset by a decrease of 11.5% in capacity in our domestic Brazil operations. Decreases in RASK reflect a decrease of 8.1% in consolidated yields, resulting from the slowdown in economic activity in the region, the depreciation of local currencies, a more competitive environment, and the pass-through of the savings in fuel costs to customers.
Cargo revenues decreased by 16.5%, to US$1,110.6 million in 2016 from US$1,329.4 million in 2015, as a result, of a decrease of 5.3% in capacity (ATK) and a decrease of 11.7% in unit revenues (“RATK”). Capacity decreased in our cargo operations mainly as a result of a reduced freighter operation. Decreases in RATK reflect the still challenging cargo scenario in South America and in particular the weakness of the imports into the region, mainly to Brazil from North America and Europe, which has affected our cargo yields, whichper ATK decreased by 8.5% in 2016 as compared to 2015.14.3%.
Cost of Sales
Cost of sales decreasedincreased by 8.8%63.3% to US$6,967.08,103.5 million for the year ended December 31, 20162022 (from US$7,636.74,963.5 million in 2015)2021), mainly due to lowerthe increase in fuel expensesprice during the year andin addition to overall increasing costs due to the positive impact of the depreciation of local currencies as well as our ongoing cost reduction program. As a percentage of total operating revenues, cost of sales decreased from 78.4%annual recovery in 2015 to 77.5% in 2016.passenger operations.
The table below presents cost of sales information for the fiscal year ended December 31, 20162022 and 2015.2021.
Year Ended December 31, | ||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016/2015 % change | ||||||||||||||||
(in US$ millions, except as otherwise stated) | As a percentage of total operating revenues | |||||||||||||||||||
Revenues | 8,988.3 | 9,740.0 | 100.0 | % | 100.0 | % | (7.8 | %) | ||||||||||||
Cost of sales | (6,967.0 | ) | (7,636.7 | ) | (77.5 | %) | (78.4 | %) | (8.8 | %) | ||||||||||
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Aircraft Fuel | (2,056.6 | ) | (2,651.1 | ) | (22.9 | %) | (27.2 | %) | (22.4 | %) | ||||||||||
Wages and Benefits | (1,479.5 | ) | (1,553.8 | ) | (16.5 | %) | (16.0 | %) | (4.8 | %) | ||||||||||
Other Rental and Landing Fees | (1,077.4 | ) | (1,109.8 | ) | (12.0 | %) | (11.4 | %) | (2.9 | %) | ||||||||||
Depreciation and Amortization | (960.3 | ) | (934.4 | ) | (10.7 | %) | (9.6 | %) | 2.8 | % | ||||||||||
Aircraft Rentals | (569.0 | ) | (525.1 | ) | (6.3 | %) | (5.4 | %) | 8.3 | % | ||||||||||
Aircraft Maintenance | (366.2 | ) | (437.2 | ) | (4.1 | %) | (4.5 | %) | (16.3 | %) | ||||||||||
Passenger Services | (286.6 | ) | (295.4 | ) | (3.2 | %) | (3.0 | %) | (3.0 | %) | ||||||||||
Other Costs of Sales | (171.4 | ) | (129.9 | ) | (2.8 | %) | (1.3 | %) | 49.8 | % |
The decrease in our cost of sales was driven
Year Ended December 31, | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2022/2021 % change | ||||||||||||||||||
Revenues | 9,362.5 | 4,884.0 | 100.0 | % | 100.0 | 91.7 | % | |||||||||||||
Cost of sales | (8,103.5 | ) | (4,963.5 | ) | (86.6 | )% | (101.6 | )% | 63.3 | % | ||||||||||
Aircraft Fuel | (3,882.5 | ) | (1,487.8 | ) | (41.5 | )% | (30.5 | )% | 161.0 | % | ||||||||||
Wages and Benefits | (973.7 | ) | (766.2 | ) | (10.4 | )% | (15.7 | )% | 27.1 | % | ||||||||||
Other Rental and Landing Fees | (1,031.5 | ) | (749.8 | ) | (11.0 | )% | (15.4 | )% | 37.6 | % | ||||||||||
Depreciation and Amortization | (1,083.0 | ) | (1,073.0 | ) | (11.6 | )% | (22.0 | )% | 0.9 | % | ||||||||||
Aircraft Maintenance | (582.7 | ) | (533.9 | ) | (6.2 | )% | (10.9 | )% | 9.1 | % | ||||||||||
Passenger Services | (184.4 | ) | (77.4 | ) | (2.0 | )% | (1.6 | )% | 138.2 | % | ||||||||||
Aircraft Rentals | (202.8 | ) | (120.6 | ) | (2.2 | )% | (2.5 | )% | 68.2 | % | ||||||||||
Other Costs of Sales | (162.8 | ) | (154.8 | ) | (1.7 | )% | (3.2 | )% | 5.2 | % |
Fuel costs increased by lower aircraft fuel expenses, which decreased by 22.4% to US$2,056.6 million in 2016161%, mainly as a result of a 16.6% decrease73.4% increase in the full year average fuel price (excluding hedge). LATAM recognizedduring the year plus a net loss of US$48.0 million50.2% increase in fuel hedging in 2016,consumption compared to a fuel hedge loss2021 attributed to the recovery of US$239.4 million in 2015. In 2016,passenger operations throughout the Company also recognized a US$40.3 million hedge loss related to foreign currency contracts, which were recognizedyear.
Wages and benefits increased by 27.1%, explained by an 8% increase in the fuel cost line comparedaverage number of employees, driven by incorporations in areas directly linked with the operations such as crew members and airport staff, in addition to a US$19.2 gain millionthe inflationary pressures in 2015.the region.
Depreciation
Other rental and amortizationlanding fees increased by US$25.9 million, amounting to US$960.3 million, which represents an increase of 2.8%37.6%, mainly due to the increase in the numberlevel of ownedpassenger operations.
Depreciation and amortization slightly increased by 0.9%, as the total operating fleet did not vary significantly between 2022 and 2021.
Aircraft maintenance increased by 9.1% mainly attributed to higher unit costs in maintenance tasks due to global inflationary pressures, plus a catch up on task deferrals associated with the return of aircraft partially offsetinto service after extended downtime and following the increase in projected future operations.
Passenger services increased by 138.2% mainly explained by the positive impactincreased level of passenger operations in addition to the recovery in international flights, which normally offer more intensive catering and onboard services.
The Aircraft Rentals line includes costs associated with lease payments based on power by the hour (PBH) for contracts that were modified to that structure. The Aircraft Rentals expense line is used to account for the expenses associated with the group’s variable payments related to aircraft with operating leases whose long-term agreements have been signed and approved by the US Court. During 2021, the Company amended its Aircraft Lease Contracts which included lease payment based on Power by the Hour (PBH) at the beginning of the 4.5% depreciationcontract that then switches back to fixed-rent payments. A right of use asset and a lease liability was recognized as result of those amendments at the date of modification of the Brazilian real.
Other rental and landing fees decreased by 2.9% to US$1,077.4 million in 2016 from U$1,109.8 million in 2015, mainly due tocontract, even if they initially had a decline in the rental of passenger and cargo capacity from third parties as well as lower handling costs.
Aircraft maintenance expenses decreased by 16.3%, from US$437.2 million in 2015 to US$366.2 million in 2016, mainly due to cost efficiencies related with the renewal of our fleet and lower maintenance expenses related to the redelivery of aircraft.
Aircraft rentals increased by 8.3% to US$569.0 million in 2016 from US$525.1 million in 2015 asvariable payment period. As a result of the incorporationapplication of larger and more modern aircraft under operating leases (i.e. Boeing 787s and Airbus A350s), whereas returned aircraft have mainly been older models (i.e. Airbus A319s and A330s).
Passenger servicethe lease accounting policy, the right of use assets continues to be amortized on a straight-line basis over the term of the lease from the contract modification date. The expenses decreased by 3.0%, to US$286.6 million in 2016 compared to US$295.4 million in 2015, due mainly to a decrease of 1.3% infor the number of passengers transported,year include both: the lease expense for variable payments (Aircraft Rentals) as well as the decreaseexpenses resulting from the amortization of the right of use assets from the beginning of the contract (included in on board servicesthe Depreciation line) and interest from the lease liability (included in Lease Liabilities). In 2022, aircraft rental expenses offset in part by an increase in passenger compensation.totaled US$202.8 million.
As a result of the above, gross margin(definedmargin (defined as operating revenue minus cost of sales)decreasedby 3.9% from totaled a gain of US$2,103.31,259 million, compared to a loss of US$79.5 million in 2015 to US$2,021.3 million in 2016.2021.
Other Consolidated Results
Other operating income increaseddecreased in 20162022 by 39.6%32.1%, from US$385.8227.3 million in 20152021 to US$538.7154.3 million in 2016,2022, mainly due to athe cessation of certain compensation payments from Delta Air Lines as agreed upon in the signing of the Joint Venture Agreement in 2019.
Distribution costs increased 46.2%, totaling US$80.1426.6 million, due to an increase in sales commissions plus an increase in fixed costs related with the commercial areas.
Administrative expenses increased 31.2% from US$439.5 million in 2021 to US$576.4 million, due to the increase in headcount, plus an increase in marketing expenses and administration expenses related to commissions of payment methods. In 2021, LATAM group had an average of 28,429 employees, while in 2022 this was increased to an average of 30,877 employees.
Other operating expenses decreased slightly by 0.8% from US$535.8 million in 2021 to US$531.6 million.
Gain from Restructuring activities totaled US$1,679.9 million in 2022, in connection with our Chapter 11 proceedings, and included an earnings effect attributable to the exit from Chapter 11, partially offset by costs related with the renegotiation of fleet contracts and legal advice fees. For more information on gain (losses) restructuring expenses, please see Note 2, 24 and 26 of our audited consolidated financial statements.
Financial income increased from US$21.1 million in 2021 to US$1,052.3 million in 2022, mainly explained by gains derived from aircraft sales and leaseback transaction (resulting in an operating lease)on the settlement of certain financial claims as well as a US$41.8 million increase in revenuesreversal of previously recognized accrued interest for financial liabilities that were restructured, both attributable to the exit from freighter aircraft leases and salesChapter 11. For more information, please see Note 26 of fixed assets.
Distribution costs decreased by 4.6% from US$783.3 million in 2015 to US$747.4 million in 2016, mainly as a result of lower commissions to agents (which decreased by 11.1%, from US$302.8 million to US$269.3 million), in both the passenger and cargo businesses, representing a greater percentage decline than the 7.7% decline in passenger and cargo revenues.
Administrative expenses decreased by 0.6% from US$878.0 million in 2015 to US$873.0 million in 2016, mainly due to a decrease of 4.8% in wages and benefits (as a result of a 6.2% decline in average headcount), as well as the positive impact of the depreciation of certain local currencies on wages denominated in those currencies.
Other operating expenses increased by 15.4% from US$324.0 million in 2015 to US$373.7 million in 2016, driven by higher costs associated with fleet sales and redeliveries, and due to lower cost in 2015 as a result of negotiations with third parties relating to our passenger service system.audited consolidated financial statements.
Financial income was essentially unchanged US$74.9 million in the year ended December 31, 2016 compared with US$75.1 million in 2015).
Financial costs increased by 0.7%17.0% to US$416.3942.4 million in 20162022 from US$413.4805.5 million in 2015,2021, mainly dueexplained by the DIP financing and DIP-to-Exit financing that were in place until the Company’s emergence from Chapter 11, in addition to a progressive increase throughout the year in base interest rate increases on floating rate debt.rates.
Exchange rate differences increased
The foreign exchange gain of US$26.0 million in 2022, compared to a gain of US$121.7131.4 million in 2016 from2021, was driven mainly by the appreciation of the Brazilian Real during 2022.
Other gains (losses) registered a loss of US$467.9347.1 million, compared to a gain of US$30.7 million in 2015, mainly resulting from2021, principally due to the 16.5% appreciationrecognition at net realizable value of the Brazilian real between December 31, 2015 and December 31, 2016.A319 family aircraft classified as held for sale during 2022.
Income
The income tax expense for 20162022 amounted to US$163.2(8.9) million as compared to an income tax benefitexpense of US$178.4(568.9) million in 2015.2021. This variationdifference is mainly explained mainly by improvedpre-tax results in 2016 (US$273.9 million gain) compared with 2015 (US$357.1 million loss) resulting in increased income tax charges of US$196 million; thenon-recognitiona derecognition of deferred taxes relatedtax assets registered in 2021. In 2022, the annual result was mainly attributed to current tax losses in Brazil fromowed by LATAM and certain affiliates of the fourth quarter of 2015(non-recognition of US$90.4 million in 2016 vs US$16.9 million in 2015); the reversal in 2016 of tax provisions in Brazil in the amount of US$61.2 million in 2015; and other items of US$10 million.group. For more information, see Note 1817 to our audited consolidated financial statements.
Out of Period Adjustments
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”
Net profit
Net profit for the year ended December 31, 2016. These adjustments include2022 totaled US$1,337.1 million, which compares with a net loss of US$39.54,653.1 million resulting from an account reconciliation process initiated after TAM S.A. and its subsidiaries completedin 2021. Net profit attributable to the implementationparent company’s shareholders was US$1,339.2 million in 2022. As a result of the SAP system. A further US$11.0 million decrease reflects adjustments related to foreign exchange differences, also relating to the Company’s subsidiaries in Brazil. The balanceaccumulated losses as of US$32.3 million includes mainly the adjustment of unclaimed fees for expired tickets for the Company and its affiliates outside Brazil. Management of TAM S.A. has concluded that the out of period adjustments that have been identified are material to the 2015 financial statements of TAM S.A., which should therefore require a restatement of TAM’s financial statements. However, LATAM has evaluated the impact of all out of period adjustments, both individually and in the aggregate, and concluded that due to their relative size and to qualitative factors they are not material to the annual consolidated financial statements of LATAM for the year ended December 31, 2016, or to any previously reported consolidated financial statements, therefore no restatement or revision is necessary.end, this net profit will not be eligible for a profit distribution through dividends.
Results of Operations
LATAM Airlines Group Financial Results Discussion: Year ended December 31, 20152021 compared to year ended December 31, 2014.2020.
The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2015,2021, and December 31, 2014. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”2020.
Year Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015/2014 % change | ||||||||||||||||
(in US$ millions, except per share and capital stock data) | As a percentage of total operating revenues | |||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 8,410.6 | 10,380.1 | 86.4 | % | 85.8 | % | (19.0 | %) | ||||||||||||
Cargo | 1,329.4 | 1,713.4 | 13.6 | % | 14.2 | % | (22.4 | %) | ||||||||||||
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Total operating revenues | 9,740.0 | 12,093.5 | 100.0 | % | 100.0 | % | (19.5 | %) | ||||||||||||
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Cost of sales | (7,636.7 | ) | (9,624.5 | ) | (78.4 | %) | (79.6 | %) | (20.7 | %) | ||||||||||
Gross margin | 2,103.3 | 2,469.0 | 21.6 | % | 20.4 | % | (14.8 | %) | ||||||||||||
Other operating income | 385.8 | 377.6 | 4.0 | % | 3.1 | % | 2.2 | % | ||||||||||||
Distribution costs | (783.3 | ) | (957.1 | ) | (8.0 | %) | (7.9 | %) | (18.2 | %) | ||||||||||
Administrative expenses | (878.0 | ) | (980.7 | ) | (9.0 | %) | (8.1 | %) | (10.5 | %) | ||||||||||
Other operating expenses | (324.0 | ) | (401.0 | ) | (3.3 | %) | (3.3 | %) | (19.2 | %) | ||||||||||
Financial income | 75.1 | 90.5 | 0.8 | % | 0.7 | % | (17.0 | %) | ||||||||||||
Financial costs | (413.4 | ) | (430.0 | ) | (4.2 | %) | (3.6 | %) | (3.9 | %) |
Share of profit of investments accounted for using the equity method Foreign exchange gains/(losses) Result of indexation units Other gains/(losses) Income (loss) before income taxes Income (loss) tax expense Net income (loss) for the period Income (loss) for the period attributable to the parent company’s equity holders Income (loss) for the period attributable tonon-controlling interests Net income (loss) for the period Earnings per share Basic earnings per share (US$) Diluted earnings per share (US$) Year Ended December 31, 2015 2014 2015 2014 2015/2014
% change (in US$ millions, except per
share and capital stock data) As a percentage of total
operating revenues 0.0 (6.5 ) 0.0 % (0.1 %) 100.0 % (467.9 ) (130.2 ) (4.8 %) (1.1 %) 259.4 % 0.6 0.1 0.0 % 0.0 % 500.0 % (55.3 ) 33.5 (0.5 %) 0.3 % (265.0 %) (357.1 ) 65.2 (3.4 %) 0.4 % (647.6 %) 178.4 (292.4 ) 1.8 % (2.4 %) 39.0 % (178.7 ) (227.2 ) (1.6 %) (2.0 %) (21.3 %) (219.3 ) (260.0 ) (2.2 %) (2.2 %) (15.7 %) 40.5 32.8 0.4 % 0.3 % 23.5 % (178.7 ) (227.2 ) (1.8 %) (1.9 %) (161.0 %) (0.40193 ) (0.47656 ) n.a. n.a. (15.7 %) (0.40193 ) (0.47656 ) n.a. n.a. (15.7 %)
Year Ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2021/2020 % change | ||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 3,342.4 | 2,713.8 | 68.4 | % | 69.2 | % | 23.3 | % | ||||||||||||
Cargo | 1,541.6 | 1,209.9 | 31.6 | % | 30.8 | % | 27.4 | % | ||||||||||||
Total operating revenues | 4,884.0 | 3,923.7 | 100.0 | % | 100.0 | % | 24.5 | % | ||||||||||||
Cost of sales | (4,963.5 | ) | (4,513.2 | ) | (101.6 | )% | (115.0 | )% | 10.0 | % | ||||||||||
Gross margin | (79.5 | ) | (589.5 | ) | (1.6 | )% | (15.0 | )% | (86.5 | )% | ||||||||||
Other operating income | 227.3 | 411.0 | 4.7 | % | 10.5 | % | (44.7 | )% | ||||||||||||
Distribution costs | (291.8 | ) | (294.3 | ) | (6.0 | )% | (7.5 | )% | (0.8 | )% | ||||||||||
Administrative expenses | (439.5 | ) | (499.5 | ) | (9.0 | )% | (12.7 | )% | (12.0 | )% | ||||||||||
Other operating expenses | (535.8 | ) | (692.9 | ) | (11.0 | )% | (17.7 | )% | (22.7 | )% | ||||||||||
Restructuring activities expenses | (2,337.2 | ) | (990.0 | ) | (47.9 | )% | (25.2 | )% | 136.1 | % | ||||||||||
Financial income | 21.1 | 50.4 | 0.4 | % | 1.3 | % | (58.1 | )% | ||||||||||||
Financial costs | (805.5 | ) | (587.0 | ) | (16.5 | )% | (15.0 | )% | 37.2 | % | ||||||||||
Foreign exchange gains/(losses) | 131.4 | (48.4 | ) | 2.7 | % | (1.2 | )% | (371.5 | )% | |||||||||||
Result of indexation units | (5.4 | ) | 9.3 | (0.1 | )% | 0.2 | % | (157.7 | )% | |||||||||||
Other gains/(losses) | 30.7 | (1,874.8 | ) | 0.6 | % | (47.8 | )% | (101.6 | )% | |||||||||||
Income (loss) before income taxes | (4,084.2 | ) | (5,105.8 | ) | (83.6 | )% | (130.1 | )% | (20.0 | )% | ||||||||||
Income (loss) tax expense | (568.9 | ) | 550.2 | (11.6 | )% | 14.0 | % | (203.4 | )% | |||||||||||
Net income (loss) for the period | (4,653.1 | ) | (4,555.5 | ) | (95.2 | )% | (116.1 | )% | 2.0 | % | ||||||||||
Income (loss) for the period attributable to the parent company’s equity holders | (4,647.5 | ) | (4,545.9 | ) | (95.2 | )% | (115.9 | )% | 2.2 | % | ||||||||||
Income (loss) for the period attributable to non-controlling interests | (5.7 | ) | (9.6 | ) | (0.1 | )% | (0.2 | )% | (41.4 | )% | ||||||||||
Net income (loss) for the period | (4,653.1 | ) | (4555.5 | ) | (95.2 | )% | (116.1 | )% | 2.0 | % | ||||||||||
Earnings per share | ||||||||||||||||||||
Basic earnings per share (US$) | (7.66397 | ) | (7.49642 | ) | n.a | n.a | 2.1 | % | ||||||||||||
Diluted earnings per share (US$) | (7.66397 | ) | (7.49642 | ) | n.a | n.a | 2.1 | % |
Net Income / LossThe abbreviation “n.a.” means not available.
Net loss for the year ended December 31, 2015 equaled US$ 178.7 million, representing an improvement of US$ 48.5 million from a net loss of US$227.2 million in 2014. Net loss attributable to the parent company’s shareholders improved to US$ 219.3 million in 2015 from US$260.0 million in 2014. Results for 2015 include an US$ 80 million provision recognized during the fourth quarter of the year for aircraft redelivery costs associated with the 2016phase-out of the Airbus A330 (for more information, see Financial Statements Note 27 (e) – Restructuring Costs). Results were also impacted by a foreign exchange loss of US$ 467.9 million, (mainly resulting from the 49.0% depreciation of the Brazilian real between December 31, 2014 and December 31, 2015, and a US$41.0 million charge related to the adjustment in the exchange rate of cash held in Venezuela), as compared to a foreign exchange loss of US$130.2 million in 2014.
Operating Revenues
Our total operating revenues decreasedincreased by 19.5%24.5% to US$ 9,740.04,884.0 million for the year ended December 31, 2015,2021 compared to revenues of US$ 12,093.53,923.7 million in 2014.2020. The 2015 decrease2021 increase in operating revenues was mainly attributable to a 19.0% decreasethe recovery in passenger revenues,air travel and a 22.4% decrease in cargoits impact on passenger revenues. Passenger and cargo revenues accounted for 86.4%68.4% and 13.6%31.6% of total operating revenues (defined as revenues from passenger and cargo operations, plus other operating income) in 2015,2021, respectively.
Our consolidated passenger revenues decreasedincreased by 19.0%23.2% to US$8,410.63,342.4 million in 20152021 from US$10,380.12,713.8 million in 2014, largely2020, as a result of a decreasethe easing of 21.4% in our unit revenues (RASK). Our capacity increased by 3.1%. The increase in capacity was a result of a 6.4% increase in our international operations and a 4.8% increase in our domestic Spanish-Speaking Countries operations, and was partially offset by a decrease of 2.5% in capacity in our domestic Brazil operations. Decreases in RASK reflect a decrease of 21.1% in consolidated yields, resulting from the slowdown in economic activitytravel restrictions both in the region and depreciationworldwide, and its subsequent impact on passenger operations. Consequently, load factor increased to 74.4% in 2021, a decrease of local currencies, mainly in Brazil.2.1 percentage points with respect to 2020.
Cargo revenues decreasedincreased by 22.4%27.4%, to US$1,329.41,541.6 million in 20152021 from US$1,713.41,209.9 million in 2014,2020, mainly driven by the cargo freighters’ strong performance and the increasing trend in yields during the year. Cargo capacity increased by 1.7% and traffic decreased by 1.4%, resulting in a 2.0 p.p. load factor decreased. Cargo yields grew 29.2% year over year and as a result, of a decrease of 1.9% in capacity (ATK) and a decrease of 20.9% in unit revenues (RATK). Capacity decreased in our cargo operations mainly as a result of a reduced freighter operation and thesub-lease of two additional aircraft to another company. Decreases in RATK reflect the still challenging cargo scenario in South America and in particular the weakness of the imports into the region, mainly to Brazil, which have affected our cargo yields. During 2015, cargo yields decreasedper ATK increased by 11.8% as compared to 2014.25.3%.
Cost of Sales
Cost of sales decreasedincreased by 20.7%10.0% to US$7,636.74,963.5 million infor the year ended December 31, 2015 from2021 (from US$9,624.54,513.2 million in 2014,2020), mainly due to lower fuel expenses in the year. As a percentage of total operating revenues, cost of sales decreased from 79.6% in 2014 to 78.4% in 2015.operational recovery and its direct impact on variable costs.
The table below presents cost of sales information for the fiscal year ended December 31, 20152021 and 2014.2020.
Year Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015/2014 % change | ||||||||||||||||
(in US$ millions, except as otherwise stated) | As a percentage of total operating revenues | |||||||||||||||||||
Revenues | 9,740.0 | 12,093.5 | 100.0 | % | 100.0 | % | (19.5 | %) | ||||||||||||
Cost of sales | (7,636.7 | ) | (9,624.5 | ) | (78.4 | %) | (79.6 | %) | (20.7 | %) | ||||||||||
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Aircraft Fuel | (2,651.1 | ) | (4,167.0 | ) | (27.2 | %) | (34.5 | %) | (36.4 | %) | ||||||||||
Wages and Benefits | (1,553.8 | ) | (1,751.3 | ) | (16.0 | %) | (14.5 | %) | (11.3 | %) | ||||||||||
Other Rental and Landing Fees | (1,109.8 | ) | (1,327.2 | ) | (11.4 | %) | (11.0 | %) | (16.4 | %) | ||||||||||
Depreciation and Amortization | (934.4 | ) | (991.3 | ) | (9.6 | %) | (8.2 | %) | (5.7 | %) | ||||||||||
Aircraft Rentals | (525.1 | ) | (521.4 | ) | (5.4 | %) | (4.3 | %) | 0.7 | % | ||||||||||
Aircraft Maintenance | (437.2 | ) | (452.7 | ) | (4.5 | %) | (3.7 | %) | (3.4 | %) | ||||||||||
Passenger Services | (295.4 | ) | (300.3 | ) | (3.0 | %) | (2.5 | %) | (1.6 | %) | ||||||||||
Other Costs of Sales | (129.9 | ) | (113.3 | ) | (1.3 | %) | (0.9 | %) | 14.6 | % |
Year Ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||
(in US$ millions, except as otherwise stated) | As a percentage of total operating revenues | 2021/2020 % change | ||||||||||||||||||
Revenues | 4,884.0 | 3,923.7 | 100.0 | % | 100.0 | % | 24.5 | |||||||||||||
Cost of sales | (4,963.5 | ) | (4,513.2 | ) | (101.6 | )% | (115.0 | )% | 10.0 | |||||||||||
Aircraft Fuel | (1,487.8 | ) | (1,045.3 | ) | (30.5 | )% | (26.6 | )% | 42.3 | |||||||||||
Wages and Benefits | (766.2 | ) | (779.7 | ) | (15.7 | )% | (19.9 | )% | (1.7 | ) | ||||||||||
Other Rental and Landing Fees | (749.8 | ) | (717.0 | ) | (15.4 | )% | (18.3 | )% | 4.6 | |||||||||||
Depreciation and Amortization | (1,073.0 | ) | (1,168.5 | ) | (22.0 | )% | (29.8 | )% | (8.2 | ) | ||||||||||
Aircraft Maintenance | (533.9 | ) | (472.4 | ) | (10.9 | )% | (12.0 | )% | 13.0 | |||||||||||
Passenger Services | (77.4 | ) | (97.5 | ) | (1.6 | )% | (2.5 | )% | (20.6 | ) | ||||||||||
Aircraft Rentals | (120.6 | ) | 0 | (2.5 | )% | n.a. | n.a. | |||||||||||||
Other Costs of Sales | (154.8 | ) | (232.8 | ) | (3.2 | )% | (5.9 | )% | (33.5 | ) |
The decrease in cost of sales was driven
Fuel costs increased by largely lower aircraft fuel expenses, which decreased by 36.4% to US$2,651.1 million in 2015 as a result of a 40.2% decrease in the full year average fuel price (excluding hedge losses). LATAM recognized a net loss of US$239.4 million in fuel hedging in 2015, compared to a fuel hedge loss of US$108.8 million in 2014. In 2015 the Company also recognized a US$19.2 million hedge gain related to foreign currency contracts, which were recognized in the fuel cost line.
Depreciation and amortization decreased by US$56.9 million, amounting to US$934.4 million, which represents a decrease of 5.7% (despite the increase in modern owned aircraft in our fleet)42.3%, mainly as a result of thephase-out of leased aircraft with the consequent decreasea 15.5% increase in maintenance depreciation and the positive impact of the depreciation of the Brazilian real in the year asfuel consumption compared to 2014.2020 attributed to the easing of travel and sanitary restrictions followed by the recovering trend in passenger operations.
Wages and benefits decreased slightly by 1.7%, explained by the decline in average headcount and outsourcing of certain airport operations in order to improve efficiency in 2021, which both compensate for the return to normal salary levels for the majority of employees after the voluntary salary reductions adopted in 2020.
Other rental and landing fees increased 4.6%, mainly due to the recovery in passenger operations during the year.
Depreciation and amortization decreased by 16.4%8.2%, primarily following LATAM’s reduction in fleet size, an effect that has been accentuated with the wide body fleet rejections, though partially offset increasing catch-up maintenance tasks associated with the return of aircraft into service and engine and components repairs.
Aircraft maintenance increased by 13.0% mainly due to US$1,109.8 million in 2015the increased level of operations and to catch up on task deferrals and costs associated with the return of aircraft into service after extended downtime.
Passenger service declined by 20.6% mainly explained by the renegotiation of contracts with suppliers and restrictions to onboard catering services from U$1,327.2 million in 2014, mainly resulting from lower aeronautical rates (in dollars)certain countries due to the pandemic.
The Aircraft Rentals line includes costs associated with lease payments based on power by the hour (PBH) for contracts that have been modified to that structure. The Aircraft Rentals expense line is used to account for the expenses associated with the group’s variable payments related to aircraft with operating leases whose long-term agreements have been signed and approved by the US Court. During 2021, the Company amended its Aircraft Lease Contracts which included lease payment based on Power by the Hour (PBH) at the beginning of the contract and then switches to fixed-rent payments. A right of use asset and a lease liability was recognized as result of those amendments at the date of modification of the contract, even if they initially have a variable payment period. As a result of the depreciation of local currencies.
Aircraft maintenance expenses decreased by 3.4%, from US$452.7 million in 2014 to US$437.2 million in 2015, mainly as a result of fleet renewal initiatives and reduced operations.
Aircraft rentals increased by 0.7% to US$525.1 million in 2015 from US$521.4 million in 2014 despite fewer leased aircraft, as a resultapplication of the incorporationlease accounting policy, the right of larger and more modern aircraft under operating leases (i.e. Boeing 787s), whereas returned aircraft were mainly been older and smaller models (i.e. Airbus A319, Dash8 Q400 aircraft).
Passenger service expenses decreased by 1.6%,use assets continues to US$295.4 million in 2015 compared to US$300.3 million in 2014, despitebe amortized on a flatstraight-line basis over the number of passengers transported, mainly due a decrease in passenger compensations and the positive effectterm of the depreciationlease from the contract modification date. The expenses for the year include both: the lease expense for variable payments (Aircraft Rentals) as well as the expenses resulting from the amortization of the Brazilian real on supplier costs.right of use assets from the beginning of the contract (included in the Depreciation line) and interest from the lease liability (included in Lease Liabilities). In 2021, aircraft rental expenses totaled US$120.6 million.
As a result of the above, gross margin(definedmargin (defined as operating revenue minus cost of sales)decreasedby 14.8% from totaled a loss of US$2,469.079.5 million, compared to a loss of US$589.5 in 2014 to US$2,103.3 million in 2015.2020.
Other Consolidated Results
Other operating income increaseddecreased in 20152021 by 2.2%44.7%, from US$377.6411.0 million in 20142020 to US$385.8227.3 million in 2015, mainly2021, as a result of the reduction in aircraft rental revenue due to an increasethe reduction of US$15.4 million in revenue fromsubleased aircraft leased to third parties.parties, and a reduction in LATAM Travel tours and revenues for approximately US$60 million and a compensatory payment of US$62 million from Delta received in 2020 for the cancelation of four A350 purchase agreements. Additionally, in 2020 LATAM received compensation payments for the early return of certain subleased aircraft, which is not present in the 2021 comparison.
Distribution costs maintained stable, totaling US$291.8 million, compared to US$294.3 million in 2020.
Administrative expenses decreased by 18.2%12.0% from US$957.1499.5 million in 20142020 to US$783.3439.5 million, due to the reduction in headcount which started to take place by the end of the second quarter of 2020. In 2020, LATAM group had an average of 35,281 employees, while in 2021 this was reduced to an average of 28,429 employees.
Other operating expenses decreased by 22.7% from US$692.9 million in 2015,2020 to US$535.8 million as a result of bad debt provisions and various labor, civil and legal processes.
Restructuring activities expenses totaled US$2,337.2 million in 2021, in connection with our Chapter 11 proceedings, and included costs related with the renegotiation of fleet contracts and legal advice fees. For more information on the restructuring expenses, please see Note 2, 17 and 27 of our audited consolidated financial statements.
Financial income decreased by 58.1% to US$21.1 million in 2021 from US$50.4 million in 2020, due to cash investment restrictions arising from the Chapter 11 process under which, part of the company’s cash balance must be allocated in authorized banks, subject to lower investment rates, in spite of the overall higher cash balance during the year.
Financial costs increased by 37.2% to US$805.5 million in 2021 from US$587.0 million in 2020, resulting from the draws from the DIP financing that the company has made, increasing the debt by US$1.95 billion, with a higher interest rate, in addition to debt that has not been repaid that continues to generate additional interest.
The foreign exchange gain of US$131.4 million in 2021, compared to a loss of US$48.4 million in 2020 was driven mainly by the Exchange rate gains in updating the value in dollars of the debt denominated in UF, mainly as a result of lower commissions to agents (which decreased by 17.2% from US$365.5 million to US$302.8 million),related to lower revenues, lower sales fulfillments in some countries and depreciation of local currencies.
Administrative expenses decreased by 10.5% from US$980.7 million in 2014 to US$878.0 million in 2015, mainly due to a decrease of 11.3% in wages and benefits resulting from a 5.0% decline in average headcount and the positive impact15.7% devaluation of the depreciation of the Brazilian real and Chilean peso on wages denominated in those currencies.
Other operating expenses decreased by 19.2% from US$401.0 million in 2014 to US$324.0 million in 2015, mainly due to lower tax contingencies in 2015 as well as the reversal of certain tax contingencies established during 2014.
Financial income decreased to US$75.1 million in the year ended December 31, 2015 from US$90.5 million in 2014, mainly due to an increase in interest rates in Brazil and due to the depreciation of the local currency affecting the investments the Company held in Brazil and Argentina.
Financial costs (fromnon-financial activities) decreased by 3.9% to US$413.4 million in 2015 from US$430.0 million in 2014, mainly due to the recognition of US$23 million in breakage costs related to the sale and leaseback of four of our Boeing 777 aircraftPeso during the first quarteryear.
Other gains (losses) registered a gain of 2014.
Exchange rate differences worsened, from a loss of US$130.230.7 million, in 2014compared to a loss of US$467.91,874.8 million in 2015, mainly resulting from2020, principally due to the 49.0% depreciation of the Brazilian real between December 31, 2014 and December 31, 2015.goodwill impairment recognized in 2020.
We obtained an
The income tax benefitexpense for 2015 of2021 amounted to US$178.4(568.9) million as compared to an income tax expensebenefit of US$292.4550.2 million in 2014.2020. This variation is partiallymainly explained by an accounting chargea derecognition of US$150.2 milliondeferred tax assets, related to accumulated tax losses that the Company does not expect to utilize in 2014 due to modifications made to the Chilean Tax System, consisting in a gradual increaseforeseeable future of corporate income tax from 20% in 2014 to 27% by 2018.US$1.25 billion. For more information, see “—Critical Accounting Policies—Deferred Taxes” below and Note 1718 to our audited consolidated financial statements.
Net loss
Net loss for the year ended December 31, 2021 totaled US$4,653.1 million. Net loss attributable to the parent company’s shareholders was US$4,647.5 million in 2021.
U.S. Dollar Presentation and Price-Level Adjustments
General
Foreign currency transactions
(a) Presentation and functional currencies
The items included in the financial statements of LATAM Airlines Group S.A. and each of the subsidiaries are valued using the currency of the main economic environment in which eachthe entity operates (the “functional currency”)functional currency). The functional currency of LATAM Airlines Group S.A. is the U.S.United States dollar which is also the presentation currency of presentation of the audited consolidated financial statements of LATAM Airlines Group S.A. and its affiliates.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.income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.
(c) Adjustment due to hyperinflation
After July 1, 2018, the Argentine economy was considered, for purposes of IFRS, hyperinflationary. The financial statements of the subsidiaries whose functional currency is the Argentine Peso have been restated.
The non-monetary items of the statement of financial position as well as the income statement, comprehensive incomes and cash flows of the group’s Argentina entities, whose functional currency corresponds to a hyperinflationary economy, adjusted for inflation and re-expressed in accordance with the variation of the consumer price index (“CPI”), at each presentation date of its financial statements. The re-expression of non-monetary items is made from the date of initial recognition in the statements of financial position and considering that, the financial statements are prepared under the historical cost criterion.
Net losses or gains arising from the re-expression of non-monetary items and income and costs, recognized in the consolidated income statement under “Result of indexation units.”
Net gains and losses on the re-expression of opening balances due to the initial application of IAS 29 are recognized in the consolidated retained earnings.
Re-expression due to hyperinflation will be recorded until the period or exercise in which the economy of the entity ceases to be considered as a hyperinflationary economy, at that time, the adjustments made by hyperinflation will be part of the cost of non-monetary assets and liabilities.
The comparative amounts in the consolidated financial statements of the Company are presented in a stable currency and are not adjusted for subsequent changes in the price level or exchange rates.
(d) Group entities
The results and the financial positionsituation of all the LATAMGroup’s entities, (none of which operated in a hyper-inflationary economy) that have awhose functional currency other thanis different from the presentation currency of the consolidated financial statements, of LATAM Airlines Group S.A., which does not correspond to the currency of presentationa hyperinflationary economy, are translated toconverted into the currency of presentation as follows:
(i) Assets and liabilities of each consolidated statement of financial position presented are translated at the closing exchange rate on |
For consolidation purposes, exchange differences arising from the translation of a net investment in foreign entities (or in local entities with a functional currency different to that of the parent), and of loans and other foreign currency instruments designated as hedges for such investments, are recorded within net equity. When the investment is sold, these exchange differences are shown in the consolidated statement of financial position date;
(ii) The revenues and expenses of each income as part of the loss or gain on the sale.
Adjustments to the goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity andstatement account are translated at theperiod-end exchange rate.rates prevailing on the transaction dates, and
(iii) All the resultant exchange differences by conversion are shown as a separate component in other comprehensive income, within “Gain (losses) on currency translation, before tax.”
For those subsidiaries of the group whose functional currency is different from the presentation currency and, moreover, corresponds to the currency of a hyperinflationary economy; its restated results, cash flow and financial situation are converted to the presentation currency at the closing exchange rate on the date of the consolidated financial statements.
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.
Effects of Exchange Rate Fluctuations
Our functional currency is the U.S. dollar in terms offor the pricing of our products, composition of our balance sheet and effects on our results of operations. MostIn 2022, approximately 44% of our revenues (58% in 2016) arewere in U.S. dollars or in pricescurrencies pegged to the U.S. dollar and a substantial portionapproximately 70% of our expenses (56% in 2016) iswere denominated in dollars or pegged to the U.S. dollar, particularly fuel costs, landing and over-flight fees, aircraft rentals, insurance and aircraft components and supplies.
A substantial majority of our liabilities are denominated in U.S. dollars (70.6%(60.0% as of December 31, 2016)2022), including bank loans, certain air traffic liabilities, and certain amounts payable to our suppliers. As of December 31, 2016, 61.8%2022, 75.9% of our assets were denominated in U.S. dollars, principally aircraft, cash and cash equivalents, accounts receivable and other fixed assets. Substantially all of our commitments, including operating lease and purchase commitments for aircraft, are denominated in U.S. dollars.
Balance sheet imbalance denominated in currencies other than the functional currency of each specific entity creates a foreign exchange rate exposure that impacts our foreign exchange losses and gains due to exchange rate fluctuations. We recorded a net foreign exchange lossesgain of US$467.9131.4 million in 20152021 and net foreign exchange gainsgain of US$121.726.0 million gain in 2016,2022, which are set forth in our consolidated statement of income under “Foreign Exchange gains/(losses).” For more information, see Notes 2.3 and 2928 to our audited consolidated financial statements.
Critical Accounting Policies
The Company has used estimates to value and record certainsome of the assets, liabilities, revenue, expenditure,income, expenses and commitments. TheseBasically, these estimates principally relaterefer to:
(a) Evaluation of possible losses through
(a) | Evaluation of possible losses due to impairment of
See Note 4 (Accounting estimates and
IFRS/Non-IFRS Reconciliation
We use “Cost per
Other Operating Measures LATAM uses revenues per ASK or ATK, as applicable, in analyzing revenues on a per unit basis. To obtain unit revenues, we divide our passenger revenues by our total ASKs and our cargo revenues by our total ATKs. We use our revenues as defined under IFRS for purposes of the calculation of this metric. Revenues per ASK or ATK, as the case may be, do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. This metric is not an IFRS measure of performance or liquidity. It should not be considered in isolation or as a substitute for revenues or as indicators of performance or cash flows as a measure of liquidity. The table below shows the calculation of our revenues per ASK or ATK, as applicable, in each of the periods indicated.
Seasonality
Operating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns.
Operating Data The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2020, December 31, 2021 and December 31, 2022. LATAM believes this operating data is useful in reporting the operating performance of its business and may be used by certain investors in evaluating companies operating in the global air transportation sector. However, these measures may differ from similarly titled measures reported by other companies, and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS. This unaudited operating data is not included in or derived from LATAM’s financial statements.
LATAM’s cash and cash equivalents The US$ The US$ Cash position and liquidity The following table provides a summary of our cash flows from operating activities, investing activities and financing activities for the years ended December 31,
As of December 31, 2022 in addition to cash and marketable securities, LATAM has Net cash flows from operating activities Cash flow from operations
Net cash inflows from operating activities in Net cash flow used in investing activities Net cash used in investing activities in Net cash used in investing activities in Net cash flows used in financing activities In
In 2021, net cash in financing activities amounted to US$109.6 million, a decrease of US$1,011.2 million from the US$1,120.8 million in cash used in financing activities in 2020. In 2021, the company paid US$463.0 million in loan repayments, a reduction Sources of financing
LATAM typically From time to time in the past, we have considered, and may consider in the future, other forms of financing
Revolving Facilities As of December 31,
Capital expenditures
Capital expenditures are related to the acquisition of aircraft, The following chart sets forth the Company’s estimated capital expenditures from 2023 to 2025 calendar year, which are subject to change and may differ from the actual capital expenditures. PDPs and Other expenditures, as shown in the table below, represent estimated cash out flows for
For reference, LATAM group’s fleet commitments presented as the value of all committed deliveries by manufacturers and/or lessors by year are US$1,217.0 million for 2023, US$756.8 million for 2024 and Long Term Indebtedness Secured Debt Aircraft Debt 1. ECA/EX-IM: Bank loans & bonds guaranteed by Export-Import Bank of the United States (“EX-IM Bank”) and Export Credit Agency (“ECA”) guaranteed loan debt. As of December 31, 2022, the total outstanding amount under these facilities was US$781 million. 2. Commercial Bank Loans: As of December 31, 2022, secured commercial bank loans debt totaled US$546 million. 3. Tax Leases: LATAM has Non Aircraft Debt 1. Term Loan B Facility: On October 18, 2022, LATAM Airlines 2. Senior Secured Notes: On October 18, 2022, LATAM Airlines 3. Spare Engine Facility: On November 3, 2022, LATAM Airlines 4. Pre-Delivery Payments (“PDP”) financing: As of December 31, 2022, the outstanding amount under PDP financings was US$71 million. 5. Other Guaranteed Obligations: As of December 31, 2022, the outstanding amount with the U.S. Export-Import Bank (“EXIM Bank”) was US$87 million. This portion of debt is derived from the sale of old aircraft, where the sale price was less than the debt outstanding, which left a shortfall financed by EXIM Bank and now guaranteed indirectly by other EXIM aircraft. Unsecured Debt 1. Local Bonds: On September 5, 2022, LATAM Airlines Group S.A. registered with the Comisión para el Mercado Financiero, the Chilean local regulator, local bonds in the aggregate amount of UF 3,818,042 comprised of the Series F Bonds (BLATM-F), with a maturity in 2042 and a coupon of 2%. As of December 31, 2022, the outstanding amount of Local Bonds was US$157 million. 2. Commercial Bank Loans: As of December 31, 2022, unsecured Commercial Bank loans debt at LATAM Airlines Brazil stood at US$304 million. As of December 31, 2022, the average interest rate of our debt was 9.3%. Out of the total debt, approximately 52% accrues interest at a fixed rate (through a stated fixed interest rate) or is subject to interest rate caps. As of December 31, 2022, LATAM had US$4.7 billion in nominal financial debt liabilities. Of this amount, US$305 million are considered disputed claims. As of December 31, 2022, we had purchase obligations with Airbus and Boeing totaling US$13.2 billion (according to manufacturer’s list price), with deliveries between 2023 and 2029, as set forth below:
2022 Fleet Additions During 2022, LATAM completed the addition of the following wide-body aircraft:
During 2022, LATAM completed the addition of the following narrow-body aircraft:
2021 Fleet Additions During 2021, LATAM completed the addition of the following wide-body aircraft:
During 2021, LATAM completed the addition of the following narrow-body aircraft:
Trademark LATAM has been registered in Argentina, Australia, Bolivia, Canadá, China, Colombia, South Korea, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Hong Kong, India, Japan, Mexico, Nicaragua, New Zealand, Panama, Paraguay, Peru, Dominican Republic, Taiwan, European Union, Uruguay, the United States, and Venezuela; Trademark LATAM AIRLINES has been registered in Argentina, Bolivia, China, Colombia, South Korea, Cuba, Ecuador, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, Taiwan, European Union, Uruguay and Venezuela. LATAM AIRLINES ARGENTINA has been registered in Argentina; LATAM AIRLINES COLOMBIA has been registered in Colombia; LATAM AIRLINES ECUADOR has been registered in Ecuador; LATAM AIRLINES PARAGUAY has been registered in Paraguay and LATAM AIRLINES PERU has been registered in Peru. LATAM CARGO has been registered and/or renewed in Argentina, Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States, and Venezuela. LATAM CARGO BRASIL has been registered in Brazil; LATAM CARGO COLOMBIA has been registered in Colombia; LATAM CARGO MEXICO has been registered in Mexico. LATAM CORPORATE has been registered in Argentina, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, European Union, United Kingdom and Uruguay. LATAM FIDELIDADE has been registered in the following countries, Argentina, Australia, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, United Kingdom, Uruguay, and the United States. FIDELIDAD has been registered in Argentina; FIDELIDAD TAM has been registered in Paraguay; LATAM LINEAS AEREAS has been registered in Argentina, Colombia, Ecuador and Peru; LATAM MRO has been registered in Argentina; Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States, and Venezuela. LATAM PASS has been registered in Argentina, Bolivia, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States, Venezuela. LATAM PASS MILES has been registered in New Zealand and Australia. LATAM TOURS has been registered in Argentina, Colombia, Ecuador and Peru. LATAM TRADE has been registered in Argentina, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, European Union, United Kingdom and Uruguay. Trademark LATAM TRAVEL has been registered in Argentina, Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, the United States, and Venezuela; trademark LATAMPLAY has been registered in Argentina, Colombia and Ecuador. LATIN AIRLINE NETWORK has been registered in Mexico, Nicaragua, New Zealand, United Kingdom and the European Union. LIBREVOLADOR has been registered in Bolivia, Ecuador, TAM
For Regarding cargo operations, LATAM expects cargo ATKs to
LATAM will continue to use fuel hedging programs and fuel surcharge
below.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The LATAM Airlines Group S.A.’s board of directors consists of nine directors who are elected every two years fortwo-year terms at annual regular shareholders’ meetings or, if necessary, at an extraordinary shareholders’ meeting, and may bere-elected. Pursuant to the fourth transitory article of LATAM’s by-laws, the current board of directors elected at the extraordinary shareholders’ meeting held on November 15, 2022 (the “Extraordinary Shareholders’ Meeting”), shall remain in office for two years from its election. Upon expiration of such period, the board of directors shall summon a new extraordinary shareholders’ meeting to proceed with the election of the new board of directors. The board of directors elected at such Extraordinary Shareholders’ Meeting shall exceptionally remain in office for a period longer than the two-year period established in article eight of the by-laws and shall remain in office until the first ordinary shareholders’ meeting held after the second anniversary of its appointment, at which time the board of directors shall be completely renewed in accordance with the applicable legal and regulatory provisions. The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Scheduled meetings of the board of directors are held once a month and extraordinary board of directors’ meetings are called The current board of directors was elected at the The following are LATAM Airlines Group’s directors:
Biographical Information Set forth below are brief biographical descriptions of LATAM Airlines Group’s directors and senior management. All of LATAM’s directors Directors
Mr. Ignacio Cueto
Mr. Mr. Enrique Cueto has served as a member of
Mr. Frederico Curado has been on the Board of LATAM Airlines Group since November 2022, as an independent director. He has also been an independent director of Transocean since 2013, is Chair of its HSE and Sustainability Committee and a member of the Corporate Governance Committee. Mr. Curado is also an independent director at ABB since 2016 and is Chair of its Compensation Committee. He was CEO of Embraer from 2007 to 2016 and CEO of Ultrapar from 2017 to 2021. Mr. Curado holds a B.Sc in Mechanical-Aeronautical Engineering from the Aeronautics Institute of Technology (ITA) and an Executive MBA from the University of São Paulo, Brazil. Mr. Antonio Gil Nievas joined LATAM Airlines Group’s Board of Directors in November 2022. He is also a board member at SQM, a Chilean and NYSE publicly listed company. Mr. Gil Nievas has over 25 years of experience in strategic, management, financial and investment leadership roles at global, European and Latin American levels. He was CEO of Moneda Asset Management and worked at JP Morgan, serving as Managing Director, Global CFO and member of the global executive committees of several businesses, among other positions. Mr. Gil Nievas holds a MSc. and BSc. in industrial engineering with a major in electronics from ICAI (Universidad Pontificia Comillas, Spain). He obtained his MBA from Harvard Business School and also completed the Stanford Executive Program. Mr. Michael Neruda has been a member of the Board at LATAM Airlines Group since November 2022. He is a Partner of Sixth Street, a leading global investment firm that offers capital solutions to companies across all stages of growth. Based in San Francisco, Mr. Neruda leads Sixth Street’s corporate investing in public markets. Prior to joining Sixth Street in 2015, Mr. Neruda was a Director at Watershed Asset Management, where he led investments in the consumer and energy sectors. Mr. Neruda was previously an investment analyst at MHR Fund Management, Silver Point Capital and Merrill Lynch. He received a B.S. in Management Science and Engineering from Stanford University, is a CFA Charterholder and currently serves on the Board of Governors of the Boys & Girls Clubs of San Francisco. Mr. Bouk Van Geloven joined the Board of LATAM Airlines Group in November 2022. He is the Managing Director of the North American investment team at Strategic Value Partners LLC, which he joined in 2014, with a focus on sectors such as airlines, infrastructure, packaging and industrials. From 2011 to 2014, Mr. van Geloven was at J.P. Morgan Cazenove in their Strategic M&A Advisory team. Mr. van Geloven has two Master of Science degrees in Econometrics and Quantitative Finance from the Vrije Universiteit Amsterdam. He has served Mrs. Sonia J.S. Villalobos joined the Board of LATAM Airlines in August 2018. Mrs. Villalobos is a Brazilian citizen and a regular member of the board of directors of Petrobras and Telefónica Vivo. She is a founding partner of the company Villalobos Consultoria since 2009 and a professor of post-graduate courses in finance at Insper since 2016. Between 2005 and 2009, she was the Manager of Funds in Latin America, in Chile, managing mutual and institutional funds of Larrain Vial AGF. From 1996 to 2002, Mrs. Villalobos was responsible for Private Equity investments in Brazil, Argentina and Chile for Bassini, Playfair & Associates, LLC. As of 1989 she was Head of Research of Banco Garantia. She graduated in Public Administration from EAESP / FGV in 1984 and obtained a Master in Finance from the same institution in 2004. She was the first person to receive the CFA certification in Latin America, in 1994. Mr. Alexander Wilcox has served on LATAM Airlines Group’s board of directors since October 2020. Mr. Wilcox resides in the United States and has broad experience in the aviation industry where he has held executive positions in several airlines between 1996 and 2005. Mr. Wilcox is a cofounder and the CEO of JSX, a public charter commuter air carrier in the U.S. Mr. Wilcox attended the University of Vermont and earned a BA in Political Science and English. Senior Management Mr. Roberto Alvo has been the Chief Executive Officer (“CEO”) of LATAM since March 31, 2020. Prior to this, he worked as Chief Commercial Officer (“CCO”) of LATAM, in charge of managing the group’s passenger and cargo revenue. Previously, he was Vice-President of International and Alliances at LATAM Airlines, and Vice-President of Strategic Planning and Development. Mr. Alvo joined LAN Mr.
Mr. Emilio del Real is the Mr. Juan Carlos Mr. Paulo Miranda Mr. Hernán Pasman has been the Chief Operations Officer 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, Mr. Pasman was a consultant at McKinsey & Company in Chicago. Between 1995 and 2001, Hernan held positions at Citicorp Equity Investments, Telefonica de Argentina and Argentina Motorola. Mr. Pasman holds Mrs. Juliana Rios has over 20 years of experience in services and technology in the Mr. Martin St. George joined LATAM Airlines Group in 2020 as Chief Commercial Officer after a 30+ year career in the airline industry in both North America and Europe. Prior to joining LATAM, he Mr. Juan José Tohá
B. Compensation
C. Board Practices Our board of directors Committees Board of Directors’ Committee and Audit Committee Pursuant to the Ley sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation
Under Chilean Should the board of directors fail to reach an agreement, preference to be appointed to the committee shall be given to directors elected with the highest percentage of votes cast by shareholders that individually control or possess less than 10% of the company’s shares. If there is only one independent director, such director shall appoint the other members of the committee among non-independent directors. Such directors shall be entitled to exercise full powers as members of the committee. The chairman of the board of directors shall not be entitled to be appointed as a member of the committee nor any of its subcommittees, unless he To be elected Pursuant to U.S. regulations, we are required to have an audit committee of at least three board members, which complies with the independence requirements set forth in Rule10A-3 under the Exchange Act. Given the similarity in the functions that must be performed by our As of December 31, Other LATAM Board Committees LATAM’s board of directors has also
In June 2014, LATAM’s board of directors established a Risk Committee to oversee the creation, implementation and management of a risk matrix for the Company. Corporate Governance Practices
The company follows strict procedures in order to comply with current legislation in the
annual report.
D. Employees
The following table sets forth the number of employees in various positions at the Company.
Our salary structure is comprised of: (a) fixed payments (base salary and other fixed payments such as legal gratifications, local bonus, company seniority and others, depending on each country’s law and market practice); (b) short term incentives (associated with corporate, area and individual performance), applicable to our ground staff; (c) long term incentives (applicable to our senior executives (Senior Directors and above) According to the local law requirements, we make pension and social security contributions on behalf of our employees. Additionally, for our air staff and specialized professionals such as mechanics, we have fixed and variable payments, subject to the local collective agreements. Regarding benefits, we usually provide life insurance and medical insurance, complementary Long Term Incentive Compensation Program
The Company implemented a Corporate Incentive Plan As part of the
Labor Relations
LATAM has maintained and intensified its efforts to ensure that labor relations Chile In 2022, 13 collective bargaining processes were carried out with unions, all of which were initiated voluntarily and
regulated), all of them were finally approved by large majorities of the respective assemblies, i.e., with an average approval of over 80%. As a Ecuador In July 2019, the Company renewed its voluntary agreement with the pilot’s association in Ecuador, valid until July 2023. Then, this agreement was modified on June 26, 2020, with its term being extended until December 31, 2023. Colombia In Colombia during 2022 the Company maintained the agreements signed
Peru In Peru, In July 2022 LATAM Airlines Peru concluded negotiations with the cabin crew union and aircraft technicians union in direct agreement (4 years). In 2022 we started the collective bargaining process with the following unions: other aircraft technicians, airport workers, pilots and flight dispatchers. Brazil Under Brazilian law, the term of collective bargaining agreements is limited to two years. collective bargaining agreements with E. Share Ownership As of For a description of stock options granted to our executive officers, see
F. Disclosure of a registrant’s action to recover erroneously awarded compensation Not applicable. ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders As of February 28, 2023, Sixth Street Partners Management Company beneficially owned 27.9% of our common shares; Strategic Value Partners beneficially owned 16.0% of our common shares, Delta Air Lines owned 10.0% of our common shares; Qatar Airways Investments (UK) Ltd. owned 10.0% of our common shares (9.999999992% over LATAM’s statutory capital); Sculptor Capital beneficially owned 6.5% of our common shares; and the Cueto Group owned 5.0% of our common shares. This information and the information in the table below is based upon information from Schedules 13D and 13G filed with the SEC. Mr. Ignacio Cueto
The table below sets forth additional information regarding the beneficial ownership of our common shares, as of January 31,
Qatar Airways Investments (UK) Ltda. 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(2)(3) TEP Chile S.A. All other minority shareholders Total
As of In the past three years, the only significant changes in the percentage of ownership held by any of LATAM’s major currently existing shareholders have been represented by a decrease in the Cueto’s group ownership from 16.4% as of February 28, 2022 to 5.0% as of February 28, 2023; and a decrease in Delta Airlines’ ownership from 20.0% as of February 28, 2022 to 10.0% as of February 28, 2023. Shareholders’ Agreements
On or around the
Composition of the LATAM Airlines Group Board On November 15, 2022, Mr. On November 15, 2022 the board of directors of LATAM Airlines Group Management of the LATAM Airlines Group
The CEO of
The head office of the LATAM Airlines Group continues to be located in Santiago, Chile.
Voting Agreements, Transfers and Other Arrangements
Voting Agreements
The parties to the Holdco I Transfer Restrictions
Restriction on transfer of TAM shares LATAM agreed in the Holdco I shareholders’ agreement not to sell or transfer any shares of TAM stock to any person (other than our affiliates) at any time when TEP Chile owns any voting shares of Holdco I. However, LATAM will have the right to effect such a sale or transfer if, at the same time as such sale or transfer, LATAM (or its assignee) acquires all the voting shares of Holdco I beneficially owned by TEP Chile for an amount equal to TEP Chile’s then current tax basis in such shares and any costs TEP Chile is required to incur to effect such sale or transfer. TEP Chile has irrevocably granted us the assignable right to purchase all of the voting shares of Holdco I beneficially owned by TEP Chile in connection with any such sale. Conversion Option Pursuant to
If we can purchase and/or convert our shares and Acquisitions of TAM Stock The parties have agreed that all acquisitions of TAM common shares by LATAM Airlines Group, Holdco I, TAM or any of their respective subsidiaries from and after the effective time of the combination will be made by Holdco I. B. Related Party Transactions See “Item 4. Information on the Company-B. Business Overview-Chapter 11 Proceedings through 2021-Debtor-in-Possession Financing.” General We have engaged in a variety of transactions with our affiliates, including entities owned or controlled by certain of our On August 2, 2016, the
Any and all negotiations, acts, contracts or operations in which a company of the LATAM Group and a party related to such company serve as the participants will be subject to the Policy.
DIP Financing See “Item 4. Information on the Company-B. Business Overview-Chapter 11 Proceedings through 2022-Debtor-in-Possession Financing.” C. Interests of experts and counsel Not applicable. ITEM 8 FINANCIAL INFORMATION A. Consolidated Financial Statements and Other Financial Information See Legal and Arbitration Proceedings We are involved in routine litigation and other proceedings relating to the ordinary course of International Cargo Airlines Investigations In February 2006 the European Commission (“EC”), the Department of Justice of the United States (“DOJ”), the Canadian Competition Bureau (“CCB”), and the Brazilian Administrative Counsel for Economic Defense (“Conselho Administrativo de Defesa Econô On November 9, 2010, the EC imposed fines on 11 air carriers for a total amount of €799.4 million (equivalent to approximately US$1.1 billion). The fine imposed against LAN Cargo and its parent company, LAN, totaled €8.2 million (equivalent to approximately US$ On March 17, Civil actions have also been initiated against many airlines, including LAN Cargo and LATAM Airlines Group, in various European countries (Great Britain, Norway, Holland and Germany). The two only judicial processes still pending in Norway and the Netherlands are in the evidentiary stages. There has been no activity in Norway since January 2014 and in the Netherlands, since February 2021. The amounts are indeterminate. On September 3, 2013, CADE published its decision to impose a fine of US$51.0 million against ABSA, after an investigation, commenced in 2008, against several cargo airlines and airlines officers over allegations of anticompetitive practices regarding fuel surcharges in the air cargo business. CADE also imposed fines upon a former Director and two former employees in the amounts of US$1.0 million and US$510,000 respectively. On December 5, 2013 ABSA filed its application for Administrative Reconsideration before CADE. On December 19, 2014, CADE issued a new decision which reduced the fine against ABSA to US$ On June 18, 2019, an appeal was filed by ABSA. On August 14, 2019, CADE’s deadline for filing counter arguments was certified. On August 25, 2019, records were sent to the court. On the same date, the records were distributed to Desa Marli Marques Ferreira. On April 27, 2020, a petition was presented by ABSA attaching the renewal of the insurance-judicial policy. On April 19, 2021, a petition was presented by ABSA attaching the renewal of the insurance-judicial policy. On July 19, 2021, CADE filed a statement challenging the policy presented. On August 11, 2021, ABSA filed a petition with evidence of the regular status of the policy presented. On October 26, 2021, a decision was rendered determining the regularization of the policy by ABSA. On October 27, 2021, ABSA filed a petition reiterating the terms of its last petition, demonstrating the regularity of the policy presented. On February 8, 2022, ABSA was summoned to regularize the policy presented, by proving the existence of a reinsurance contract. On February 16, 2022, ABSA presented proof of reinsurance by Ezze Seguros. At the moment, the judgment of ABSA’s appeal is awaited. Jose Marti Airport Complaint On September 27, 2019 a lawsuit was filed against LATAM Airlines Group S.A. and American Airlines Inc. (“American”) in the U.S. District Court for the Southern District of Florida under the Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. Section 6021 et seq., (the “Helms-Burton Act”). Plaintiff Jose Ramon Lopez Regueiro alleged in the complaint that he holds an interest in the Jose Marti Airport which was confiscated by the Cuban government in 1959, and that LATAM Airlines Group S.A. unlawfully “trafficked” in the said property. The plaintiff sought all available statutory remedies, including the award of damages for the alleged trafficking in the expropriated property, plus reasonable attorney’s fees and costs incurred, treble damages, post-judgment interest, and any other relief deemed appropriate by the court. On April 6, 2020, the Court issued an Order of Temporary Suspension given the inability to proceed with the case on a regular basis as a result of the indefinite duration and restrictions of the global pandemic and required the parties to notify on a monthly basis of the possibility of proceeding. The stay with respect to the claims against American was lifted and consequently American successfully obtained a dismissal from the Southern District court on the grounds that: (1) the property at issue in an Helms-Burton Act lawsuit must have been confiscated from a U.S. national, and (2) an Helms-Burton Act plaintiff must have been a U.S. national when he acquired his claim to the property or at least before the Helms-Burton Act’s enactment date, March 12, 1996. The stay with respect to the claims against LATAM remained in place until the conclusion of the Chapter 11 proceedings. Plaintiff’s failure to file a proof of claim against LATAM under the Chapter 11 proceedings barred plaintiff from any claims against LATAM. As a result, the plaintiff agreed to dismiss his complaint with prejudice against LATAM. A status report was submitted to the Court confirming the same. Dismissal is pending. Chapter 11 Proceedings On May 26, 2020, LATAM Airlines Group S.A. and 28 subsidiaries (the “Initial Debtors”) individually filed a voluntary reorganization petition with U.S. Bankruptcy Court for the Southern District of New York according to Chapter 11 of the U.S. Bankruptcy Code. On July 7 and 9, 2020, 9 additional affiliated debtors (the “Subsequent Debtors,” and together with the Initial Debtors, the “Debtors”), including TAM Linhas Aereas S.A., filed a voluntary reorganization petition with the Court according to Chapter 11 of the U.S. Bankruptcy Code. On November 26, 2021, the Debtors submitted a joint reorganization plan together with an informational statement. On May 11, 2022, the Debtors submitted a revised version of the Plan. On June 18, 2022, the Bankruptcy Court issued the Confirmation Order confirming the Reorganization Plan filed by the Debtors (the “Confirmation Order”). On July 5, 2022, a Special Shareholders Meeting of LATAM approved implementing the Restructuring Plan and issuing the required instruments to be able to exit the Chapter 11 Procedure. On November 3, 2022, the Debtors exited the Chapter 11 proceedings and emerged as the “Reorganized Debtors”. The effective date of the exit (the “Effective Date”) of LATAM’s reorganization and financing plan (the “Reorganization Plan”) was approved and confirmed in the U.S. reorganization procedure according to the rules of Chapter 11 in Title 11 of the U.S. Code. On November 17, 2022, the Reorganized Debtors filed a motion to consolidate the administration of certain remaining matters, including the reconciliation of claims that have not yet been allowed or disallowed, in the lead Chapter 11 case of LATAM Parent and for entry of a final decree closing the Chapter 11 cases of LATAM Parent’s debtor-affiliates. The Bankruptcy Court entered an Order on December 14, 2022 granting the motion to consolidate the administration of remaining matters in the lead Chapter 11 case of LATAM Parent. As a result, the dockets for all 37 debtor-affiliates of LATAM Parent were marked “closed” on December 23, 2022. Additional information regarding recent developments in the Chapter 11 proceedings can be found in “Item 4. Information on the Company-B. Business Overview-Recent Developments in 2022 involving our Chapter 11 Proceedings.” On June 1, 2020, LATAM Airlines Group SA, in its capacity as foreign representative of the reorganization proceedings under the rules of Chapter 11 described above, filed the request for recognition of the Chapter 11 proceedings as a main proceeding, pursuant to Law 20,720 (the “Chilean Insolvency Act”) in Chile, before the 2° Civil Court of Santiago (the “Chile Insolvency Court”). Case N° C-8553-2020. On June 4, 2020, the Chile Insolvency Court issued a ruling granting such a request. All appeals filed against such decision were rejected and, therefore, is final. Due to the fact that November 3, 2022 was the Effective Date of the reorganization plan approved and confirmed in the main proceeding, on November 10, 2022, the representative of the foreign proceeding submitted to the court his last monthly report in accordance with the Communications Protocol Cross-border. On June 4, 2020, LATAM Airlines Group S.A. and the companies that were admitted to a Chapter 11 reorganization proceeding (the “Debtors”) before the United States District Court for the Southern District of New York (the “US Bankruptcy Court”) requested the Colombian Superintendence of Companies (the “Superintendence of Companies”) recognize the Chapter 11 reorganization proceeding in Colombia on the grounds of the Colombian cross border insolvency regulation (Title III of Law 1116 of 2006). On June 12, 2020, the Superintendence of Companies recognized the reorganization proceeding filed before the US Bankruptcy Court as the main proceeding and ordered several measures regarding the assets of the Colombian Debtors. On August 26, 2022, the Superintendence of Companies recognized the order issued by the US Bankruptcy Court on June 24, 2022, by which it authorized the DIP Exit Financing proposal filed by the Debtors and authorized the termination of the guarantees granted in the Amended and Reinstated DIP Financing and the execution of new guarantees. On November 3, 2022, the Debtors notified the US Bankruptcy Court, creditors and interested parties of the effective date of the Reorganization Plan. On May 26, 2020, LATAM Finance Limited submitted a request for a provisional liquidation in the Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on May 27, 2020 by the Grand Court of the Cayman Islands. On September 28, 2020, LATAM Finance Limited filed a petition to suspend the liquidation. On October 9, 2020, the Grand Court of the Cayman Islands accepted the petition and extended the status of temporary liquidation for a period of 6 months. The lawsuit continues to be active. On May 13, 2021, LATAM Finance Limited filed a petition to suspend the liquidation. On May 18, 2021, the Grand Court of the Cayman Islands accepted the petition and extended the status of temporary liquidation until October 9, 2021. The lawsuit continues to be active. On December 1, 2021, LATAM Finance Limited filed a petition to suspend the liquidation, which was accepted by the Grand Court of the Cayman Islands. This extended the status of the provisional liquidation through April 9, 2022. On August 22, 2022, LATAM Finance Limited petitioned for a suspension of the liquidation, which was granted by the Grand Court of the Cayman Islands, extending the status of the provisional liquidation to October 9, 2022. An additional petition to suspend the liquidation was sustained by the Grand Court of the Cayman Islands on October 4, 2022. Currently the proceeding remains open. On May 26, 2020, Peuco Finance Limited submitted a request for a provisional liquidation in Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on May 27, 2020 by the Grand Court of the Cayman Islands. On September 28, 2020, Peuco Finance Limited filed a petition to suspend the liquidation. On October 9, 2020, the Grand Court of the Cayman Islands accepted the petition and extended the status of temporary liquidation for a period of 6 months. The lawsuit continues to be active. On May 13, 2021, Peuco Finance Limited filed a petition to suspend the liquidation. On May 18, 2021, the Grand Court of the Cayman Islands accepted the petition and extended the status of temporary liquidation until October 9, 2021. The lawsuit continues to be active. On December 1, 2021, Peuco Finance Limited filed a petition to suspend the liquidation, which was accepted by the Grand Court of the Cayman Islands. This extended the status of the provisional liquidation through April 9, 2022. On August 22, 2022, Peuco Finance Limited petitioned for a suspension of the liquidation, which was granted by the Grand Court of the Cayman Islands, extending the status of the provisional liquidation to October 9, 2022. An additional petition to suspend the liquidation was sustained by the Grand Court of the Cayman Islands on October 4, 2022. Currently the proceeding remains open. On July 7, 2020, Piquero Leasing Limited submitted a request for a provisional liquidation in Grand Court of the Cayman Islands, covered in the reorganization proceeding filed before the Bankruptcy Court of the United States of America, which was accepted on July 10, 2020, by the Grand Court of the Cayman Islands. Piquero Leasing Limited entered a motion to suspend the liquidation on September 28, 2020. The Grand Court of the Cayman Islands granted the motion and extended the provisional liquidation status for 6 months. The procedure continues. On May 13, 2021, Piquero Leasing Limited filed a petition to suspend the liquidation. On May 18, 2021, the Grand Court of the Cayman Islands accepted the petition and extended the status of temporary liquidation until October 9, 2021. The lawsuit continues to be active. On December 1, 2021, Piquero Leasing Limited filed a petition to suspend the liquidation, which was accepted by the Grand Court of the Cayman Islands. This extended the status of the provisional liquidation through April 9, 2022. On August 22, 2022, Piquero Leasing Limited petitioned for a suspension of the liquidation, which was granted by the Grand Court of the Cayman Islands, extending the status of the provisional liquidation to October 9, 2022. An additional petition to suspend the liquidation was sustained by the Grand Court of the Cayman Islands on October 4, 2022. Currently the proceeding remains open. Class Actions On June 25, 2020, the National Corporation of Consumers and Users (“CONADECUS”) filed a class action against LATAM Airlines Group S.A. in a Chilean Court, for alleged breaches of the Law on Protection of Consumer Rights due to flight cancellations caused by the COVID-19 Pandemic, requesting the nullity of possible abusive clauses, the imposition of fines and compensation for damages in defense of the collective interest of consumers. On July 4, 2020 we filed a motion for reversal against the ruling that declared the action filed by CONADECUS admissible, a decision is pending
Class Action Lawsuit filed by AGRECU against LATAM Airlines Group S.A. On July 7, 2020 we were notified of the lawsuit. We filed our statement of defense on August 21, 2020. The Court admitted the statement of defense and convened the parties to a
Legal proceedings involving TAM Linhas Aéreas S.A. is party to one action filed by relatives of victims of an accident that occurred in October 1996 involving one of its Fokker 100 aircraft, In relation to the
Tax related proceedings TAM Linhas Aereas and other plaintiffs filed an ordinary TAM Linhas Aereas S.A. is a plaintiff in TAM Linhas Aereas S.A. filed an ordinary claim, with a request for early judgment, A tax assessment was issued by the Brazilian IRS for A tax assessment was issued by the São Paulo Municipality in order to charge tax (ISS) on tour packages sold by Fidelidade Viagens e Turismo S/A between 2010 and 2015.The Company believes that a favorable outcome is possible. A first level decision was issued favorable to the company, but remains subject to appeal by the counterparty. The appeal from the São Paulo Municipality has been pending a verdict since May 2020. On July 2021 the Court denied the São Paulo Municipality appeal. The Municipality of São Paulo presented a new appeal which is awaiting a decision in the STJ. In June 2022, the STJ upheld the favorable decision for the Company and rejected the Treasury’s appeal. In September 2022 there was a favorable definitive closure for the Cia. A tax assessment of PIS/COFINS credits was issued by the Brazilian IRS on International Air Freight Shipping Services in the amount of US$ 10.095 million (R$ 52.674.540,95 million) as of December 31,
Federal Revenue Service issued a tax assessment notice against TAM Linhas On December 12, 2019 Brazilian tax authority issued a Tax Assessment of PIS COFINS credits related to 2014 on the amount of US$37.062 million (R$193.381.694,20 million), as of December 31, 2021. The company filed the defense in the same ground of the case reported above about PIS COFINS. In September 2020, the company was informed that the defense was denied. The appeal filed by the Company is pending judgment. Federal Revenue Service issued a tax assessment notice against TAM Linhas Aereas S.A. in the amount of US$ 15.904 million (R$82.984.625,34 million) as of December 31, 2022, due to alleged irregularities of the Company related to the social security contribution on the risks of work accident (“GILRAT,” former “SAT”), in the term from January/December 2018. TAM Linhas Aereas S.A. will present the Administrative Defense. In the opinion of our legal advisors, losing in this proceeding is possible. It is important to highlight that the Company won a similar case where the Brazilian IRS was seeking the same contribution related the years 2011-2012, and this assessment was canceled by the Administrative Court. It is important to highlight that TAM Linhas Aereas S.A. has other relevant legal cases involving tax issues. In addition, there are a few claims made to, and/or legal proceedings filed against the Company, though those are not expected to have a material impact on the Group’s financial situation or profitability. While it is not feasible to predict the outcome of the pending claims, proceedings, and investigations described with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on the Company’s financial position, cash flows, or results of operations. For additional Dividend Policy In accordance with the Chilean We declare cash dividends in U.S. dollars, but make dividend payments in Chilean pesos, converted from U.S. dollars at the observed exchange rate five business days prior to the day we first make payment to shareholders. Holders of ADSs will be entitled to receive dividends on the underlying common shares to the same extent as holders of common shares. Holders of ADRs on the applicable record dates will be entitled to receive dividends paid on the common shares represented by the ADSs evidenced by such ADRs. Dividends payable to holders of ADSs will be paid by us to the depositary in Chilean pesos and remitted by the depositary to such holders net of foreign currency conversion fees and expenses of the depositary and will be subject to Chilean withholding tax currently imposed at a rate of 35% (subject to credits in certain cases as described under “Item 10. Additional Chilean law requires that holders of shares of Chilean companies that are not residents of Chile register as foreign investors under one of the foreign investment regimes established by Chilean law in order to have dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market (Mercado Cambiario Formal). LATAM Airlines did not pay the The table below sets forth the cash dividends per common share and per ADS
B. Significant Changes
Except as otherwise disclosed in our audited consolidated financial statements and in this annual report, there have been no significant changes in our business, financial conditions or results of operations since December 31, 2022. ITEM 9 THE OFFER AND LISTING A. Offer and Listing Details The principal trading market for our common shares is the In August 2022, LATAM filed a registration statement on Form F-1 for the proposed resale of its common shares As of December 31, 2022, the Company’s statutory capital is represented by 606,407,693,000 shares, all issued, ordinary and
Period 2017 Months: January February
In February 2022, the Company filed an application to register an additional 200 million ADRs (American Depositary Receipt) with the Securities Exchange Commission (“SEC”) with the sole purpose of having them available for issuance in the market, since most of the existing registered ADRs have already been issued. The Company informed that this does not mean that the Company is issuing new shares or increasing capital, but rather allowing investors in the United States to access the ADRs, which have as an underlying security LATAM’s previously issued common B. Plan of Distribution Not applicable. C. Markets Trading Chile The Chilean stock market, which is regulated by the
Equities,closed-end funds, fixed-income securities, short-term and money market securities, gold and U.S. dollars are traded on the SSE. In 1991, the SSE initiated a futures market with two instruments: U.S. dollar futures and Selective Shares Price Index, or IPSA, futures. Securities are traded primarily through an open voice auction system; a firm offers system or daily auctions. Trading through the open voice system occurs on each business day from 9:30 a.m. to 4: D. Selling Shareholders Not applicable. E. Dilution Not applicable. Not applicable. ITEM 10 ADDITIONAL INFORMATION This Item reflects legal amendments A. Share Capital Not applicable. B. Memorandum and Articles of Association Set forth below is information concerning our share capital and a brief summary of certain significant provisions of ourby-laws and Chilean law. This description contains all material information concerning the common shares but does not purport to be complete and is qualified in its entirety by reference to ourby-laws, the Chilean Organization and Register LATAM Airlines Group is a publicly held stock corporation (sociedad anónima abierta) incorporated under the laws of Chile. LATAM Airlines Group was incorporated by a public deed dated December 30, 1983, an abstract of which was published in the Chilean Official Gazette (Diario Oficial de la República de Chile) No. General Shareholders’ rights in a Chilean Registry in the event that they have had more than 2,000 shareholders (or the number established by the CMF through a general rule) registered in the shareholders registry for twelve consecutive months, provided that registering such number does not compromise public faith, taking into account the type of shareholder, nature of the company or similar circumstances.
The framework of the Chilean securities market is regulated by the Ownership Restrictions Under Articles 12 and 20 of the Securities Market
These obligations are extended (i) to certain individuals (immediate family, next of kin and others) if the ADS holder is a natural person; (ii) to any entity controlled by the holder, if the ADS is a legal entity; and (iii) to groups, if a holder has any joint action agreement with other holders and the group reaches or exceeds the cited threshold. In addition, majority shareholders must state in their report whether their purpose is to acquire control of the company or if they are making a financial investment. Under Article 54 of the Securities Market In addition to the foregoing, Article 54A of the Securities Market Consequently, a beneficial owner of ADSs intending to acquire control of LATAM Airlines Group will be subject to the foregoing reporting requirements. The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer. Title XXV of the Securities Market Article 200 of the Securities Market Title XV of the Securities Market Capitalization Under Chilean law, the shareholders of a As of Chilean law recognizes the right of corporations to issue shares of common and preferred Preemptive Rights and Increases in Share Capital
Chilean
On September 13, 2022, we commenced preemptive rights offerings in Chile for New Convertible Notes Class A, New Convertible Notes Class B, New Convertible Notes Class C and ERO New Common Stock (each as defined in the Plan), which offerings concluded on October 12, 2022. In the case of potential subsequent preemptive rights, we intend to evaluate When preemptive rights are not made available to ADS holders, the depositary may sell those holders’ preemptive rights and distribute the proceeds thereof if a secondary market for such rights exists and a premium can be recognized over the cost of such sale. In the event that the depositary does not sell such rights at a premium over the cost of any such sale, all or certain holders of ADRs may receive no value for the preemptive rights. Under Chilean law, preemptive rights are freely exercisable, transferable or waived by shareholders during a30-day period commencing upon publication of the official notice announcing the start of the preemptive rights period in the newspaper designated by the shareholders’ meeting. The preemptive right of the shareholders is the pro rata amount of the shares registered in their name in the shareholders’ registry of LATAM Airlines Group as of the fifth business day prior to the date of publication of the notice announcing the start of the preemptive rights period. During such30-day period (except for shares as to which preemptive rights have been waived), Chilean companies are not permitted to offer any newly issued common shares for sale to third parties. For that30-day period and an additional30-day period, Chilean publicly held corporations are not permitted to offer any unsubscribed common shares for sale to third parties on terms that are more favorable to the purchaser than those offered to shareholders. At the end of such additional30-day period, Chilean publicly held corporations are authorized to sellnon-subscribed shares to third parties on any terms, provided they are sold on a Chilean stock exchange. Directors Ourby-laws provide for a board of nine directors. Compensation to be paid to directors must be approved by vote at the annual shareholders’ meeting. We hold elections for all positions on the board of directors every two years. Under ourby-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion his or her votes among any number of nominees. These voting provisions currently ensure that a shareholder owning more than 10% of our outstanding shares is able to elect at least one representative to our board of directors. Under the Chilean These transactions include any negotiation, act, contract or operation in which the
Pursuant to Article 147 of Chapter XVI of the Chilean Corporation Act, a publicly held corporation shall only be entitled to enter into 1. The directors, managers, administrators, principal executive officers or liquidators that have an 2. Prior to the company’s consent to a related party transaction, 3. The resolutions of the board
4. In the event that an absolute majority of the members of the board of directors should abstain from voting, the related-party transaction shall only be executed if it is approved by the 5. If a shareholders’ extraordinary meeting is called to approve the transaction, the board of directors shall appoint
6. When the directors of the company must decide on a related party-transaction, they must expressly state the relationship with the transaction counterparty or the interest involved. They shall also express their opinion on whether the transaction is in the best interest of the corporation, 7. Notwithstanding the applicable sanctions, any infringement of the above provisions will not affect the validity of the transaction, but it will grant the company or the shareholders
Notwithstanding the above, the following related party transactions may be executed, pursuant to letters a), b) and c) of Article 147 of the Chilean Corporation 1. Transactions that do not involve a 2. Transactions that pursuant to the company’s policy of usual practice as determined by its board of directors, are in the ordinary course of business of the company. Any agreement or resolution establishing or amending such policies shall have the approval of the board of directors’ committee and shall be communicated as a 3. Transactions between legal entities in which The usual practice policy adopted by the board of directors Shareholders’ Meetings and Voting Rights
Chilean financial statements, including the report of our auditors, for the previous fiscal year). Extraordinary shareholders’ meetings may be called by the board of directors, if deemed appropriate, and ordinary or extraordinary shareholders’ meetings must be called by the board of directors when requested by shareholders representing at least 10.0% of the issued voting shares or by the Notice to convene the ordinary annual meeting or an extraordinary meeting is given by means of three notices which must be published in a newspaper of our corporate domicile (currently Santiago, Chile) designated by the shareholders at their annual meeting and, if the shareholders fail to make such designation, the notice must be published in the Chilean Official Gazette pursuant to legal requirements. The first notice must be published The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing a majority of our issued common shares. If that quorum is not reached, the meeting can be reconvened within 45 days, and at the second meeting the shareholders present are deemed to constitute a quorum regardless of the percentage of the common shares that they represent. Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his or her proxy to attend and vote on his or her behalf. The following matters can only be considered at an extraordinary shareholders’ meeting:
The matters referred to in the first seven items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting. Theby-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting. However,
Pursuant to the third transitory article of LATAM’s by-laws, during a period of two years ending on November 3, 2024, all items referred to in the second paragraph of article 67 of the Chilean Corporation Act shall require the affirmative vote of at least 73% of the outstanding
In general, Chilean law does not require a publicly held corporation to provide the level and type of information that the U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company and its subsidiaries within the15-day period before a scheduled meeting. No later than 10 days ahead of the
Chilean Dividend and Liquidation Rights In accordance with of all issued shares, and unless and except to the extent it has accumulated losses. If there For all dividend distributions agreed by the board of directors in excess of the mandatory minimum of 30% noted in the preceding paragraph, LATAM Airlines Group may grant an option to its shareholders to receive those dividends in cash, or in shares issued by either LATAM Airlines Group or other public corporations. Shareholders who do not expressly elect to receive a dividend other than in cash are legally presumed to have decided to receive the dividend in cash. A U.S. holder of ADSs may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively Dividends that are declared but not paid within the appropriate time period set forth in the Chilean In the event of LATAM Airlines Group’s liquidation, the holders of fully paid common shares would participate pro rata in the distribution of assets remaining after payment of all creditors. Holders of shares not fully paid will participate in such distribution in proportion to the amount paid. Approval of Financial Statements The board of directors is required to submit our consolidated financial statements to the shareholders for their approval at the annual ordinary shareholders’ meeting. If the shareholders reject the financial statements, the board of directors must submit new financial statements Right of Dissenting Shareholders to Tender Their Shares
Chilean “Dissenting shareholders” are defined as those who attend a shareholders’ meeting and vote against a resolution which results in the withdrawal right, or, if absent at such a meeting, those who state in writing to the company their opposition to such resolution within the following 30 days. Dissenting shareholders must perfect their withdrawal rights by tendering their stock to the company within thirty days after adoption of the resolution. The price to be paid to a dissenting shareholder of a publicly held corporation is its market value. In the case of corporations which shares are actively traded on a stock exchange (acciones con presencia bursátil) pursuant to a General Rule issued by the CMF, the weighted average of the sales prices for the shares as reported on the Chilean stock exchanges on which the shares are quoted during the 60stock-exchange-business-day period elapsed between the 30th and the 90th stock-exchange-business-days-preceding the The resolutions and situations that result in a shareholder’s right to withdraw are the following:
In addition, shareholders of publicly held corporations have the right to withdraw if a person acquirestwo-thirds or more of the outstanding shares of such corporation with the right to vote (except as a result of other shareholders not having subscribed and paid a capital increase) and does not make a tender offer for the remaining shares within 30 days after acquisition. Under article 69 bis of the Chilean Corporation There is no legal precedent as to whether a shareholder that has voted both for and against a proposal (such as the depositary) may exercise withdrawal rights with respect to the shares voted against the proposal. As such, there is doubt as to whether holders of ADRs who have not surrendered their ADRs and withdrawn common shares on or before the fifth business day prior to the shareholder meeting will be able to exercise withdrawal rights either directly or through the depositary with respect to the shares represented by ADRs. Under the provisions of the deposit agreement the depositary will not exercise these withdrawal rights. The circumstance indicated above regarding ownership in excess of 95% by the controlling shareholder creates not only a withdrawal right for the remaining minority shareholders, but as of January 1, 2010, it could also Registration and Transfers
DCV Registros S.A. (“DCV”), a local depository corporation, acts as LATAM Airlines Group’s registration agent. In the case of jointly owned common shares, anattorney-in-fact must be appointed to represent the joint owners in dealings with us. C.Material Contracts Table of Material Contracts for the Purchase of Aircraft
TAM Material Contracts - Boeing 777 Purchase Agreement
Other Material Contracts Boeing On May 9, 1997, we entered into the Aircraft General Terms Agreement with The Boeing Company (“AGTA”), applicable to all Boeing aircraft contracted for purchase from The Boeing Company. Boeing Aircraft Holding Company On
Airbus A320-Family Fleet
Between April and August 2011, we entered into Buyback Agreements No. 3001, 3030, 3062, 3214 and 3216 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$107 million. Between August 2012 and January 2013, we entered into Buyback Agreements No. 3371, 3390, 3438, 3469 and 3509 with Airbus Financial Services for the sale of five A318 aircraft for approximately US$102 million.
Aercap Holdings N.V. On May 28, 2013, we entered into a framework deed with Aercap Holdings N.V. for the sale and leaseback of several used A330-200 aircraft, On February 25, 2022, we entered into lease agreements with Bank of Utah, not in its individual capacity but solely in its capacity as owner trustee (all having AerCap Group acting as a servicer) for the lease of six A321neo to be delivered in 2023. Also, on March 31, 2022, we entered into lease agreements with Bank of Utah,not in its individual capacity but solely in its capacity as owner trustee (all having AerCap Group acting as a servicer) for the lease of two additional A321neo to be delivered in 2023. These lease agreements are for a duration of twelve years. Aircastle Holding Corporation Limited On February 21, 2014, we entered into a framework deed with Aircastle Holding Corporation Limited for the lease of four B777-300ER already in the fleet. The four aircraft were manufactured in 2012 and the estimated market value (at list prices) of these aircraft is US$580 million. The average term of the original leases were 60 months, and the agreement was extended for another 84 months. One of the four aircraft has been sold in July 2019 and is On January 11, 2019, we entered into lease agreements with Aircastle for the lease of 10 A320 aircraft. The lease agreements are for a duration of approximately seven to eight years. GE Commercial Aviation On April 30, 2007, we also entered into an Aircraft Lease Common Terms Agreement with GE Commercial Aviation Services Limited and two Aircraft Lease Agreements with Wells Fargo Bank Northwest N.A., as owner trustee, for the lease of two Boeing B777-200LRF aircraft. These aircraft were delivered in 2009 and the leases shall remain in place for a term of 96 months. GE Engine Services LLC On June 12, 2014, we (and TAM Linhas Aereas S.A.) entered into engine services agreement with GE Engine Services, LLC and GE Celma Ltda. for the provision of maintenance services ofCF6-80C2B6F engines (which powers our B767 fleet) during 200 shop visits or 10 years, whichever occurs first. On
CFM International On December 17, 2010, we entered into General Terms Agreement No.CFM-1-2377460475 (the “GTA”) and Letter Agreement No. 1 to GTA with CFM International, Inc. (“CFM”) for the sale and support by CFM ofCFM56-5B engines to power 70 A320 family aircraft and up to 14CFM56-5B spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with CFM for the provision by CFM of maintenance services for the above-mentioned installed and spare engines. On December 31, 2014, we entered Letter Agreement No. 2 to GTA with CFM On March 15, 2006, TAM Linhas Aereas S.A. entered into an engine services agreement with GE Celma Ltda. for the provision of maintenance services forCFM56-5B engines, which power 47 A320 Fam passenger fleet and 6 spare engines, for a period of 15 years per engine. PW1100G-JM Engine Maintenance Agreement In February 2014, we entered into an engine support and maintenance agreement with United Technologies On April 30, 2015, PW assigned the agreement described above to International Aero Engines, LLC. On November 22, 2022, we entered into Amendment 7 to the above-mentioned services agreement with International Aero Engines, LLC, for the sale and support by IAE of PW1100 engines to power additional A320neo family aircraft and additional option aircraft, and additional PW1100 spare engines. Rolls-Royce PLC & Rolls-Royce TotalCare Services Limited On September 30, 2009, we entered into General Terms Agreement No. DEG5307 (the “GTA”) with Rolls-Royce PLC for the sale and support by Rolls-Royce of Trent 1000 engines to power 32 B787 family aircraft and up to 10 Trent 1000 spare engines. On the same date, we entered into a Rate Per Flight Hour Engine Shop Maintenance Services Agreement with Rolls-Royce TotalCare Services Limited for the provision by Rolls-Royce of maintenance services for the above-mentioned installed and spare engines, for a period of 15 years per engine. On International Aero Engines AG On October 12, 2006, we entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services ofV2500-A5 engines, which power 53 A320 Fam passenger fleet and 9 spare engines, for a period of 12 years per engine. On October 21, 2010, TAM Linhas Aereas S.A. entered into an engine services agreement with IAE International Aero Engines AG for the provision of maintenance services ofV2500-A5 engines, which power 26 A320 Fam passenger fleet and 7 spare engines, for a period of 12 years per engine. CFM International On June 29, 2016, we entered into a Rate Per Flight Hour Agreement for Engine Shop Maintenance Services with CFM International, Inc., covering the maintenance, repair and overhaul of certainCFM56-5B engines.
On September 8, 2017, we entered into On January 16, 2018, we entered into a lease agreement with Avolon Aerospace of two A321-200 aircraft. The estimated market value
On September 3, 2019, we entered into lease agreements with Vermillion Aviation (Two) Limited (all having Vermillion Aviation Holdings Ireland Limited as servicer) for the lease of four A320 aircraft. The lease agreements are for a On February 1, 2021, we entered into additional lease agreements for the lease of two additional A320 aircraft with Vermillion Aviation (Nine) Limited (all having AMCK Aviation Holdings Ireland Limited acting as a servicer) for a duration of approximately nine years. Sky Aero Management/ Dubai Aerospace Entreprise (DAE) Ltd. On February 16, 2022, we entered into lease agreements with SFV Aircraft Holdings IRE 7 DAC, SFV Aircraft Holdings IRE 8 DAC and SFI Aircraft Holdings IX Designated Activity Company (all having Sky Aero Management acting as a servicer) for the lease of ten A320neo aircraft to be delivered on 2022, 2023 and 2024. The lease agreements are for a duration of twelve years. In December 2022, four of the ten aircraft changed the servicer for Dubai Aerospace Entreprise (DAE) Ltd. VMO Aircraft Leasing Ireland Service Co On March 5, 2021, we entered into lease agreements with Wilmington Trust Company, not in its individual capacity but solely in its capacity as owner trustee, (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for the lease of eleven A321 aircraft. On April 23, 2021, we entered into lease agreements with UMB Bank N.A.not in its individual capacity but solely in its capacity as owner trustee (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for the lease of four 787-9 aircraft. The lease agreements are for a duration of approximately nine to ten years. In July 2022, we entered into lease agreements for the lease of two Airbus A321-271NX aircraft with UMB Bank N.A. not in its individual capacity but solely in its capacity as owner trustee (all having Avolon Aerospace Leasing Limited acting as a servicer) for a duration of approximately 12 years. In October 2022, we entered into lease agreements for the lease of two additional B787 aircraft with UMB Bank N.A.not in its individual capacity but solely in its capacity as owner trustee (all having VMO Aircraft Leasing Ireland Service Co. acting as a servicer) for a duration of approximately twelve years. SABRE On May 4, 2015, we entered into a Master Services License Agreement with SABRE Inc. Pursuant to this agreement SABRE Inc., will grant LATAM access and use of certain reservation systems. This agreement will In addition, LATAM has distribution agreements in place with SABRE as well as with other distribution providers.
AMADEUS Contract On May 1, 2020, we entered into the Amended and
TRAVELPORT Contract On June 1, 2021, we entered into the Content Amendment to the Travelport International Global Airline Distribution Agreements. This Addendum will be automatically renewed for periods of one year, until terminated anytime upon at least 90 days’ notice before the end of any Additional Term. V2500-A5 Engine Maintenance Service Agreement In
CFM56-5B Engine Maintenance Contract In March 2006, TAM entered into a services agreement with GE Celma, a Brazilian subsidiary of General Electric Engine Services division, for the maintenance by GE Celma ofCFM56-5B engines to power 25 A320 family aircraft and four spare engines. In March 2007 TAM entered into the Amendment 1 to the above-mentioned services agreement with GE Celma, extending the maintenance services to the engines powering additional 16 A320 family aircraft and two spare engines.
Petrobras In
In October
Air BP-Copec In Repsol In D.Exchange Controls Foreign Investment and Exchange Controls in Chile The Central Bank of Chile is responsible, among other things, for monetary policies and exchange controls in Chile. Equity investments, including investments in shares of stock by persons who arenon-Chilean residents, have been generally subject in the past to various exchange control regulations restricting the repatriation of their investments and the earnings thereon. Article 47 of the Central Bank Act and former Chapter XXVI of the Central Bank Foreign Exchange Regulations regulated the foreign exchange aspects of the issuance of ADSs by a Chilean company until April 2001. According to former Chapter XXVI, the Central Bank of Chile and the depositary had to enter into an agreement in order to gain access to the formal exchange market. The issuers of the shares underlying the ADSs and the custodian could also be parties to these agreements. On April 16, 2001, the Central Bank of Chile agreed that, effective April 19, 2001:
The main objective of these amendments, as declared by the Central Bank of Chile, is to facilitate movement of capital in and out of Chile and to encourage foreign investment. In connection with the change in policy, the Central Bank of Chile eliminated the following restrictions:
The Central Bank of Chile also eliminated Chapter XXVI of the Compendium of Foreign Exchange Regulations, which regulated the establishment of an ADR facility by a Chilean company. Pursuant to the new rules, it is no longer necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADR facility or to enter into a foreign investment contract with the Central Bank of Chile. However, all contracts executed under the provisions of former Chapter XXVI (including the foreign investment contract among LATAM Airlines Group, the Central Bank of Chile and the ADS depositary, or the “Foreign Investment Contract”), remained in full force and effect and continued to be governed by the provisions, and continued to be subject to the restrictions, set forth in former Chapter XXVI at the time of its abrogation. Our Foreign Investment Contract guaranteed ADS investors access to the Formal Exchange Market to convert amounts from Chilean pesos into U.S. dollars and repatriate amounts received with respect to deposited common shares or common shares withdrawn from deposit or surrender of ADRs (including amounts received as cash dividends and proceeds from the sale in Chile of the underlying common shares and any rights arising from them). On May 10, 2007, the Board of the Central Bank of Chile resolved to interpret the regulations regarding the former Chapter XXVI in connection with the access granted to the Formal Exchange Market. These regulations allowed entities that carry out capital increases by means of the issuance of cash shares before August 31, 2007 to apply the aforementioned regulation to their capital increases, but only once and only if those shares can be fully subscribed and paid by August 31, 2008, among other conditions. Consequently, capital increases carried out after August 31, 2007 will have no guaranteed access to the Formal Exchange Market. On October 17, 2012, the Central Bank of Chile, the depositary and LATAM Airlines Group entered into a termination agreement in respect of LATAM’s existing foreign investment contract. ADR holders were notified about this termination in accordance with Section 16 of the Deposit Agreement. Upon termination of the foreign investment contract, holders of ADSs and the depositary no longer have guaranteed access to the Formal Exchange Market. Currently, the ADS facility is governed by Chapter XIV of the Compendium on “Regulations applicable to Credits, Deposits, Investments and Capital Contributions from Abroad.” According to Chapter XIV, the establishment or maintenance of an ADS facility is regarded as an ordinary foreign investment, and it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADS facility. The establishment or maintenance of an ADS facility only requires that the Central Bank of Chile be informed of the transaction, and that the foreign currency transactions related thereby be conducted through the Formal Exchange Market. Investment in Our Shares and ADRs
Currently, investments made by foreign investors in shares of our common stock are subject to the following requirements:
When funds are brought into Chile for a purpose other than to acquire shares to convert them into ADSs or deposit them into an ADR program and subsequently such funds are used to acquire shares to be converted into ADSs or deposited into an ADR program such investment must be reported to the Central Bank of Chile by the custodian within 10 days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile. When funds to acquire shares of our common stock or to acquire shares to convert them into ADSs or deposit them into an ADR program are received by us abroad (i.e., outside of Chile), such investment must be reported to the Central Bank of Chile directly by the foreign investor or by an entity participating in the Formal Exchange Market within ten days following the end of the month in which the investment was made. All payments in foreign currency in connection with our shares of common stock or ADSs made from Chile through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made. There can be no assurance that additional Chilean restrictions applicable to the holders of ADSs, the disposition of shares of our common shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed. This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank of Chile’s Foreign Exchange Regulations, a copy of which is available in Spanish and English versions at the Central Bank’s website at www.bcentral.cl. Voting Rights Holders of our ADSs, which represent common shares, may instruct the depositary to vote the shares underlying their ADRs. If we ask holders for instructions, the depositary will notify such holders of the upcoming vote and arrange to deliver our voting materials to such holders. The materials will describe the matters to be voted on and explain how holders may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as they direct by a specified date. For instructions to be valid, the depositary must receive them on or before the date specified as “VoteCut-Off Date.” The depositary will try, as far as practical, subject to Chilean law and the provisions of ourby-laws, to vote or to have its agents vote the shares or other deposited securities as holders instruct. Otherwise, holders will not be able to exercise their right to vote unless they withdraw the shares. However, holders may not know about the meeting far enough in advance to withdraw the shares. We will use our best efforts to request that the depositary notify holders of upcoming votes and ask for their instructions. If the depositary does not receive voting instructions from a holder by the specified date, it will consider such holder to have authorized and directed it to give a discretionary proxy to a person designated by our board of directors to vote the number of deposited securities represented by such holder’s ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions to be voted upon unless we notify the depositary that:
The depositary will only vote or attempt to vote as such holder instructs or as described above. We cannot assure holders that they receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. This means that holders may not be able to exercise their right to vote and there may be nothing they can do if their shares are not voted as they requested. Exchange Rates Prior to 1989, Chilean law permitted the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile. The Central Bank Act liberalized the rules that govern the ability to buy and sell foreign currency. The Central Bank Act empowers the Central Bank of Chile to determine that certain purchases and sales of foreign currency specified by law must be carried out exclusively in the Formal Exchange Market, which is made up of the banks and other entities authorized by the Central Bank of Chile. All payments and distributions with respect to the ADSs must be conducted exclusively in the Formal Exchange Market. For purposes of the operation of the Formal Exchange Market, the Central Bank of Chile sets a reference exchange rate (dólar acuerdo). The Central Bank of Chile resets the reference exchange rate monthly, taking internal and external inflation into account, and adjusts the reference exchange rate daily to reflect variations in parities between the Chilean peso, the U.S. dollar, the Japanese yen and the European euro. The observed exchange rate (dólar observado) is the average exchange rate at which transactions were actually carried out in the Formal Exchange Market on a particular day, as certified by the Central Bank of Chile on the next banking day.
In order to keep fluctuations in the average exchange rate within certain limits, the Central Bank of Chile has in the past intervened by buying or selling foreign currency on the formal exchange market. In September Purchases and sales of foreign exchange Although our results of operations have not been significantly affected by fluctuations in the exchange rates between the peso and the U.S. dollar because our functional currency is the U.S. dollar, we are exposed to foreign exchange losses and gains due to exchange rate fluctuations. Even though the majority of our revenues are denominated in or pegged to the U.S. dollar, the Chilean government’s economic policies affecting foreign exchange and future fluctuations in the value of the peso against the U.S. dollar could adversely affect our results of operations and an investor’s return on an investment in ADSs. E.Taxation Chilean Tax The following discussion relates to Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities enact rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations and interpretations, but Chilean tax authorities may change these rulings, regulations and interpretations prospectively. On February 4, 2010, representatives of the governments of the United States and Chile signed an income tax treaty. The treaty will have to be approved by the U.S. Senate before it On February 4, 2022, Law No. Finally, on Cash Dividends and Other Distributions Under the The Partially Integrated Regime reduces the amount of First Category Tax creditable against the Withholding Tax for certain Foreign Holders. As a general rule, only 65% of the First Category Income Tax credit will actually offset the Withholding Tax. Under a transitory provision included in In general, the example below illustrates the effective Withholding Tax burden on a cash dividend received by a Foreign Holder assuming a Withholding Tax rate of 35%, a First Category Tax rate of 27% and a distribution of 30% of the consolidated net income of the Company after payment of the First Category Tax:
The effective rate of Withholding Tax to be imposed on dividends we pay will depend on the First Category Tax rate applicable in the year of distribution and on the balance of First Category Income Tax credits accumulated by the The First Category Tax credits accumulated until December 31, 2016 correspond to the First Category Tax we actually paid on the income generated in a given year. For earnings generated from 1991 until 2001, the First Category Tax rate was 15%. The rate was 16.0% in 2002, 16.5% in 2003, 17% from 2004 until 2010, 20% from 2011 until 2013, 21% in 2014, 22.5% in 2015, In the event that the accumulated First Category Tax credits are not sufficient to cover any particular dividend, we will generally withhold tax from the dividend at the full 35% rate. Dividend distributions made in
Capital Gains
Gains from the sale or other disposition by a Foreign Holder of ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.
Gains realized on a sale or disposition of common shares by a Foreign Holder (as distinguished from sales or exchanges of ADRs evidencing ADSs representing such common shares) may be subject to a 35% The Notwithstanding the
The buyer or
According to Ruling No. 1,480 (issued on August 22, 2014), the Chilean IRS confirmed that capital gains stemming from the sale of shares with high stock market presence acquired through the exchange of American Depositary Receipts (ADRs) for shares is subject to the same tax regime as the gain on the sale of any stock with high stock market presence, which according to the rules enforce as of such date, were not subject to
To calculate the adjusted presence of a particular share, the aforementioned regulation first requires a determination of the number of days in which the operations regarding the stock exceeded, in Chilean pesos, the equivalent of 1,000 UF To meet the “Market Maker” requirement the issuer of the shares must execute a written contract with a A capital Pursuant to the regulations of the grandfathering rule, to qualify
The tax basis of common shares received in exchange for ADRs will be the acquisition value of the common shares on the date of exchange duly adjusted for local inflation. The date of acquisition of the The exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Any gain obtained by a Foreign Holder without taxable presence in Chile on the sale of preemptive rights relating to the common shares will be subject to Withholding Tax (the former being creditable against the latter). Other Chilean Taxes
Please note that there should not be Chilean inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of ADSs by a Foreign Holder, but such taxes generally will apply to the transfer at death or by gift of the common shares by a Foreign Holder. However, in the inheritance of a Foreign Holder, assets located abroad may only be subject to inheritance, gift or succession taxes when they have been acquired with resources originating in Chile. There are no Chilean stamp, issue, registration or similar taxes or duties payable by Foreign Holders of ADSs or common shares. Withholding Tax Certificates Upon request, we will provide to Foreign Holders appropriate documentation evidencing the payment of the Withholding Tax (net of the applicable First Category Tax credit). Material United States Federal Income Tax Considerations This section describes the material
If you are a member of a special class of holders subject to special rules, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed Treasury regulations, published rulings and court decisions, all as The laws on which this section is based are subject to differing interpretations. No ruling has been sought from the U.S. Internal Revenue Service (the “U.S. IRS”) with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the U.S. IRS or a court will not take a contrary position. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. If an entity that is treated as a partnership for U.S. federal income tax purposes holds the common shares or ADSs, the
For purposes of this summary, a that is a citizen or resident of the United States or a U.S. domestic corporation
ADSs As a
ticker “LTMAY.” In general, and taking into account the earlier assumptions, for The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly, the creditability of any foreign taxes paid and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders (as discussed below), could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and us if as a result of actions the holders of ADSs are not properly treated as beneficial owners of the underlying common shares. Taxation of Dividends Under the If you are a
We believe that our common shares and ADSs should not be treated as stock of a PFIC for U.S. IRS guidance provides that shares and ADSs are Accordingly,
The dividend is taxable to you when you, in the case of common shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to The amount of dividend income includes the fact receive such amount. Subject to generally applicable limitations and conditions under the Dividends will generally be income from sources outside the United States and, for U.S. holders that elect to claim foreign tax credits, will, depending on your circumstances, generally be Taxation of Capital Gains Subject to the PFIC rules discussed below, if
If the consideration received for our common shares or ADSs is paid in foreign currency, the amount realized will generally be the U.S. dollar value of the payment received translated at the spot rate of exchange on the PFIC Rules We believe that our common shares and ADSs should not be treated as stock of a PFIC for The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. holders are urged to consult their own tax advisers with respect to the application of the PFIC rules to their investment in the common shares or ADSs. Information Reporting and Backup Withholding Dividends paid on, and proceeds from the sale or other disposition of, the shares or ADSs to a U.S. holder generally are subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is furnished to the U.S. IRS in a timely manner. A holder that is not a U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding. Foreign Asset Reporting Certain U.S. holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include the common shares or ADSs) with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year, are required to report information relating to such assets, currently on Form 8938, subject to certain exceptions (including an exception for stock held in accounts maintained by certain financial institutions). Penalties can apply if U.S. holders fail to satisfy such reporting requirements. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of common shares and ADSs. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We
I. Subsidiary Information Not applicable. Not applicable. ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS General Given the nature of its business, LATAM is exposed mainly to three types of market risk:
Management assesses the level of our exposure to these risks periodically to determine For more information on Market Risk, see Note 3 “Financial Risk Management” to our audited consolidated financial statements. Risk of Fluctuations in Fuel Prices Jet fuel price fluctuations are largely dependent on supply and demand for crude oil, OPEC decisions, refinery capacities, stock levels of crude oil, natural disasters, climatic risk and geopolitical factors. LATAM fuel consumption for Jet Fuel is not the only underlying asset that LATAM may use for hedging purposes. It may also consider derivative instruments in other underlying commodity assets such as
LATAM has decided to use protective and non-speculative instruments to reduce the LATAM periodically reviews its exposure with each counterparty in
During
As of December 31, Gains and losses on the hedging contracts outlined above are recognized as a cost of sales in the income statement when the fuel subject to the hedge is consumed. Premiums paid related to fuel derivative contracts are recorded as prepaid expenses (current assets) and recorded as an expense at the time the contract expires. Under IFRS, the fair value of the hedging derivatives is booked as anon-current asset or liability if the remaining maturity of the item is hedged for more than 12 months, and as a current asset or liability if the remaining term of the item is hedged for less than 12 months. The fair value of the derivative contracts is deferred within an equity reserve account. Please see Note The following table shows the sensitivity analysis of our hedging contracts to reasonable changes in fuel prices and their effect on equity. The term used for the projection was
During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement pursuant to IFRS principles for recognizing and measuring financial instruments. Given the fuel hedge structure Risk of Variation in Foreign Exchange Rates The functional currency of the LATAM holding company is the U.S. dollar. At the same time, LATAM’s affiliates are exposed to foreign exchange risk, which could in turn impact the consolidated results of the Company. The greatest exposure to future cash flows is mainly presented by the subsidiary
To a lesser extent, the company also faces foreign exchange risk relating to additional currencies such as: Great Britain Pound, Euro, Chilean Peso, Australian Dollars, Those currencies could be hedged as long as they turn relevant (higher exposure and volatility) to the LATAM’s market risk management. As of December 31, Because of
Balance sheet exposure of LATAM to the Brazilian Real is related to the functional currency of The exposure to the Brazilian real on The following table shows the sensitivity of
Our foreign currency exchange exposure as of December 31,
Risk of Fluctuations in Interest Rates As of December 31, LATAM’s
As of December 31, During the period ended December 31, 2022, the Company recognized losses of US$7 million (negative) corresponding to the recognition for premiums paid. As of December 31, 2022, the Company recognized a decrease in the right-of-use asset upon settlement of a derivative of US$ 8.1 million associated with leased aircraft. On this same date, a lower expense for depreciation of the right-of-use asset for US$ 0.1 million (positive) was recognized. At the end of December 2021, the Company did not earn profits or losses for this same concept. As of December 31, 2022, the average interest rate of our The following table summarizes our principal payment obligations on all of our interest-bearing debt as of December 31,
The following table shows the sensitivity of changes in our long-term
Changes in market conditions produce a change in the valuation of current financial instruments hedging against fluctuations in interest rates, causing an effect on the Company’s equity (because they are booked as cash-flow hedges). These changes are considered reasonably possible based on current market conditions. The calculations were made by increasing (decreasing) 100 basis points of the
During the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement pursuant to IFRS. There are market-related limitations in the method used for the sensitivity analysis. These limitations derive from the fact that the levels indicated by the futures curves may not be necessarily met and may change in each period. ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. D. American Depositary Shares In the United States, our common shares trade in the form of ADS. Since August 2007, each ADS represents one common share, issued by The Bank of New York Mellon, as Depositary pursuant to a Deposit Agreement. ADSs commenced trading on the NYSE in 1997. In October 2011, our Depositary bank changed from The Bank of New York Mellon to JP Morgan Chase Bank, N.A. (“JP Morgan”). Fees and Charges for ADR Holders
JP Morgan, as depositary, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees. The depositary may also collect its annual fee for depositary services by deductions from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to providefee-attracting services until its fees for those services are paid.
Fees and Direct and Indirect Payments Made by the Depositary to the Foreign Issuer Past Fees and Payments During Future Fees and Payments JP Morgan, as the depositary bank, has agreed to reimburse the Company for certain of our reasonable expenses related to our ADS program and incurred by us in connection with the program. The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived). PART II ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. ITEM 15 CONTROLS AND PROCEDURES A. Disclosure Controls and Procedures Management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, B. Management’s The management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate. LATAM Airlines Group S.A.’s management, including the Chief Executive Officer and the Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
C. Attestation report of the registered public accounting See page D. Changes in internal controls over financial reporting.
There have been no changes that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting. ITEM 16 RESERVED ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our
ITEM 16B. CODE OF ETHICS We have adopted a code of ethics and conduct, as defined in Item 16B of Form20-F under the Exchange Act. Our code of ethics applies to our senior management, including our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, as well as to other employees. Our code is freely available online at our website,
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit andNon-Audit Fees The following table sets forth the fees paid to our independent registered public accounting firm, PricewaterhouseCoopers Consultores Auditores y Compañía Limitada, during the fiscal years ended December 31,
Audit-related fees in the above table are the aggregate fees billed by PricewaterhouseCoopers Consultores Auditores y Compañía Limitada for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, including due diligence and other audit related services.
Board of Directors’ CommitteePre-Approval Policies and Procedures Since January 2004, LATAM has complied with SEC regulations regarding the type of additional services our independent auditors are authorized to offer to us. In addition, our
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
As part of the US$800 million common equity rights offering issued by LATAM in context of its restructuring proceedings, open to all shareholders in accordance with their preemptive rights under applicable Chilean law, the table above details the shares subscribed by the Cueto Group in October, 2022 during the course of the preemptive rights offering period. Of this total of 36,917,303,811 shares, 15,770,967,858 correspond to shares that were delivered as compensation for the participation of Costa Verde Aeronáutica S.A. in the Junior DIP Facility. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT None.
ITEM 16G. CORPORATE GOVERNANCE As a result of our Chapter 11 proceedings, the New York Stock Exchange
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable. ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. ITEM 17 FINANCIAL STATEMENTS See “Item 18. Financial Statements.” ITEM 18 FINANCIAL STATEMENTS See our consolidated Financial Statements beginning on pageF-1. ITEM 19 EXHIBITS Documents filed as exhibits to this annual
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Latam Airlines Group S.A. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial position of Latam Airlines Group S.A. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income by function, comprehensive income, changes in equity and cash flows–direct method for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Santiago, Chile March 9, 2023 Latam Airlines Group S.A. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Santiago, Chile March 9, 2023 Latam Airlines Group S.A. Intangible Assets with Indefinite Useful Life (airport slots and loyalty program) Impairment Assessment As described in Notes 2.7, 4(a) and 15 to the consolidated financial statements, the Company’s consolidated intangible assets with indefinite useful life (airport slots and loyalty program) balance at December 31, 2022 was US$829 million. Management conducts an impairment assessment annually or more frequently if events or changes in circumstances indicate potential impairment. An impairment loss is recognized for the amount by which the carrying amount of the cash generating unit exceeds its recoverable amount. The recoverable amount of the cash generating unit is the higher of value in use and fair value less costs to sell. The value in use is determined by management using a discounted cash flow model. Management’s cash flow projections included significant judgments and assumptions relating to revenue growth rates, exchange rates, discount rate, inflation rates and fuel price. The principal considerations for our determination that performing procedures relating to intangible assets with indefinite useful life (airport slots and loyalty program) impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the value-in-use calculation; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, exchange rates, discount rate, inflation rates and fuel price; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s intangible assets with indefinite useful life (airport slots and loyalty program) impairment assessment, including controls over the valuation of the Company’s cash generating unit. These procedures also included, among others, (i) testing management´s process for developing the estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the significant assumptions used by management related to the revenue growth rates, exchange rates, discount rate, inflation rates and fuel price. Evaluating management’s assumptions related to revenue growth rates, exchange rates, discount rate, inflation rates and fuel price involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the cash generating unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and significant assumptions, including the discount rate.
Santiago, Chile March 9, 2023 Latam Airlines Group S.A. Valuation of Loyalty Programs Breakage As described in Notes 2.19, 4(e) and 21 to the consolidated financial statements, the Company has recorded deferred income of US$2,953 million as of December 31, 2022, of which US$1,261 million was related to deferred income associated with the loyalty programs. The deferred income of loyalty programs is determined based on the estimated stand-alone selling price of unused miles and points awarded to the members of the loyalty programs reduced for breakage. Management used statistical models to estimate the breakage which involved significant judgments and assumptions relating to the historical redemption and expiration activity and forecasted redemption and expiration patterns. The principal considerations for our determination that performing procedures relating to the valuation of loyalty programs breakage is a critical audit matter are (i) the significant judgment by management to develop the breakage estimate; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the underlying assumptions used by the Company to estimate the historical redemption and expiration activity and forecasted redemption and expiration patterns; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s accounting for its loyalty programs, including controls over management’s review of the statistical models and resulting breakage estimates. These procedures also included, among others (i) testing management’s process for developing the breakage estimate; (ii) evaluating the appropriateness of the statistical models; and (iii) testing the completeness, accuracy, and relevance of underlying data used in the models. Evaluating management’s assumptions used to develop the breakage estimate involved evaluating whether the assumptions used by management were reasonable considering (i) the available information regarding the miles and points redemption and expiration patterns, (ii) management’s actions to incentive holders of the loyalty programs to redeem their miles and points, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were also used to assist in the evaluation of the Company’s methodology and assumptions used to develop the breakage estimate. Santiago, Chile March 9, 2023 We have served as the Company’s auditor since 1991. Contents of the
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED ASSETS
The accompanying Notes 1 to LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED LIABILITIES AND EQUITY
The accompanying Notes 1 to LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED
The accompanying Notes 1 to LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, NOTE 1 - GENERAL INFORMATION LATAM Airlines Group S.A. Its The Company is located in
As of December 31,
The
As of December 31,
During 2022, the The main subsidiaries included in these consolidated financial statements are as follows:
In addition, special purpose All Changes occurred in the
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.
These consolidated financial statements of LATAM Airlines Group S.A. as of December 31, 2022 and 2021, for the
The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments. The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.
The
The application of these accounting pronouncements as of January 1, 2022, had no significant effect on the Company’s consolidated financial statements. (b) Accounting pronouncements not in force for the financial year beginning on January 1, 2022:
The Company’s management
These consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the The Company previously disclosed that as of December 31, 2021, as a result of the
On November 3, 2022, LATAM Parent and certain of its affiliates emerged from the Chapter 11 Proceedings. The emergence from the Chapter 11 proceedings and consummation of the Plan addressed liquidity concerns as it provided for
Due to the effects on the operation of the restrictions established in the countries to control the effects of the COVID-19 pandemic, on May 25, 2020 the Board resolved unanimously that LATAM Parent and some subsidiaries of the group should initiate a reorganization process in the United States of America according to the rules established in the Bankruptcy Code title 11 by filing a voluntary petition for relief in accordance with the same, which was carried out on May 26, 2020. Subsequently, Piquero Leasing Limited (July 7, 2020) and TAM S.A. joined this process and its subsidiaries in Brazil (July 9, 2020) (the voluntary petitions, collectively, the “Bankruptcy Filing” and each LATAM entity that filed a petition, a “Debtor” and jointly, the “Debtors”). The Bankruptcy Filing for each of the Debtors (each one, respectively, a “Petition Date”) was jointly administered under the caption “In re LATAM Airlines Group S.A. et al.” Case Number 20-11254. Prior to November 3, 2022, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Bankruptcy Filing permitted the Company to reorganize and improve liquidity, wind down unprofitable contracts and amend its capacity purchase agreements to enable sustainable profitability. As of November 3, 2022 (the “Effective Date”), the Plan (as defined below) was substantially consummated and the Debtors have each emerged from the Chapter 11 proceedings as the “Reorganized Debtors”. However, according to the rules of the Bankruptcy Code, the Chapter 11 proceedings of the Reorganized Debtors continued to be ongoing after the Effective Date to resolve certain remaining matters. Later, on December 14, 2022, the Bankruptcy Court entered an order consolidating the administration of all remaining matters in the lead Chapter 11 case of LATAM Parent and closing the cases of its debtor-related person. Therefore, as of the date hereof the Chapter 11 proceeding has been closed with respect to LATAM Parent’s subsidiaries that were part thereof, and continue ongoing solely with respect to LATAM Parent to resolve certain remaining matters. The Bankruptcy Court continues to administer the Chapter 11 proceedings for LATAM Parent in order to resolve the few remaining matters therein, including resolving remaining claims. As part of their overall reorganization process, the Debtors also sought and received relief in certain non-U.S. jurisdictions. On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of certain of the Debtors for the appointment of provisional liquidators (“JPLs”) pursuant to section 104(3) of the Companies Law (2020 Revision). On June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11 proceedings with respect to LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. All remedies filed against the order have been rejected and the decision has become final. Finally, on June 12, 2020, the Superintendence of Companies of Colombia granted recognition to the Chapter 11 proceedings. On July 10, 2020, the Grand Court of the Cayman Islands granted the Debtors’ application for the appointment of JPLs to Piquero Leasing Limited. Bearing in mind that on November 3, 2022, the Effective Date of the Reorganization Plan approved and confirmed in the main proceedings occurred, on November 10, 2022, the representative of the foreign proceeding filed with the court his last monthly report under the Protocol on Cross-Border Communications Operation and Implication of the Bankruptcy Filing As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Reorganized Debtors are Plan of Reorganization On November 26, 2021, the Debtors filed a joint plan of reorganization (as amended or revised, the “Plan” or “Plan of Reorganization”) and the related disclosure statement (as amended or revised, the “Disclosure Statement”) with the Bankruptcy Court. As detailed in the Disclosure Statement, the Plan was supported by a restructuring support agreement executed among the Debtors, creditors holding more than 70% of the general unsecured claims asserted against LATAM Airlines Group S.A., and holders of more than 50% of LATAM Airlines Group S.A.’s existing equity (the “Restructuring Support Agreement” or “RSA”). From time to time in the Chapter 11 Cases, the Debtors filed revised versions of the Plan and associated Disclosure Statement. On February 10, 2022 the Debtors executed a joinder Agreement to the RSA (each joinder agreement a “W&C Creditor Group Joinder Agreement”), effective as of February 10, 2022 under which certain creditors agreed to commitments made by the Commitment Parties under the RSA. On March 21, 2022, the Bankruptcy Court entered an order approving the adequacy of the Disclosure Statement and procedures for the solicitation with respect to the Plan (the “Disclosure Statement Order”). Pursuant to the Disclosure Statement Order, the Debtors distributed the solicitation version of the Plan, the Disclosure Statement (as approved), voting ballots and certain other solicitation materials to creditors. In accordance with the Restructuring Support Agreement, on January 12, 2022 the Debtors filed a motion seeking approval to enter into a backstop commitment agreement with certain shareholders, and a backstop commitment agreement with certain creditors (the “Backstop Agreements”). On March 15, 2022, the Bankruptcy Court issued a memorandum decision approving the Debtors’ entry into the Backstop Agreements and issued a corresponding order (the “Backstop Order”) on March 22, 2022. The Debtors received objections to the Plan from certain parties, including the United States Trustee, the Official Committee of Unsecured Creditors (the “Committee”), Banco del Estado de Chile in its capacity as indenture trustee under certain Chilean local bonds issued by LATAM Parent (“BancoEstado”), an ad hoc group of unsecured claimants and a group of holders of claims against LATAM affiliate TAM Linhas Aéreas S.A. Following the Plan objection deadline, the Debtors participated in a mediation with BancoEstado, the Committee and the parties to the RSA in an effort to resolve their At a hearing held on May 17, 18 and 20, 2022, the Bankruptcy Court considered the remaining objections that had not been resolved pursuant to the settlement. On June 18, 2022, the Bankruptcy Court issued a memorandum decision approving the Plan and overruling all remaining objections (the “Memorandum Decision”) and entered an order confirming the Plan (the “Confirmation Order”).
Certain parties in interest appealed the Bankruptcy Court’s decisions. On June 21, 2022, the Ad Hoc Group of Unsecured Claimants filed a notice of appeal of the memorandum decision and order approving entry into the Backstop Agreements, as well as the Memorandum Decision approving the Plan and the Confirmation Order. On June 27, 2022, the Ad Hoc Group of Unsecured Claimants filed a motion seeking to stay the Confirmation Order pending appeal. On July 16, 2022, the motion to stay was denied by the Bankruptcy Court. On June 23, 2022, the TLA Claimholders Group also filed a motion seeking to stay the Confirmation Order pending appeal or, in the alternative, an affirmative injunction requiring the Debtors to fund an escrow account in the amount of the outstanding post-petition interest. On July 8, 2022, the Bankruptcy Court issued a bench memorandum and order denying the TLA Claimholders Group’s motion to stay. On June 28, 2022, Columbus Hill Capital Management (“Columbus Hill”) filed a notice of appeal of the Memorandum Decision and the Confirmation Order, which it later withdrew on July 5, 2022. On July 13, 2022, the Debtors filed a motion to approve a settlement agreement with Columbus Hill, which was granted by the Bankruptcy Court on July 21, 2022, bringing full and final resolution to the Columbus Hill appeal and any other potential objections from this claimant. On August 31, 2022, after briefing and oral argument by the parties, the District Court issued an opinion denying the appeals of both the Ad Hoc Group of Unsecured Claimants and the TLA Claimholders Group. The District Court rejected the Ad Hoc Group of Unsecured Claimants’ arguments that the Plan and Backstop Agreement violated the Bankruptcy Code and held that the Backstop Agreement did not constitute impermissible vote buying. The Ad Hoc Group of Unsecured Claimants did not further appeal the District Court’s decision. With respect to the TLA Claimholders Group’s appeal, the District Court denied its request for payment of post-petition interest on its claims and found that the Bankruptcy Court was not mistaken with respect to its factual finding that TLA was insolvent. The District Court also denied the TLA Claimholders Group’s motion to stay the Confirmation Order. On September 2, 2022 the TLA Claimholders Group filed a notice of appeal in the District Court (the “Second Circuit Appeal”) further appealing the Confirmation Order to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). Both parties filed briefs regarding the merits of the Second Circuit Appeal, oral argument occurred on October 12, 2022, and on December 14, 2022, the Second Circuit unanimously affirmed the District Court’s decision rejecting the Second Circuit Appeal. No further appeals have been filed to date. As of the Effective Date, the Plan was substantially consummated. Pursuant to the Plan, the Company received an infusion of approximately US$ 8.19 billion through a mix of new equity, convertible notes and debt, which enabled the Company to exit Chapter 11 with appropriate capitalization to effectuate its business plan. Upon emergence, the Company had total debt of approximately US$ 6.8 billion, cash and cash equivalents of approximately US$1.1 billion and revolving undrawn facilities in the amount of US$1.1 billion. Specifically, the Plan provided that:
The Issuance conditions: Nominal Value : Approximately Th US$1,257,003 Conversion Ratio: 15,9046155045956. The Convertible Notes Class G Conversion Ratio shall step down by 50% on the day that is sixty (60) days after the Effective Date. Backup Actions: 19,992,142,087 Maturity: 31 Dec. 2121 Interest rate: 0% Conversion Conditions: They may be converted into shares of the Company within twelve months from the Effective Date of the Plan. As soon as 50% of the holders of New Class G Convertible Notes have opted to convert, the remaining Class G Convertible Notes will be automatically converted.
The Issuance conditions: Nominal Value: Approximately ThUS$1,372,840 Conversion Ratio: 92.2623446840237. The conversion ratio of Class H Convertible Notes will be reduced by 50% sixty (60) days after the fifth anniversary counted from the Effective Date . Backup Actions: 126,661,409,136 Maturity: 31 Dec. 2121 Interest rate: 1% interest rate payable in cash annually with no interest in the first 60 days. Conversion Conditions:
The Issuance conditions: Nominal Value: Approximately ThUS$6,863,427 Conversion Ratio: 56.143649821654. The Convertible Notes Class C Conversion Ratio shall step down by 50% on the day that is sixty (60) days after the Effective Date. Backup Actions: 385,337,858,290 Maturity: 31 Dec. 2121 Interest rate: 0% Conversion Conditions: They may be converted into shares within twelve months from the Effective Date of the Plan. As soon as 50% of the holders of Class I Convertible Notes have opted to convert, then the remaining Class I Convertible Notes will be automatically converted. The allocated amounts of the unused Class I Convertible Notes were distributed to the supporting parties of the Class I Convertible Notes in accordance with the respective Support Agreement.
Pursuant to the Plan and Backstop Agreements, LATAM raised up to US$ 500 million through a new revolving credit facility and approximately US$ 2.25 billion in total new money debt financing through exit financing (new term loan and new notes). On September 2, 2022, the Convertible Notes Classes G, H and I together with the shares contemplated in the Plan were registered with the Chilean Registro de Valores of the Financial Market Commission (the “CMF”). The CMF approved the New Local Notes on September 5, 2022. The Debtors established September 12, 2022 as the record date with respect to creditors entitled to participate in the Convertible Notes Class G and Convertible Notes Class I, and commenced the offering of the Convertible Notes to claimholders on the same day. As of December 31, 2022, 94,14% of the Convertible Notes Class G, 99.997% of the Convertible Notes Class H and 99.999% of the Convertible Notes Class I had been converted to equity, respectively. On November 17, 2022 the Reorganized Debtors filed a motion to consolidate the administration of certain remaining matters, including the reconciliation of claims that have not yet been allowed or disallowed, in the lead Chapter 11 case of LATAM Parent and for entry of a final decree closing the Chapter 11 cases of LATAM Parent’s debtor-affiliates. The Bankruptcy Court entered an Order on December 14, 2022 granting the motion to consolidate the administration of remaining matters in the lead Chapter 11 case of LATAM Parent. As a result, the dockets for all 37 debtor-affiliates of LATAM Parent were marked “closed” on December 23, 2022. Chapter 11 Milestones during the period covered by these consolidated financial statements Assumption, Amendment & Rejection of Executory Contracts & Leases Prior to the Effective Date, pursuant to the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), the Debtors were authorized to assume, assign or reject certain executory contracts and unexpired leases. Absent certain exceptions, the Debtors’ rejection of an executory contract or an unexpired lease is generally treated as prepetition breach, which entitles the contract counterparty to file a general unsecured claim against the Debtors and simultaneously relieves the Debtors from their future obligations under the contract or lease. Further, the Debtors’ assumption of an executory contract or unexpired lease would generally require the Debtors to cure outstanding defaults under such contract or lease. Other Key Filings On June 16, 2021, the Committee filed two motions seeking standing to prosecute certain claims on behalf of the Debtors against Delta Airlines, Inc. (the “Delta Motion”) and Qatar Airways O.C.S.C. (the “Qatar Motion”, and together with the Delta Motion, (the “Standing Motions”)), which were opposed by certain parties. In connection with the negotiation of the RSA, the Plan provided for the full settlement and release for Qatar and Delta of all potential claims described in the Standing Motions upon the effective date of the Plan. As the Plan became effective on November 3, 2022, such claims have been released. Statements and Schedules On September 8, 2020, each of the Debtors filed Schedules of Assets and Liabilities (“Schedules”) and Statements of Financial Affairs (“Statements”) that described the Debtors’ financial circumstances as of their respective Petition Date. On August 13, 2021 and December 3, 2021, certain Debtors filed amended Schedules that supplemented and amended the initial Schedules. From the Petition Date through the Plan Effective Date (as defined in the Plan), the Company was also required to file “Monthly Operating Reports” (MORs) to disclose the receipt, administration and disposition of property by the Debtors during the pendency of the Chapter 11 Cases. After the Effective Date, the Company will be required to file a more streamlined “Post-confirmation Report” (PCR) each calendar quarter until the Chapter 11 Cases of LATAM Parent are closed. While the Reorganized Debtors believe that these materials provide the information required by the Bankruptcy Code and Bankruptcy Court, they are nonetheless unaudited documents that are prepared in a format different from the consolidated financial reports historically prepared by LATAM in accordance with IFRS (International Financial Reporting Standards). For example, certain of the debtor-specific information contained in the Statements and Schedules may normally be prepared on an unconsolidated basis in the ordinary course. Accordingly, the Reorganized Debtors believe that the substance and format of these materials may not allow meaningful comparison with their regularly publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to the Reorganized Debtors’ securities, or claims against the Reorganized Debtors, or for comparison with other financial information required to be reported under applicable securities law. Bearing in mind that November 3, 2022 was the Effective Date of the reorganization plan approved and confirmed in the main proceeding, on November 10, 2022, the representative of the foreign proceeding submitted to the court his last monthly report in accordance with the Protocol of Cross Border Communications. Intercompany and Affiliate Transactions On January 10, 2022, the Committee filed an objection with respect to an intercompany claim asserted by LATAM Finance Ltd. against Peuco Finance Ltd. The Bankruptcy Court held a hearing on the objection on March 10, 2022. Post-hearing briefs were submitted by the parties on March 17, 2022, and closing arguments were held on March 18, 2022. On April 29, 2022, the Court entered a decision and order overruling the objection (the “Intercompany Claim Decision”). On May 13, 2022, the Committee appealed the Intercompany Claim Decision to the District Court. On May 26, 2022 the District Court granted a joint motion of the Debtors and the Committee to stay such appeal until the effective date of the Plan. Following the Effective Date, the Committee sought to dismiss the appeal, and the District Court entered an order dismissing the appeal on November 7, 2022. Debtor-in-Possession Financing and Exit Financing As previously reported, on June 10, 2022 the Debtors entered into debt commitment letters (the “Exit Financing Commitment Letters”) providing commitments from various lenders for (i) an approximately US$1.170 billion of junior debtor-in-possession term loan facility (the “Junior DIP Facility”); (ii) a US$500 million debtor-in-possession and exit revolving credit facility (the “Revolving Facility”), (iii) a US$750 million debtor-in-possession and exit term loan B credit facility (the “Term Loan B Facility”; together with the Revolving Facility, the “Credit Facilities”), (iv) a US$750 million debtor-in-possession and exit bridge loan facility (the “Bridge to 5Y Notes Facility”) and (v) US$750 million debtor-in-possession and exit bridge loan facility (the “Bridge to 7Y Notes Facility” and together with the Bridge to 5Y Notes Facility, and the Credit Facilities, the “Debt Facilities”). According to the terms of the Exit Financing Commitment Letters, the committed amounts under the Term Loan B Facility and the Bridge Facilities could be reallocated amount such facilities. The Debt Facilities were structured to remain in place after the emergence of the Reorganized Debtors from the Chapter 11, subject to the satisfaction of certain conditions at emergence (the “Conversion Date”). In the context of the Company’s exit from Chapter 11, on October 12, the Consolidated and Amended DIP Financing Agreement was paid in full. The repayment has been made entirely with funds from (i) a Junior DIP Financing of approximately US$1,146 million; (ii) a US$500 million Revolving Credit Line; (iii) a Term B Loan of US$750 million; (iv) a 5-year Bond Bridge Loan of US$750 million (v) a 7-year Bond Bridge Loan of US$750 million. On October 18, 2022, the Bridge Loans were partially repaid by: i) a bond issue exempt from registration under U.S. Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 144A and Regulation S, both under the Securities Act, due 2027 (the “5-Year Bonds”), by a total principal amount of US$450 million and ii) a bond issue exempt from registration under the Securities Law pursuant to Rule 144A and Regulation S, both under the Securities Law, due 2029 (the “Bonds to 7 Years”), for a total principal amount of US$700 million. Additionally, on November 3, the repayment of the Bridge Loans and the junior DIP was completed with the proceeds from the Exit Financing, which was made up of: US$450 million in senior guaranteed bonds maturing in 2027, US$700 million in senior secured notes due 2029 and an incremental “Term Loan B” loan for US$350 million Establishment of Bar Dates and Claims Reconciliation On September 24, 2020, the Bankruptcy Court entered an order (the “Bar Date Order”) establishing December 18, 2020, as the general deadline (the “General Bar Date”) by which persons or entities (other than governmental units) who believe they hold any claims (other than certain damages claims arising out of the rejection of executory contracts or unexpired leases) against any Debtor that arose prior to the Petition Date, as applicable to each Debtor, must have submitted written documentation of such claims (a “Proof of Claim”). On December 17, 2020, the Court entered an order (the “Supplemental Bar Date Order”) establishing a supplemental bar date of February 5, 2021 (the “Supplemental Bar Date”), for certain non-U.S. claimants not otherwise subject to the General Bar Date. Any person or entity that failed to timely file its Proof of Claim by the applicable Bar Date will be forever barred from asserting their claim and will not receive any distributions made as part of the ultimate plan of reorganization. On the Effective Date, the Reorganized Debtors established December 3, 2022 as the deadline (the “Administrative Expense Bar Date”) by which persons or entities (other than those exempted under the Plan) must submit a Proof of Claim establishing their claim against the Reorganized Debtors for costs and expenses of administration of the Chapter 11 proceedings. Following the close of the General Bar Date, the Supplemental Bar Date, and the Administrative Expense Bar Date, the Reorganized Debtors have continued the process of reconciling approximately 6,575 submitted claims. As of December 31, 2022, the Reorganized Debtors have objected to or have resolved through claims withdrawals, stipulations and court orders approximately 5,030 claims with a total value of approximately US$ 163.5 billion. As the Reorganized Debtors continue to reconcile claims against the Company’s books and records, they will object to and contest such claims that they determine are not valid or are not asserted in the proper amount or classification and will resolve other claims disputes in and outside of the Bankruptcy Court. A Claim is recorded as a liability when it has a present obligation, whether legal or constructive, as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation amount can be made. Under the Plan, a further 1,352 litigation claims will ride through. As of December 31, 2022, approximately 64 of the Claims filed against the Debtors are still being reconciled with an estimated total value of approximately US$ 354.7 million. 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 Balances, transactions and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary, in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified. To account for and identify the financial information to be
(b) Transactions with non-controlling interests The
(c) Sales of subsidiaries When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes the assets and liabilities of the subsidiary, the non-controlling interest 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 If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the
(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) Adjustment due to hyperinflation After July 1, 2018, the Argentine economy was considered, for purposes of IFRS, hyperinflationary. The consolidated financial statements of the subsidiaries whose functional currency is the Argentine Peso have been restated. The non-monetary items of the statement of financial position as well as the income statement, comprehensive income and cash flows of the group’s entities, whose functional currency corresponds to a hyperinflationary economy, are adjusted for inflation and re-expressed in accordance with the variation of the consumer price index (“CPI”), at each presentation date of its financial statements. The re-expression of non-monetary items is made from the date of initial recognition in the statements of financial position and considering that the financial statements are prepared under the historical cost criterion. Net losses or gains arising from the re-expression of non-monetary items and income and costs are recognized in the consolidated income statement under “Result of indexation units”. Net gains and losses on the re-expression of opening balances due to the initial application of IAS 29 are recognized in consolidated retained earnings. Re-expression due to hyperinflation will be recorded until the period or exercise in which the economy of the entity ceases to be considered as a hyperinflationary economy. At that time, the adjustments made by hyperinflation will be part of the cost of non-monetary assets and liabilities. The comparative amounts in the consolidated financial statements of the Company are presented in a stable currency and are not adjusted for subsequent changes in the price level or exchange rates. (d) Group entities The results and the financial
For those subsidiaries of the group whose functional currency is different from the presentation currency and, moreover, corresponds to the currency of a hyperinflationary economy; its restated results, cash flow and financial situation are converted to the presentation currency at the closing exchange rate on the date of the consolidated financial statements. 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.
2.4. Property, plant and
The land of LATAM Airlines Group S.A. and Subsidiaries, The amounts of Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or
The depreciation of The residual value and the useful life of the assets are reviewed and adjusted, if necessary, once When the Losses and gains
2.5. Intangible assets other than goodwill
(a) Airport slots and Loyalty program Airport slots and the Airport
The Loyalty program corresponds to the system of accumulation and The
(b) Computer software Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has 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
(c) Brands The Brands were acquired in the business combination with TAM S.A.
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 statement of income
2.7. Losses for impairment of non-financial assets Goodwill and intangible assets that have an indefinite useful life 2.8. Financial assets The Company classifies its financial The group reclassifies debt investments when, and only when, it changes its In the
(a) Debt instruments The Amortized cost: the assets held for the collection of contractual cash flows where those cash flows represent only payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in income when the asset is derecognized or impaired. Interest income from these financial assets Fair value through profit or loss: assets that do not meet the (b) Equity instruments Changes in the fair value
The Company evaluates in advance the expected credit losses associated with its debt instruments recorded at amortized cost. The applied impairment methodology depends on whether there has been a significant increase in credit risk. 2.9. Derivative financial Derivative financial
The Company designates certain derivatives as:
(a) Hedge of an identified risk associated with a recognized liability or an expected highly- probable transaction (cash-flow hedge), or
(b) Derivatives that do not qualify for hedge accounting.
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
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income by function under
For fuel price hedges, the amounts shown in the statement of
Gains or losses related to the When a hedging 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 by function as “Other gains (losses)”.
(b) 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)”.
Embedded derivatives The Company assesses the existence of embedded derivatives in financial instrument contracts. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL as a whole. LATAM Airlines Group S.A. has determined that no embedded derivatives currently exist. 2.10. Inventories Inventories,
2.11. Trade and other accounts receivable Commercial accounts receivable are In the event that the Company The existence of significant financial difficulties on the part of the debtor, the probability that the debtor The carrying amount
2.12. 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
2.13. 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. 2.14. Trade and other accounts payables Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost.
2.15. 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 Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.
Convertible Notes The component parts of the convertible notes issued by LATAM are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The conversion option classified as equity is determined by the deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in other equity, net of income tax effects. and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in other equity until the conversion option is exercised, in which case, the balance recognized in other equity will be transferred to share capital. Where the conversion option remains unexercised at maturity date of the convertible bond, the balance recognized in other equity will be transferred to retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option. Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. 2.16. Current and deferred taxes The tax expense The Deferred taxes are Deferred tax assets are recognized The tax (current and deferred) is recognized in the statement of income by function, unless it relates to an item recognized in
Deferred tax assets and liabilities are offset if, and only if:
(a) there is a legally enforceable right to set off current tax assets and liabilities, and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either: (i) the same taxable entity, or (ii) different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. 2.17. 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 value of the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based
(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
(d) Incentives The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.
(e) Termination benefits The group recognizes termination benefits at the earlier of the following dates: (a) when the group terminates the employee relationship; and (b) when the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of terminations benefits. 2.18. Provisions Provisions are recognized when:
(i) The Company has a present legal or constructive obligation as a result of a past event;
(ii) It is probable that payment is going to be required to settle an obligation; and
2.19. Revenue from contracts with customers
The Company recognizes the sale for the transportation service as a deferred income liability, which is recognized as income when the transportation service has been provided or expired. In the case of air transport services sold by the Company and that will be made by other airlines, the liability is reduced when they are remitted to said airlines. The Company periodically reviews whether it is necessary to make an adjustment to deferred income liabilities, mainly related to returns, changes, among others. Compensations granted to clients for changes in the levels of services or billing of additional services such as additional baggage, change of seat, among others, are considered modifications of the initial contract, therefore, they are deferred until the corresponding service is provided. (b) Expiration of air tickets
(c) Costs associated with the The costs related to the
(d) Frequent passenger program The Company These programs give their frequent passengers the possibility of earning LATAMPASS’s miles or points, To reflect the miles and points earned, the loyalty program mainly includes two types of (1) Passenger Ticket Sales Earning Miles or Points. In this case, the To value the miles or points earned The balance of miles and points that are pending to redeem are included within deferred revenue. (2) Miles sold to financial and non-financial partners To value the miles or points earned through financial and non-financial partners,the performance obligations with the client are estimated separately. To calculate these performance obligations, different components that add value in the commercial contract must be considered, such as marketing, advertising and other benefits, and finally the value of the points awarded to customers based on our ETV. The value of each of these components is finally allocated in proportion to their relative prices. The performance obligations associated with the valuation of the points or miles earned become part of the Deferred Revenue, and the remaining performance obligations are recorded as revenue when the miles or points are delivered to the client. When the miles and points are exchanged for products and services other than the services provided by the Company, the income is recognized immediately; when the exchange is made for air tickets of any airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the air transport service is provided. The miles and points that the Company estimates will not be exchanged
Dividend income is
2.20. Leases The Company recognizes contracts that meet the definition of a lease as a right of use asset and a lease liability on the date when the underlying asset is available for use. Right of use assets are measured at cost including the following:
The
Lease liabilities include the net present value of the following payments:
The discount rate that LATAM uses is the interest rate implicit in LATAM uses its incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. Lease liabilities are Interest accrued on financial liabilities is recognized in the consolidated statement of income in “Financial costs”. Principal and interest are present in the consolidated cash flow as “Payments of lease liability” and “Interest paid”, respectively, within financing cash flows. Payments associated with short-term leases without purchase options and leases of low-value assets are recognized on a straight-line basis The Company analyzes the financing agreements of aircraft, mainly considering characteristics such as: (a) That the Company initially acquired the aircraft or took an important part in the process of direct acquisition with the manufacturers. (b) Due to the contractual conditions, it is virtually certain that the Company will execute the purchase option of the aircraft at the end of the lease term. Since these financing agreements are “substantially purchases” and not leases, the related liability is considered as a financial debt classified under IFRS 9 and continues to be presented within the “Other financial liabilities” described in Note 18. On the other hand, the aircraft are presented in Property, Plant and Equipment, as described in Note 16, as “own aircraft”. The Group qualifies as sale and lease transactions, operations that lead to a sale according to IFRS 15. More specifically, a sale is considered as such if there is no option to purchase the goods at the end of the lease term. If the sale by the seller-lessee is classified as a sale in accordance with IFRS 15, the underlying asset is derecognized, and a right-of-use asset equal to the portion retained proportionally of the amount of the asset is recognized. If the sale by the seller-lessee is not classified as a sale in accordance with IFRS 15, the transferred assets are kept in the financial statements and a financial liability equal to the sale price is recognized (received from the buyer-lessor). The Company has applied the practical solution allowed by IFRS 16 for those contracts that meet the established requirements and that allows a lessee to choose not to evaluate if the concessions that it obtains derived from COVID-19 are a modification of the lease. 2.21. Non-current assets or disposal groups classified as held for sale Non-current assets (or disposal groups)
2.22. 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 Additionally, some The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.
2.23. Environmental costs Disbursements related to environmental protection are charged to results when NOTE
3.1. Financial risk factors The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The
(a) Market risk Due to the nature of its operations, the Company The Company has developed policies and procedures For
(i) Fuel-price risk Exposure: 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 Fuel Hedging Results: During the period ended
As of December 31, The following tables show the level of hedge for different periods:
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 current hedge positions The following table shows the sensitivity The calculations were made considering a parallel movement of US$ 5 per barrel in the underlying reference price curve
Given the fuel
Exposure: The functional The subsidiaries of LATAM
The largest operational exposure
Mitigation: The Company mitigates currency risk exposures by contracting hedging or non-hedging derivative instruments or through natural hedges or execution of internal operations.
Exchange Rate Hedging Results (FX):
As of
As of December 31, 2022, the market value of During the period ended does not maintain current non-hedged FX derivatives. At the end of December Sensitivity analysis: A depreciation of the R$/US$ exchange rate,
The following table
As of December 31, 2022, the Company does not have currency Swap derivatives. At the end of December 2021, the Impact of Exchange rate variation in the
In the case of TAM S.A. In order to reduce the The following table shows the impact of the
Impact of
The following table shows the
Exposure: The Company The Company is mainly exposed Regarding rate exposure, a portion of the company’s variable financial debt maintains exposure to the LIBOR rate. However, all these contracts will have definitive migration to the SOFR rate. This migration has been redacted within each of the existing financial debt contracts benchmarked to the LIBOR rate. Currently, 31% of the financial debt contracts subject to variable rates maintain exposure to the LIBOR rate, and 69% of them have exposure to the
Currently, 52% (40% as of To mitigate the effect of those derivatives that will be affected by the transition from LIBOR to SOFR, the Company is following the recommendations of the relevant authorities, including the Alternative Reference Rates Committee (“ARRC”) and the International Standard Derivatives Association in line with the measures generally adopted by the market for the replacement of LIBOR in debt and derivative contracts. Rate Hedging
During the period ended December 31, As of December 31, 2022, the value As of December 31, 2022, the Company recognized a decrease in the right-of-use asset upon settlement of a derivative of US$ 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.
A large part of the derivatives of current The calculations were made by vertically increasing (decreasing)
The During the periods presented, the Company has
Credit risk occurs when the counterparty does not meet its obligations to the Company under a The Company is exposed to credit risk due to its To reduce the credit risk
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 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) The Company has no guarantees to mitigate this exposure.
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 Under certain of the Company’s credit card processing agreements, the financial institutions have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation. Additionally, the financial institutions have the ability to require additional collateral reserves or withhold payments related to receivables to be collected if increased risk is perceived related to liquidity covenants in these agreements or negative balances occur. 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. 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)
Liquidity risk represents the risk that the Company
Due to the cyclical nature of The balance of liquid funds,
As of December 31, 2022, the balance of liquid funds
As of December 31, After voluntary petition for amparo of Chapter 11 Proceedings, the Company received authorization from the Bankruptcy Court for the “debtors in possession” (DIP) financing, in the form of a multi-draw term loan facility in an aggregate principal amount of up to US$ 3.2 billion divided in Tranche A, B and C (hereinafter the contract that documented such financing, the Original DIP Credit Agreement”). Initially, Tranches A and C were committed for a total of US$2.450 billion. To date, these three tranches are fully committed after the approval on October 18, 2021, of a proposal to grant financing under Tranche B of the DIP for a total of US$750 million, thus allowing LATAM to access lower financing costs in the next disbursements of the DIP financing. On April 8, 2022, a consolidated and modified text (the “Reconsolidated and Modified DIP Credit Agreement”) of the Existing Original DIP Credit Agreement was signed, which modifies and recasts said agreement and repays the pending payment obligations under it. (that is, under its Tranches A, B and C). The total amount of the Consolidated and Modified DIP Credit Agreement was US$3.7 billion. The Revised and Amended DIP Credit Agreement included certain reductions in fees and interest compared to the DIP Credit Agreement; and contemplated an expiration date in accordance with In the context of the Company’s exit from Chapter 11, on October 12, 2022, the Amended and On October 18, 2022, the Bridge Loans were partially repaid by; (i) a Note issued from registration under U.S. Securities Act of 1933, as amended (“the “Securities Act”), pursuant to Rule 144A and Regulation S, both under the Securities Act, due in 2027 (the “5 Year Note”), with a total principal amount of US$ 450 million, Additionally, on November 3, 2022, the repayments of outstanding balances of the Bridge Loan and the Junior DIP were finished with the funds obtained under from the Exit Financing. Starting in November 2022, the exit financing was composed of: (i) a Revolving Credit Line for an amount of US$500 million; (ii) a tranche B term loan for an amount of US$1,100 million Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, Debtor: LATAM Airlines Group S.A. and Subsidiaries,
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, Debtor:
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, Debtor: LATAM Airlines Group S.A. and Subsidiaries,
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31,
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. As of December 31, 2022, the Company maintains guarantees for US$7.5 million corresponding to derivative transactions. The
3.2. Capital risk management The The Company monitors Additionally, the Company periodically monitors the short and long term cash flow projections to The
3.3. Estimates of fair value. At December 31,
1. Derivative financial instruments: This category includes the following instruments:
2. Financial Investments: This category includes the following instruments:
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:
Additionally, at December 31
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 NOTE The Company has used estimates to value and record
Management conducts an impairment test annually or more frequently if events or changes in circumstances indicate potential impairment. An impairment loss is recognized for the amount by which the carrying amount of the cash generating unit (CGU) exceeds its recoverable amount.
(b) Useful life, residual value, and impairment of property, plant, and equipment The depreciation of assets is calculated based on Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may
The residual values are estimated
The Company
(d) Air tickets sold that will not be finally used. The Company
As of December 31, (e) Valuation of miles and points awarded to holders of loyalty programs, pending use. As of December 31, 2022, the deferred income associated with the LATAM Pass loyalty program Management used statistical models to estimate the miles and
The management in conjunction with an external specialist developed a predictive model of non-use miles or points, which allows to generate non-use rates on the basis of historical information, based
In the case of known contingencies,
The (g) Leases During 2022, as a result of the arrival of new aircraft and the significant change in the flows of many current contracts, the Company evaluated the relevance in the current scenario of continuing to use the implicit rate, a methodology used in recent years, or whether it should in instead use a different approximation for calculating the rate. It was concluded that the implicit rate was not being able to reflect the economic environment in which the company operates, therefore it was not accurately representing the Company’s indebtedness conditions. Because of this, (i) Discount rate The discount rates used to calculate the aircraft lease debt correspond to: (i) For aircraft that did not For assets other than aircraft, the estimated lessee’s incremental borrowing rate, which A decrease of one percentage point in our estimate of the rates used to (ii) Lease term In determining the lease term, all
These estimates In any case, it is possible that events that may take place in the future NOTE 5 -
As of December 31, 2022, the Company
The Company’s revenues by geographic area are as follows:
The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area. The Company has no customers that individually represent more than 10% of sales. NOTE 6 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents are denominated in the following currencies:
NOTE 7 - FINANCIAL INSTRUMENTS
Financial instruments by category As of December 31,
As of December 31,
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND
The fair value of trade and other accounts receivable does not differ significantly from the book value.
To determine the expected credit losses, the Company groups accounts receivable for passenger and cargo transportation depending on the characteristics of
Currency balances
The
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.
The historical and current The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.
There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA. NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
(a) Accounts Receivable
(b) Current accounts payable
Transactions between related parties have been carried out on NOTE 10 - INVENTORIES The composition of Inventories is as follows:
These are valued at their average acquisition cost net of their obsolescence provision
The resulting amounts do not exceed the respective net As of December 31, NOTE 11 - OTHER FINANCIAL ASSETS (a) The composition of
The (b) The balances composition by currencies of the Other financial assets are as follows:
NOTE 12 - OTHER NON-FINANCIAL ASSETS The composition of
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE Non-current assets and
The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets
During
During 2021, associated with the fleet restructuring plan, 3 engines of the A350 fleet were transferred from the Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale,
During 2022, 28 A319 family aircraft were transferred from Property, plant and equipment to Non-current assets or asset groups for disposal classified as held for sale. Additionally, adjustments for US$ 345 million of expenses were recognized within results as part of Other gains (losses) to record these assets at their net realizable value.
During the year 2022, 6 aircraft and 8 engines of the A320 family were transferred from Property, plant and equipment to Non-current assets or asset groups for disposal classified as held for sale, of which during the year 2022 the sale of three aircraft was finalized. Additionally, adjustments for US$ 25 million of expenses were recognized to record these assets at their net realizable value, and since the fleet restructuring process had already been completed, these adjustments were recorded in results as part of Other expenses by function. During the year ended December 31, 2021, adjustments for US$ 85 million (US$ 332 million at December 31, 2020) of expenses were recognized to record these assets at their net realizable value, which were recorded as restructuring activity expenses. The detail of the fleet classified as non-current assets and disposal group classified as held for sale is as follows:
NOTE 14 - INVESTMENTS IN
(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
The consolidated subsidiaries do not have significant restrictions for transferring funds to As of December 31, 2021 the consolidated subsidiaries do not have significant restrictions for transferring funds to the parent entity in the normal course of operations, except for those imposed by Chapter 11 on dividend payments. Summary financial information of significant subsidiaries
(b) Non-controlling interests
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL The details of intangible assets are as follows:
As of December, 31, 2022, the TAM brand is fully amortized. See Note 2.5 The amortization of The b) Impairment Test Intangible Assets with an indefinite useful life
As of December 31,
As of December 31, 2022, in accordance with the accounting policy, the Company performed the annual impairment test. The recoverable amount of the CGU
Management’s cash flow projections included significant judgements and assumptions related to annual revenue growth rates, discount rate, inflation rates, the
The recoverable values were determined using the following
The result of the impairment test, which includes a sensitivity analysis of
The CGU is sensitive to
In none of the NOTE The composition by category of Property, plant and equipment is as follows:
Movement in the different categories of Property, plant and equipment:
(a) Right of use assets:
(d) Method used for the depreciation of Property, plant and equipment:
(i) Property, plant and equipment pledged as guarantee: Description of Property, plant and equipment pledged as guarantee:
The amounts of Additionally, there are indirect guarantees As of December 31, 2021, given Chapter 11, four aircraft included within Property, plant and equipment were rejected, of which four had direct guarantees and one indirect guarantee. As of December 31, 2022, the Company keeps valid letters of credit related to right of use assets according to the following detail:
(ii) Commitments and others Fully depreciated assets and commitments for future purchases are as follows:
Purchase commitment of aircraft
As of December 31, 2029. The approximate amount,
As of December 31, As of December 31, 2022, as a As of December 31, 2022, as a result of the different aircraft operating lease contracts signed with Air Lease Corporation, 2 Airbus aircraft of the A320 Neo family remain to be received with deliveries between 2023 and 2024. As of December 31, 2022, as a result of the different aircraft operating lease contracts signed with Avolon Aerospace Leasing Limited, 3 Airbus aircraft of the A320 Neo family remain to be received with deliveries between 2023 and 2024. As of December 31, 2022, as a result of the different aircraft operating lease contracts signed with CDB Aviation, 1 Airbus aircraft of the A320 Neo family with a delivery date of 2023 remains to be received. As of December 31, 2022, as a result of the different aircraft operating lease contracts signed with Air Lease Corporation, 5 Airbus A321XLR family aircraft remain to be received with deliveries between 2025 and 2026. As of December 31, 2022, as a result of the different aircraft operating lease contracts signed with ORIX Aviation Systems Ltd., 4 Boeing 787 Dreamliner aircraft with a delivery
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