As filed with the Securities and Exchange Commission on March 18, 20209, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-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
For the fiscal year ended December 31, 20192022
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)
Andrés del Valle
Tel.: 56-2-2565-2525—56-2-2565-3844 E-mail: investorrelations@latam.com
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:
None
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 | Over The Counter (OTC) Markets | |
Common Stock, without par value | Santiago Stock Exchange |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-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 a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-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 Financial Accounting Standards Boardregistered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to its Accounting Standards Codification after April 5, 2012.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. ☐
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 Rule 12b-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
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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”).
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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 Form 20-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. (“LATAM Airlines Chile”), LATAM Airlines PeruPerú S.A. (f/k/a LAN PeruPerú S.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. (“LATAM Airlines Colombia”), TAM S.A. (“TAM” or “LATAM), TAM Linhas Aéreas S.A. (“LATAM Airlines Brazil”), Transporte Aéreos del Mercosur S.A. (“LATAM Paraguay”), LAN Cargo S.A. (“LATAM Cargo”) and its two regional affiliates: 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”, 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 “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.”
In this annual report on Form 20-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”, 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 accounting records and prepare financial statements in U.S. dollars. Some of our affiliates, however, maintain their accounting records and prepare their financial statements in Chilean pesos, Argentinean pesos, Colombian pesos or Brazilian real. In particular, TAM maintains its accounting records and prepares its financial statements in Brazilian 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 at period-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 Form 20-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$” are to Chilean pesos. References to “real,” “Brazilian real” or “R$” are to Brazilian 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, 2019,2022, which was Ch$744.62859.51 = US$1.00. The observed exchange rate on March 18, 2020,February 28, 2023, was Ch$855.09831.24 = US$1.00. Unless we indicate otherwise, the U.S. dollar equivalent for information in Brazilian real 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, 2019,2022, which was R$4.03 =5.22= US$1.00. The observed exchange rate on March 18, 2020,February 28, 2023, was R$5.115.21 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos or Brazilian 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 arewere listed on the New York Stock Exchange underuntil June 22, 2020, and currently trade in the Symbol “LTM”over-the-counter market.
We have rounded percentages and certain U.S. dollar, Chilean peso and Brazilian real 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, 2015, 2016, 2017, 20182020, 2021 and 20192022 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 2ix 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,” “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. 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 |
● | 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 |
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update 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 | |
“LATAM Airlines Ecuador” | LATAM-Airlines Ecuador S.A. | |
“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. | |
Traffic | Measurements: | |
“revenue passenger kilometers” or “RPKs” | The sum, across our network, of the number of revenue passengers on each flight multiplied by the number of kilometers flown by the respective flight. | |
“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. | |
Other: | ||
“Airbus A320-Family Aircraft” | The Airbus A319, Airbus A320, and Airbus A321 models of aircraft, including both ceo and neo variants. | |
“m²” | Square meters. | |
“ton” | A metric ton, equivalent to 2,204.6 pounds. | |
“utilization rates” | The actual number of service hours per aircraft per operating day. | |
“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” | ||
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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
B. | Capitalization and Indebtedness |
Not applicable.
A. Selected Financial Data
LATAM’s Historical Financial Information
The summary consolidated annual financial information of LATAM as of December 31, 2019, 2018, 2017, 2016, and 2015 has been prepared in accordance with IFRS. In 2019, the Company adopted IFRS 16,Leases, retrospectively; restating the comparative figures as of December 31, 2018 and for the years ended December 31, 2018 and 2017, in accordance with the provisions of IAS 8,Accounting Policies, Changes in Accounting Estimates and Errors. The selected Statement of Income Data for the years ended 2016 and 2015 and the selected Balance Sheet Data as of December 31, 2017, 2016 and 2015 have not been restated.
LATAM’s Annual Financial Information
Year ended December 31, | ||||||||||||||||||||
2019 | 2018 restated | 2017 restated | 2016 | 2015 | ||||||||||||||||
(in US$ millions, except per share and capital stock data) | ||||||||||||||||||||
The Company Statement of Income Data(1)(2)(3): | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 9,005.6 | 8,709.0 | 8,494.5 | 7,877.7 | 8,410.6 | |||||||||||||||
Cargo | 1,064.4 | 1,186.5 | 1,119.4 | 1,110.6 | 1,329.4 | |||||||||||||||
Total operating revenues | 10,070.1 | 9,895.5 | 9,613.9 | 8,988.3 | 9,740.0 | |||||||||||||||
Cost of sales | (7,951.3 | ) | (7,773.4 | ) | (7,279.4 | ) | (6,967.0 | ) | (7,636.7 | ) | ||||||||||
Gross margin | 2,118.8 | 2,122.0 | 2.334,5 | 2,021.3 | 2,103.3 | |||||||||||||||
Other operating income(4) | 360.9 | 472.8 | 549.9 | 538.7 | 385.8 | |||||||||||||||
Distribution costs | (580.0 | ) | (615.2 | ) | (696.8 | ) | (747.4 | ) | (783.3 | ) | ||||||||||
Administrative expenses | (735.2 | ) | (736.3 | ) | (952.8 | ) | (873.0 | ) | (878.0 | ) | ||||||||||
Other expenses | (422.8 | ) | (356.3 | ) | (365.5 | ) | (373.7 | ) | (324.0 | ) | ||||||||||
Other gains/(losses) | 11.5 | 53.5 | (7.8 | ) | (72.6 | ) | (55.3 | ) | ||||||||||||
Financial income | 26.3 | 53.3 | 78.7 | 74.9 | 75.1 | |||||||||||||||
Financial costs | (589.9 | ) | (539.1 | ) | (579.2 | ) | (416.3 | ) | (413.4 | ) | ||||||||||
Equity accounted earnings | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||
Foreign exchange gains/losses | (32.6 | ) | (38.1 | ) | (48,5 | ) | 121.7 | (467.9 | ) | |||||||||||
Result of indexation units | (15.0 | ) | (0.9 | ) | 0.7 | 0.3 | 0.6 | |||||||||||||
Income (loss) before income taxes | 141.9 | 415.7 | 313.4 | 273.9 | (357.1 | ) | ||||||||||||||
Income (loss) tax expense/benefit | 53.7 | (73.9 | ) | (159.0 | ) | (163.2 | ) | 178.4 | ||||||||||||
Net (loss) income for the year | 195.6 | 341.8 | 154.4 | 110.7 | (178.7 | ) | ||||||||||||||
Income (loss) attributable to owners of the parent | 190.4 | 309.8 | 108.9 | 69.2 | (219.3 | ) | ||||||||||||||
Income (loss) attributable to non-controlling interests | 5.2 | 32.0 | 45.5 | 41.5 | 40.5 | |||||||||||||||
Net income (loss) for the year | 195.6 | 341.8 | 154.4 | 110.7 | (178.7 | ) | ||||||||||||||
Earnings per share | ||||||||||||||||||||
Average number of Shares | 606,407,693 | 606,407,693 | 606,407,693 | 546,559,599 | 545,547,819 | |||||||||||||||
Basic earnings (loss) per share (US$) | 0.31403 | 0.51090 | 0.17958 | 0.12665 | (0.40193 | ) | ||||||||||||||
Diluted earnings (loss) per share (US$) | 0.31403 | 0.51090 | 0.17958 | 0.12665 | (0.40193 | ) |
As of December 31, | ||||||||||||||||||||
2019 | 2018 restated | 2017 | 2016 | 2015 | ||||||||||||||||
(in US$ millions, except per share and capital stock data) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash, and cash equivalents | 1,072.6 | 1,081.6 | 1,142.0 | 949.3 | 753.5 | |||||||||||||||
Other current assets in operation | 2,460.5 | 2,188.5 | 2,312.4 | 2,340.3 | 2,067.4 | |||||||||||||||
Non-current assets and disposal groups held for sale | 485.2 | 5.8 | 291.1 | 337.2 | 2.0 | |||||||||||||||
Total current assets | 4,018.2 | 3,275.9 | 3,745.5 | 3,626.8 | 2,822.9 | |||||||||||||||
Property and equipment | 12,919.6 | 12,501.8 | 10,065.3 | 10,498.1 | 10,938.7 | |||||||||||||||
Other non-current assets | 4,150.0 | 4,301.1 | 4,987.2 | 5,073.3 | 4,339.8 | |||||||||||||||
Total non-current assets | 17,069.6 | 16,802.9 | 15,052.5 | 15,571.4 | 15,278.5 | |||||||||||||||
Total assets | 21,087.8 | 20,078.7 | 18,798.0 | 19,198.2 | 18,101.4 | |||||||||||||||
Total current liabilities | 6,960.9 | 5,932.2 | 5,842.7 | 6,222.2 | 5,641.0 | |||||||||||||||
Total non-current liabilities | 10,997.7 | 10,705.9 | 8,688.0 | 8,790.7 | 9,522.9 | |||||||||||||||
, | ||||||||||||||||||||
Total liabilities | 17,958.6 | 16,638.1 | 14,530.7 | 15,012.9 | 15,163.9 | |||||||||||||||
Share capital | 3,146.3 | 3,146.3 | 3,146.3 | 3,149.6 | 2,545.7 | |||||||||||||||
Net equity attributable to the parent company’s equity holders | 3,130.8 | 3,360.7 | 4,176.1 | 4,096.7 | 2,856.5 | |||||||||||||||
Non-controlling interest | (1.6 | ) | 79.9 | 91.1 | 88.6 | 81.0 | ||||||||||||||
Total equity | 3,129.2 | 3,440.6 | 4,267.2 | 4,185.3 | 2,937.5 | |||||||||||||||
Shares Outstanding | 606,407,693 | 606,407,693 | 606,407,693 | 606,407,693 | 545,547,819 |
Not applicable.
The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2015, December 31, 2016, December 31, 2017, December 31, 2018 and December 31, 2019. 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.
Year ended December 31, | ||||||||||||||||||||
Operating Data: | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
ASKs (million) | 149,111.9 | 143,264.7 | 136,398.4 | 134,967.7 | 134,167.1 | |||||||||||||||
RPKs (million) | 124,521.1 | 119,077.4 | 115,692.7 | 113,626.9 | 111,509.9 | |||||||||||||||
ATKs (million) | 6,356.7 | 6,497.6 | 6,230.3 | 6,704.1 | 7,082.8 | |||||||||||||||
RTKs (million) | 3,526.0 | 3,582.5 | 3,421.3 | 3,465.9 | 3,797.0 |
Dividend Policy
In accordance with theLey sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation Act”) and theReglamento de Sociedades Anónimas(“Regulation to the Chilean Corporation Act”, and together with the Chilean Corporation Act, 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 2016. On May 18, 2017, LATAM paid US$20,766,119 in dividends in respect of the year ended December 31, 2016. On May 17, 2018, LATAM paid US$46,591,193 in dividends in respect of year ended December 31, 2017. On May 17, 2019, LATAM paid US$54,580,443 in dividends in respect of year ended December 31, 2018. In addition, dividend reserves of US$57,129,120 were set aside for 2019, to be paid in 2020.
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, who converts those Chilean pesos into U.S. dollars and delivers U.S. dollars to the depositary for distribution to holders of ADS. 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.
LATAM’s Dividend Payments
The table below sets forth the cash dividends per common share and per ADS paid by LATAM, as well as the number of common shares entitled to such dividends, for the years indicated. Dividends per common share amounts reflect common share amounts outstanding immediately prior to the distribution of such dividend.
Dividend for year: | Payment date(s) | Total dividend payment | Number of common shares entitled to dividend | Cash dividend per common share | Cash dividend per ADS | |||||||||||||
(U.S. dollars) | (in millions) | (U.S. dollars) | (U.S. dollars) | |||||||||||||||
2016 | May 18, 2017 | $ | 20,766,119 | 606.41 | $ | 0.03424 | $ | 0.03424 | ||||||||||
2017 | May 17, 2018 | $ | 46,591,193 | 606.41 | $ | 0.07683 | $ | 0.07683 | ||||||||||
2018 | May 16, 2019 | $ | 54,580,443 | 606.41 | $ | 0.09001 | $ | 0.09001 |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
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 a non-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including the following risk factors.
Risk FactorsRisks 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
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.
Our assets includeThe 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 significant amountresult, 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 goodwill.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.
Our assets included US$2,209.6 millionAlthough vaccines have generally proved to be effective and certain of goodwill asthe government-imposed travel restrictions associated with the COVID-19 pandemic have been eased, the ongoing pandemic, including large outbreaks, resurgences of December 31, 2019. Under IFRS, goodwill isCOVID-19 in various regions and appearances of new variants of the virus, has resulted and may continue to result in significantly reduced demand for travel. During 2022 many countries lifted travel restrictions but the spread of new variants of COVID-19 led some of them to return with some measures. As a result of these or other conditions beyond our control, our results of operations could continue to be volatile and subject to rapid and unexpected change. In addition, our operations have been, and could in the future be, negatively affected further if our employees are quarantined as the result of exposure to COVID-19. Health safety and sanitation measures that we have implemented as a group also may not be sufficient to prevent the spread or contagion of 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 operations. For further information on the health safety and sanitation measures implemented by the group, see “Explanatory Note-COVID-19 Pandemic,” above. However, it is possible that these measures could prove insufficient and COVID-19 or other diseases could be transmitted to passengers or employees in an annual impairment testairport or on an aircraft.
As a result of the COVID-19 pandemic and its variants, the airline industry may experience consumer behavior changes, regarding corporate travel, long-haul travel, and travel demand.
The potential for mid- to long-term changes to consumer behavior resulting from the COVID-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 travel 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 whether or when corporate travel, long-haul travel and travel demand could return to the 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 2019, mainlychoose low-cost alternatives as a result of the depreciation of the Brazilian real against the U.S. dollar, the value of our goodwill decreased by 3.7% as compared with 2018. 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 most admired airlines in the world and renewing our commitment to sustained profitability and superior returns to shareholders. Our strategy requires us to identify value propositions that are attractive to our clients, to find efficiencies in our daily operations, and to transform ourselves into a stronger and more risk-resilient company. A tenet of our strategic plan is the continuing adoption of a new travel model for domestic and international services 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 increasing revenues from ancillary activities. In connection with these efforts, the Company continues to implement a series of initiatives to reduce cost per ASK in all its 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.
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. 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—RiskRisk-Risk of Variation in Foreign Exchange Rates.”
We depend on strategic alliances or commercial relationships in many of the countries in which we operate, and our business may suffer if any of our strategic alliances or commercial relationships terminates.
We maintain a number of alliances and other commercial relationships in many of the jurisdictions in which LATAM and its affiliates operate. These alliances or commercial relationships allow us to enhance our network and, in some cases, to offer our customers services that we could not otherwise offer. If any of our strategic alliances or commercial relationships deteriorates, or any of these agreements are terminated, our business, financial condition and results of operations could be adversely affected.
Our business and results of operations may suffer if we fail to obtain and maintain routes, suitable airport access, slots and other operating permits. Also, technical and operational problems with the airport infrastructure of cities in which we have a focus may have a material adverse effect on us.
Our business depends upon our access to key routes and airports. Bilateral aviation agreements between countries, open skies laws and local aviation approvals frequently involve political and other considerations outside of our control. Our operations could be constrained by any delay or inability to gain access to key routes or airports, including:
We operate numerous international routes subject to bilateral agreements, as well as domestic flights within Chile, Peru, Brazil, Argentina, Ecuador and Colombia, subject to local route and airport access approvals. See “Item 4. Information on the Company—B. Business Overview—Regulation.”
There can be no assurance that existing bilateral agreements with the countries in which our companies are based and permits from foreign governments will continue. A modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permission to operate in certain airports, destinations or slots, or the imposition of other sanctions could also have a material adverse effect. A change in the administration of current laws and regulations or the adoption of new laws and regulations in any of the countries in which we operate that restrict our route, airport or other access may have a material adverse effect on our business, financial condition and results of operations.
Moreover, our operations and growth strategy are dependent on the facilities and infrastructure of key airports, including Santiago’s International Airport, São Paulo’s Guarulhos International and Congonhas Airports, Brasilia’s International Airport and Lima’s Jorge Chavez International Airport.
Santiago’s Comodoro Arturo Merino Benítez International Airport is currently facing an important expansion, which is expected to be completed by 2021. If the expansion continues to be delayed, this will likely impact our operations and may affect our ability to remain competitive.
One of the major operational risks we face on a daily basis at Lima’s Jorge Chavez International Airport is the limited number of parking positions. Additionally, the indoor infrastructure of the airport limits our ability to manage connections and launch new flights due to the lack of gates and increasing security and immigration controls. Lima’s Jorge Chavez International Airport is currently undergoing an expansion, which is expected to be completed by 2024. Any delays could negatively impact our operations limit our ability to grow and affect our competitiveness in the country and in the 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 inability to maintain our existing slots and obtain additional slots, could materially adversely affect our operations.
7
A significant portion of our cargo revenue comes from relatively few product types and may be impacted by events affecting their production, trade or demand.
Our cargo demand, especially from Latin American exporters, is concentrated in a small number of product categories, such as exports of fish, sea products and fruits from Chile, asparagus from Peru and fresh flowers from Ecuador and Colombia. Events that adversely affect the production, trade or demand for these goods may adversely affect the volume of goods that we transport and may have a significant impact on our results of operations. Future trade protection measures by or against the countries for which we provide cargo services may have an impact in cargo traffic volumes and adversely affect our financial results. Some of our cargo products are sensitive to foreign exchange rates and, therefore, traffic volumes could be impacted by the appreciation or depreciation of local currencies.
Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.
Higher jet fuel prices could have a materially adverse effect on our business, financial condition and results of operations. Jet fuel costs have historically accounted for a significant amount of our operating expenses, and accounted for 30.2%47.9% of our operating expensestotal costs of sales in 2019.2022. For additional information, see “Item 4. Information on the Company—B. Business Overview—11. Quantitative and Qualitative Disclosures about Market Risk-Risk of Fluctuations in Fuel Supplies”.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 cannot ensure that we would be able to offset any increases in the price of fuel by increasing our fares.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. 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. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—RiskRisk-Risk of VariationFluctuations in Fuel Prices.”
The group depends on strategic alliances or commercial relationships in many different countries, and the 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 deteriorate, or any of these agreements are terminated, the group’s business, financial condition and results of operations could be adversely affected.
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.
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. The 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 |
● | the inability to maintain our existing slots and obtain additional slots. |
The group operates numerous international routes subject to bilateral agreements, as well as domestic flights within Chile, Peru, Brazil, Ecuador and Colombia, subject to local route and airport access approvals. See “Item 4. Information on the Company-B. Business Overview-Regulation.”
There can be no assurance that existing bilateral agreements with the countries in which the group’s companies are based and permits from foreign governments will 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 at 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 the group operates that restrict our routes, 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.
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, asparagus from Peru and fresh flowers from Ecuador and Colombia. Events that adversely affect the production, trade or demand for these goods may adversely affect the volume of goods that are transported and may have a significant impact on the 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 the cargo products are sensitive to foreign exchange rates and, therefore, traffic volumes could be impacted by the appreciation or depreciation of local currencies.
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.
AGenerally, a key element of our strategy is to maintain a high daily aircraft utilization rate, which measures the number of hours we use our aircraft per day. High daily aircraft utilization allows us to maximize the amount of revenue we generate from our aircraft and absorb the fixed costs associated with our fleet and is achieved, in part, by reducing turnaround times at airports and developing schedules that enable us to increase the average hours flown per day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including air traffic and airport congestion, adverse weather conditions, unanticipated maintenance and delays by third-party service providers relating to matters such as fueling, catering and ground handling. If an aircraft fallsfall behind schedule, the resulting delays could cause a disruption in our operating performance and have a financial impact on our results.
We flyLATAM flies and dependdepends upon Airbus and Boeing aircraft, and our business could suffer if we do not receive timely deliveries of aircraft, if aircraft from these companies become unavailable or if the public negatively perceives our aircraft.
As our fleet has grown, our reliance on Airbus and Boeing has also grown. As of December 31, 2019,2022, LATAM Airlines Group has a total fleet of 263237 Airbus and 7973 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 |
● | 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 announced delays in some of their models due to 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—F. Long term Indebtedness—Tabular Disclosure ofProspects-E. Contractual Obligations.Obligations-Long Term Indebtedness.”
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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 leases. OurThe leases typically run from three to 12 years from the date of 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 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 leases and financial debt arrangements. We require significant amounts of financing to meet our aircraft capital requirements and may require additional financing to fund our other business needs. We cannot guarantee that we will have access to or be able to arrange for financing in the future on favorable terms. Higher financing costs could affect our ability to expand or renew our fleet, which in turn could adversely affect our business.
In addition, the 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—F. Long term Indebtedness—Tabular Disclosure ofProspects-E. Contractual Obligations.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, reductions in our credit rating or in that of our 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 exposedOn 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 financial leases are denominated in U.S. dollarssubstantial indebtedness. SOFR will fluctuate with changing market conditions and, bearas SOFR increases, our interest at a floating rate. 38.4% of our outstanding consolidated debt as of December 31, 2019 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 results of operations.
On July 27, 2017, the Financial Conduct Authority (the authority In addition, there is no guarantee that regulates LIBOR) announced that it intends to stop compelling banks to submitSOFR or other replacement rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by treasury securities. The impact of such a transition away from LIBOR could be significant for us because of our substantial indebtedness. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere.maintain market acceptance. See also the discussion of interest rate risk in “Item 11. Quantitative and Qualitative Disclosures About Market Risk—”RiskRisks-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.
MajorSignificant 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.coverage. Further increases in insurance costs and/or reductions in available insurance coverage could have an adversea material impact on our financial results, change the insurance strategy, and results of operations andalso 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 businessbusiness.
OurThe 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.
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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 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 2019,2022, LATAM Airline’sAirline 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 Pratt and Whitney Canada.Honeywell, among others.
During 2019, Airbus experienced delays in the delivery of A320neo aircraft worldwide. LATAM is currently expecting delivery of three A320neo family aircraft during 2020, but any delivery delays could adversely affect operations.
Rolls-Royce continues to face delays with its Trent 1000 engine program, used to power LATAM’s Boeing 787 fleet, with increased demand for inspections and maintenance. This has affected the availability and the operational flexibility of this aircraft for operators worldwide, with the impact for LATAM reaching its peak in July 2018. LATAM currently has three aircraft on ground awaiting for engines. While the situation has improved considerably, there is no guarantee that this will not continue and therefore reduce the availability of Boeing 787 aircraft, thus negatively affecting operations and financial results.
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 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 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 cybersecurity incident impacting systems hosted internally at our data centers, 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 impact 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, cyber attackscyber-attacks, security breaches in the supply chain (suppliers) and other security issues. 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 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 cybersecurity incident.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.
10Rapid 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 (18.5%cost of sales (12% in 2019)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 our operations and adversely impact our operating and financial performance, as well as our image.
A strike, work interruption or stoppage or any prolonged dispute with our employees who are represented by any of these unions could have an adverse impact on our operations. These risks are typically exacerbated during periods of renegotiation with the unions, which typically occurs every two to four years depending on the jurisdiction and the union. Any renegotiated collective bargaining agreement could feature significant wage increases and a consequent increase in our operating expenses. Any failure to reach an agreement during negotiations with unions may require us to enter into arbitration proceedings, use financial and management resources, and potentially agree to terms that are less 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, 2019,2022, approximately 46%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. For further information regarding the unions representing our employees in each country in which we operatethe group operates and with which we havethere are established collective bargaining agreements, see “Item 6. Directors, Senior Management and Employees—D. Employees—LaborEmployees-D. Employees-Labor Relations.”
WeLATAM may experience difficulty finding, training and retaining employees.
OurThe 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. WeLATAM cannot assure you that weit will be able to recruit, train and retain the managers, pilots, technicians and other qualified employees that we needare needed to continue ourthe 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 or other governmental policies; |
● | changes in regulatory, legal or administrative practices; |
● | weak economic performance, including, but not limited to, a slowdown in the Brazilian economy, 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 markets in which we operate.the group operates. Sustained weak 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 ourthe cargo business, and could also impact ourthe ability to raiseset 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.
WeThe group must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges, including at Guarulhos International Airport in São Paulo, Jorge Chavez International Airport in Lima or Comodoro Arturo Merino Benitez International Airport in Santiago, could have a material adverse impact on our results of operations. Passenger taxes and airport charges have 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 such increases could have an adverse effect on our financial condition and results of operations.
Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose various restrictions, including takeoff and landing slot restrictions during certain periods of the day and limits on aircraft noise levels. We cannot be certain that wethe group will be able to obtain a sufficient number of slots, gates and other facilities at airports to expand our services in line with our growth strategy. It is also possible that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having those slots re-allocated to others. Where slots or other airport resources are not available or their availability is restricted in some way, wethe group may have to amend our schedules, change routes or reduce aircraft utilization. It is also possible that aviation authorities in the countries in which we operate,the group operates, change the rules for the assignment of takeoff and landing slots, as it was the case with the São Paulo airport (Congonhas) in 2019 where the slots previously operated by Avianca Brazil were reassigned.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 our operations. We cannot ensure that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports.
OurThe business is highly regulated and changes in the regulatory environment in the different countries in which we operate may adversely affect our business and results of operations.
Our business is highly regulated and depends substantially upon the regulatory environment in the countries in which we 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 preferredcommon shares and ADSs may be adversely affected by changes in policy or regulations at the federal, state or municipal level in the countries in which we operate,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 preferredcommon shares and ADSs.
We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights between the countries where we operate,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 |
● | 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, or due toflight LA 2213 at Lima’s Jorge Chávez International Airport a perceptionfire engine entered the runway and collided with its aircraft. Authorities subsequently confirmed fatalities of increased risktwo firefighters who were in the industry relatedfire 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 concerns about war or terrorist attacks,make a final conclusion as to the general industry, or general industry safety.financial impact of this incident.
High levels of competition in the airline industry, such as the presenceincrease of low-cost carriers and the consolidation or mergers of competitors in the markets in which we operate,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.Company-B. Business Overview—Passenger Operations—InternationalOverview-Passenger Operations-International Passenger Operations” and “Item 4. Information of the Company—B.Company-B. Business Overview—Passenger Operations—BusinessOverview-Passenger Operations-Business Model for Domestic Operations.”
Low-cost carriers have an important impact inon 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.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. Low-cost competitors FlybondiDue 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 Norwegian began operationsGol (Abra Group), Avianca and Viva in the Argentinian domestic market during 2018, and in April 2019,Colombia, or JetSmart another low-cost airline, started operations and announced the acquisition of Norwegian´s Argetinian subsidiary operations in December 2019. A number of low-cost carriers have announced growth strategies including commitmentswhere American Airlines had been approved by authorities without any conditions to acquire significant numbersminor participation. In the Cargo business, and also due to some effects of aircraft for deliveryCOVID-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 next few years. The entryconcentration 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 low-cost carriers local into markets in which we compete, including those described above, could have a material adverse effect on our operationsparties, and financial performance.the corresponding regulatory approvals.
Our internationalInternational strategic growth plans rely, in part, upon receipt of regulatory approvals of the countries in which we plan to expand our operations with a Joint Business Agreementjoint business agreements (JBA). WeThe 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.
Some of the countries where we operatethe 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 ourthe business and financial results.
Rulings by a bankruptcy court in Brazil and a Chapter 15 ruling by higher judicial authoritiesthe 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 the rights oftimings for remedies by creditors in respect of financings secured by aircraft. Accordingly, if creditors may perceive that an increaseincreased 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, our business and financial results may be adversely affected if our financing activities in Brazil are impacted by such events.
OurLATAM’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.
OurLATAM’s operations are affected by environmental regulations at local, national and international levels. These regulations cover, among other things, emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities incident to 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 International Civil Aviation Organization (“ICAO”) adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), providing a framework for a global market-based measure to stabilize carbon dioxide (“CO2”) emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). CORSIA will be implemented in phases, starting with the participation of ICAO member states on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027). Currently, CORSIA focuses on defining standards for monitoring, reporting and verification of emissions from air operators, as well as on defining steps to offset CO2 emissions after 2020. 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 environmental 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 outbreaks suchpandemics (such as the recent coronavirus,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, the current spread of the coronavirusCOVID-19 pandemic and its variants and other adverse public health developments could have a prolonged effect on air transportation demand and any prolonged or widespread effects could significantly impact our operations.
After the terrorist attacks in the United States on September 11, 2001, the Company made the decision to reduce its flights to the United States. In connection with the reduction in service, the Company reduced its workforce resulting in additional expenses due to severance payments to terminated employees during 2001. 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 ourthe business, financial condition and results of operations.
After the 2001 terrorist attacks, airlines have experienced increased costs resulting from additional security measures that may be made even more rigorous in the future. In addition to measures imposed by the U.S. Department of Homeland Security and the TSA, IATA and certain foreign governments have also begun to institute additional security measures at foreign airports we serve.
Revenues for airlines depend on the number of passengers carried, the fare paid by each passenger and service factors, such as the timeliness of flight departures and arrivals. During periods of fog, ice, low temperatures, storms or other adverse weather conditions 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 profitability.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, by oil-producing countries. Such increases may result in both higher airline ticket prices and decreased demand for air travel generally, which could have an adverse effect on our revenues and results of operations.
A pandemicOur 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 widespread outbreakaviation industry. These mechanisms seek to discourage the consumption of contagious illnesses canfossil 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 a materialan adverse effect on our businessfinancial results.
The COVID-19 pandemic and resultsthe corresponding widespread government-imposed travel restrictions that were outside of operations.
The widespreadLATAM’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 a contagious illness suchwill 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 novel COVID-19 (Coronavirus), first identifiedgroup is required to pay out a substantial amount of ticket refunds in Wuhan, Hubei Province, China and which has been declared a pandemic by the World Health Organization (WHO), or fear of suchcash, this could have an event, is materially reducing demand for, and availability of, worldwide air travel and therefore is having a material adverse effect on our business andfinancial results of operations.
In 2003, an outbreak of a coronavirus known as severe acute respiratory syndrome (SARS) originating in China became an epidemic and resulted in a slowdown of passenger air traffic due contagion fears. Ator liquidity position. Furthermore, the time, RPK growth was reduced due to oversupply inCompany has agreements with financial institutions that process customer credit card transactions for the market as airlines tried to cut capacity.
The recent outbreaksale of Coronavirus has negatively affected global economic conditions, disrupted supply chains and otherwise negatively impacted aircraft manufacturing operations and may reduce the availability of aircraft and aircraft spare parts. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on the availability of aircraft or aircraft spare parts. However, the effect on our results may be material and adverse if supply chain disruptions persist and preclude our ability to adequately maintain our fleet.
The recent outbreak of Coronavirus has also led to government-imposed travel restrictions, flight cancellations, and a marked decline in passenger demand for air travel. Accordingly, LATAM Airlines Group and its affiliates implemented a reduction in international flights of approximately 30% and recently updatedthe decrease in capacity to approximately 70% of the total operations, corresponding 90% to international operations and 40% to domestic operations. These measures will apply principally to flights from South America to Europe and the US between April 1 and May 30, 2020. The potential for a period of significantly reduced demand for travel has and will likely continue to result in significant lost revenue. As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change. In addition, if the spread of the Coronavirus were to continue unabated, our operations could also be negatively affected if employees are quarantined as the result of exposure to the contagious illness.We cannot currently fully predict the impact that the Coronavirus outbreak will have on global air travel and the extent to which it may impact the demand for air travel in the regions we operate. Continued travel restrictions or operational issues resulting from the rapid spreadother services. Under certain of the CoronavirusCompany’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 contagious illnesses that adversely reduce demandcollateral 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 air travel in a part of the world in which we have significant operations could a material adverse effect on our business and results of operations.advance ticket sales.
We areLATAM 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 ourthe business. For further information, see “Item 8. Financial Information—LegalInformation-Legal and Arbitration Proceedings.”Proceedings” and Note 3130 to our audited consolidated financial statements included in this report.
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We areThe 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 all 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 laws or regulations could have a material adverse effect on ourthe business, reputation, results of operations and financial condition.
Latin American governments have exercised and continue to exercise significant influence over their economies.
Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions have often involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee benefits, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations, including such factors as exchange rates and exchange control policies;policies, inflation control policies;policies, price control policies;policies, consumer protection policies;policies, import duties and restrictions;restrictions, liquidity of domestic capital and lending markets;markets, electricity rationing;rationing, tax policies, including tax increases and retroactive tax claims;claims, and other political, diplomatic, social and economic developments in or affecting the countries where we operate.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 you that these or other measures will not have 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 ourthe business.
We operateLATAM operates primarily within Latin America and areis 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 ourthe 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 (Lava Jato investigation)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 theOperation Car Wash. Operation Car Wash (Lava Jato). 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, Argentineafter 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 elections held inelection of October 2019, saw2022 and narrowly defeated President Bolsonaro. Former President Bolsonaro questioned the returnresults of the formerelections, resulting in demonstrations across the country. Luiz Inácio Lula da Silva was sworn in as president in January 2023. We cannot predict which 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 Argentina, Cristina Fernandez de Kirchner whothe congress and called for new elections as soon as possible, provoking an attempted coup d’état. Subsequently, he was elected Vice-Presidentremoved from office and who was previously prosecuted for alleged corruption. In 2019, Peru experienced a constitutional crisis began whenarrested. On the same day, Vice President Martín Vizcarra dissolvedDina Boluarte assumed the Congresspresidency of Peru, to serve the remaining presidential term until 2026. However, on SeptemberDecember 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 2019.days. No assurance can be given as to how long the unrest and blockades will continue. The Peruvian Congress responded by declaring Vizcarra's presidency suspendedeffect of any such disruption or interference cannot accurately be predicted and appointed Vice President Mercedes Aráoz as interim president, moves that were largely seen as null and void. The Peruvian Constitutional Court ruled that President Martín Vizcarra had not exceeded his powers when he took the step amidcould have a stand-off between the government and opposition-controlled Congress. Opposition lawmakers had denounced it as a coup but the headssignificant adverse effect on our business, financial conditions or results of armed forces and the police backed the president. operations.
In October 2019.2019, 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 asocial inequality, lack of quality education, weak pensions, increasing prices and low minimum wage. CurrentIf 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. It is not possible to predict the effect of these changes as they are still under discussion, but could potentially result in higher payments of wages and salaries and an increase in taxes. On October 25, 2020 (postponed from April 26, 2020 due to the impact of the COVID-19 pandemic), Chile will holdwidely approved a referendum to redraft the constitution via constitutional convention. The election for selecting the 155-member constitutional convention took place on whetherMay 15 and how16, 2021. On July 4, 2021, the constitutional convention was installed, having 9 months, with the possibility of a one-time, three-month extension, to changepresent 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 constitution, which could lead to additional protests. 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. LATAM took a series of measures to alleviate the impact for its passengers, including refunds and changes of tickets. The Company estimated a total impact of approximately US$40 million for 2019.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 conditionsconditions..
OurThe 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. WeLATAM cannot assure youensure 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. WeLATAM cannot assure youensure that the current or any future administration will maintain business-friendly and open-marketopen market economic policies or policies that stimulate economic growth and social stability. In Brazil, the Brazil Real GDPgross domestic product increased 1.2% in 2019, decreased 3.5%3.9% in 2015, decreased 3.3% in 2016, increased 1.1% in 20172020, and increased 1.1%4.6% in 2018,2021, according to the Brazilian Institute for Geography and Statistics (Instituto(Instituto Brasileiro de Geografia e Estadística, or “IGBE”). In addition, the credit rating of the Brazilian federal governmentPerú was downgraded in 20152021 and 2016 by all major credit rating agenciesin 2022 is rated as BBB with a negative outlook. Ecuador and is no longer investment grade. We can offer no assurances asChile 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 policies that may be implemented by the recently elected Argentine administration, or that political developments in Argentina will not adversely affect the Argentine economy.transition of government.
Accordingly, any changes in the economies of the Latin American countries in which LATAM and its affiliates operate or the governments’ economic policies may have a negative effect on ourthe 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.
The major shareholder group,As of February 28, 2023, Sixth Street Partners 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 (the “Cueto Group”), beneficially owned 21.46%5.0% of our common shares as of February 29, 2020. In addition, the Cueto Group entered into a shareholders’ agreement with the Amaro Group (the “Amaro Group”), which as of February 29, 2020, held 1.98% of LATAM shares through TEP Chile, in addition to the indirect stake it has through the 21.88% interest it holds in Costa Verde Aeronáutica S.A., the main legal vehicle through which the Cueto Group holds LATAM shares, pursuant to which these two major shareholder groups have agreed to vote together to elect individuals to our board of directors in accordance with their direct and indirect shareholder interest in LATAM. Pursuant to the shareholders’ agreement, the Cueto Group and the Amaro Group have also agreed to use their good faith efforts to reach an agreement and act jointly on all actions to be taken by our board of directors or shareholders’ meeting, and if unable to reach to such agreement, to follow the proposals made by our board of directors. Decisions by the Company that require supermajority votes under Chilean law are subject to voting arrangements by the Cueto Group and the Amaro Group. In addition, othershares. These shareholders including, Delta Air Lines, Inc, which, as of February 29, 2020, held 20.00% of our common shares, and Qatar Airways Investments (UK) Ltd., which as of February 29, 2020, held 10.00% of our common shares, could have interests that may differ from those of our other shareholders. See “Item 7. Major 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 to exercise this right; for example,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 20192022 designated Mr. Ignacio Cueto, to serve in this role.
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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 affect non-Chilean residents that invest in our shares.
Equity investments in Chile by non-Chilean residents have been subject in the past to various exchange control regulations that govern investment repatriation and earnings thereon. Although not currently in effect, regulations of the Central Bank of Chile have in the past required, and could again require,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, any changes in withholding taxes could negatively affect non-Chilean residents that invest in our shares.
We cannot assure you that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the common shares underlying ADSs or the repatriation of the proceeds from an acquisition, a disposition or a dividend payment, will not be imposed or required in the future, nor could we make an assessment as to the duration or impact, were any such restrictions to be imposed or required. 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 providesAs 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. Reserved—G. Corporate Governance.”
ITEM 4 INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANYGeneral
General
LATAM Airlines Group S.A. is a Chilean-based airline and holding company formed through the business combination ofthat changed its name from LAN Airlines S.A. of Chile andafter its combination with TAM of Brazil in 2012. Following the combination, LAN Airlines S.A. became “LATAM Airlines Group S.A.” and TAM S.A. 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 affiliate 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) and LATAM Cargo. LATAMGroup is a publicly traded corporation listed on the Santiago Stock Exchange (“SSE”), the Chilean Electronic Exchange, and its ADSs currently trade in the New York Stock Exchange (“NYSE”) withover-the-counter market. LATAM Airlines Group has a market capitalization of US$4.12 billion 4,565 million as of February 29, 2020.28, 2023.
LATAM’s history goes back to 1929, when the Chilean government founded LAN. In 1989, the Chilean government sold 51.0% of LAN’s capital stock to Chilean investors and to SAS,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 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 Colombia in 2010. The business combination of LAN and TAM inMoreover, since June 2012 further expanded the Company’s operations in Brazil, whereBrazilian affiliate, TAM Linhas Aéreas S.A. (“TLA” or “LATAM Airlines Brazil”), the TAM operating entity, ishas been a leading domestic and international airline offering flights throughout Brazil with a strong domestic market share, international passenger services and significant cargo operations. TAM was founded in
As a result of the COVID-19 pandemic and its profound impact on worldwide travel and our operations, on May 1997 (under the nameCompanhia de Investimentos em Transportes), for the purpose of participating in, managing and consolidating shareholdings in airlines. In September 2002, TAM’s name was changed to TAM26, 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 different fronts, among other things, right-sizing our fleet and executing our fleet strategy, reducing our total headcount, reviewing claims filed against the Reorganized 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 key vendors across our business. The Reorganized Debtors also worked 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 Brazilian Stock Exchange (“Bovespa”) in June 2005. From 2006 until the combination with LAN in 2012, TAM ADSs were also listedChapter 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 NYSE.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 Andrés del Valle, Senior Vice President of Corporate Finance and Investor Relations, at InvestorRelations@latam.com.
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.
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 is the largest passenger 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 145144 destinations in 2622 countries and cargo services to approximately 151154 destinations in 2925 countries, with an operating fleet of 331310 aircraft and a set of bilateral alliances. In total, LATAM Airlines Group has approximately 42,00032,500 employees.
For the year 2019,2022, LATAM transported approximately 7462 million passengers. LATAM Airlines Group and its affiliates currently provide domestic services in Brazil, Chile, Peru, Argentina, Colombia and Ecuador; and also provide intra-regional and long-haul operations. The cargo affiliate carriers of LATAM in Chile, Brazil, and Colombia carry out cargo operations through the use of belly space 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, 2019, we2022, the group provided scheduled passenger service to 17 destinations in Chile, 2019 destinations in Peru, six8 destinations in Ecuador, 13 destinations in Argentina, 1417 destinations in Colombia, 4554 destinations in Brazil, 1014 destinations in other Latin American countries and the Caribbean, seven5 destinations in North America, seven8 destinations in Europe, fourand 2 destinations in Australasia, one destinationOceania, an increase from last year as the COVID-19 restrictions both within the region and in Asia 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, 2019,2022, through our various code-sharing agreements, we offerthe group offers service to 66105 destinations in North America, 6732 destinations in South America, 86 destinations in Europe, 1517 destinations in Australasia, 2238 destinations in Asia and 711 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 domestic presence in sixfive markets, as well as intra-regional and long-haul operations to fivethree continents. As a result, the CompanyLATAM group has geographical diversity and operational flexibility, as well as a proven track record of acting quickly to adapt its business to economic challenges. Moreover, LATAM’s unique leadership positionnetwork and market share in a region with growth potential and the focus on our existing competitive strengths, will allow us to continue building our business model and fuel our future growth, ensuring LATAM’s long term sustainability.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.America as measured by ASKs in 2022 full year. LATAM and its affiliates have domestic passenger operations in Chile, Brazil, Peru, Argentina, Colombia and Ecuador. 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.
Geographically Diversified Revenue Base, including both Passenger and Cargo Operations
Our
● | Geographically Diversified Revenue Base, including both Passenger and Cargo Operations |
LATAM group’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, reducing ourthe break-even load factors and enhancing ourthe 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, 2019,2022, passenger, cargo and other revenues accounted for 86.3%80.2%, 10.2%18.1% and 3.5%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 nine11.2 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 in noise levels.lease re-negotiations under improved terms.
We select ourLATAM 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 plan 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 (Neo: New Engine Option), a re-engined A320 thatmore efficient version of the Company received for the first timeA320; which we introduced into our fleet in 2016, becoming then the first airline in Latin America to fly this model. During 2019, LATAM incorporated nine additional A320neo into its fleet.
For long-haul passenger flights, we operate the Boeing 767-300ER, the Boeing 787-8, the Boeing 787-9, the Boeing 777-300ER767-300ER, and the Airbus A350-900 which started operations 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. In 2019,For cargo flights, we incorporated four Airbus 350-900 and twooperate Boeing 787-9 into our fleet.767-300F aircraft.
● | Strong Brand Teamed with Key Global Strategic Alliances |
LATAM continues to take a flexible approach to its fleet plan in order to better align it to market conditions. During 2019, LATAM further restructured its fleet delivery schedule, achieving a reduction of US$1.1 billion in fleet commitments for
In 2022, despite the period 2020-2022, equivalent to a reduction of approximately 38% of total fleet commitments for this period.
20
Strong Brand Teamed with Key Global Strategic Alliances
In May 2016 our new brand,continued challenging global conditions, LATAM was officially launched. We believe that our new brand is associated with superior servicerecognized as South America’s Leading Airline Brand and technologically advanced operations, and is well recognized and respectedSouth America’s Leading Airline in the markets in which we operate.World Travel Awards 2022. In 2019,addition, LATAM Airlines Group was named for the second year runningrecognized as the ‘Best Global Airline in South America’ in the Passenger Experience Association of Airlines (APEX) Passenger Choice Awards. In addition,Skytrax World Airline Awards in 2022 for the secondthird year in a row, LATAM Airlines Group ledrow. Furthermore, in the rankings2022 edition of the “Punctuality List 2020,” compiled by the Official Airline Guide (OAG), which highlightsAPEX Passenger Choice Awards LATAM Airlines Groupwas recognized as the global leader“Best Seat Comfort in the “Mega Airlines” category. In addition, LATAM also received the first placeSouth America” and “Best Food & Beverage in punctuality in the global category, according to the annual On-Time Performance (OTP) report compiled for the year 2019 by Cirium, expert consultants in analysis of travel data.South America.”
Our strategic global alliances and existing commercial agreements provide our customers with access to more destinations worldwide, a combined reservations system, itinerary flexibility and various other benefits, which substantially enhance our competitive position within the Latin American market.
In 2019,2020, LATAM entered into a framework agreementTrans-American Joint Venture Agreement with Delta Air Lines Inc. that willInc, following the framework agreement signed in 2019, which we expect to unlock new growth 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 countries involved and the U.S. Department of Transportation (“DOT”). As of the date of publication, both companies find themselves working together on the full implementation of the Joint Venture Agreement. For more information on the framework agreement see “Item 4. Information on the Company—B.Company-B. Business Overview—PassengerOverview-Passenger Alliances and 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. Our financial flexibility has allowed us to secure large aircraft deliveries, including an important part of our current re-fleeting program, at attractive financing rates. Our wide array of funding sources includes bilateral loans, syndicated loans, aircraft rentals and a variety of capital markets structures, among others.
Recognized Loyalty Program
● | Recognized Loyalty Program |
Our frequent flyer program, LATAM Pass, is the leading frequent flyer program 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 the program earn miles and points based on 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. We believe that our program is attractive to customers because it 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 members can also accrue and redeem points for flights on other 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 most 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 intendLATAM 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 believe that 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 ourits network. We intendLATAM 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 efficiency, simplify our organization and increase flexibility and speed in decision-making. CostWe look to implement cost savings, includeincluding reductions in fuel and fees, procurement, operations, overhead and distribution costs, among others, as well as the implementation of a customized service offering in domestic and international markets. In 2022 and 2021, and in the context of our Chapter 11 proceedings, we worked to reduce our fixed costs and to convert them to variable costs, specifically fleet costs and wages and 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 and operate sustainably over 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 could significantly affect LATAM’s strategic objectives.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 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 $350,000,000, (d) converted the 5Y Notes and the 7Y Notes from “DIP” to “Exit” notes, (e) repaid the remaining Bridge to 5Y Notes Facility, (e) repaid the remaining Bridge to 7Y Notes Facility, and (f) repaid the Junior DIP Facility.
Airline Operations and Route Network
The following tables set forth our operating revenues by activity and point of sale for the periods indicated:
Year ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(in US$ millions) | ||||||||||||
Total passenger revenues | 9,005.6 | 8,709.0 | 8,494.5 | |||||||||
Total cargo revenues | 1,064.4 | 1,186.5 | 1,119.4 | |||||||||
Total traffic revenues | 10,070.1 | 9,895.5 | 9,613.9 |
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, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(in US$ millions) | ||||||||||||
Peru | 802.0 | 705.1 | 626.3 | |||||||||
Argentina | 585.0 | 989.9 | 1,113.5 | |||||||||
United States | 1,004.2 | 985.9 | 900.4 | |||||||||
Europe | 726.2 | 782.2 | 676.3 | |||||||||
Colombia | 380.4 | 372.8 | 359.3 | |||||||||
Brazil | 3,949.8 | 3,433.9 | 3,436.4 | |||||||||
Ecuador | 203.3 | 203.8 | 190.3 | |||||||||
Chile | 1,547.0 | 1,591.3 | 1,527.2 | |||||||||
Asia Pacific and rest of Latin America | 872.2 | 830.5 | 784.2 | |||||||||
Total Operating Revenues | 10,070.1 | 9,895.5 | 9,613.9 |
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, 2019, 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 December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
ASKs (million) (at period end) | ||||||||||||
International | 81,332.3 | 81,059.5 | 76,366.1 | |||||||||
SSC | 27,337.2 | 24,664.0 | 23,821.0 | |||||||||
Domestic Brazil | 40,442.3 | 37,541.2 | 36,211.3 | |||||||||
Total | 149,111.9 | 143,264.7 | 136,398.4 | |||||||||
RPKs (million) | ||||||||||||
International | 69,065.4 | 68,365.3 | 66,344.2 | |||||||||
SSC | 22,092.7 | 20,220.6 | 19,407.9 | |||||||||
Domestic Brazil | 33,363.0 | 30,491.5 | 29,940.6 | |||||||||
Total | 124,521.1 | 119,077.4 | 115,692.7 | |||||||||
Passengers (thousands) | ||||||||||||
International | 16,186 | 16,456 | 16,057 | |||||||||
SSC | 26,619 | 23,928 | 22,775 | |||||||||
Domestic Brazil | 31,384 | 28,422 | 28,314 | |||||||||
Total | 74,189 | 68,806 | 67,146 | |||||||||
Passenger RASK (passenger revenues/ASK, in US cents) | ||||||||||||
International(1) | US¢ | 5.8 | US¢ | 6.1 | US¢ | 6.2 | ||||||
SSC(1) | US¢ | 6.5 | US¢ | 7.1 | US¢ | 7.3 | ||||||
Domestic Brazil(1) | US¢ | 6.9 | US¢ | 6.3 | US¢ | 6.6 | ||||||
Combined Passenger RASK(2) | US¢ | 6.0 | US¢ | 6.1 | US¢ | 6.2 | ||||||
Passenger load factor (%) | ||||||||||||
International | 84.9 | % | 84.3 | % | 86.9 | % | ||||||
SSC | 80.8 | % | 82.0 | % | 81.5 | % | ||||||
Domestic Brazil | 82.5 | % | 81.2 | % | 82.7 | % | ||||||
Combined load factor | 83.5 | % | 83.1 | % | 84.8 | % |
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
OurLATAM group’s international network includes the international operations of our Chilean, Peruvian, Ecuadorian, Argentinean, Colombian and Brazilian affiliates. LATAM Airlines Group and its affiliates have operated international services out of Chile since 1946 and have since greatly expanded international services, offering flights out of Peru, Ecuador, Argentina, Colombia and Brazil. As of December 31, 2019,2022, LATAM offers 3046 international destinations in 2022 countries, in addition to ourthe domestic destinations and international flights and connections between ourthe domestic destinations.
The general strategy to expand ourthe international network is aimed at enhancing ourLATAM’s value proposition by offering customers more destinations and routing alternatives. Sustained development of LATAM’s international network is a crucial factor in the long-term strategy. The group provides long-haul services out of Santiago, Lima, Guayaquil, Buenos Aires, SaoBogota, São Paulo and Rio de Janeiro.Fortaleza. The group also provides regional services from Chile, Peru, Ecuador, Argentina, Colombia and Brazil.
During 2019, the group has continued to grow at Guarulhos Airport in São Paulo, Jorge Chavez Airport in Lima and Comodoro Arturo Merino Benítez Airport in Santiago, launching 26 new routes, especially from our main hubs.
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:
LATAM passenger figures | LATAM’s Market Share | |||||||||||||
Country | % variation 2019-2018 | 2019 | 2018 | % variation | ||||||||||
Brazil(1) | +0.2 | % | 26.6 | % | 29.2 | % | -2.6 p.p. | |||||||
Chile(2) | -2.1 | % | 52.6 | % | 55.6 | % | -3.0 p.p. | |||||||
Argentina(3) | -16.9 | % | 21.0 | % | 25.6 | % | -4.6 p.p. | |||||||
Peru(4) | +4.3 | % | 42.9 | % | 41.6 | % | +1.3 p.p. | |||||||
Colombia(5) | +0.5 | % | 5.4 | % | 6.2 | % | -0.9 p.p. | |||||||
Ecuador(6) | +2.5 | % | 11.4 | % | 14.9 | % | -3.5 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. Passenger figures considers passengers carried, measured in |
(2) | Source: JAC Chile’s website. Passenger figures considers passengers carried, measured in |
(3) | Source: |
Source: Diio.net. Passenger figures considers ASK changes in |
Source: Diio.net. Passenger figures considers ASK changes in |
24
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, Air Canada, Aeromexico and GOL. | ||
Latin America | Copa, GOL, Avianca, Aerolineas Argentinas, Aeromexico and Azul Linhas | |||
Europe | TAP Portugal, Air France-KLM, IAG, | |||
Chile | North America | American Airlines, Air Canada, Delta Air Lines, United Airlines and Aeromexico. | ||
Latin America | Copa, Sky Airline, Avianca, JetSmart, Aeromexico | |||
Europe | IAG and Air | |||
South Pacific | Qantas | |||
Argentina | North America | American Airlines, Aerolíneas Argentinas, Aeromexico, United Airlines and Delta Air Lines. | ||
Latin America | Aerolineas Argentinas, Copa, GOL, Avianca and Azul Linhas Aereas. | |||
Peru | North America | American Airlines, Avianca, | ||
Latin America | Avianca, Copa, | |||
Europe | Air France-KLM | |||
Colombia | North America | Avianca, | ||
Latin America | Avianca, | |||
Ecuador | North America | American Airlines, JetBlue Airways, | ||
Latin America | Avianca, Copa | |||
Europe | Air France-KLM |
Source: Diio.net considering ASKs.
25
Domestic Passenger Operations
As of December 31, 2019,2022, 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 the business model of our domestic services offerings in the six domestic markets where we operate in South America. The purpose of this change was to increase our competitiveness and ensure the long-term sustainability of our domestic business model. We implemented thisa new business model in all of ourits domestic 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. The domestic service model requires continuous cost reduction efforts, and we continuethe 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 isare the initiatives to increase our ancillary revenues while allowingand others that allow passengers to customize their journey. Customers on domestic flights are now able to access a simpler sales platform, which allows 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.
In JanuaryMarch 2020, LATAM Airlines Group announced that it will introducegroup 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, starting March 16, 2020.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 (includingincluding complimentary snacks and drinks),drinks, an exclusive overhead bin for handcarry-on luggage and a blocked-middleblocked middle seat, providing greater space and privacy.
We continue
LATAM group continues to develop digital initiatives to empower passengers providing them with an enhanced digital experience with end-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.
The following table shows LATAM’s number of destinations, passengers transported, market share and main competitors in each domestic market in which we operate:
Brazil | Chile | Argentina | Peru | Colombia | Ecuador | |||||||||||||||||||
Destinations | 45 | 17 | 13 | 20 | 14 | 6 | ||||||||||||||||||
Passengers Transported (million) | 31.4 | 8.5 | 2.5 | 8.6 | 5.9 | 1.2 | ||||||||||||||||||
Change (YoY) | 10.4 | % | 6.6 | % | 5.2 | % | 16.6 | % | 16.8 | % | (2.2 | %) | ||||||||||||
Market share | 38 | %(1) | 57 | %(2) | 16 | %(3) | 63 | %(4) | 25 | %(5) | 32 | %(5) | ||||||||||||
Main competitors | Gol, Azul | Sky Airlines, JetSmart | Aerolíneas Argentinas, Flybondi, JetSmart, Norwegian, Andes | Sky Airlines Peru, Viva Airlines Peru, Star Peru, Avianca | Avianca, Viva Colombia, EasyFly, Satena, Copa Airlines Colombia (“Wingo”) | 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 RPKs as of December |
(2) | Source: JAC Chile’s website. Market share considers RPK as of December |
(3) | Source: |
Source: Diio.net. Market share considers ASKs as of December |
On April 3, 2019, LATAM Airlines Brazil, announced that it had been approached by Elliott Associates L.P., Elliott International L.P., and Manchester Securities Corporation (jointly “Elliott”), the largest debt holders of Oceanair Linhas Aéreas S.A. and AVB Holding S.A. (jointly “Avianca Brasil”), in connection with the auction of one independent productive unit (“IPU”) of Avianca Brazil (including but not limited to certain contracts, operating certificates, permits, and slots). The auction was part of Elliot’s restructuring proposal and included bidsinthe minimum amount of US$70 million. In addition, as part of the proposed restructuring, LATAM Airlines Brazil extended to Avianca Brasil US$13 million of debtor–in–possession loans to finance, in part, working capital in support of their operations, amount that will be reimbursed to LATAM Airlines Brazil if the restructuring proposal is successful.
On July 10, 2019, LATAM Airlines Brazil presented winning bids for the IPUs ‘B’ and ‘C’, valued at US$70 million and US$10,000, respectively. The adjudication, and the payment, of the aforementioned productive units is subject to any and all required governmental and antitrust approvals. However, the ANAC in Brazil distributed slots according to its regular procedures, with the exception of Congonhas’ airport in São Paulo, for which ANAC defined a new distribution rule that resulted in LATAM Airlines Brazil not receiving slots at that airport.
Passenger Alliances and Commercial Agreements
Strategic Alliance with Delta
On September 26, 2019,30, 2022, LATAM entered into a framework agreement (the “Framework Agreement”) withand Delta Air Lines Inc. (“Delta”) relatingobtained the final regulatory approvals from the US Department of Transportation, allowing them to(i) 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 creationUnited States/Canada and South America (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay) markets within the scope of a strategic alliance between the twoJVA.
This agreement allows the airlines(ii) to develop an unparalleled network with expanded route offerings and to connect the purchase by DeltaAmericas to the world like never before with access to more than 300 destinations. Also, the airlines will deepen their level of a number of common shares representing up to 20% of LATAM share capital through a tender offer process, (iii) payment by Delta of certain transition costs and provision of certain support services, and(iv) the purchase by Delta of certain aircraft currently owned by LATAMcooperation in these markets strengthening their codeshare routes and the assignment to and assumption by Delta of certain aircraft ordered by LATAM. Belowreciprocal loyalty benefits.
It is a brief summary of main details of the partnership.
StrategicAlliance.Under the Framework Agreement,in this context that, in November 2022, LATAM and Delta agreedmade 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 enter into a strategic alliance with respectLos Angeles, where customers will be able to passenger and cargo networks, on routes betweenconnect to several popular Delta West Coast destinations in the United StatedStates, including San Francisco, Las Vegas and Canada and certain countriesSeattle. Additionally, in Latin America, allowingJanuary 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 offerfurther strengthen their customers access to a greatly expanded array of destinations. The implementation of the strategic alliance is subject to governmentalpresence between North America and regulatory approvals, including antitrust requirements.South America.
Tender offer and investment.Under the Framework Agreement, Delta commenced a public tender offer for the acquisition of up to 20% of LATAM common shares at a price per share of U.S. $16. On December 29, 2019, the public tender offer was finalized, resulting in Delta acquiring a total amount of 121,281,538 shares, representing 20% of the total common shares issued, subscribed and paid of LATAM Airlines for an overall investment of approximately U.S. $ 1.9 billion. The settlement of the tender offer occurred on January 3, 2020. In connection with consummation of the tender offer, Delta is now entitled to representation on the LATAM board of directors.
Transition costs and support services. Under the Framework Agreement, Delta agreed to(i)pay LATAM certain transition costs that LATAM is expected to incur in connection with the framework agreement, for an overall amount of U.S. $ 350 million, and(ii)providing certain transition support services to LATAM.
Aircraft purchase and assumptions.Under the Framework Agreement, Delta, in support of its ongoing fleet transformation, agreed to(i)purchase from LATAM four Airbus A350 aircraft, and(ii) assume LATAM’s commitment to purchase 10 additional Airbus A350 aircrafts that are to be delivered beginning in 2021 through 2025.
Termination of previous arrangements and alliances, and subscription of new codeshare agreements
On September 26, 2019,In January 2022, LATAM Airlines Group and after being a member for around 20 years, LATAM communicated its decision to exit the oneworld global alliance,Airlines Colombia signed and indicated that it would not be entering in any other global alliance at this time. In line with this decision, LATAM also announced the termination of theimplemented codeshare agreements with American Airlines effective January 31, 2020,Virgin Atlantic. This new agreement seeks to increase the offerings and that it will not participate in the previously announced JBA.connectivity of both networks.
In addition, on December 2, 2019, the group’s affiliates in Colombia, Peru and Ecuador signed codeshare agreements with Delta to provide greater connectivity with the United States starting the first quarter of 2020, also subject to applicable regulatory approval.
On December 6, 2019,June 23, 2022, LATAM Airlines Group, announced that it will not participateLATAM Airlines Brazil and Siberia Airlines terminated the frequent flyer agreement subscribed in the proposed joint business agreement (JBA) with International Airlines Group (IAG; the parent company of British Airways2010 and Iberia). The decision was made for commercial reasons and in the context of changes in the aviation market since the JBA was first announced in January 2016.2014 respectively.
Other alliances and material commercial agreements
In addition, LATAM and its affiliates have ongoing passenger commercial agreements with several airlines, including Iberia, Qantas, British Airways, Lufthansa, Swiss, Qatar Airways, Korean Air China Eastern, Cathay Pacific, JapanFrance/KLM, Lufthansa, Ethiopian 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 connectionsconnection 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.
Passenger Marketing and Sales
During 2019,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 Group continuedhad the opportunity to strengthen its network, especially fromimplement and test some of these technologies in its main hubsairports, 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 São Paulo (Guarulhos), Lima and Santiago. In connection with these efforts, LATAM’s affiliates launched new non-stop routes connecting Guarulhos with Santa Cruz, Navegantes, Ilheus and Ribeirao Preto, Lima with Cali, Ilo, Calama, Brasilia, Porto Alegre and Montego Bay, and Santiago with Sydney, Quito, Porto Alegre and Brasilia, among others.the upcoming year.
In 2019 the2022, LATAM Group introduced the new Premium Business experience that incorporates the enhanced new cabins; aimed atgroup continued transforming the travel experience. The investmentexperience 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 premium cabins, the targeted offering of upgrades and enhanced services to our elite members and the resumption 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 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 program exceeded US$500 million, including, US$400 millionyear 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 cabin renovation. In 2019May 2020, Chile and Colombia in the cabin transformation was implementedsecond half of 2020, Brazil and Peru in five Boeing 777 aircraft, five 767 aircraftthe first half of 2021, and 32 A320 aircraft.Multipos during the second half of 2021. The new serviceexperience includes, among other features, a notifications system that allows customers to choose 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 gastronomic conceptLATAM Wallet, our virtual payment method. We intend to keep working in 2023 to incorporate additional markets and features such as increase digital services coverage, automation of financial processes, and boost LATAM.com as the marketplace that attends all travel needs such as flight, insurance, lodging and flight ancillaries.
In 2022, LATAM was recognized as “South America’s Leading Airline Brand” and “South America’s Leading Airline” in the World Travel Awards 2022. LATAM Airlines Group was also recognized as the “Best Airline in South America” in Skytrax World Airline Awards in 2022 for the third year in a row and “Best Seat Comfort in South America” and “Best Food & Beverage in South America” in the 2022 edition of the Premium Business class, provides greater rest, comfort and privacy so that passengers can arrive fresh at their destination.
As part of our commitment to offer more options, customization and flexibility to serve all types of passengers, the new ‘Basic’ fare was introduced, thus replacing the previous ‘Promo’ option for domestic flights, becoming the company’s most economical option for passengers.
In addition, LATAM received several awards and recognitions;APEX Passenger Choice Awards. Additionally, in early 2023, LATAM was elected asranked second place in Latin America on the most punctual airline group in the world“Punctuality League 2023” compiled by the Official Airline Guide (OAG) and Cirium. For the second year in.
Branding
The challenging context of 2020 to 2022 meant that as a row, LATAM Airlines Group led the rankings of the “Punctuality List 2020,” compiled by OAG, which highlights LATAM Group as the global leaderbrand we had a leading role in the “Mega Airlines” category. In addition, LATAM also receiveddevelopment of communications that kept our employees, customers and all the Company’s stakeholders informed. We established a three-phase strategy to build our communications that focused first place in punctuality in the global category, according to the annual On-Time Performance (OTP) report compiled by Cirium. LATAM Airlines Group was recognized as the ‘Best Airline in South America’ in Skytrax World Airline Awards, LATAM also was awarded by passengers as the “Best global Airline of South America” according to the awards APEX Passenger Choice.
LATAM Airlines Group was listed in the ‘World’ category of the Dow Jones Sustainability Index (DJSI) for the sixth consecutive year; recognition of the company’s ongoing commitment to incorporating sustainable practices into every aspect of its operations. Today, LATAM Airlines Group is the only airline group in the Americas with a presence in this category and one of the only three airline groups in the world in the category.
LATAM was also named as the “Official Airline” of the Lima 2019 Panamerican and Parapanamerican Games, which were held for the first time in Peru.
Branding
During 2019 the loyalty programs of LATAM Pass and LATAM Fidelidade were combined under the single brand, LATAM Pass, to deliver to our customers a unified and integrated experience with the benefits of LATAM Airlines. Since October 1, 2019, LATAM Pass is LATAM’s single loyalty program, becoming the fourth largest program in the world and the largest in South America, with more than 33 million members worldwide. See “Item 4. Information on the Company—B. Business Overview—Frequent Flyer Program.”
In October 2019, continuingcommunicating our commitment to deliver a world-class experiencesafety, the flexibilization of commercial policies, and our support channels.
As part of the strategy of working to achieve closeness and recover our engagement with our customers, we unveiled our Star Wars-inspired Boeing 777 “Stormtrooper Plane” under a partnershipworked on developing partnerships with Disney, just days afterimportant entities for the official premiere launch ofcommunity. During 2022, for example, LATAM held partnerships with the movie, Star Wars: Gallaxy’s Edge zone Disney Hollywood Studios park in Orlando, Florida.Chilean, Peruvian, Ecuadorian and Paraguayan National Soccer Teams.
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 and e-Business (including website, mobile and smart business), and accounted for approximately 53%45% of total sales in 20192022 (including award passengers). These direct channels support sales and service, both before and after the flight.
Our city ticket offices include additional services in order to complement the experience of our customers. Our contact centers are a multi-service channel providing support in six6 languages (Spanish, English, Portuguese, French, German and Italian).
We are committed to constantly improving the way we offer our products via our distribution channels, including the adoption of new technology. The Company willLATAM intends to continue to improve its e-Business platforms to support expected future growth and simplify our customers’ online experience.
Our digital strategy includes mobile applications that provide trip information to our passengers. These applications improve management of contingencies, enable us to provide information and solutions to our customers in a timely and transparent manner and serve as a new direct sales channel.
Indirect channels currently include travel agencies, general sales agencies, direct channels from other airlines and online agencies, and accounted for 47%55% of total sales in 2019.2022. 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,“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 Program
Our frequent flyer program, LATAM Pass, is a key element of our marketing and loyalty strategy. The program rewards customer loyalty, and, as a result, we believe it generates incremental revenue and promotes customer retention.
In 2019, weLATAM established a new way to qualify for “Elite” status in our frequent flyer program based on the price paid for the ticket, andwhich is aligned with a simpler methodology for mileage accrual, generating simplicity and efficiency to our frequent flyer program. As a LATAM Pass member, youmembers can access superior categories and enjoy better benefits by earning Qualifying Points on all yourtheir flights. Qualifying Points are different from LATAM Pass Points, which youmembers can use to redeem for tickets and on-board benefits. The amountnumber of Qualifying Points youthat 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).
Also, a new alliance with Amazon was implemented, strengthening the value of miles available for redemption.
During 2019, LATAM Airlines Brazil acquired the 27.3% minority stake of Multiplus S.A. (“Multiplus”), a former subsidiary of TAM. Multiplus was launched by TAM in 2009 and in February 2010 it became a publicly traded company in Brazil following its initial public offering, and TAM S.A continued to own 72.74% of the ordinary shares of Multiplus. On September 5, 2018, it was announced that (i) LATAM Airlines Brazil did not intend to extend or renew the operational agreement entered into with Multiplus after December 31, 2024, and (ii) LATAM Airlines Brazil intended to launch a tender offer to acquire all of the outstanding shares of Multiplus that LATAM’s affiliates do not currently own, and to subsequently delist Multiplus from the B3 Novo Mercado and cancel its registration. After acquiring 100% of Multiplus, in May 31, 2020 LATAM Airlines Brazil merged with Multiplus, bringingalso 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 flexibilitycustomers to offer program members a better value proposition for redeeming points and increase the preferencequalify for our services.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, will, together with LATAM Pass, createcreated what LATAM estimates to be one of the fourth largesttop frequent flyer and loyalty programprograms in the world (measured by member base)the number of members). LATAM Airline Brazil’s decision isThis 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 forto 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, 2019,2022, LATAM Pass had approximately 3342 million members, representing an increase of 8.5%5.5% compared to 2018.2021. Members of the LATAM Pass program receive benefits and increaseaccrue miles for ticket purchases in accordance with their elite level status, as well as by purchasing the services of other partners in the LATAM Pass program. Customers of the program can redeem miles or points for free tickets as well as for other products. LATAM Pass members are classified in five elite levels: Gold, Gold Plus, Platinum, Black and Black Signature. These different groups determine which benefits customers are eligible to receive, including mile earning bonuses, free upgrades, VIP lounge access and preferred boarding and check-in privileges. Also, this year LATAM Pass announced new benefits: priority contact center for all elite members, eliminate redemption fee, roll over for 2023 and improvement in upgrade priority for elite members that have the cobrand credit card.
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Cargo Operations
The Cargo business is operated internationally and domestically by affiliate airlines under the unified LATAM Cargo brand, which has acquired significant market recognition. The 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 the passenger airline business. It includes approximately 151 destinations;154 destinations, of which approximately 145144 are served by passenger and/or freighter aircraft and six10 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, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
ATKs (millions) | 6,356.7 | 6,497.6 | 6,230.3 | |||||||||
RTKs (millions) | 3,526.0 | 3,582.5 | 3,421.3 | |||||||||
Weight of cargo carried (thousands of tons) | 903.8 | 920.6 | 895.9 | |||||||||
Total cargo yield (cargo revenues/RTKs, in U.S. cents) | 30.2 | 33.1 | 32.7 | |||||||||
Total cargo load factor (%) | 55.5 | % | 55.1 | % | 54.9 | % |
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 from the transport of cargo through our dedicated freighter fleet and in the bellies of our passenger aircraft.
1)Bellies of our passenger aircraft. We consider ourLATAM 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. LATAM primarily uses the belly of the passenger aircraft for cargo operations. During the first quarter of 2022 LATAM also flew passenger freighter flights where the main deck was also utilized for cargo transportation.
2)Freighter fleet. As of December 31, 2019, our2022, the cargo affiliates’ freighter fleet consisted of twelve9 Boeing 767-300 freighters and 7 Boeing 767-300BCF, each with a capacity for 58 structural chargeable tons of freight. OurThe group expects to continue to grow its freighter fleet under operation consistedto a total of eleven20 aircraft by 2024 through the conversion of passenger Boeing 767-300F since one of our Boeing 767-300F was subleased767-300 aircraft to MasAir S.A.freighters. 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 enhance our product offering by providing our customers flexibility in scheduling, origins, destinations and types 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 the United States accounts for the majority of the goods transported by air to Latin American countries. Accodingly,Accordingly, we have headquartered our international cargo operations in Miami. This geographical location is a natural gateway between Latin America and the United States. We also utilize of passenger flights to and from New York, Los Angeles and Orlando and Boston and our seasonal dedicated freighter service to Chicago. Additionally, we operatedusing different trucking companies LATAM offers a road-feeder network, to feed traffic fromconnecting our hub in Miami and other originsonline destinations with the main gateways in the United States
The (Los Angeles, New York, Chicago, Houston and Atlanta), in between the cities in which we operate and to secondary origins and destinations.The LATAM Groupgroup also transports cargo to and from nine10 destinations in Europe: Barcelona, Lisbon, London, Barcelona, Milan, Paris, Lisbon,Rome, Frankfurt, Madrid, Amsterdam and Brussels.Zaragoza. The first fivesix points are served only via passenger aircraft. Frankfurt and Madrid are served by both passenger and freighter aircraft, while Amsterdam and BrusselsZaragoza are only served through freighter operations. We operateThe group offers a road-feeder service within Europe to expand our footprint and balance traffic between our different origins.
Chile, Colombia, Peru, Ecuador, and Brazil represent a large part of the 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 fresh flowers from Ecuador and Colombia.
The main destinations for southbound traffic are Brazil, 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.
The largest domestic cargo operations are in Brazil, where LATAM Cargo Brasil remainsBrazil is the market leader,only wide body freighter operator, carrying cargo for a variety of customers, including freight-forwarding companies, logistics operators, e-commerce companies and individual consumers.
During 2019,2022, cargo revenues increased by 12%. Total cargo capacity increased 30.7% with a 20.8% increase in freighter capacity. Cargo traffic decreased 1.6%increased 16.4%, resulting in a 6.9 percentage point decrease of the cargo load factor. This capacity increase was mainly duedriven by the recovery of industry capacity returning to weaker imports to Latin America.pre-pandemic levels. Cargo capacity decreased 2.2% and asyield fell 3.8% year-over-year. As a result, revenues per ATK decreased 14.3% in comparison to the previous year. Over 235 passenger freighter flights were operated; resulting in over 901 cargo load factors improved 0.4 points to 55.5%. Cargo yields decreased 8.8%tons transported on passenger freighters during 2019, mainly duethis year. As part of our solidarity plane program, in 2022 we flew over 117 million doses in our domestic markets free of charge, amounting to a lower air cargo demand into Latin America and an increase in industrial capacity in certain Trans-Atlantic markets.total of 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 efficient utilization of the fleet and network. Today, on Latin America-United States routes, theThe main competitors 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, Cargolux and Centurion; and, full belly such as IAG, American Airlines and United Airlines. Carriers operating freighters have greater flexibility and mixed routings that allows them to serve a wider variety of markets, diversifying their portfolio while pure belly carriers tend to have more stable service and are Atlas Air, Avianca Cargo and American Airlines. On the Latin America-Europe routes, the main competitors are Cargolux, Lufthansa Cargo, Air France/KLM, IAG Cargo and Qatar Airways.
usually limited to their countries of origin.
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Divestiture of Aerotransportes Mas de Carga, S.A. de C.V. (November 30th 2018)
On November 30, 2018, LATAM Airlines Group sold its direct and indirect stakes in Mexican cargo airline MasAir S.A. At the time, MasAir operated one Boeing 767-300F subleased from the Company. As of December 31, 2019, MasAir continued operating this aircraft under a sublease. As a result of this sale MasAir no longer consolidates with LATAM.
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
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, 2019, we operated2022, LATAM had a total fleet of 331310 aircraft, comprised of 320294 passenger aircraft and 11 cargo aircraft. In addition, we subleased 11 aircraft, comprised of 10 passenger aircraft and 116 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.change after the date hereof. For further information, see “Item 4. Information on the Company-B. Business Overview-Chapter 11 Proceedings through 2022” and “Item 4. Information on the Company-B. Business Overview-Recent Developments After January 1, 2023.”
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 | 46 | 37 | 9 | 2.6 | 12.1 | |||||||||||||||
Airbus A320-200(2) | 142 | 96 | 46 | 4.4 | 10.6 | |||||||||||||||
Airbus A321-200 | 49 | 30 | 19 | 6.5 | 5.6 | |||||||||||||||
Airbus A320-neo | 13 | 7 | 6 | 10.1 | 1.3 | |||||||||||||||
Airbus A350-Family Aircraft | ||||||||||||||||||||
Airbus A350-900(3) | 13 | 6 | 7 | 10.6 | 2.3 | |||||||||||||||
Boeing Aircraft | ||||||||||||||||||||
Boeing 767-300ER(4) | 31 | 29 | 2 | 0.8 | 10.4 | |||||||||||||||
Boeing 787-8 | 10 | 6 | 4 | 6.2 | 6.1 | |||||||||||||||
Boeing 787-9 | 16 | 6 | 10 | 8.1 | 3.5 | |||||||||||||||
Boeing 777-300ER | 10 | 4 | 6 | 6.1 | 8.7 | |||||||||||||||
Total passenger aircraft | 330 | 221 | 109 | 5.8 | 8.8 | |||||||||||||||
Cargo aircraft | ||||||||||||||||||||
Boeing 767-300 Freighter(5) | 12 | 11 | 1 | 2.0 | 16.0 | |||||||||||||||
Total cargo aircraft | 12 | 11 | 1 | 2.0 | 16.0 | |||||||||||||||
Total fleet | 342 | 232 | 110 | 5.7 | 9.1 |
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 |
(1) | All passenger aircraft bellies are available for cargo. |
(2) |
(3) |
(4) |
(5) |
LATAM Airlines Group and its affiliantesaffiliates operate various different aircraft types that are best 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 affiliantesaffiliates 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. In 2019, we redelivered two A320 aircraft under a lease, disassembled one A320 aircraft, received fourteen A320 aircraft under leases and received nine A320neo in accordance with our purchases agreement with Airbus. 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, and the Airbus A350-900 aircraft. In 2019, we sold two Boeing 767 and received four Airbus A350-900 and two Boeing 787-9 in accordance with various purchases agreement.
For777-300ER.For cargo flights, we operate Boeing 767-300F aircraft. In 2019, two Boeing 767 passenger aircraft were converted into two 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).
2019 | 2018 | 2017 | ||||||||||
Passenger aircraft | ||||||||||||
Boeing 767-300ER | 10.1 | 10.2 | 9.4 | |||||||||
Boeing 787-8/9 | 11.0 | 9.3 | 11.2 | |||||||||
Airbus A320-Family | 10.0 | 9.7 | 9.2 | |||||||||
Boeing 777-300ER | 10.1 | 11.0 | 11.6 | |||||||||
Airbus A350-900 | 7.6 | 8.2 | 9.1 | |||||||||
Total passenger aircraft | 10.0 | 9.7 | 9.5 | |||||||||
Cargo aircraft | ||||||||||||
Boeing 767-300 Freighter | 12.3 | 11.9 | 11.5 | |||||||||
Boeing 777-200 Freighter(1) | - | 7.7 | 12.6 | |||||||||
Total cargo aircraft | 12.3 | 11.8 | 11.7 | |||||||||
Total passenger and cargo | 10.1 | 9.8 | 9.6 |
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 |
(1) |
(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 leases. As of December 31, 2019,2022, LATAM had a total fleet of 342310 aircraft, of which eleven 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 331276 aircraft in operation.
As of December 31, 2019,2022, LATAM’s operating fleet was comprised of 14274 financial leases, 253 tax leases, 97134 operational leases, 3931 aircraft provided as loan guaranteescollateral, 27 aircraft reserved as collateral for the RCF and 2841 unencumbered aircraft. Most of LATAM’s financial and tax leases are structured with a 12-year initial term. LATAM has 3224 financial aircraft leases supported by the U.S. Export-Import Bank (“EXIM Bank”) and 6837 supported by the European Export Credit Agencies (the “ECAs”). LATAM’s lease maturities initially range from threeseven to twelve 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. 49.59%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 LATAM 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 LATAM Airlines Brazilits aircraft under financial leases to the LATAM level.Airlines Group SA. As of December 31, 2019,2022, only eight1 aircraft areis subject to financial leaseslease by LATAM 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, 2019 was US$ 3,801.8 million,2022 for all remaining periods through maturity (the latest of which expires in 2032).December 2033) was US$1,904 million. See “—F. Long“Item 5. Operating and Financial Review and Prospects-E. Contractual Obligations-Long Term Indebtedness—Tabular Disclosure of Contractual Obligations.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 3231 to our audited consolidated financial statements for a more detailed discussion of these commitments.
Maintenance
LATAM Maintenance
OurThe heavy maintenance, line maintenance and component shops are equipped and certified to service ourthe 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 4,0003,900 LATAM Maintenance professionals 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 safety, on-time performance and cabin 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 thirteeneleven 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 160 locations and carried out over 2.32.2 million man hours of preventive and corrective maintenance tasks on the LATAM fleet during 2019.2022. We also rely on certified third party services in many 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 Air France-KLM), and Johannesburg (served by South African Airways),KLM) among others.
LATAM Maintenance continues to innovate through LEAN methodology, to achieve increased productivity and higher levels of reliability. In 2019 we created a new Digital team to work on projects and initiatives grouped under 3 pillars:
LATAMgroup’s Line Maintenance Network has hangar facilities in Santiago, São Paulo (CGH and GRU), Lima, Miami Buenos Aires (AEP) and 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 Dirección NacionalGeneral de Aeronáutica Civil in Chile (“DGAC”), ANACAgência 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”) (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 FAA Part-145 certifications under these approvals.
In addition, to ensure the most qualified personnel as needed for safe, accurate and on-time Line Maintenance, LATAM Airlines Groupgroup seeks to improve technicians’ skills through extensive training programs at our LATAM group Technical Training Centers in Chile and Brasil,Brazil, and through specific training programs designed and conducted by our partnerships.
LATAM MRO
The two main MRO (“Maintenance, Repair and Overhaul (“MRO”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 71%provided 88.8% of all heavy maintenance services that LATAM demands as well as,demanded in 2022, effectively executed 1.351.60 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 of our MRO facilities are FAA Part-145 certified repair stations. OccasionallyLATAM occasionally performs certain heavy maintenance and component services for other airlines or OEMs are performed. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries.OEMs.
InThe MRO São Carlos (LATAM Airlines Brazil MRO), LATAM is 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, electrical components, electroplating, composites, wheels & brakes, interiors and emergency equipment shops. 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 Airbus A-320 family and Boeing 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 servicesHeavy Maintenance for the Airbus A320-Family (A318, A319, A320 and A321) and Boeing 767.B767 - B787. MRO Santiago has 1011 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.materials, avionic, wheels & brakes.
During 2019,2022, LATAM MRO executed 425479 services, including C checks (150)(105) and Special Checks (275)(374) for the LATAM fleet.
LATAM Safety and Security
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 isremains LATAM’s highest priority. It is for this reason that we have put significant effortsconstantly strive to further develop and improve standards in standardizing our operational indicators regarding safety, auditsorder to mitigate everyday risks, and emergency response.
This standardization is achieved through our Safety, Security and Emergency Management Departments, which functions on the basis of uniform policies and procedures throughout the whole company, ranging from our corporate headquarters in Santiago, Chile to every affiliated location within LATAM Airlines Group. As a result of this unification, we can ensure the highest levelsguarantee an acceptable level of safety and security throughoutin our entire network.operations.
Organizational Structure of LATAM Safety and Security Vice-presidencyVice-Presidency
Safety Management
This Department ensuresThe Safety Management Departments ensure that providing safe and reliable air service remains LATAM’s highest priority. Given the operational complexity, as well as the multicultural challenges that we face, LATAM has decided to concentrategroup concentrates its safety management activities under the umbrella of a coordinated structure, which is responsible for the implementation and oversight of unified policies and procedures throughout the group.
The core foundation of this department lies within its robust Safety Management System (SMS)(“SMS”), 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)(“FDM”), also known as Flight Operations Quality Assurance (FOQA)(“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)(“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 are ableintend to improve overall safety, increase maintenance effectiveness, and reduce operational costs. The company’s SMS is publicly documented, available internally to all employees, and it provides the guidelines and responsibilities that each employee must meet, regardless of function or hierarchy, which in turn assures our commitment towards safety.safety as a whole. Furthermore, IOSA certification ensures the proper qualification of our employees, including the provision of a Senior Safety Manager responsible for each system implementation within the Safety Department, as well as defining standardized procedures for measuring the quality of services provided by third party companies and contractors.
34In 2020, Safety Management has implemented a new approach: Safety II is a new model that seeks 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.
Emergency Response Management
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 Departmentdatabase 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 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 managingdefining 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 company’swell-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 is responsible for overall corporate Emergency Response Plan (ERP).(“ERP”) implementation. It has been designed to provide an effective responsecomply with airline responsibilities (as defined by ICAO) and for overall management, command and control of the crisis response. LATAM ERP sets procedures to various emergencydeal with different scenarios, such as aircraft accidents, serious incidents, natural disasters, union strikes and pandemics. We are therefore ableERP establishes specific teams, procedures, and resources to mitigate the impact thatof these contingencies haveemergencies on our passengers, their families and their relatives, in addition tofor caring about others affected, besides ensuring the continuationcontinuity of our operations. The structureERP is an essential tool to meet the needs for those who need most, and we have different levels of the ERP includesteams 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” that can be activated and address any givenan emergency situation.
Security Management
The Security Management Department is responsible to coordinate the security of LATAM’s passengers, employees, aircraft, equipment and facilities. This department secures LATAM’s infrastructure while protecting people against any threat 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 unlawful acts. These policies, as well as the SeMS itself, are constantly evaluated, analyzed and assigned a risk level (high, medium or low) by qualified Corporate Security Managers, who are in turn responsible for establishing new security protocols or modifying current ones Corporate Security Management then oversees all of these security processes and procedures through annual audits.
In addition to protecting the organization against any threat or unlawful action, LATAM is committed to the general health and safety of all of its employees. Therefore, through Security Management, LATAM has created a dedicated Health, Safety and Environment (HSE) Team that, in addition to safeguarding the general wellbeing of its employees, is responsible for ensuring a safe work environment and educate against common dangers/risks associated with everyday activities.
Lastly, every LATAM affiliate is responsible for complying with the Security Program approved by the appropriate 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. In 2016, mainly due to the significant drop in the international price of crude oil, LATAM saw a drop in its jet fuel costs. In 2017 and 2018, crude oil prices increased resulting in higher fuel costs for LATAM, while in 2019, average market price for JetFuel declined by 7.3% year-over-year, and thus, reducing costs per gallon. In 2019,2022, total fuel costs represented 30.2%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 20192022 (fuel price plus taxes and transportation costs, including hedging and gains/losses) was US$2.303.81 per gallon, representing a decreasean increase of 7.5%73% from the 20182021 into-wing average fuel price. We can neither control nor accurately predict the volatility of fuel prices. Despite the foregoing, we believe it is possible to partially offset the price volatility risk through our hedging and fuel surcharge programs, which is in place in both our passenger and cargo business. For more information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—RiskRisk-Risk of Fluctuations in Jet Fuel Prices.”
The following table details our consolidated fuel consumption and operating expenses, after related hedging gains and losses (which exclude fuel costs related to charter operations because fuel expenses are covered by the entity that charters the flight) for the last three years.
Year ended December 31,(1) | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Fuel consumption (thousands of gallons) | 1,272,676.8 | 1,205,188.8 | 1,156,062.3 | |||||||||
ASK (millions) | 149,116.6 | 143,264.7 | 136,398.4 | |||||||||
Fuel gallons consumed per 1,000 ASK | 8.53 | 8.41 | 8.48 | |||||||||
Total fuel costs (US$ thousands) | 2,929,008 | 2,983,028 | 2,318,816 | |||||||||
Cost per gallon (US$) | 2.30 | 2.49 | 2.00 | |||||||||
Total fuel costs as a percentage of total operating expenses | 30.2 | % | 31.5 | % | 25 | % |
Year ended December 31, 2022 (1) | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Fuel consumption (thousands of gallons) | 1,017,158.6 | 677,110.0 | 586,191.5 | |||||||||
ASK (millions) | 113,851.9 | 67,635.7 | 55,688.0 | |||||||||
Fuel gallons consumed per 1,000 ASK | 8.9 | 10.0 | 10.5 | |||||||||
Total fuel costs (US$ 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 | % |
In our fuel supply agreements, 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 inon 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 recentlyand matched a more transparent import parity model, creating a more competitive and predictable market for the region.
OurThe fuel supply agreements vary by airport and are distributed among 3023 suppliers. Our fuel consumption volume is mainly concentrated in Brazil (40%(43%), Chile (16%), the United States (9%(10%), Peru (11%) and Peru (12%Colombia (7%). During 2019,In 2021, as part of the Chapter 11 proceedings and due to the expiration of some Fuel Supply contracts, we re-negotiated ournegotiated fuel supply contracts in Chile, Perú, USA, Brazil, Argentina and certain major European and certain Australian and United States airports. In 2019 we continued to strengthenThis negotiation strengthened our relationshiprelations with global fuel suppliers extended our credit termswith long term agreements and achievedgenerally favorable commercial conditions that improvedare expected to contribute to LATAM´s cash flow.business plan. In 2022, the fuel supply contracts that were part of long term agreements negotiated in 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 Peru, a fuel import model is used in addition to the traditional 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 BrasilBrazil stabilized as a result of the fuel import project from LATAM. During 2019 weLATAM also worked along with ALTA (Latinthe Latin American and Caribbean Air Transport Association)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 we believe 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 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 encompasses a wide range of different innovations and technologies for fuel efficiency:
● | Investments in more modern and efficient aircraft, such as the Boeing 787 |
● | 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 |
● | 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, |
● | 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 in eco-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 the Companyus to reduce their operational costs along with the improvement of environmental performance, and to enhance environmental awareness both within the Company and externally.
36
Ground Facilities and Services
LATAM’sThe main operations are based at the Guarulhos Airport in São Paulo, Brazil. LATAMThe Brazilian affiliate also operates significant ground facilities and services at LATAM Airlines Brazil’sits headquarters located at Congonhas International Airport in São Paulo, Brazil. In 2018, LATAM Airlines Brazil inaugurated a Maintenance Hangar in Guarulhos with an approximate area of 65,080m².
WeLATAM also havehas 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 and other outsourced concessions. We also maintain a customs warehouse at the Comodoro Arturo Merino Benítez International Airport, additional customs warehouses in Chile 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 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 and check-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 for additional services such as extra luggage, preferred seating options, and the flexibilityupgrades to change tickets on the same day of their flight,our Premium cabins, among others.
In addition to airline operations, LATAM 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, maintenance services for third parties, handling, storage, customs services, income from other non-airline products (LATAM Pass) and customs services.other miscellaneous income. In 2019,2022, LATAM generated other revenues of US$361.1154.3 million from these activities.
Insurance
LATAM maintains aviation insurance policies as required by law, aircraft financing, and leasing agreements, for its wholeentire fleet aircraft(aircraft that LATAM and its affiliates own, operate, and are responsible for. for).
These policies provide all riskall-risk coverage for aircraft hulls (including war risks and spares), third-party legal liability for passengers, cargo, baggage, injuries, property damage, and loss of cargo. LATAM´sLATAM’s policies are in full force and are renewed annually along with IAG Group (British Airways, Iberia, and their affiliates), which allows LATAM to obtain better premiums and improved coverage at the best level of the aviation industry.
LATAM also insures its physical properties and equipment from theft, fire, flood, earthquake, hurricane, and other damages. All of LATAM´sIn general, LATAM’s vehicles are insured against the risk of robbery, damages, fire, and civil liability.and general liabilities. Additionally, LATAM maintains a casualty insurance policy that provides coverage worldwide.
Information Technology
Information and Digital Technologies
During 20192020 and 2021, LATAM capitalizedlaunched 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 while seeking to strengthen its ancillary offering.
The group is also working on a seriesnew airport experience, with automatic check-in, new layouts, and a new kiosk experience. During 2022, we kept expanding airport digitization with several projects that positively impacted our customers’ experience, such as automatic check-in (used by more than 86% of transformational initiatives aimedcustomers at increasing the value deliveredend of 2022), self-bag tag (74% of customers in projects, moveDecember) and advancing with self-bag drop implementation (37% of customers in December). Besides that, the flexibility and opening of borders allowed the re-opening and expansion of several international routes, after more than 12 months of impact. Following this trend, our customers can now send their documents digitally prior to aboarding to be validated through the Ready to Fly (Pre-Flight check documentation). During 2023 we expect to have 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 data driven culture and increase the reliability of our technological platforms.
In the area of projects, our new practices allowed us to improve our on-time delivery, expand our product offering and support and grow our digital channels. Likewise, we also started a strong focus towards innovation. Examples of such initiatives include pilot programs for biometric boarding or the use of automatized drones to improve the efficiency and reliability of aircraft visual inspections. LATAM was recognized by the national civil agency in Brazil (ANAC) for its contribution to innovation by the developmentinformation on other measures, see “Item 4. Information of the app called Pilot LATAM. This application allowsCompany-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 pilots tosystems reliability, by adopting industry practices. Finally, we have improved visibility of their security indicatorsreduced our technology vendor footprint, and compare them to their peers identifying improvement opportunities in a timely and confidential fashion.
To strengthen our data culture, in 2019 we started the construction of our Data Lake. The objective of this initiative is to consolidate all LATAM data and generate the conditionsre-negotiated key contracts to ensure this data is both integratedflexibility and consistent. We also believe the Data Lake will enable more profound analysis by accessing historical data. In 2019 we also grew our machine learning capabilities by creating predictive models to anticipate events, behaviors and purchase preferences, among others.cost efficiency.
In technology platforms we keep taking strides towards simplification and reliability. We continue to simplify our footprint and move towards modern cloud based technologies. Besides, the optimization of our technological landscape, cybersecurity remains high in our priorities with an Information Security Office with dedicated staff and strategic partners specialized in all areas of CyberSecurity, which includes organized units focused on potential cyber attacks.
We continue our engagement to make information and technology a competitive advantage for LATAM. Our improvements aim to continually transform and upgrade the travel experience of our customers and facilitate the work of our employees.
37Regulation
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.TRegulation
hereThere 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 must comply with certain noise restrictions. LATAMsLATAM’s aircraft substantially comply 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 Transportation 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 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
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” 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 on non-competitive routes. We must also ensure that our average yields on a non-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.
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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. In the case of domestic flights, government-fixed maximum prices were in place until February 3, 2016, when the government eliminated the controls that limited maximum prices. However, there remain government-fixed minimum prices for one-way tickets, and also for tickets sold within 30 days before the flight. Prices for roundtrip tickets sold 30 days or more before the flight were de-regulated on July 31, 2018.
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. Last yearIn recent years the PDGAC has revoked the unused route frequencies of a coupleseveral 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
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.
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Brazil
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 haveLATAM 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 required to obtain a concession to provide passenger and cargo air transportation services from the Brazilian authorities. In addition, an Air Operator Certificate (AOC)(“AOC”) is also required for Brazilian Airlines to provide regular domestic passenger or cargo transportation services. Brazilian Airlines also need to comply with all technical requirements established by the Brazilian Aviation Authority (ANAC). Based on the Brazilian Aeronautical Code (“CBA”) established by Brazilian Federal Law No. 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 authorized to provide domestic air transportation services in Brazil
International Routes.Routes: Brazilian and non-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. ANAC’s resolution 491/18 indicates the requirements to establish the underuse of a frequency, and how it could be revoked and reassigned. This provision of the resolution came into force onin September 2019.
Airfare Pricing Policy
Brazilian and non-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; 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.
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Airfare Pricing 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 Internet channels.
Antitrust Regulation
Chile
The Chilean antitrust authority, which we refer to as the 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 Law”.Law.” The Antitrust Law states as anticompetitive, any conduct that prevents, restricts or hinders competition, or sets out to produce said effects.
The Antitrust Law continues 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 a group thereof, of a dominant position in the market, fixing sale or purchase prices, imposing on a sale the acquisition of another product, allocating territories or market quotas 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.”
An aggrieved person may sue for damages arising from a breach of Antitrust Law by suing in the Chilean Competition Court (“TDLC”(the “TDLC” by its Spanish name). The TDLC has the authority to impose a variety of sanctions for violations of the Antitrust Law, including: (i) the amendment or termination of acts 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 line of products and/or services associated to the infraction, during the entire term for which the infringement lasted; alternatively, a fine equal to the double of the economic benefit obtained by the infringing company. Whencompany; and when none of 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 the Resolution N°445 of August 1995, the TDLC approved in with a merger control transaction between LAN Chile and LADECO, but imposed the merged airline to a specific self-regulatory fare plan for domestic air passenger market consistent with the TDLC’s directive to maintain a competitive environment within the domestic market. This Airfare Pricing Policy Plan was updated by the TDLC particularly to maintain itits 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 TDLC in July 2005, and further in September 2011. In February 2010, the FNE 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 Brazil each imposed certain mitigation measures as part of their approval of the mergerLAN - 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 merger was filed with the Argentinean antitrust authorities; which approval is still pending. For more information regarding these mitigation measures please see below:
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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 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;
On2. extension of the frequent flyer program to airlines operating or aboutwilling 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.
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.
Brazil
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 direct non-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 STRUCTUREOn 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 Airlines Group and LATAM Airlines Brazil ownership structure as of February 29, 202028, 2023 is as follows:
(*) Qatar owns 9.999999992% of shares over LATAM’s statutory capital, represented by 606,407,693,000 shares.
The LATAM Groupgroup is composed of eight main airlines: LATAM Airlines Group S.A., incorporated in Chile;Chile, and ten main affiliates: Transporte Aéreo S.A. (“LATAM Airlines Chile”), a Chilean subsidiary; LATAM Airlines Peru S.A. ( “LATAM Airlines Peru”), a Peruvian subsidiary,subsidiary; LATAM-Airlines Ecuador S.A. (“LATAM Airlines Ecuador”,Ecuador,” previously Aerolane, Líneas Aéreas Nacionales del Ecuador S.A.), an Ecuadorian subsidiary,subsidiary; LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), an Argentinian subsidiary,Argentine subsidiary; Aerovías de Integración AiresRegional S.A. (“LATAM Airlines Colombia”), a Colombian subsidiary; TAM Linhas Aereas S.A. (“LATAM Airlines Brazil”) incorporated in Brazil; andTransporte Aéreos del Mercosur S.A. (“LATAM Paraguay”), 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 December 31, 20192022 we held a 100% stake in Transporte Aéreo S.A. through direct and indirect interests, a 70%23.62% stake in LATAM Airlines Peru through direct and indirect interests, a 55.00% stake of the voting shares of LATAM-Airlines Ecuador and a 100% of the non-voting shares of Holdco Ecuador S.A., who has 45.00% of the voting shares of LATAM-Airlines Ecuador, a 99.87% indirect stake in LATAM Airlines Argentina, a 99.20% indirect stake in LATAM Airlines Colombia and a 100.00%100% stake of the non-voting shares of TAM, and 51.04% of the voting shares and 100% of the non-voting shares of Holdco I S.A., which has 100.00%100% of the voting shares of TAM. Following changes in Brazilian law, which now permits foreign persons to own up to 100% of the voting capital of Brazilian airlines, onin February 2019, we increased our ownership of the voting shares of Holdco I S.A. to 51.04%.
Cargo
The cargo operations are carried out by the affiliates under the brand LATAM Cargo. Our cargo operations are complemented by the operations of certain related companies, such asCargo, LATAM Cargo Brazil and LATAM Cargo Colombia. As of December 31, 2019,2022, we held 100% of the non-voting shares and 20% (preferred) of TAM S.A. (a total of 63,09%63.09% of TAM S.A.) which is the sole shareholder of LATAM Cargo Brazil and a 90% stake in LATAM Cargo Colombia through direct and indirect participations.participation. TAM S.A. has 100% of the non-voting shares and 100% of the voting shares of LATAM Cargo Brazil. In theThe cargo business we market ourselvesis marketed internationally primarily under the LATAM Cargo brand. Cargo Operation, in Perú, are carried out by LATAM Airlines Peru.
D. | Property, Plant and Equipment |
D. PROPERTY, PLANT AND EQUIPMENTChile
ChileHeadquarters
Headquarters
Our main facilities arecorporate facility is located on approximately five acres of land thatin Las Condes, where we rent near the Comodoro Arturo Merino Benítez International Airport. The complex includes approximately 14,0008,100 m2 of office space, 3,000 m2 of conference space and training facilities, 1,000 m2 of dining facilities and mock-up cabins used for crew instruction.
In addition, we rent 10,000 m2 for our executive offices in a central location of Santiago, Chile. This space is distributed in elevennine floors in fouralong two buildings. We also lease 5,000 m2, in twelve floors in downtown in Santiago, Chile.
Finally, last year we acquired a 17,000 m2 land, on which we plan to build our new main headquarters during 2020.
Maintenance Base
Our 82,000 m2maintenance 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 52,000 m2 aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We have a 5,000 m2 office building plus a 1,000 m2office and workshop space. We also lease from the Sociedad Concesionaria Nuevo Pudahuel S.A. approximately 5,00010,700 m2of space inside the Comodoro Arturo Merino Benítez International Airport for operational and service purposes. The lease has a duration of 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 787 and two for Airbus A320 aircraft.
Fast Air Almacenes de Carga S.A., one of our affiliates that operates import customs warehouses, utilizes a 5,60010.500 m² warehouse 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 an area of approximately 38,807 m².
Headquarters of the Presidency
The LATAMHeadquarters of the Presidency and 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 corporate offices in the city of São Paulo, where we operate 1,225 workstations spread over 9 floors.
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 aircraft maintenance, procurement, aeronautical materials logistics and retrofitting departments.
Headquarters of the Presidency
The Headquarters of the Presidency are located at Rua Verbo Divino 2001 Floor 17th, Chácara Santo Antonio, São Paulo.
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Other Facilities
In São Paulo, LATAM Airlines Brazil has other facilities, including: a Call Center Building with 3,199 m2, distributed over five floors (plus a ground floor and a basement) that currently holds about 272 workstations and support rooms (meetings / training / dining room / coordination) of the operations of Call Center Reservations, Talk to People and ABSA back office.
In Guarulhos, LATAM has a total area of approximately 12,649 m2 distributed within the Passenger Terminal, including areas such as Check-in, Ticket Sales, Check Out, Operations Areas, a VIP Lounge and Aircraft Maintenance spaces. The Hangar Complex adds an area of 65.08065,080 m². The cargo terminal has 252 m²m² of office and 17,215 m2m² of open area. Our Distribution CentreCenter Supplies area occupies 3,030 m²m².
New Facilities
LATAM Airlines Brazil completed several infrastructure projects in Brazil during 2019,2022, including:
1. Opening 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 34 Airports.
Other locations
We occupy a 36.3-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 13,609 m² corporate building, a 115,824 m² cargo warehouse (including 35,561 m² refrigerated area) and a 238,658 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.Realterm. For the year ended 2019,2022, we paid US$ 9.810.5 million in rent under the foregoing leases.
In February 2014, the Company entered into a lease agreement with Miami- DadeMiami-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 15,479 m² aircraft maintenance space, sufficient to house a Boeing B777 aircraft, in addition to a 9,888 m² area designated for office space. Total investment in this hangar in construction and related expenditures by LATAM was US$16.5 million.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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 page F-1 of this annual report.
The summary consolidated annual financial information as of December 31, 2019, 2018 and 20172022, 2021 and for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, 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.
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Overview
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 2019, 86.3%2022, 80.2% of our total revenues (including in the total for this purpose other income from operating activities) came from passenger revenues and 10.2%18.1% came from our cargo business. The remaining 3.5%1.6% was classified as other operating income, which consists primarily of revenues generated from our coalition and loyalty program Multiplus before its acquisition and merger with LATAM Airlines Brazil, tour operator services,subleases of aircraft leasing, customs and warehousing services, third-party maintenanceto third parties and other miscellaneous income.
Our operating environment in 2019 was marked2022 continued to be affected by volatility in the region mainly resulting from the trade war betweenCOVID-19 pandemic, however, our operations showed a clear recovery trend along the United States and China–which generated volatility and devaluationyear, mostly following the recovery of the currencies ininternational capacity, which had been notably lagging behind the region–domestic segments during 2020 and economic decline in Argentina and protests at the end of the year in Ecuador, Chile and Colombia.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. 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
In terms of passengers transported by LATAM, during 2019 showed a recovery as2022 we carried 22.3 million more passengers than in 2021, totaling 62.5 million passengers. For the full year 2022, passenger traffic increased 84.0% and total passenger capacity increased 68.3%
During 2022, ASKs for domestic operations in Brazil increased by 39.4% compared to the previous year, mainlyyear. Passenger traffic as measured by RPKs increased by 38.6% in our domestic operations,2022 with regard to 2021, resulting in which we carried 5.7 million more passengers compared to the domestic passengers carried in 2018, despite the increase in competition from operators in our domestic markets.a stable passenger load factor, remaining at 79.5%
During 2019,The domestic operations of our affiliate carriers based in SSC, which accountaccounted for 18.3%20.5% of total passenger capacity (measured by ASKs) in 2022, showed an increase of 9.3%41.8% in passenger traffic (measured by RPKs) in the year while capacity increased 10.8%31.0% as compared to 2018.2021. As a result, the passenger load factor declinedincreased by 1.26.2 percentage points to 80.8%81.0%.
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 intensifying competition in these markets, especially in Chile, Peru and Argentina, LATAM Airlines affiliatesthe above, the ease of restrictions in the SSC domesticdifferent markets carried 2.7 million more passengers thanwhere we operate has allowed our international segment to recover notably during 2022. Compared to the previous year, capacity in 2018. Revenue per ASK in US dollars declinedinternational operations increased by 7.4%142.3% and traffic by 204.7% compared to 2018 mainly due to the devaluation of the Argentinian Peso, Colombian Peso and Chilean Peso.
In the domestic operations in Brazil, LATAM Airlines Brazil increased capacity by 7.7% in 2019, higher than anticipated at the beginning of the year due to changes in the competitive landscape resulting from the end of operations by Avianca Brazil. Passenger traffic increased by 9.4%,2022, resulting in ana notable increase of 1.317.0 percentage points in passenger load factors, which reached 82.5%83.0%. LATAM Airlines Brazil ended the year with an increase of 9.7% in revenues per ASK in US dollars, despite the the devaluation of the Brazilian Real during 2019, as revenue per ASK in Brazilian Reals increased by 19.2% as compared to 2018.
In international operations, LATAM maintained relatively flat its passenger capacity due to challenging market conditions for international passengers generated by the devaluation and volatility of currencies in the region. Capacity in international operations increased by 0.3% and traffic increased 1.0%, resulting in an increase of 0.6 percentage points in passenger load factors, which reached 84.9%. Revenue per ASK decreased 5.4% in US dollars, especially in the first half of the year, prior to capacity adjustments across most of our international network.
Cargo Operations
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 2019,2022, cargo traffic declinedincreased by 1.6%16.4% compared to 2021, while cargo capacity declined by 2.2%,increased 30.7% year-over-year, which led to an improvementa drop of 0.46.9 percentage points in cargo load factors to 55.5%56.5%. Cargo yieldsyield decreased by 8.8%, and as3.8% year-over-year. As a result, revenues per ATK decreased by 8.3% as compared14.3% in comparison to the previous year. Decline in yields was driven by weak import markets, mainly due to the devaluation of the currencies in the region. The group continued its rational and disciplined approach toward freighter capacity deployment, while focused on maximizing the belly utilization of the passenger fleet.
Cost Structure
LATAM Airlines Group’sLATAM’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. During 2019,2022, average Jetjet fuel prices decreased 7.3%increased 73.4%. LATAM Airlines Group has a hedging policy to protect medium term liquidity risk from fuel price increases, while participating in the benefits of fuel price 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 are denominated in Chilean pesos and in Brazilian 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 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, 20192022 compared to year ended December 31, 2018.2021.
The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2019,2022, and December 31, 2018. Financial information for 2018 was restated to give effect to the application of IFRS16. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”2021.
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2019/2018 % change | ||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 9,005.6 | 8,709.0 | 89.4 | % | 88.0 | % | 3.4 | % | ||||||||||||
Cargo | 1,064.4 | 1,186.5 | 10.6 | % | 12.0 | % | (10.3 | )% | ||||||||||||
Total operating revenues | 10,070.1 | 9,895.5 | 100.0 | % | 100.0 | % | 1.8 | % | ||||||||||||
Cost of sales | (7,951.3 | ) | (7,773.4 | ) | (79.0 | )% | (78.6 | )% | 2.3 | % | ||||||||||
Gross margin | 2,118.8 | 2,122.0 | 21.1 | % | 21.4 | % | (0.2 | )% | ||||||||||||
Other operating income | 360.9 | 472.8 | 3.6 | % | 4.8 | % | (23.7 | )% | ||||||||||||
Distribution costs | (580.0 | ) | (615.2 | ) | (5.8 | )% | (6.2 | )% | (5.7 | )% | ||||||||||
Administrative expenses | (735.2 | ) | (736.3 | ) | (7.3 | )% | (7.4 | )% | (0.1 | )% | ||||||||||
Other operating expenses | (422.8 | ) | (356.3 | ) | (4.2 | )% | (3.6 | )% | 18.7 | % |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2019/2018 % change | (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 | 26.3 | 53.3 | 0.3 | % | 0.5 | % | (50.7 | )% | 1,052.3 | 21.1 | 11.2 | % | 0.4 | % | 4,885.5 | % | ||||||||||||||||||||||||
Financial costs | (589.9 | ) | (539.1 | ) | (5.9 | )% | (5.4 | )% | 9.4 | % | (942.4 | ) | (805.5 | ) | (10.1 | )% | (16.5 | )% | 17.0 | % | ||||||||||||||||||||
Foreign exchange gains/(losses) | (32.6 | ) | (38.1 | ) | (0.3 | )% | (0.4 | )% | (14.4 | )% | 26.0 | 131.4 | 0.3 | % | 2.7 | % | (80.2 | )% | ||||||||||||||||||||||
Result of indexation units | (15.0 | ) | (0.9 | ) | (0.1 | )% | 0.0 | % | n.a. | (1.4 | ) | (5.4 | ) | 0.0 | % | (0.1 | )% | (73.8 | )% | |||||||||||||||||||||
Other gains/(losses) | 11.5 | 53.5 | 0.1 | % | 0.5 | % | (78.5 | )% | (347.1 | ) | 30.7 | (3.7 | )% | 0.6 | % | (1,231.5 | )% | |||||||||||||||||||||||
Income (loss) before income taxes | 141.9 | 415.7 | 1.4 | % | 4.2 | % | (65.9 | )% | 1,346.0 | (4,084.2 | ) | 14.4 | % | (83.6 | )% | (133.0 | )% | |||||||||||||||||||||||
Income (loss) tax expense | 53.7 | (73.9 | ) | 0.5 | % | (0.7 | )% | (172.7 | )% | (8.9 | ) | (568.9 | ) | (0.1 | )% | (11.6 | )% | (98.4 | )% | |||||||||||||||||||||
Net income (loss) for the period | 195.6 | 341.8 | 1.9 | % | 3.5 | % | (42.8 | )% | 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 | 190.4 | 309.8 | 1.9 | % | 3.1 | % | (38.5 | )% | 1,339.2 | (4,647.5 | ) | 14.3 | % | (95.2 | )% | (128.8 | )% | |||||||||||||||||||||||
Income (loss) for the period attributable to non-controlling interests | 5.2 | 32.0 | 0.1 | % | 0.3 | % | (83.8 | )% | (2.1 | ) | (5.7 | ) | 0.0 | % | (0.1 | )% | (63.3 | )% | ||||||||||||||||||||||
Net income (loss) for the period | 195.6 | 341.8 | 1.9 | % | 3.5 | % | (42.8 | )% | 1,337.1 | (4,653.1 | ) | 14.3 | % | (95.2 | )% | (128.7 | )% | |||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||||||||||
Basic earnings per share (US$) | 0.31403 | 0.51090 | n.a | n.a. | (38.5 | )% | 0.01386 | (7.66397 | ) | n.a | n.a | (100.2 | )% | |||||||||||||||||||||||||||
Diluted earnings per share (US$) | 0.31403 | 0.51090 | n.a | n.a. | (38.5 | )% | 0.01359 | (7.66397 | ) | n.a | n.a | (100.2 | )% |
* The abbreviation “n.a.” means not available.
* | The abbreviation “n.a.” means not available. |
Operating Revenues
Our total operating revenues increased by 1.8%91.7% to US$10,070.19,362.5 million infor the year ended December 31, 20192022 compared to revenues of US$9,895.54,884.0 million in 2018.2021. The 20192022 increase in operating revenues was mainly attributable to a 3.4% increasethe recovery in air travel and its direct impact on passenger revenues, partially offset by a 10.3% decrease in cargo revenues. Passenger and cargo revenues accounted for 89.4%81.6% and 10.6%18.4% of total operating revenues in 2019,2022, respectively.
Our consolidated passenger revenues increased by 3.4%128.5% to US$9,005.67,636.4 million in 20192022 from US$8,709.03,342.4 million in 2018,2021, as a result of a 4.1% increase in capacity and the recognitioneasing of Multiplus revenues under passenger revenues after the integration of Multiplus into LATAM Airlines Brasil in May 2019. This was offset by a 0.6% decrease in RASK due to a 1.1% decrease in yields, which were impacted by softer international demandtravel restrictions both in the region due to currency devaluationsand worldwide, and its subsequent impact on passenger operations. This was driven by the increase in South America. In addition, load factor reached 83.5%passenger traffic, which increased 84% (measured in 2019, which represents an increase of 0.4 percentage pointsRPKs) with respect to 2018.2021.
Cargo revenues decreasedincreased by 10.3%12.0%, to US$1,064.41,726.1 million in 20192022 from US$1,186.51,541.6 million in 2018. Decrease2021, mainly driven by the increase in cargo revenues is explaineddedicated capacity also accompanied by an 8.8% decline in cargo yields and a 1.6% decline in traffic measured in RTK. Declinethe healthy trend in yields was explainedas compared with the pre-pandemic context. Cargo capacity increased by weaker import markets, especially30.7% and traffic increased by 16.4%, resulting in Brazila 6.9 p.p. load factor decrease. Cargo yields fell 3.8% year over year and Argentina, mainly due to currency devaluation. In addition, exports in Chile were affectedas a result, revenues per ATK decreased by the social unrest in fourth quarter 2019. Finally, the sale of the Mexican subsidiary MasAir during the last quarter of 2018, explained the decline of approximately US$37 million in cargo revenues during 2019 compared to 2018.14.3%.
Cost of Sales
Cost of sales increased by 2.3%63.3% to US$7,951.38,103.5 million for the year ended December 31, 20192022 (from US$7,773.44,963.5 million in 2018)2021), mainly due to more operations and anthe increase on 7.8% in passengers carriedfuel price during the year in 2019 comparedaddition to 2018. Cost of sales as a percentage of total operating revenues, increasedoverall increasing costs due to 79.0%the annual recovery in 2019 from 78.6% in 2018.passenger operations.
The table below presents cost of sales information for the fiscal year ended December 31, 20192022 and 2018.2021.
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
(in US$ millions, except as otherwise stated) | As a percentage of total operating revenues | 2019/2018 % change | ||||||||||||||||||
Revenues | 10,070.1 | 9,895.5 | 100.0 | % | 100.0 | % | 1.8 | % | ||||||||||||
Cost of sales | (7,951.3 | ) | (7,773.4 | ) | (79.0 | )% | (78.6 | )% | 2.3 | % | ||||||||||
Aircraft Fuel | (2,929.0 | ) | (2,983.0 | ) | (29.1 | )% | (30.1 | )% | (1.8 | )% | ||||||||||
Wages and Benefits | (1,452.9 | ) | (1,442.2 | ) | (14.4 | )% | (14.6 | )% | 0.7 | % | ||||||||||
Other Rental and Landing Fees | (1,275.9 | ) | (1,206.9 | ) | (12.7 | )% | (12.2 | )% | 5.7 | % | ||||||||||
Depreciation and Amortization | (1,470.0 | ) | (1,372.6 | ) | (14.6 | )% | (13.9 | )% | 7.1 | % | ||||||||||
Aircraft Maintenance | (444.6 | ) | (366.6 | ) | (4.4 | )% | (3.7 | )% | 21.3 | % | ||||||||||
Passenger Services | (261.3 | ) | (280.3 | ) | (2.6 | )% | (2.8 | )% | (6.8 | )% | ||||||||||
Other Costs of Sales | (117.6 | ) | (121.8 | ) | (1.2 | )% | (1.2 | )% | (3.4 | )% |
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 declinedincreased by 1.8%161%, mainly as a result of a 9.1% decrease73.4% increase in the average fuel price per gallon (excluding hedge) as compared to 2018. The latter was partially offset byduring the year plus a 5.6%50.2% increase in fuel consumption associatedcompared to an increase in capacity. In addition, in 2019,2021 attributed to the Company recognized a US$21.2 million loss related to hedging contracts, which compares to US$47.3 million gain 2018.recovery of passenger operations throughout the year.
Wages and benefits increased 0.7%by 27.1%, mainly explained by an 8% increase of 1.4% in the average number of employees, partially offsetdriven by incorporations in areas directly linked with the depreciation of local currencies.operations such as crew members and airport staff, in addition to the inflationary pressures in the region.
Other rental and landing fees increased 5.7%37.6%, mainly due to a 7.8% increase in passengers carried and higher handling costs associated to anthe increase in the level of passenger operations.
Depreciation and amortization grewslightly increased by 7.1%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 into service after extended downtime and following the increase in projected future operations.
Passenger services increased by 138.2% mainly explained by 29 additional planes we received during 2019, the retrofitincreased 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 cabinscontract that then switches back to fixed-rent payments. A right of use asset and digital and IT projects during 2019.
Aircraft maitenance increased by US$78.0 million mainly duea lease liability was recognized as result of those amendments at the date of modification of the contract, even if they initially had a variable payment period. As a result of the application of the lease accounting policy, the right of use assets continues to an increase in line maintenance associated to improve reliabilitybe amortized on a straight-line basis over the term of our operations and the reception and operationlease 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 29 aircraftthe right of use assets from the beginning of the contract (included in the year.Depreciation line) and interest from the lease liability (included in Lease Liabilities). In 2022, aircraft rental expenses totaled US$202.8 million.
Passenger service declined by 6.8% mainly explained by a lower rate of passenger contingencies during the quarter compared to the same period of 2018.
As a result of the above, gross margin (defined as operating revenue minus cost of sales) equaledtotaled a gain of US$2,118.8,1,259 million, compared to a loss of US$2,122.079.5 million in 2018.2021.
Other Consolidated Results
Other operating income decreased in 20192022 by 23.7%32.1%, from US$360.9227.3 million in 20192021 to US$472.8154.3 million in 2019,2022, mainly due to the acquisition and subsequent mergercessation of Multiplus with LATAM Airlines Brazil. Revenuescertain compensation payments from Multiplus are now registered under Passenger revenues, while previous toDelta Air Lines as agreed upon in the merger with LATAM Brazil, revenues from Multiplus were registered under Other operating income.signing of the Joint Venture Agreement in 2019.
Distribution costs decreased by 5.7% fromincreased 46.2%, totaling US$615.2426.6 million, in 2018 to US$580.0 million in 2019, mainly as a result of lower reserve systems and data processing costs and wages and benefits costs, due to a decreasean increase in average headcount andsales commissions plus an increase in fixed costs related with the devalution of local currencies.commercial areas.
Administrative expenses remained relatively flat year-over-year, decreasing by 0.1%increased 31.2% from US$736.3439.5 million in 20182021 to US$735.2576.4 million, in 2019, due to the devaluation of local currencies, offset byincrease in headcount, plus an increase in marketing expenses and administration expenses related to commissions of 1.4%payment methods. In 2021, LATAM group had an average of 28,429 employees, while in the number2022 this was increased to an average of 30,877 employees.
Other operating expenses increaseddecreased slightly by 18.7%0.8% from US$356.3535.8 million in 20182021 to US$422.8531.6 million.
Gain from Restructuring activities totaled US$1,679.9 million in 20192022, 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 on the settlement of certain financial claims as a result of an increase of 7.8% of passenger carried and a non-recurring adjustment in the fourth quarter of 2018 associated withwell as a reversal of a provisionpreviously recognized accrued interest for financial liabilities that were restructured, both attributable to the exit from Chapter 11. For more information, please see Note 26 of PIS/COFINS.our audited consolidated financial statements.
Financial income decreased by 50.7% to US$26.3 million in 2019 compared with US$53.3 million in 2018, mainly due to the merger of Multiplus with LATAM Airlines Brazil. Investments made by Multiplus in 2018 were recorded under interest income, while investments made by LATAM with the cash that belonged to Multiplus are now recorded under Other gains (losses).
Financial costs increased by 9.4%17.0% to US$589.9942.4 million in 20192022 from US$539.1805.5 million in 2018,2021, mainly due toexplained by the early redemption of LATAM’s 2020 unsecured bondDIP financing and DIP-to-Exit financing that were in place until the issuance of US$800 million unsecured notes due 2026.
Foreign exchange result decreased by 14.4%Company’s emergence from Chapter 11, in addition to a net lossprogressive increase throughout the year in base interest rates.
The foreign exchange gain of US$32.626.0 million in 2019,2022, compared to a gain of US$131.4 million in 2021, was driven mainly as a result ofby the devaluation of 3.7% and 58.9%appreciation of the Brazilian Real andduring 2022.
Other gains (losses) registered a loss of US$347.1 million, compared to a gain of US$30.7 million in 2021, principally due to the Argentinean Peso, respectively.recognition at net realizable value of A319 family aircraft classified as held for sale during 2022.
IncomeThe income tax benefitexpense for 20192022 amounted to US$53.7(8.9) million as compared to an income tax expense of US$73.9(568.9) million in 2018.2021. This variationdifference is mainly explained mainly by a decline in pre-tax income in 2019 (US$141.9 million pre-tax income) compared with 2018 (US$415.7 million pre-tax income), resulting in an increased income tax charges, and the none recognitionderecognition of deferred taxes relatedtax assets registered in 2021. In 2022, the annual result was mainly attributed to current tax lossesowed by TAM S.A.LATAM and LATAM Argentina in 2018.certain affiliates of the group. For more information, see Note 1817 to our audited consolidated financial statements.
Net Income
Net incomeprofit
Net profit for the year ended December 31, 2019 equaled2022 totaled US$195.61,337.1 million, representingwhich compares with a decreasenet loss of US$146.2 million.4,653.1 million in 2021. Net incomeprofit attributable to the parent company’s shareholders was US$190.41,339.2 million in 2019, representing2022. As a decreaseresult of US$119.4 million.the Company’s accumulated losses as of the year end, this net profit will not be eligible for a profit distribution through dividends.
Results of Operations
LATAM Airlines Group Financial Results Discussion: Year ended December 31, 20182021 compared to year ended December 31, 2017.2020.
The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2018,2021, and December 31, 2017. Financial information for 2018 and 2017 was restated to give effect to the application of IFRS16. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”2020.
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
(in US$ millions, except per share data) | As a percentage of total operating revenues | 2018/2017 % change | ||||||||||||||||||
Consolidated Results of Income by Function | ||||||||||||||||||||
Operating revenues | ||||||||||||||||||||
Passenger | 8,709.0 | 8,494.5 | 88.0 | % | 88.4 | % | 2.5 | % | ||||||||||||
Cargo | 1,186.5 | 1,119.4 | 12.0 | % | 11.6 | % | 6.0 | % | ||||||||||||
Total operating revenues | 9,895.5 | 9,613.9 | 100.0 | % | 100.0 | % | 2.9 | % | ||||||||||||
Cost of sales | (7,773.4 | ) | (7,279.3 | ) | (78.6 | )% | (75.7 | )% | 6.8 | % | ||||||||||
Gross margin | 2,122.0 | 2,334.6 | 21.4 | % | 24.3 | % | (9.1 | )% | ||||||||||||
Other operating income | 472.8 | 549.8 | 4.8 | % | 5.7 | % | (14.0 | )% | ||||||||||||
Distribution costs | (615.2 | ) | (696.7 | ) | (6.2 | )% | (7.2 | )% | (11.7 | )% | ||||||||||
Administrative expenses | (736.3 | ) | (952.8 | ) | (7.4 | )% | (9.9 | )% | (22.7 | )% | ||||||||||
Other operating expenses | (356.3 | ) | (365.5 | ) | (3.6 | )% | (3.8 | )% | (2.5 | )% | ||||||||||
Financial income | 53.3 | 78.6 | 0.5 | % | 0.8 | % | (32.2 | )% | ||||||||||||
Financial costs | (539.1 | ) | (579.2 | ) | (5.4 | )% | (6.0 | )% | (6.9 | )% | ||||||||||
Foreign exchange gains/(losses) | (38.1 | ) | (48.4 | ) | (0.4 | )% | (0.5 | )% | (21.3 | )% | ||||||||||
Result of indexation units | (0.9 | ) | (0.7 | ) | 0.0 | % | 0.0 | % | 28.6 | % | ||||||||||
Other gains/(losses) | 53.5 | (7.8 | ) | 0.5 | % | (0.1 | )% | n.a. | ||||||||||||
Income (loss) before income taxes | 415.7 | 313.3 | 4.2 | % | 3.3 | % | 32.7 | % | ||||||||||||
Income (loss) tax expense | (73.9 | ) | (158.9 | ) | (0.7 | )% | (1.7 | )% | (53.5 | )% | ||||||||||
Net income (loss) for the period | 341.8 | 154.4 | 3.5 | % | 1.6 | % | 121.4 | % | ||||||||||||
Income (loss) for the period attributable to the parent company’s equity holders | 309.8 | 108.9 | 3.1 | % | 1.1 | % | 184.5 | % |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
(in US$ millions, except per share and capital stock data) | As a percentage of total operating revenues | 2018/2017 % change | (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 | 32.0 | 45.4 | 0.3 | % | 0.5 | % | (29.5 | )% | (5.7 | ) | (9.6 | ) | (0.1 | )% | (0.2 | )% | (41.4 | )% | ||||||||||||||||||||||
Net income (loss) for the period | 341.8 | 154.4 | 3.5 | % | 1.6 | % | 121.4 | % | (4,653.1 | ) | (4555.5 | ) | (95.2 | )% | (116.1 | )% | 2.0 | % | ||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||||||||||
Basic earnings per share (US$) | 0.51090 | 0.17958 | n.a | n.a. | 184.5 | % | (7.66397 | ) | (7.49642 | ) | n.a | n.a | 2.1 | % | ||||||||||||||||||||||||||
Diluted earnings per share (US$) | 0.51090 | 0.17958 | n.a | n.a. | 184.5 | % | (7.66397 | ) | (7.49642 | ) | n.a | n.a | 2.1 | % |
The abbreviation “n.a.” means not available.
Operating Revenues
Our total operating revenues increased by 2.9%24.5% to US$9,895.54,884.0 million infor the year ended December 31, 20182021 compared to revenues of US$9,613.93,923.7 million in 2017.2020. The 20182021 increase in operating revenues was mainly attributable to a 2.5% increasethe recovery in passenger revenues,air travel and a 6.0% increase in cargoits impact on passenger revenues. Passenger and cargo revenues accounted for 88.0%68.4% and 12.0%31.6% of total operating revenues in 2018,2021, respectively.
Our consolidated passenger revenues increased by 2.5%23.2% to US$8,709.03,342.4 million in 20182021 from US$8,494.52,713.8 million in 2017,2020, as a result of a 5.0% increasethe easing of travel restrictions both in capacity, offset bythe region and worldwide, and its subsequent impact on passenger operations. Consequently, load factor increased to 74.4% in 2021, a decrease of 2.4% in our unit revenues (“RASK”). The passenger RASK decline resulted from a 0.4% yield reduction, together with a load factor decline of 1.72.1 percentage points which reached 83.1%. The devaluation of the Argentinean Peso and the Brazilian Real during 2018 negatively affected demand, especially in our international operations. with respect to 2020.
Cargo revenues increased by 6.0%27.4%, to US$1,186.51,541.6 million in 20182021 from US$1,119.41,209.9 million in 2017,2020, 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 4.3% increase in cargo capacity and an increase of 1.6% in unit revenues (“RATK”).2.0 p.p. load factor decreased. Cargo yields grew 29.2% year over year and as a result, revenues per ATK increased 1.2%, while load factor reached 55.1%, an improvement of 0.2 points compared to 2017. Increases in RATK reflected an improvement in market conditions in Brazil, especially during the first half of the year, while import markets from North America and Europe to Brazil weakened in the second half of 2018, pressuring yields and traffic to the region.by 25.3%.
Cost of Sales
Cost of sales increased by 6.8%10.0% to US$7,883.44,963.5 million for the year ended December 31, 20182021 (from US$7,279.34,513.2 million in 2017)2020), mainly due to higher aircraft fuel expenses. As a percentage of total operating revenues, cost of sales increased from 75.7% in 2017 to 78.6% in 2018.the operational recovery and its direct impact on variable costs.
The table below presents cost of sales information for the fiscal year ended December 31, 20182021 and 2017.2020.
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
(in US$ millions, except as otherwise stated) | As a percentage of total operating revenues | 2018/2017 % change | ||||||||||||||||||
Revenues | 9,895.5 | 9,613.9 | 100.0 | % | 100.0 | % | 2.9 | % | ||||||||||||
Cost of sales | (7,773.4 | ) | (7,279.3 | ) | (78.6 | )% | (75.7 | )% | 6.8 | % | ||||||||||
Aircraft Fuel | (2,983.0 | ) | (2,318.8 | ) | (30.1 | )% | (24.1 | )% | 28.6 | % | ||||||||||
Wages and Benefits | (1,442.2 | ) | (1,545.6 | ) | (14.6 | )% | (16.1 | )% | (6.7 | )% | ||||||||||
Other Rental and Landing Fees | (1,206.9 | ) | (1,233.6 | ) | (12.2 | )% | (12.8 | )% | (2.2 | )% | ||||||||||
Depreciation and Amortization | (1,372.6 | ) | (1,377.1 | ) | (13.9 | )% | (14.3 | )% | (0.3 | )% | ||||||||||
Aircraft Maintenance | (366.6 | ) | (422.9 | ) | (3.7 | )% | (4.4 | )% | (13.3 | )% | ||||||||||
Passenger Services | (280.3 | ) | (288.7 | ) | (2.8 | )% | (3.0 | )% | (2.9 | )% | ||||||||||
Other Costs of Sales | (121.8 | ) | (92.5 | ) | (1.2 | )% | (1.0 | )% | 31.6 | % |
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 increase in our cost of sales was driven by higher aircraft fuel expenses, which
Fuel costs increased by 28.6% to US$2,983.0 million in 201842.3%, mainly as a result of a 25.1%15.5% increase in the full year average fuel price (excluding hedging expenses and gains/losses) and a 4.2% increase in the gallons of fuel consumed. LATAM recognized a net gain of US$29.7 million in fuel hedging in 2018,consumption compared to a fuel hedge gain2020 attributed to the easing of US$15.1 milliontravel and sanitary restrictions followed by the recovering trend in 2017. In 2018, the Company also recognized a US$18.3 million hedge gain related to foreign currency contracts, which were recognized in the fuel cost line, compared to a US$9.7 million loss in 2017.passenger operations.
Wages and benefits decreased slightly by 6.7% to US$1,442.5 million in 2018 from US$1,545.6 million in 2017,1.7%, explained by the 3.9% decline in the average headcount as well asand outsourcing of certain airport operations in order to improve efficiency in 2021, which both compensate for the depreciationreturn to normal salary levels for the majority of local currencies duringemployees after the year.voluntary salary reductions adopted in 2020.
Other rental and landing fees decreased by 2.2% to US$1,206.9 million in 2018 from U$1,233.6 million in 2017,increased 4.6%, mainly due to a reduction of freighterthe recovery in passenger operations andduring the lower availability of the fleet Boeing 787 due to engine maintenance delays.year.
Depreciation and amortization decreased by 0.3%8.2%, amounting to US$1,372.6 millionprimarily following LATAM’s reduction in 2018,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 the depreciationincreased 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 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 Brazilian real.
Aircraft maintenancecontract 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 decreased by 13.3%, from US$422.9 million in 2017 to US$366.6 million in 2018, mainly due to fewer redelivery costs,for the year include both: the lease expense for variable payments (Aircraft Rentals) as well as the Company returned lessexpenses 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). In 2021, aircraft during 2018.rental expenses totaled US$120.6 million.
Passenger service expenses decreased by 2.9%, to US$280.3 million in 2018 compared to US$288.7 million in 2017, due to lower catering costs related to the implementation of our buy-on-board system in domestic flights, generating savings of US$14.2 million.
As a result of the above, gross margin (defined as operating revenue minus cost of sales) decreased by 9.1% fromtotaled a loss of US$2,334.679.5 million, compared to a loss of US$589.5 in 2017 to US$2,122.0 million in 2018.2020.
Other Consolidated Results
Other operating income decreased in 20182021 by 14.0%44.7%, from US$549.8411.0 million in 20172020 to US$472.8227.3 million in 2018, mainly due to the adoption of IFRS15, lower revenues from Multiplus driven by the devaluation of the Brazilean real, and lower revenues from aircraft subleases to third parties. Please see “Recently Issed Acounting Pronouncement” for an explanation of the impact of the adoption of IFRS15 on our operating results.
Distribution costs decreased by 11.7% from US$696.7 million in 2017 to US$615.2 million in 2018, mainly2021, as a result of lower commissionsthe reduction in aircraft rental revenue due to agentsthe reduction of subleased aircraft to third 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 passenger businesses.2021 comparison.
Distribution costs maintained stable, totaling US$291.8 million, compared to US$294.3 million in 2020.
Administrative expenses decreased by 12.0% from US$499.5 million in 2020 to US$439.5 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$952.8692.9 million in 20172020 to US$736.3535.8 million in 2018, mainly due to a 3.9% headcount reduction and the impact of the depreciation of local currencies during the year, especially the 14.5% of the Brazilian Real and the 69.6% of the Argentinean Peso, on wages denominated in those currencies, partially offset by the annual increase in unit salaries due to inflation adjustments.
Other operating expenses decreased by 2.5% from US$365.5 million in 2017 to US$356.3 million in 2018 as a result of the Company’s ongoing efficiency initiatives.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 32.3%58.1% to US$53.321.1 million in the year ended December 31, 2018 compared with2021 from US$78.650.4 million in 2017, as a result2020, 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 interestinvestment rates, in Brazil and the depreciationspite of the Brazilian Real.overall higher cash balance during the year.
Financial costs decreasedincreased by 6.9%37.2% to US$539.1805.5 million in 20182021 from US$579.2587.0 million in 2017, mainly due2020, 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 a reductiondebt that has not been repaid that continues to generate additional interest.
The foreign exchange gain of US$131.4 million in our gross debt.
Foreign exchange result decreased US$10.3 million2021, compared to a net loss of US$38.148.4 million in 2018,2020 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 the 15.7% devaluation of 17.2%the Chilean Peso during the year.
Other gains (losses) registered a gain of US$30.7 million, compared to a loss of US$1,874.8 million in 2020, principally due to the Brazilian Real and 102.3% of the Argentinean Peso.goodwill impairment recognized in 2020.
IncomeThe income tax expense decreased by 53.5%for 2021 amounted to US$73.9(568.9) million for 2018, as compared to an income tax benefit of US$158.9550.2 million in 2017.2020. This decreasevariation is mainly explained mainly by different income distribution by subsidiary and by accumulateda derecognition of deferred tax liabilities dueassets, related to accumulated tax losses that the dissolutionCompany does not expect to utilize in the foreseeable future of some subsidiaries originally used for the acquisition of aircraft that were sold during the year.US$1.25 billion. For more information, see Note 18 to our audited consolidated financial statements.
Net Income
Net incomeloss
Net loss for the year ended December 31, 2018 equaled2021 totaled US$341.8 million, representing an increase of US$187.4 million from a net income of US$154.4 million in 2017.4,653.1 million. Net incomeloss attributable to the parent company’s shareholders was US$309.84,647.5 million in 2018, representing an increase of US$154.5 million compared with a net income of US$155.3 million in 2017.2021.
U.S. Dollar Presentation and Price-Level Adjustments
General
General
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 Subsidiarieseach of the 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 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 Argentine'sgroup’s Argentina 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"(“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“Result of indexation units".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 Consolidatedconsolidated 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 situation of the Group'sGroup’s entities, whose functional currency is different from the presentation currency of the consolidated financial statements, of LATAM Airlines Group S.A., which does not correspond to the currency of a hyperinflationary economy, are converted 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 income as part of the loss or gain on the sale.financial position date;
Adjustments to the goodwill(ii) The revenues and fair value arising from the acquisitionexpenses of a foreign entity are treated as assets and liabilities of the foreign entity andeach income statement account are translated at the period-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 57% arewere in U.S. dollars or in pricescurrencies pegged to the U.S. dollar and a substantial portionapproximately 70% of our expenses 63% 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 (74.6%(60.0% as of December 31, 2019)2022), including bank loans, certain air traffic liabilities, and certain amounts payable to our suppliers. As of December 31, 2019, 66.0%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$38.1131.4 million in 20182021 and net foreign exchange lossesgain of US$32.626.0 million in 2019,2022, 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 due to impairment of |
(b) | Useful life, residual value, and impairment of property, plant, and equipment |
(c) | Recoverability of deferred tax assets |
(d) | Air tickets sold that will not be finally used. |
(e) | Valuation of miles and points awarded to holders of loyalty programs, pending use. |
(f) |
(g) | Leases |
Please seeSee Note 4 – Accounting(Accounting estimates and judgments –judgments) to our audited consolidated financial statements for a full description of our critical accounting policies.
Recently Issued Accounting Pronouncements
a) Accounting pronouncements with implementation effective from January 1, 2019
The application of these accounting pronouncements as of January 1, 2019, had no significant effects on the consolidated financial statements of the Company; with the exception of those originated by the application of IFRS 16: Leases described below.
During the year, the Company has recognized the changes, in the consolidated financial statements, as a result of the adoption of IFRS 16 retrospectively; restating the comparative figures, in accordance with the provisions of IAS 8 Accounting policies, changes in accounting estimates and errors.
The Company has modified the initial balances corresponding to January 1, 2018. The disclosures corresponding to the initial application of IFRS 9 and IFRS 15, which also originated changes, have been maintained in the consolidated financial statements.
The impacts of the adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases are as follows:
Consolidated statement of financial position (extract)
a) As of January 1, 2017:
As of | Adoption | As of | ||||||||||||
December 31 | impact | January 1, | ||||||||||||
Note | 2016 | IFRS 16 | 2017 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | ||||||||||||||
Current assets | ||||||||||||||
Other non-financial assets, current | 12 | 212,242 | (25,567 | )(9) | 186,675 | |||||||||
Non-current assets | ||||||||||||||
Properties, plants and equipment | 17 | 10,498,149 | 2,931,101 | (9) | 13,429,250 | |||||||||
Current liabilities | ||||||||||||||
Other current financial liabilities | 7 - 19 | 1,839,528 | 311,307 | (11) | 2,150,835 | |||||||||
Non-current liabilities | ||||||||||||||
Other non current financial liabilities | 7-19 | 6,796,952 | 2,881,149 | (11) | 9,678,101 | |||||||||
Accounts payable commercial and other | 7 - 24 | 359,391 | 20,065 | (9) | 379,456 | |||||||||
Deferred tax liability | 18 | 915,759 | (61,343 | )(10) | 854,416 | |||||||||
Equity | ||||||||||||||
Equity attributable to the owners of the parent | ||||||||||||||
Accumulated earnings | 25 | 366,404 | (460,173 | )(12) | (93,769 | ) | ||||||||
Other reserves | 25 | 580,870 | 215,299 | (12) | 796,169 | |||||||||
Non-controlling interest | 14 | 88,644 | (771 | )(12) | 87,873 |
b) As of January 1, 2018:
As of | Adoption | As of | Adoption | As of | ||||||||||||||||||||||
December 31, | impact | January 1 | impact | January 1, | ||||||||||||||||||||||
Note | 2017 | IFRS 9 | IFRS 15 | 2018 | IFRS 16 | 2018 | ||||||||||||||||||||
ThUS$ | THUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Restated | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||
Other non-financial assets, current | 12 | 221,188 | - | 54,361 | (4) | 275,549 | (30,771 | )(9) | 244,778 | |||||||||||||||||
Trade debtors and other accounts receivable, current | 7 - 8 | 1,214,050 | (11,105 | )(1) | - | 1,202,945 | - | 1,202,945 | ||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||
Other non-financial assets, non current | 12 | 220,807 | - | - | 220,807 | (8,604 | )(9) | 212,203 | ||||||||||||||||||
Properties, plants and equipment | 17 | 10,065,335 | - | - | 10,065,335 | 2,865,317 | (9) | 12,930,652 | ||||||||||||||||||
Deferred tax assets | 18 | 364,021 | 89 | (2) | 6,005 | (7) | 370,115 | 449 | (10) | 370,564 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||
Other current financial liabilities | 7 - 19 | 1,300,949 | - | - | 1,300,949 | 319,030 | (11) | 1,619,979 | ||||||||||||||||||
Trade and other accounts payables | 7 - 20 | 1,695,202 | - | (22,192 | )(5) | 1,673,010 | (4,398 | )(9) | 1,668,612 | |||||||||||||||||
Other non-financial liabilities, current | 22 | 2,823,963 | - | 77,640 | (6) | 2,901,603 | - | 2,901,603 | ||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||
Other non current financial liabilities | 7 - 19 | 6,605,508 | - | - | 6,605,508 | 2,827,942 | (11) | 9,433,450 | ||||||||||||||||||
Accounts payable commercial and other | 7 - 24 | 498,832 | - | - | 498,832 | 60,611 | (9) | 559,443 | ||||||||||||||||||
Deferred tax liability | 18 | 949,697 | (1,021 | )(2) | 4,472 | (5) | 953,148 | (75,400 | )(10) | 877,748 | ||||||||||||||||
Equity | ||||||||||||||||||||||||||
Equity attributable to the owners of the Accumulated earnings | 25 | 475,118 | (9,995 | )(3) | 446 | (8) | 465,569 | (506,581 | )(12) | (41,012 | ) | |||||||||||||||
Other reserves | 25 | 554,884 | - | - | 554,884 | 205,877 | (12) | 760,761 | ||||||||||||||||||
Non-controlling interest | 14 | 91,147 | - | - | 91,147 | (690 | )(12) | 90,457 |
c) As of December 31, 2018:
As of | Adoption | As of | ||||||||||||
December 31, | impact | December 31, | ||||||||||||
Note | 2018 | IFRS 16 | 2018 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | ||||||||||||||
Current assets | ||||||||||||||
Other non-financial assets, current | 12 | 320,977 | (30,501 | )(9) | 290,476 | |||||||||
Non-current assets | ||||||||||||||
Other non-financial assets, non current | 12 | 233,741 | (6,200 | )(9) | 227,541 | |||||||||
Properties, plants and equipment | 17 | 9,953,365 | 2,548,444 | (9) | 12,501,809 | |||||||||
Deferred tax assets | 18 | 273,328 | 201 | (10) | 273,529 | |||||||||
Current liabilities | ||||||||||||||
Other current financial liabilities | 7 - 19 | 1,430,789 | 363,497 | (11) | 1,794,286 | |||||||||
Non-current liabilities | ||||||||||||||
Other non current financial liabilities | 7 - 19 | 5,864,910 | 2,494,552 | (11) | 8,359,462 | |||||||||
Accounts payable commercial and other | 7 - 24 | 483,656 | 45,621 | (9) | 529,277 | |||||||||
Deferred tax liability | 18 | 872,121 | (85,550 | )(10) | 786,571 | |||||||||
Equity | ||||||||||||||
Equity attributable to the owners of the Accumulated earnings | 25 | 597,676 | (378,705 | )(12) | 218,971 | |||||||||
Other reserves | 25 | (76,926 | ) | 72,561 | (12) | (4,365 | ) | |||||||
Non-controlling interest | 14 | 79,940 | (32 | )(12) | 79,908 |
- Application of standards as of January 1, 2018.
- Effects of adopting IFRS 9
This standard also includes requirements related to the classification and measurement of financial assets and liabilities and an expected credit loss model that replaces the current loss impairment model incurred.
As of January 1, 2018, the calculation of the impairment losses provision is as follows:
Portfolio maturity | ||||||||||||||||||||||||
Up to | Up to | More than | ||||||||||||||||||||||
Up to | 91 to | 181 to | 360 | |||||||||||||||||||||
Up to date | 90 days | 180 days | 360 days | days | Total | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Expected loss rate | 1 | % | 21 | % | 46 | % | 67 | % | 94 | % | 8 | % | ||||||||||||
Gross book value | 1,046,909 | 36,241 | 12,001 | 14,623 | 66,022 | 1,175,796 | ||||||||||||||||||
Impairment provision | (13,570 | ) | (7,774 | ) | (5,499 | ) | (9,803 | ) | (61,787 | ) | (98,433 | ) |
In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition.
The Company analyzed the business models and classified its financial assets and liabilities according to the following:
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||||||||||||||
Initial | ||||||||||||||||||||||||||||
Loans | Hedge | Held | as fair value | At fair value | ||||||||||||||||||||||||
and | and | for | through profit | Cost | with changes | |||||||||||||||||||||||
Assets | receivables | derivatives | trading | and loss | amortized | in results | Total | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||
Balance as of December 31, 2017 | 2,446,864 | 62,867 | 1,915 | 501,890 | - | - | 3,013,536 | |||||||||||||||||||||
Cash and cash equivalents | (1,112,346 | ) | - | - | (29,658 | ) | 1,112,346 | 29,658 | - | |||||||||||||||||||
Other financial assets, current | (23,918 | ) | - | (1,421 | ) | (472,232 | ) | 23,918 | 473,653 | - | ||||||||||||||||||
Trade debtors and other accounts receivable, current | (1,214,050 | ) | - | - | - | 1,214,050 | - | - | ||||||||||||||||||||
Accounts receivable from entities related, current | (2,582 | ) | - | - | - | 2,582 | - | - | ||||||||||||||||||||
Other financial assets, non-current | (87,077 | ) | - | (494 | ) | - | 87,077 | 494 | - | |||||||||||||||||||
Accounts receivable, non-current | (6,891 | ) | - | - | - | 6,891 | - | - | ||||||||||||||||||||
Balance as of January 1, 2018 | - | 62,867 | - | - | 2,446,864 | 503,805 | 3,013,536 |
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||
Others | Held | |||||||||||||||
financial | hedge | Cost | ||||||||||||||
Liabilities | liabilities | derivatives | amortized | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Balance as of December 31, 2017 | 10,086,434 | 14,817 | - | 10,101,251 | ||||||||||||
Other current financial liabilities | (1,288,749 | ) | - | 1,288,749 | - | |||||||||||
Trade accounts payable and other accounts payable, current | (1,695,202 | ) | - | 1,695,202 | - | |||||||||||
Accounts payable to related entities, current | (760 | ) | - | 760 | - | |||||||||||
Other financial liabilities, not current | (6,602,891 | ) | - | 6,602,891 | - | |||||||||||
Accounts payable, not current | (498,832 | ) | - | 498,832 | - | |||||||||||
Balance as of January 1, 2018 (*) | - | 14,817 | 10,086,434 | 10,101,251 |
(*) Balances as of January 1, 2018 do not contain the re-expression effects originated by IFRS 16.
- Effects of adopting IFRS 15
(4) Contract costs: The Company has capitalized the costs related to the revenues from air transport of passengers, corresponding to the commissions charged by the credit card administrators for US$22.0 million and the air ticket booking services through the GDSs for US$15.6 million. Additionally, there is a reclassification of commissions from travel agencies for US$16.8 million, these previously were presented, according IAS 18, net of the liability to fly in other non-financial liabilities.
(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore, they must be deferred until the benefit of the service have been rendered. These concepts are mainly related to ground transportation service for US$15.6 million and travelers checks (US$6.6 million).
(6) Performance Obligations: The Company analyzed the moment at which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redemption of some products associated with loyalty programs for US$60.8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16.8 million.
(7) Deferred tax adjustments originated by the application of IFRS 15.
(8) Net effect on accumulated results of the adjustments indicated above.
Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of these services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.
- Effects of adopting IFRS 16
(9) Company recognized under Property, plant and equipment right of use assets for US$2,865.3 million as of January 1, 2018 and US$2,548.4 as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 17).
The Company decreased other financial assets related to advance payments for leases for US$39.4 million as of January 1, 2018 and US$36.7 as of December 31, 2018, since with the application of the standard these amounts are considered in the initial measurement of the right of use of asset.
The Company increased the cost of restoration associated with the return of aircraft and engines for US$56.2 million as of January 1, 2018 and US$45.6 million as of December 31, 2018. With the application of the standard, the net present value of this cost was included in the right of use of asset and its counterpart in the line of accounts payable, current or non-current, depending on the return date of the aircraft or engines.
(10) Deferred taxes: adjustments originated by the application of IFRS 16.
(11) Lease liabilities: The Company recognized within the Other financial liabilities for lease for US$3,147.0 million as of January 1, 2018 and US$2,858.0 million as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 19).
(12) The effect of the recognition of the leases under IFRS 16 generated a decrease in retained earnings of US$506.6 million as of January 1, 2018 (US$378.7 million as of December 31, 2018). The increase in Other reserves of US$205.9 million as of January 1, 2018 (decrease of US$72,5 million as of December 31, 2018), was caused by the Cumulative translation adjustment of those subsidiaries with functional currencies other than the US dollar. The application of IFRS 16 also affected non-controlling interests.
The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of December 31, 2017 are presented in the consolidated income statement:
For the year ended december 31, 2017 | ||||||||||||||
Reconciliation income | Adjustments for reconciliation | |||||||||||||
Results | Adoption | Results | ||||||||||||
under | impact | under | ||||||||||||
Nota | IAS 17 | IFRS16 | IFRS 16 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Published | Restated | |||||||||||||
Revenue | 26 | 9,613,907 | - | 9,613,907 | ||||||||||
Cost of sales | (7,441,849 | ) | 162,491 | (7,279,358 | ) | |||||||||
Gross margin | 2,172,058 | 162,491 | 2,334,549 | |||||||||||
Other income | 28 | 549,889 | - | 549,889 | ||||||||||
Distribution costs | (699,600 | ) | 2,816 | (696,784 | ) | |||||||||
Administrative expenses | (938,931 | ) | (13,837 | ) | (952,768 | ) | ||||||||
Other expenses | (368,883 | ) | 3,423 | (365,460 | ) | |||||||||
Other gains (losses) | (7,754 | ) | - | (7,754 | ) | |||||||||
Income from operation activities | 706,779 | 154,893 | 861,672 | |||||||||||
Financial income | 78,695 | - | 78,695 | |||||||||||
Financial costs | 27 | (393,286 | ) | (185,947 | ) | (579,233 | ) | |||||||
Foreign exchange gains (losses) | 29 | (18,718 | ) | (29,780 | ) | (48,498 | ) | |||||||
Result of indexation units | 748 | - | 748 | |||||||||||
Income (loss) before taxes | 374,218 | (60,834 | ) | 313,384 | ||||||||||
Income (loss) tax expense / benefit | 18 | (173,504 | ) | 14,506 | (158,998 | ) | ||||||||
NET INCOME (LOSS) FOR THE YEAR | 200,714 | (46,328 | ) | 154,386 | ||||||||||
Income (loss) attributable to owners of the parent | 155,304 | (46,408 | ) | 108,896 | ||||||||||
Income (loss) attributable to non- controlling interest | 14 | 45,410 | 80 | 45,490 | ||||||||||
Net income (loss) for the year | 200,714 | (46,328 | ) | 154,386 |
The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of December 31, 2018 are presented in the consolidated income statement:
For the year ended december 31, 2018 | ||||||||||||||||||||||||||||||
Reconciliation Revenue | Adjustments for reconciliation | |||||||||||||||||||||||||||||
Results | Adoption | Results | Deferred revenues | Results | ||||||||||||||||||||||||||
under | impact | under | Contract | recognition | under | |||||||||||||||||||||||||
Nota | IFRS 15 | IFRS16 | IFRS 15 | costs (4) | [(5), (6)] | Reclassifications | IAS 18 | |||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||
Published | Restated | |||||||||||||||||||||||||||||
IFRS 16 | ||||||||||||||||||||||||||||||
Revenue | 26 | 9,895,456 | - | 9,895,456 | - | 48,561 | 31,501 | 9,975,518 | ||||||||||||||||||||||
Cost of sales | (7,962,843 | ) | 189,411 | (7,773,432 | ) | - | (34,986 | ) | - | (7,808,418 | ) | |||||||||||||||||||
Gross margin | 1,932,613 | 189,411 | 2,122,024 | - | 13,575 | 31,501 | 2,167,100 | |||||||||||||||||||||||
Other income | 28 | 472,758 | - | 472,758 | - | - | 42,563 | 515,321 | ||||||||||||||||||||||
Distribution costs | (619,200 | ) | 3,986 | (615,214 | ) | (43 | ) | - | (20,003 | ) | (635,260 | ) | ||||||||||||||||||
Administrative expenses | (721,270 | ) | (15,063 | ) | (736,333 | ) | (806 | ) | - | (54,061 | ) | (791,200 | ) | |||||||||||||||||
Other expenses | (359,781 | ) | 3,531 | (356,250 | ) | - | - | - | (356,250 | ) | ||||||||||||||||||||
Other gains (losses) | 53,499 | - | 53,499 | - | - | - | 53,499 | |||||||||||||||||||||||
Income from operation activities | 758,619 | 181,865 | 940,484 | (849 | ) | 13,575 | - | 953,210 | ||||||||||||||||||||||
Financial income | 53,253 | - | 53,253 | - | - | - | 53,253 | |||||||||||||||||||||||
Financial costs | 27 | (356,269 | ) | (182,868 | ) | (539,137 | ) | - | - | - | (539,137 | ) | ||||||||||||||||||
Foreign exchange gains (losses) | 29 | (157,709 | ) | 119,639 | (38,070 | ) | - | - | - | (38,070 | ) | |||||||||||||||||||
Result of indexation units | (865 | ) | - | (865 | ) | - | - | - | (865 | ) | ||||||||||||||||||||
Income (loss) before taxes | 297,029 | 118,636 | 415,665 | (849 | ) | 13,575 | - | 428,391 | ||||||||||||||||||||||
Income (loss) tax expense / benefit | 18 | (83,782 | ) | 9,903 | (73,879 | ) | (23 | ) | (1,030 | ) | - | (74,932 | ) | |||||||||||||||||
NET INCOME (LOSS) FOR THE YEAR | 213,247 | 128,539 | 341,786 | (872 | ) | 12,545 | - | 353,459 | ||||||||||||||||||||||
Income (loss) attributable to owners of the parent | 181,935 | 127,876 | 309,811 | (872 | ) | 12,545 | - | 321,484 | ||||||||||||||||||||||
Income (loss) attributable to non- controlling interest | 14 | 31,312 | 663 | 31,975 | - | - | - | 31,975 | ||||||||||||||||||||||
Net income (loss) for the period | 213,247 | 128,539 | 341,786 | (872 | ) | 12,545 | - | 353,459 |
In the income statement, with the implementation of the IFRS16 standard, restatements were made in the following lines:
Impact recognized as a result of the adoption of IFRS 16 for the year ended December 31, 2017 and 2018 are presented in the consolidated statement of cash flows:
For the year ended | Adoption | For the year ended | ||||||||||
December 31 | impact | December 31, | ||||||||||
2017 | IFRS 16 | 2017 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | ||||||||||||
Payments to suppliers for goods and services | (6,722,713 | ) | 520,082 | (1) | (6,202,631 | ) | ||||||
Net cash flows from operating activities | (6,722,713 | ) | 520,082 | (6,202,631 | ) | |||||||
Loans repayments | (1,829,191 | ) | (344,901 | )(2) | (2,174,092 | ) | ||||||
Payments of finance lease liabilities | (344,901 | ) | 344,901 | (2) | - | |||||||
Payments of lease liabilities | - | (338,179 | )(1) | (338,179 | ) | |||||||
Interest paid | (389,724 | ) | (181,903 | )(1) | (571,627 | ) | ||||||
Net cash flows (used in) financing activities | (2,563,816 | ) | (520,082 | ) | (3,083,898 | ) |
For the year ended | Adoption | For the year ended | ||||||||||
December 31 | impact | December 31, | ||||||||||
2018 | IFRS 16 | 2018 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | ||||||||||||
Payments to suppliers for goods and services | (7,331,390 | ) | 556,387 | (1) | (6,775,003 | ) | ||||||
Net cash flows from operating activities | (7,331,390 | ) | 556,387 | (6,775,003 | ) | |||||||
Loans repayments | (1,045,662 | ) | (692,687 | )(2) | (1,738,349 | ) | ||||||
Payments of finance lease liabilities | (692,687 | ) | 692,687 | (2) | - | |||||||
Payments of lease liabilities | - | (373,439 | )(1) | (373,439 | ) | |||||||
Interest paid | (357,355 | ) | (182,948 | )(1) | (540,303 | ) | ||||||
Net cash flows (used in) financing activities | (2,095,704 | ) | (556,387 | ) | (2,652,091 | ) |
(1) Correspond to the reclassification of lease payments, principal to payment of lease liability and interest to interest paid.
(2) Correspond to the reclassification of leases payments previously classified as financial lease.
(b) Accounting pronouncements not yet in force for financial years beginning on January 1, 2019 and which has not been effected early adoption:
The management of the Company estimates that the adoption of the standards, amendments and Interpretations described above, will not have a significant impact on the consolidated financial statements of the Company in the application of its first adoption. At the close consolidated financial statements, the Company is analyzing the possible effects of the amendment issued in September 2019 to IFRS 9, IAS 39 and IFRS 7 for the reform of interest rates of reference.
IFRS/Non-IFRS Reconciliation
We use “Cost per ASK” and “Cost per ASK excluding fuel price variations” in analyzing operating expenses on a per unit basis. “ASKs” (available seat kilometers) measures the number of seats of capacity available for the transportation of passengers multiplied by the kilometers flown across our network. To obtain our unit costs, which are used by our management in the analysis of our results, we divide our total Operating Expenses by our total ASKs. The cost component is further adjusted to obtain “costs per ASK excluding fuel price variations,” in order to remove the impact of changes in fuel prices for the year. “Cost per ASK” and “Cost per ASK excluding fuel price variations” do not have a standardized meaning, and as such may not be comparable to similarly titled measures provided by other companies. These metrics should not be considered in isolation or as a substitute for operating expenses or as indicators of performance or cash flows or as a measure of liquidity.
2019 | 2018 | 2017 | ||||||||||
Cost per ASK | ||||||||||||
Operating expenses (US$ thousands) | 9,689,325 | 9,481,230 | 9,291,672 | |||||||||
Divided by ASK (million) | 149,111.9 | 143,264.7 | 136,398.4 | |||||||||
= Cost per ASK (US$ cents) | 6.50 | 6.62 | 6.81 | |||||||||
Cost per ASK excluding fuel price variations | ||||||||||||
Operating expenses (US$ thousands) | 9,689,325 | 9,481,230 | 9,291,672 | |||||||||
– Aircraft fuel (US$ thousands) | 2,929,008 | 2,983,028 | 2,318,816 | |||||||||
Divided by ASK (million) | 149,111.9 | 143,264.7 | 136,398.4 | |||||||||
= Cost per ASK excluding fuel price variations (US$ cents) | 4.53 | 4.54 | 5.11 |
64
2022 | 2021 | 2020 | ||||||||||
Cost per ASK | ||||||||||||
Operating expenses (US$ thousands) | 9,638,086 | 6,230,623 | 5,999,957 | |||||||||
Divided by ASK (million) | 113,851.9 | 67,635.7 | 55,688.0 | |||||||||
= Cost per ASK (US$ cents) | 8.47 | 9.21 | 10.77 | |||||||||
Cost per ASK excluding fuel price variations | ||||||||||||
Operating expenses (US$ thousands) | 9,638,086 | 6,230,623 | 5,999,957 | |||||||||
- Aircraft fuel (US$ thousands) | 3,882,505 | 1,487,776 | 1,045,343 | |||||||||
Divided by ASK (million) | 113,851.9 | 67,635.7 | 55,688.0 | |||||||||
= Cost per ASK excluding fuel price variations (US$ cents) | 5.06 | 7.01 | 8.90 |
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.
2019 | 2018 | 2017 | ||||||||||
Passenger Revenues (US$ thousands) | 9,005,629 | 8,708.988 | 8,494.477 | |||||||||
ASK (million) | 149,111.9 | 143,264.7 | 136,398.4 | |||||||||
Passenger Revenues/ASK (US$ cents) | 6.04 | 6.08 | 6.23 | |||||||||
Cargo Revenues (US$ thousands) | 1,064,434 | 1,186,468 | 1,119,430 | |||||||||
ATK (million) | 6,356.7 | 6,497.6 | 6,230.3 | |||||||||
Cargo Revenues/ATK (US$ cents) | 16.75 | 18.26 | 17.97 |
2022 | 2021 | 2020 | ||||||||||
Passenger Revenues (US$ thousands) | 7,636,429 | 3,342,381 | 2,713,774 | |||||||||
ASK (million) | 113,852.2 | 67,635.7 | 55,688.0 | |||||||||
Passenger Revenues/ASK (US$ cents) | 6.71 | 4.94 | 4.87 | |||||||||
Cargo Revenues (US$ thousands) | 1,726,092 | 1,541,634 | 1,209,893 | |||||||||
ATK (million) | 6,255.7 | 4,788.1 | 4,708.3 | |||||||||
Cargo Revenues/ATK (US$ cents) | 27.59 | 32.20 | 25.70 |
Seasonality
Our operatingOperating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns. Our passengerPassenger revenues are generally higher in the first and fourth quarters of each year, during the southern hemisphere’s spring and summer. In the Brazilian passenger air transportation market, there is generally higher demand for air transportation services in the second half of the year, making the second quarter the weakest for the Company. However, seasonality is partially mitigated by LATAM’s focus on business passengers (which are less sensitive to seasonality). Additionally, the expansion of the CompanyLATAM group into other countries and the cargo segment with different seasonal patterns has also moderated the overall seasonality of the passenger business. COVID-19 has also disrupted traditional seasonality patterns and introduced new factors to consider, such as the consideration of months or seasons in which the number of cases tends to be higher, traveling restrictions and requirements imposed by different countries, vaccination rates or the surge or spread of new variants of COVID-19.
B. LiquidityOperating Data
The table below presents LATAM’s unaudited operating data as of and Capital Resourcesfor 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.
For the year ended and as of December 31, | ||||||||||||
Operating Data | 2022 | 2021 | 2020 | |||||||||
ASKs (million) | 113,852.2 | 67,635.7 | 55,688.0 | |||||||||
RPKs (million) | 92,587.8 | 50,316.5 | 42,624.4 | |||||||||
ATKs (million) | 6,255.7 | 4,788.1 | 4,708.3 | |||||||||
RTKs (million) | 3,532.5 | 3,034.9 | 3,077.8 |
B. | Liquidity and Capital Resources |
LATAM’s cash and cash equivalents amounted to US$1,072.61,216.7 million as of December 31, 2019,2022, US$1,081.61,046.8 million as of December 31, 20182021, and US$1,142.01,695.8 million as of December 31, 2017.2020. Additionally, the Company had short termshort-term marketable securities totaling US$386.70.3 million as of December 31, 2019,2022, US$322.40.3 million as of December 31, 2018 and2021, US$472.20.3 million as of December 31, 2017.2020. LATAM’s cash and cash equivalents and marketable securities totaled US$1,459.21,217.0 million as of December 31, 2019,2022, US$1,404.11,047.2 million as of December 31, 20182021 and US$1,614.21,696.2 million as of December 31, 2017.2020.
The US$55.1169.8 million increase in cash and cash equivalents and marketable securities from 20182021 to 20192022 can be explained mainly by anthe successful exit from Chapter 11 with a solid financial position and the recovery in travel demand due to the reopening of the borders as vaccine distribution ramped up, offset by the increase of capital expenditures corresponding to the same increase in proceeds from sales, partially offset by expenditures in aircraft acquisitions.the operation given to the recovery of passenger traffic.
The US$210.2649.0 million decrease in cash and cash equivalents and marketablesmarketable securities from 20172020 to 20182021 can be explained mainly by the depreciationcontinued limited operations due to the restrictions and border closures of countries during the COVID-19 outbreak and deferral of capital expenditures corresponding to the previous year compensated by partial draws of the Brazilian and Argentinian currencies.
We believe that our working capital will be sufficientDebtor in Possession (“DIP”) financing during the next 12 months to meet our liquidity requirements.year.
Cash position and liquidity
The following table provides a summary of our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2019, 20182022, 2021 and 20172020 and our total cash position as of December 31, 2019, 20182022, 2021 and 2017.2020.
2019 | 2018 | 2017 | ||||||||||
(in US$ million) | ||||||||||||
Net cash flow from operating activities | 2,826.7 | 2,073.3 | 2,186.8 | |||||||||
Net cash flow from (used in) investing activities | (1,419.2 | ) | (358.4 | ) | (293.9 | ) | ||||||
Net cash flow from (used in) financing activities | (1,343.5 | ) | (1,608.6 | ) | (1,692.7 | ) | ||||||
Effects of variation in the exchange rate on cash and cash equivalents | (73.0 | ) | (166.7 | ) | (7.7 | ) | ||||||
Cash and cash equivalents at the beginning of the year | 1,081.6 | 1,142.0 | 949.3 | |||||||||
Cash and cash equivalents at the end of the year | 1,072.6 | 1,081.6 | 1,142.0 |
2022 | 2021 | 2020 | ||||||||||
(in US$ million) | ||||||||||||
Net cash flow from operating activities | 96.8 | (174.2 | ) | (494.7 | ) | |||||||
Net cash flow from (used in) investing activities | (749.0 | ) | (552.5 | ) | 33.6 | |||||||
Net cash flow from (used in) financing activities | 855.0 | 109.6 | 1,120.8 | |||||||||
Effects of variation in the exchange rate on cash and cash equivalents | (33.0 | ) | (31.9 | ) | (36.5 | ) | ||||||
Cash and cash equivalents at the beginning of the year | 1,046.8 | 1,695.8 | 1,072.6 | |||||||||
Cash and cash equivalents at the end of the year | 1,216.7 | 1,046.8 | 1,695.8 |
In
As of December 31, 2022 in addition to cash and marketable securities, LATAM has accessUS$1,100 million related to short term uncommited credit lines. As of December 31, 2019, LATAM also had long-term working capital committed credit lines in the form of a fullytwo undrawn revolving credit facility (“RCF”) of US$600 million1. The RCF is secured by spare parts, engines, and aircrafts. See Note 32 to our audited consolidated financial statements for a more detailed discussion of these commitments.Revolving Facilities.
Net cash flowflows from operating activities
Cash flow from operations derives primarily from providing air passenger and cargo transportation to customers. Operating cash outflows are primarily related to expenses of airline operations, including fuel consumption. Net cash inflows from operating activities in 20192022 increased by US$753.3271.0 million, or 36.3%, up from US$2,073.3(174.2) million to US$96.8 million, mainly due to an increase in proceeds from sales explained by a stronger performanceoperations (a 68% increase in Brazil and Peru and from the compensation received from Delta Air Lines relatedASKs operated compared to 2021) thanks to the transition costs for the implementationrecovery of the framework agreement between LATAMoperation and Delta Air Lines.the lifting of the most severe travel restrictions across the region.
Cash flowNet cash inflows from operating activities in 2018 decreased2021 increased by US$113.5320.5 million, or 5.2%, down from US$2,186.8(494.7) million to US$ (174.2) million, mainly due to a decreasean increase in operating margin, driven higher fuel pricesoperations (a 21% increase compared to 2020) thanks to the recovery of the operation and the depreciationlifting of the Brazilian and Argentinian currencies. In turn, this impact was partially offset by LATAM’s ongoing cost efficiency initiatives such as headcount reduction and higher aircraft utilization.most severe travel restrictions across the region.
Net cash flow used in investing activities
Net cash used in investing activities in 20192022 increased to US$ 1,419.2749.0 million from US$358.4552.5 million in 2018.2021. The increase is explained mainly by capital expenditures in aircraft, higher maintenance expenses and investment projects related to cabin retrofit.
The inflow relateddue to the net predelivery payments received by LATAM reached US$ 263.4 million for year 2019, higher thanincrease in operations following the net predelivery payments outflowsrecovery of US$54.7million for year 2018. For further details, please referpassenger traffic after a significant decrease in the number of travelers due to Note 35 to our audited consolidated financial statements.the COVID-19 period, which implied an increase in investing activities including maintenance activities and purchase of spare components.
Net cash used in investing activities in 20182021 increased to US$ 358.4552.5 million from US$293.933.6 million in 2017, due to an2020. The increase in purchases of property, plant and equipment including cabin retrofit, IT, and digital investments. In 2018, as in 2017, the company did not incur in anyis explained mainly by deferred capital expenditures in aircraft. In 2018,aircraft, engines, freighter conversions, maintenance and investment projects from 2020 and by the outflow related to the net predelivery payments reached US$ 54.7 million for year 2018, a 43.2% lower than the net predelivery payments outflows of US$126.5 million for year 2017. For further details, please refer to Note 35 to our audited consolidated financial statements.recovery in operation.
Net cash flows used in financing activities
In 2019,2022, net cash used in financing activities amounted to US$1,343.5855.0 million, a decreasean increase of US$265.1745.3 million from the US$1,608.6109.6 million in cash used in financing activities in 2018. In 2019, the2021. The company paid US$1,860.59,767.9 million in loan repayments, an increase of US$9,304.8 million explained mainly by the emergence from Chapter 11 and issued US$1,781.7 million in new debt.certain increased payments related to the DIP financing. Total debt issuances in year 20192022 amounted to US$1,781.77,988.4 million, an increase of US$1,002.77,196.7 million as compared to US$779.1791.1 million issued in 2018.2021. The Company also obtained equity instruments in 2022 by US$3,751.8 million related to the successful exit from Chapter 11.
In 2018,2021, net cash used in financing activities amounted to US$1,608.6 million, an increase of US$84.0 million from the US$1,692.7 million in cash generated by financing activities in 2017. In 2018, the Company paid US$1,738.3 million in loan repayments which were offset by US$779.1 million in debt issuances. Total debt issuances in year 2018 amounted to US$779.1109.6 million, a decrease of US$526.31,011.2 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 of US$330.7 million explained mainly by the Chapter 11 process. Total debt issuances in 2021 amounted to US$ 791.1 million, a decrease of US$ 1,006.6 million compared to US$1,305.4 1,798.3 million issued in 2017.2020.
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Sources of financing
Long term
WeFleet Financing
LATAM typically finance ourfinances the fleet with long-term loans covering between 80% and 100% of the net purchase price. WeIt also financefinances our aircraft under sale and leaseback arrangements and operational leases in order to add flexibility to ourthe fleet. For more information regarding fleet financing, please refer to the information below and to “—F. Long“-E. Contractual Obligations-Long Term Indebtedness—Tabular Disclosure of Contractual Obligations.Indebtedness.”
From time to time in the past, we have considered, and may consider in the future, other forms of financing such as equity or debt, either secured or unsecured, securitization of cargo or ticket receivables or the securitization of fleet and engines.
Short term
We have generally been able to arrange for short-term loans with local and international banks when we have needed to finance working capital expenditures or increase our liquidity.
Revolving Facilities
As of December 31, 2019, we has an outstanding stock of US$340 million in short-term loans with both local and international banks.
We have diversified our sources of short term financing to include the following: PAE (“Prestamos a Exportadores”), which are foreign currency short term loans granted to exporting parties in Chile mainly to finance working capital; and credit card discounting in Brazil, a financing alternative where a bank provides in advance to2022, the Company a percentagehas US$ 1,100 million fully committed and available from the undrawn Revolving Facility. The available revolver capacity consists of the cash inflows related to the credit card installment sales.two lines of credit: one for US$ 600 million and another for US$ 500 million.
Capital expenditures
Our capitalCapital expenditures are related to the acquisition of aircraft, aircraft-related equipment, IT equipment, support infrastructuremaintenance CAPEX, restocking of parts, IT-related CAPEX, fleet projects such as cabin retrofits, cargo freighter conversions, and the funding of pre-delivery deposits.certain other strategic projects. LATAM’s capital expenditures is recorded in the Financial Statements in its cash flow statement through the following lines: Purchase of Property, Plant and Equipment, Purchases of Intangible Assets, and is part of Payments to Suppliers for the Supply of Goods and Services. Purchase of Property, Plant and Equipment totaled US$ 1,276.6780.5 million in 2019,2022, US$660.7597.1 million in 20182021 and US$403.7324.3 million in 2017,2020, and purchases of intangible assets totaled US$ 140.250.1 million in 2019,2022, US$96.288.5 million in 20182021 and US$87.375.4 million in 2017.2020. Maintenance CAPEX associated with operating leases included in Payments to Suppliers totaled US$163.7 million in 2022, US$149.1 million in 2021 and US$66.0 million in 2020. See “—Sources“-Sources of financing” above.
The following chart sets forth the Company’s estimated capital expenditures from 2023 to 2025 calendar year, which are subject to change and may differ from the actual capital expenditures. PDPs and Other expenditures, as shown in the table below, represent estimated cash out flows for 2020, 2021the Company that will be recorded in the Net cash flow from (used in) investing activities under the Property Plant and 2022 calendar years(1):Equipment and Purchases of Intangible Assets and in the Net cash flow from operating activities for the case of the maintenance related to the operating leases fleet. In the case of fleet commitments, in the below table they are presented as estimated Fleet CAPEX and the aircraft price of Fleet CAPEX represents the present value of the right of use aircraft (as per IFRS16) assumed to be received under operating lease agreements. However, aircraft arriving under an operating lease do not represent a cash outflow upon their arrival, but rather represent the recognition of a right-of-use asset and a lease liability, and therefore will not be recorded in the Cash Flow Statement as per IFRS accounting rules.
Estimated capital expenditures by year, as of December 31, 2019 | ||||||||||||
2020 | 2021 | 2022 | ||||||||||
(in US$ millions) | ||||||||||||
Fleet Commitments(1) | 408 | 773 | 574 | |||||||||
PDPs(2) | 42 | (23 | ) | (39 | ) | |||||||
Other expenditures(3) | 1,050 | 950 | 930 |
Estimated capital expenditures by year, as of December 31, 2023 | ||||||||||||
2023 | 2024 | 2025 | ||||||||||
(in US$ millions) | ||||||||||||
Fleet Commitments (1) | (835 | ) | (539 | ) | (1,253 | ) | ||||||
PDPs (2) | 50 | (57 | ) | (66 | ) | |||||||
Other expenditures (3) | (1,165 | ) | (1,301 | ) | (1,068 | ) |
(1) | The |
(2) | Represents pre-delivery payments made by LATAM, or inflows received by LATAM after the delivery of the aircraft is made. |
(3) | Other Expenditures include estimates of capital expenditures on spare engines and parts, maintenance of |
At this time,
For reference, LATAM isgroup’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 US$1,520.5 million for 2025. In the table above these commitments are assumed to be received under operating leases. In general, LATAM evaluates financing alternatives to meet its fleet commitments and therefore the amounts presented are not able to fully determinenecessarily indicative of a cash outflow and depending on the adjusted levelstype of estimated capital expenditureslease agreement (operating or financial lease), the Cash Flow Statement will record fleet delivery differently: for financial leases, cash out will be recorded in lightthe Net cash flow from (used in) investing activities based on the purchase price of the expected lower demand on air travel. The actualaircraft.
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 secured debt through Japanese Leases with a call option (“JOLCO”). As of December 31, 2022, the outstanding obligations under these tax leases were US$202 million.
Non Aircraft Debt
1. Term Loan B Facility: On October 18, 2022, LATAM Airlines Group S.A., together with Professional Airline Services, Inc., a Florida corporation and timinga wholly owned subsidiary of LATAM, issued a five-year term loan facility of US$ 1,100 million with an interest rate, at LATAM’s election, of either (i) Adjusted Term SOFR plus an applicable margin of 9.5%, or (ii) ABR, plus an applicable margin of 8.5%. As of December 31, 2022, the outstanding amount under the Term Loan B Facility was US$ 1,100 million.
2. Senior Secured Notes: On October 18, 2022, LATAM Airlines Group S.A., together with Professional Airline Services, Inc., a Florida corporation and a wholly owned subsidiary of LATAM, issued (i) senior secured notes due 2027 for an aggregate principal amount of US$450 million with a coupon of 13.375% and (ii) senior secured notes due 2029 for and aggregate principal amount of US$ 700 million with a coupon of 13.375%. As of December 31, 2022, the outstanding amount under the Senior Secured Notes was US$1,150 million.
3. Spare Engine Facility: On November 3, 2022, LATAM Airlines Group S.A., acting through its Florida branch, issued a five-year credit facility guaranteed by spare engines for a principal amount of US$275 million. As of December 31, 2022, the outstanding amount under the Spare Engine Facility was US$275 million.
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 future capital expenditures may be materially lower than our estimates as a resultdebt was 9.3%. Out of the impacttotal 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:
● | Narrow-body passenger aircraft deliveries (Airbus A320-Family): 83 aircraft |
● | Wide-body passenger aircraft deliveries (Boeing 787-9): 2 aircraft |
2022 Fleet Additions
During 2022, LATAM completed the addition of the spread of coronavirus (COVID-19) on demand for air travel infollowing wide-body aircraft:
● | Four Boeing 787-9 through operating leases. |
During 2022, LATAM completed the regions we operate.
C.Research and Development, Patents and Licenses, etc.
During 2019 LATAM continued with the registration of its brands to guarantee its protection worldwide, thus strengthening the presenceaddition of the brand.following narrow-body aircraft:
● | Four Airbus A320 Neo through operating leases and one Airbus A320 through a short term lease. |
2021 Fleet Additions
During 2021, LATAM completed the addition of the following wide-body aircraft:
● | Five Boeing 787-9 through operating leases. |
During 2021, LATAM completed the addition of the following narrow-body aircraft:
● | Two Airbus A320 through operating leases, and eleven Airbus A321 through operating leases. |
C. | Research and Development, Patents and Licenses, etc. |
TrademarkLATAMhas 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, USAthe United States, and Venezuela; TrademarkLATAM AIRLINEShas been registered in Argentina, Bolivia, China, Colombia, South Korea, Cuba, Ecuador, El Salvador, Spain, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Panama, Paraguay, Peru, Portugal, Dominican Republic, Taiwan, European Union, Uruguay and Venezuela.
LATAM AIRLINES ARGENTINA has been registered in Argentina;LATAM AIRLINES COLOMBIAhas been registered in Colombia;LATAM AIRLINES ECUADOR has been registered in Ecuador;LATAM AIRLINES PARAGUAY has been registered in Paraguay andLATAM AIRLINES PERU has been registered in Peru.LATAM CARGOhas been registered and/or renewed in Argentina, Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, USA, Venezuelathe United States, and Australia.Venezuela. LATAM CARGO BRAZILBRASIL has been registered in Brazil;LATAM CARGO COLOMBIAhas been registered in Colombia;LATAM CARGO MEXICOhas been registered in Mexico.
LATAM CORPORATE has been registered in Argentina, Bolivia, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Mexico,Nicaragua, Panama, Paraguay, Peru, Dominican Republic, European Union and Uruguay.LATAM FIDELIDADEin the following countries, Argentina, Australia, Bolivia, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, Uruguay, USA and Venezuela.LATAM LINEAS AEREASin Argentina, Colombia, Ecuador and Peru;LATAM MROin Argentina; Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, Uruguay, USA, Venezuela and Australia.LATAM PASSin Argentina, Australia, Bolivia, Canada, Colombia, Ecuador, Mexico, New Zealand, Paraguay, Peru, European Union, Uruguay, USA, Venezuela and Australia.LATAM PASS MILESin New Zealand and Australia.LATAM TOURS inArgentina, Colombia, Ecuador and Peru.LATAM TRADEin Argentina, Bolivia, Colombia, Costa Rica, Cuba, 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. TrademarkLATAM TRAVELhas been registered in Argentina, Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru, European Union, United Kingdom, Uruguay, USA, Venezuelathe United States, and Australia;Venezuela; trademarkLATAM TRAVEL SOLUTIONShas been registered in Panama;LATAM VIAGENShas been registered in Brazil;LATAM, JUNTOS MÁS LEJOShas been registered in Argentina and Ecuador.LATAM, TOGETHER, FURTHERhas been registered in Australia, New Zealand, United Kingdom and the European Union and USA.Union.
LATAMPLAYhas been registered in Argentina, Colombia and Ecuador.LATIN AIRLINE NETWORKhas been registered in Mexico, Nicaragua, New Zealand, United Kingdom and the European Union.LIBREVOLADORhas been registered in Bolivia, Ecuador, Paraguay and Peru.LIBREVOLADOREShas been registered in Bolivia, Ecuador, Paraguay and Peru.LIDERES DEL SERVICIOhas been registered in Argentina,LINEA AEREA CARGUERA DE COLOMBIAhas been registered in Colombia.
TAM has filed for trademark registration, registered or renewed the following trademarks in Brazil,LATAM;LATAM; LATAM AIRLINES;AIRLINES; LATAM AIRLINES BRAZIL;BRASIL; LATAM CARGO, LATAM CARGO BRAZIL;BRASIL; LATAM FIDELIDADE;FIDELIDADE; LATAM MRO,,LATAM PASS; LATAM TRADE; TAM LINHAS AÉREAS; LATAM TRAVELTRAVEL; LATAM VIAGENS;VIAGENS; LATAM TRADE; LATAM TRAVEL; LATAMPLAY;MEGA PROMO;LATAMPLAY; MERCADO LATAM;LATAM; VAMOS LATAMLATAM..
FIDELIDAD in Argentina;FIDELIDAD TAM in Paraguay;LATAM AIRLINES ARGENTINAin Argentina;LATAM AIRLINES COLOMBIA in Colombia;LATAM AIRLINES ECUADOR in Ecuador;LATAM AIRLINES PARAGUAY in Paraguay andLATAM AIRLINES PERU in Peru.
D. | Trend Information |
D. Trend Information
On March 12, 2020,For 2023, LATAM Airlines announced the suspension of its guidance for 2020 in light of the uncertainty dueexpects total passenger ASK growth to the COVID-19 (coronavirus) outbreak that is affecting the demand for air traffic. As of this date, it is not possible to quantify the exact impact on demand or how long it may take to recover, making it impossible to estimate resultsbe between 20% and 24% versus 2022. International passenger growth for the full year.year 2023 is expected to be between 37% and 40%. LATAM Airlines Brazil’s domestic passenger ASKs in the Brazilian market are expected to increase between 8% and 11%. LATAM group’s domestic ASKs in Spanish-speaking countries (SSC) are expected to increase by approximately 8% to 11%.
Regarding cargo operations, LATAM is taking immediate measuresexpects cargo ATKs to minimize possible effectsincrease between 20% and 23% for full year 2023, driven by the increases in LATAM’s international passenger capacity which result in additional capacity related to the space in the belly of those aircrafts, accompanied by the addition of new cargo freighters.
During 2022, LATAM group operated in a context of significant recovery for air travel, propelled by the ease of travel restrictions in the domestic markets where the group operates and in the regions where most of the current scenario, includingLATAM’s international operations are concentrated, such as North America and Europe. Following LATAM’s emergence from Chapter 11 on November 3, 2022, LATAM’s goal is to continue to increase the efficiency of its operations with a leaner and more efficient cost reduction and capacity adjustments. Along these lines, and in addition to the significant efforts being made bystructure, allowing LATAM to protect the healthkeep strengthening its network by launching new routes and safety of its passengersdestinations while keeping a strong focus on profitability and workers, the LATAM group announces a decrease in capacity of approximately 30% of international operations for April and May 2020.cash generation.
On March 16, 2020, LATAM Airlineswill continue to use fuel hedging programs and its affiliatesupdated the decreasefuel surcharge in capacityour operation to approximately 70% of total operations, corresponding 90% to international operations and 40% to domestic operations.
At this time, LATAM is not able to fully determine the impact on financial results in light of the expected lower demand on air travel as a result ofhelp minimize the impact of short-term movements in crude oil prices. As of February 28, 2023, LATAM had hedged approximately 26%, 44%, 28% and 13% of its estimated fuel consumption for the spreadfirst, second, third and fourth quarters of coronavirus (COVID-19) on demand for air travel in the regions we operate.
2023 respectively.
E. Off-Balance Sheet Arrangements
E. | Critical Accounting Estimates |
The company does not currently have off-balance sheet fleet arrangements as a result of
For information on the adoptionCompany’s accounting estimated, see Note 4 of IFRS 16. See Note 17 to our audited consolidated financial statements for a more detailed discussion of these commitments.below.
For other commitments, see Note 32 - (b) Other commitments - to our consolidated financial statements.
F. Long Term Indebtedness
Long Term Indebtedness
Secured Debt
Aircraft Debt
|
Non Aircraft Debt
Other
Unsecured Debt
|
As of December 31, 2019, the average interest rate of our debt was 4.63%. Out of the total debt, 61.6% accrues interest at a fixed rate (either through a stated fixed interest rate or through the use of interest rate swap agreements) or is subject to interest rate caps.
As of December 31, 2019, LATAM had US$1,367 million in current debt liabilities. Of this amount, US$340 million consisted of short-term debt, which represents 25% of our total current debt liabilities.
The Company entered into loan agreements in connection with the financing of Boeing 787 aircraft that are guaranteed by the United States Export–Import Bank, which include covenant based on financial indicators on a consolidated basis, in respect of which, in any case, non-compliance does not result in the acceleration of the payment of the loans. For more information, please see Note 32 to our audited consolidated financial statements.
As of December 31, 2019, we had purchase obligations totaling US$3.4 billion (US7.4 billion according to manufacturer’s list price), with deliveries between 2020 and 2026, as set forth below:
Tabular Disclosure of Contractual Obligations
The following table sets forth our material expected obligations and commitments as of December 31, 2019:
Payments due by period, as of December 31, 2019 | ||||||||||||||||||||
(US$ in millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Financial debt obligations(1) | US$ | 7,194 | US$ | 1,367 | US$ | 2,007 | US$ | 1,637 | US$ | 2,183 | ||||||||||
Lease obligations | US$ | 3,955 | US$ | 596 | US$ | 1,040 | US$ | 942 | US$ | 1,377 | ||||||||||
Fleet Commitments | US$ | 3,402 | US$ | 408 | US$ | 1,348 | US$ | 1,271 | US$ | 376 | ||||||||||
TOTAL | US$ | 14,551 | US$ | 2,371 | US$ | 4,395 | US$ | 3,850 | US$ | 3,936 |
2019 Fleet Additions
During 2019, LATAM completed the addition of the following wide body aircraft:
During 2019, LATAM completed the addition of the following narrow body aircraft:
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2018 Fleet Additions
During 2018, LATAM completed the addition of the following wide body aircraft:
During 2018, LATAM completed the addition of the following narrow body aircraft:
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management |
A. Directors and Senior Management
The LATAM Airlines Group S.A.’s board of directors consists of nine directors who are elected every two years for two-year terms at annual regular shareholders’ meetings or, if necessary, at an extraordinary shareholders’ meeting, and may be re-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 by the chairman of the board of directors. Extraordinary meetings can be called by the chairman, or when requested by one or more directors if the need for such a meeting is previously approved by the chairman, unless the meeting is requested by a majority of the directors or the vice-chairman, in which case the meeting must be held without the previous approval of the chairman.
On September 10, LATAM announced that Board compensation is determined at the CEOShareholders’ Meeting and is the same for all board members, with the exception of the LATAM Airlines Group, Enrique Cueto, after 25 yearschairman who is entitled to double the amount received by any other director. On November 15th, 2022, the shareholders agreed on (i) a fixed annual compensation of service, will leave his positionUS$80,000 for each board member part of CEOthe Board; (ii) a fixed amount of US$50,000 for each board member part of the Audit Committee and; (iii) a fixed annual compensation of US$20,000 for each one of the sub-committees in which the director participates, with a maximum of US$40,000 annually for all the sub committees, payable monthly at the rate of one-twelfth of such amount. The aforementioned remuneration is payable regardless of the number of board meetings directors attend, without limit of sessions. Mr. Neruda, Mr. van Geloven and Mr. Moghbel have waived their compensations as board members, members of March 31, 2020the Audit Committee and will be replaced bymembers of the current Chief Commercial Officer, Roberto Alvo, effective on March 31, 2020.sub committees.
The current board of directors was elected at the ordinaryextraordinary shareholders’ meeting held on April 25, 2019 for a two-year period.November 15, 2022.
The following are LATAM Airlines Group’s directors:
Directors | Position | |
Ignacio Cueto Plaza(1) | Director / Chairman | |
Director / Vice-Chairman | ||
Enrique Cueto Plaza | Director | |
Independent Director | ||
Antonio Gil Nievas | Director | |
Director | ||
Director | ||
Sonia J.S. Villalobos | Director |
Roberto Alvo | Chief Executive Officer LATAM | |
Ramiro Alfonsín | ||
Emilio del Real | ||
Juan Carlos Menció | ||
Paulo Miranda | Chief Customer Officer LATAM | |
Hernán Pasman | Chief Operations Officer LATAM | |
Juliana Rios | Chief Digital and IT Officer | |
Martin St. George | Chief Commercial Officer LATAM | |
Juan José Tohá | Director of Corporate Affairs and Sustainability |
(1) | Messrs. Ignacio |
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Biographical Information
Set forth below are brief biographical descriptions of LATAM Airlines Group’s directors and senior management. All of LATAM’s directors are Chilean citizens, with the exception of three members.
Directors
Directors
Mr. Ignacio Cueto,has served as a member of LATAM Airlines Group’s board of directors and as Chairman since April 2017 and was re-elected to the board of directors of LATAM in April 2019.2019, April 2020 and November 2022. Mr. Cueto’s career in the airline industry extends over 30 years. In 1985, Mr. Cueto assumed the position of Vice President of Sales at Fast Air Carrier, a national cargo company of that time. In 1985, Mr. Cueto became Service Manager and Commercial Manager for the Miami sales office. Mr. Cueto later served on the board of directors of Ladeco (from 1994 to 1997) and LAN (from 1995 to 1997). Mr. Cueto served as President of LAN Cargo from 1995 to 1998, as Chief Executive Officer-Passenger Business from 1999 to 2005, and as President and Chief Operating Officer of LAN since 2005 until the combination with TAM in 2012. Mr. Cueto later served as LAN’s CEO until April 2017. Mr. Cueto also led the establishment of the different affiliates that the Company has in South America, as well as the implementation of key alliances with other airlines. Mr. Cueto is a member of the Cueto Group. As of February 29, 2020,December 31, 2022, Mr. Cueto shared in the beneficial ownership of 130,165,39030,389,446,225 common shares of LATAM Airlines Group (21.46%(5.0% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
Mr. Carlos HellerBornah Moghbel has been the Vice-Chairman of the Board at LATAM Airlines Group since November 2022. He is a Co-Founder and Partner of Sixth Street, a leading global investment firm that offers capital solutions to companies across all stages of growth. Based in New York, Mr. Moghbel leads Sixth Street’s corporate investing in public markets as well as its global asset investing business. After co-founding Sixth Street in 2009, Mr. Moghbel established the firm’s presence in Europe before returning to the United States in 2016. Prior to joining Sixth Street, Mr. Moghbel was an investor at Silver Point Capital and he began his career in the Financial Sponsors Group at UBS Investment Bank. He earned a B.A. in Economics, with high honors, and a minor in Business Administration from the University of California, Berkeley.
Mr. Enrique Cueto has served as a member of LATAM Airlines Group’s board of directors since April 2020. Formerly, he held the position of LATAM Airlines Group’s Chief Executive Officer (“CEO”), joinedsince the combination between LAN and TAM in June 2012. From 1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. From 1993 to 1994, Mr. Cueto was a member of the board of LAN in May 2010 and was re-electedAirlines. Thereafter, Mr. Cueto held the position of CEO of LAN until June 2012. Mr. Cueto is a member of the Board of the Endeavor foundation, an organization dedicated to the boardpromotion of directors of LATAMentrepreneurship in April 2019. Mr. Heller has vast experience in retail, communications, transport and agriculture industries. Mr. Heller is president of Bethia S.A. (“Bethia”) (parent company of Axxion S.A. and Inversiones HS SpA). He is also President of the Boards of Falabella Retail S.A., Red Televisiva Megavision S.A., Club Hípico de Santiago S.A., Sotraser S.A., and Blue Express S.A. On February 29, 2020, Mr. Heller indirectly held 25,662,136 ordinary shares of LATAM Airlines Group through Axxion S.A. and Inversiones HS Spa (4.23% of the shares of LATAM Airlines Group). For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
Mr. Juan José Cueto, has served on LAN’s board of directors since 1994 and was reelected to the board of directors of LATAM in April 2017.Chile. Mr. Cueto currently serves as Executive Vice Presidentholds a degree in Economic Sciences from the Catholic University of Inversiones Costa Verde S.A., a position he has held since 1990,Chile and serves on the boards of directors of Consorcio Maderero S.A., Inversiones del Buen Retiro S.A., Costa Verde Aeronáutica S.A., Sinergia Inmobiliaria S.A., Valle Escondido S.A. and Fundación Colunga. Mr. Cueto is the brother of Messrs. Enrique andMr. Ignacio Cueto, LATAM Airlines Group CEO and Chairman respectively.of the board. Mr. Cueto is also a member of the Cueto Group. As of February 29, 2020,December 31, 2022, Mr. Cueto shared in the beneficial ownership of 130,165,39030,389,446,225 common shares of LATAM Airlines Group (21.46%(5.0% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
Mr. Nicolás EblenFrederico Curado , has served on LATAM’s board of directors since April 2017 and was re-elected to the board of directors of LATAM in April 2019. Mr. Eblen currently serves as CEO of Inversiones Andes SpA, a position he has held since 2010. In addition, he servesbeen on the board of directors of Granja Marina Tornagaleones S.A., Río Dulce S.A., Patagonia SeaFarms Inc., SalmonChile A.G., and Sociedad Agrícola La Cascada Ltda. Mr. Eblen holds a Bachelor’s degree in Industrial Engineering, major in Computer Science from Pontificia Universidad Católica de Chile and a Master in Business Administration from Harvard Business School. As of February 29, 2020, the Eblen Group had the beneficial ownership of 27,644,702 common sharesBoard of LATAM Airlines Group (4.56%since November 2022, as an independent director. He has also been an independent director of LATAM Airlines Group’s outstanding shares). For more information, see “Item 7. Major ShareholdersTransocean since 2013, is Chair of its HSE and Related Party Transactions.”
Mr. Henri Philippe Reichstul, joined LATAM’s board of directors in April 2014Sustainability Committee and was reelected to the board of directors of LATAM in April 2019. Mr. Reichstul is a Brazilian citizen and has served as President of Petrobras and the IPEA-Institute for Economic and Social Planning and Executive Vice President of Banco Inter American Express S.A. Currently, in addition to his roles as Administrative Board member of TAM and LATAM Group, he is also a member of the boardCorporate Governance Committee. Mr. Curado is also an independent director at ABB since 2016 and is Chair of directorsits Compensation Committee. He was CEO of Peugeot CitroenEmbraer from 2007 to 2016 and chairmanCEO of the board of Fives, among others.Ultrapar from 2017 to 2021. Mr. Reichstul is an economist with an undergraduate degreeCurado holds a B.Sc in Mechanical-Aeronautical Engineering from the FacultyAeronautics Institute of EconomicsTechnology (ITA) and Administration,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 postgraduate workNYSE 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 same discipline—Hertford College—Oxford University.
Mr. Patrick Horn,Vrije Universiteit Amsterdam. He has served on LATAM Airlines Group’s board of directors since April 2019. Hemultiple boards whilst at SVP and he is currently a Member of the Economic Council of theUniversidad de los Andes and director of non-profits such asAportes Chile. He has more than 35 years’ experience as an executive, both in Chile and abroad, in companies including British American Tobacco Co., Unilever, Compañía Sudamericana de Vapores and Grupo Ultramar, where he was also director of subsidiaries. Mr. Horn graduated as an Industrial Civil Engineer from thePontificia Universidad Católica de Valparaiso and holds a Master of Science in Industrial Engineering from the Georgia Institute of Technolgy, USA. He has participated in executive programs at the training centers of British American Tobacco Co. and Unilever in London, and at Kellogg Business School. He also completed a business management program (PADE) at theUniversidad de los Andes business school (ESE).
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Mr. Giles Agutter has served on LATAM Airlines Group’s board of directors since January 2017 and was reelected to the board of directors of LATAM in April 2019. Mr. Agutter is the owner and Chief Executive Officer of Southern Sky Ltd, an airline consultant company specializing in airline strategy, fleet planning, aircraft acquisition and aircraft financing. He is also currently a member of the boardBoards of directorsKlöckner Pentaplast and Southern Graphics Systems, and is part of Air Italy. Mr. Agutter has had vast experience in advising airlines, including Qatar Airways, on significant Merger and Acquisition projects within the airline industry. Mr Agutter is a British citizen and has a degree in Aerospace Engineering from Manchester University.Advisory Committee of Mattress Firm.
Mr. Eduardo Novoa has served on LATAM’s board of directors since April 2017 and was reelected to the board of directors of LATAM in April 2019. In addition, Mr. Novoa serves on the board of directors of Cementos Bio-Bio, Grupo Ecomac, ESSAL and is a member of the advisory board of STARS and Endeavor. He was also a member of the board of directors of Esval, Soquimich, Grupo Drillco, Techpack, Endesa-Americas, Grupo Saesa, Grupo Chilquinta, and several companies in the region that were subsidiaries of Enersis and AFP Provida. He has also been a member of the board of Amcham-Chile, the Association of Electric Companies, YPO-Chile, Chile Global Angels and several Start-Ups. Between 1990 and 2007 he was an executive of several companies such as CorpGroup, Enersis, Endesa, Blue Circle, PSEG and Grupo Saesa. Mr. Novoa has a Bachelor of Business and Administration from the Universidad de Chile and a Master in Business Administration from the University of Chicago. He has participated in executive programs at Harvard, Stanford and Kellogg and was professor of finance and economics at several universities in Chile.
Mrs. Sonia J.S. Villalobosjoined the Board of LATAM Airlines in August 2018 and was reelected to the board of directors of LATAM in April 2019.2018. 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, sheMrs. 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. As a volunteer, she participates
Mr. Alexander Wilcox has served on LATAM Airlines Group’s board of directors since October 2020. Mr. Wilcox resides in the BoardUnited 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 CFA Society Brazil,U.S. Mr. Wilcox attended the University of Vermont and earned a non-profit association that brings together nearly 1,000 professionals who hold the CFA (Chartered Financial Analyst) certificationBA in Brazil.Political Science and English.
Senior Management
Senior Management
Mr. Enrique CuetoRoberto Alvo , is LATAM Airlines Group’shas been the Chief Executive Officer (“CEO”) and has held this position since the combination between LAN and TAM in June 2012. From 1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. From 1993 to 1994, Mr Cueto was a member of the board of LAN Airlines. Thereafter, Mr. Cueto held the position of CEO of LAN until June 2012. Mr. Cueto is member of the IATA (International Air Transport Association) Board of Governors. He is also member of the Board of the Endeavor foundation, an organization dedicated to the promotion of entrepreneurship in Chile, and Executive Member of the Latin American and Caribbean Air Transport Association (ALTA). Mr. Cueto is the brother of Messrs. Juan José and Ignacio Cueto, members of the board. Mr. Cueto is also a member of the Cueto Group. As of February 29, 2020, Mr. Cueto shared in the beneficial ownership of 130,165,390 common shares of LATAM Airlines Group (21.46% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information, see “Item 7. Major Shareholders and Related Party Transactions.”
Mr. Ramiro Alfonsín, is LATAM’s Chief Financial Officer (“CFO”), a position he holds since July 2016. Over the past 16 years, before joining LATAM,March 31, 2020. Prior to this, he worked for Endesa, a leading utility company, in Spain, Italy and Chile, having served as Deputy Chief Executive Officer and Chief Financial Officer for their Latin American operations. Before joining the utility sector, he worked for five years in Corporate and Investment Banking for several European banks. Mr. Alfonsín holds a degree in business administration from Pontificia Universidad Católica de Argentina.
Mr. Roberto Alvois LATAM’s Chief Commercial Officer (“CCO”), a position he holds since May 2017 being responsible of LATAM, in charge of managing the Group’sgroup’s passenger and cargo revenue management, with all the commercial units reporting to him.revenue. Previously, he was Senior Vice-President of International and Alliances at LATAM Airlines, since 2015, and Vice-President of Strategic Planning and Development since 2008. MrDevelopment. Mr. Alvo joined LAN Airlines in November 2001, where he served as Chief Financial Officer of LAN Argentina, as Manager of Development and Financial Planning at LAN Airlines, and as Deputy Chief Financial Officer of LAN Airlines. Before 2001,working for the group, Mr. Alvo held various positions at Sociedad Química y Minera de Chile S.A., a leading Chilean non-metallic mining company. He is a civil engineer, and holds an MBA from IMD in Lausanne, Switzerland.
Mr. Ramiro Alfonsín is LATAM’s Chief Financial Officer (“CFO”), a position he has held since July 2016. Formerly, he worked 16 years for Endesa, a leading utilities company, in Spain, Italy and Chile, where he served as Deputy Chief Executive Officer and Chief Financial Officer for their Latin American operations. Before joining the utilities sector, he worked for five years in Corporate and Investment Banking for several European banks. Mr. Alfonsin holds a degree in Business Administration from Pontificial Catholic University of Argentina.
Mr. Emilio del Real is the LATAM Chief People Officer, a position he took over in August 2005. Between 2003 and 2005, he was Human Resources Manager at D&S, a Chilean retail company. Between 1997 and 2003, he served in various positions at Unilever, including Human Resources Manager of Unilever Chile, and Manager of Training and Recruitment and Management Development for Latin America. Mr. Del Real has a degree in Psychology from the Gabriela Mistral University.
Mr. Juan Carlos Menció has been the Chief Legal Officer at LATAM Airlines Group since September 1, 2014. Previously, he held the position of General Counsel for North America for LATAM Airlines Group and its affiliates, as well as General Counsel for its worldwide Cargo Operations, both since 1998. Prior to joining LATAM, he was in private practice in New York and Florida, representing various international airlines. Mr. Menció obtained his Bachelor’s Degree in International Finance and Marketing from the School of Business at the University of Miami and his Juris Doctor Degree from Loyola University.
Mr. Paulo Miranda, is has been LATAM’s Customers Vice-President, a position he holdsChief Customer Officer since May 2019. Mr. Miranda has over 20 years of experience in the aviation industry, withhaving held different positions, first at Delta Air Lines in the United States, and then at Gol Linhas AereasAéreas in Brazil. In his last role, Mr. Miranda was responsible for customer experience,the Client Experience department, having previously worked in finance and alliances, as well as onin the negotiation and implementation of joint ventures. Mr. Miranda holds a Bachelor of Business Administration degree from the Carlson School of Management, at the University of Minnesota, USA.
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Mr. Hernán Pasman has been the Vice-President ofChief Operations Maintenance and FleetOfficer of LATAM airlines groupAirlines 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 a Civil Engineering degree from ITBA (1995) and an MBA from Kellogg Graduate School of Management (2001).
Mrs. Juliana Rios has over 20 years of experience in services and technology in the financial and airline industries. Her career spans business transformation, mergers & acquisitions, digitization, IT, and large-scale project management, such as PSS migration. As Chief IT & Digital Officer, she leads LATAM Airlines’ digital transformation efforts. Prior to joining LATAM, Mrs. Rios was a senior executive at Banco Santander, Brazil, spearheading the retail business and customer experience strategy. She headed integration programs in Brazil, Italy and the Netherlands. Mrs. Rios holds a Bachelor’s in Business Administration and an MBA in Corporate Management from IBMEC, Brazil.
Mr. Emilio del Real,Martin St. George is LATAM’s Vice-President of Human Resources,joined LATAM Airlines Group in 2020 as Chief Commercial Officer after a position30+ year career in the airline industry in both North America and Europe. Prior to joining LATAM, he assumedran a strategy consulting firm for airlines and travel industry clients in August 2005. Between 2003the United States, the Caribbean and 2005,Europe, and even served as Acting CCO at Norwegian Air Shuttle ASA. From 2006 to 2019, he worked for JetBlue Airways, in positions in marketing, networking, and finally, as COO at JetBlue. Mr. del Real was the Human Resources Manager of D&S, a Chilean retail company. Between 1997 and 2003 Mr. del Real served in various positions at Unilever, including Human Resources Manager of Unilever Chile, and Manager of Training and Recruitment and Management Development for Latin America. Mr. del Real hasSt. George holds a degree in Psychologycivil engineering from the Universidad Gabriela Mistral.Massachusetts Institute of Technology.
Mr. Juan Carlos MencióJosé Tohá , is Vice President of Legal Affairs and Compliance for LATAM Airlines Group a position he holds since September 1, 2014. Mr. Mencio previously held the position of General Counsel for North America for LATAM Airlines Group and its related companies,journalist with a specialty in Sustainability from Oxford University, as well as General Counsel for its worldwide Cargo Operations, both since 1998. Prior to joining LAN, he wasa Master’s and PhD in private practice in New York and Florida representing various international airlines. Mr. Mencio obtained his Bachelor’s Degree in International Finance and MarketingCommunication from the School of Business at theAutonomous University of MiamiBarcelona. He has vast experience in the design and his Juris Doctor Degree from Loyola University.implementation of communication strategies and the interaction of organizations with their environment. He has served in FAO’s Latin America and Caribbean regional office in Santiago, Chile, and as Communications Manager for Codelco and BHP South America, among others. In 2019, he joined LATAM group as Director of Corporate Affairs and Sustainability, reporting directly to the CEO of LATAM group, and he coordinates the corporate strategy of Public Affairs, External Communications, and Sustainability.
B. Compensation
In 2019, the Company paid its principal executives (executives who define the Company’s policies and major guidelines and who directly affect the results of the business, including Vice-Presidents, Chief Executives and Senior Directors) a total gross remuneration of US$60.4 million.
Under Chilean law, LATAM Airlines Group must disclose in its annual report details of all compensation paid to its board members during the relevant fiscal year, including any amounts that they received from LATAM Airlines Group for functions or employment other than serving as a member of the board of directors, including amounts received as per diem stipends, bonuses and, generally, all other payments. Additionally, pursuant to regulations of the CMF, the Chilean securities regulator, the annual report must also include the total compensation and severance payments received by managers and principal executives, and the terms of and the manner in which board members and executive officers participated in any stock option plans.
LATAM Airlines Group’s board members are paid 60 UF per meeting (120 UF for the chairman of the board) and 48 UF for attendance to the subcommittee of Directors meetings. LATAM Airlines Group also provides certain benefits to its board members and executive officers, such as free and discounted airline tickets and health insurance. We do not have contracts with any of our board members to provide benefits upon termination of employment.
As set forth in further detail in the following table, in 2019 the members of our board of directors received fees and salaries in the aggregate amount of US$413,219.
For information on executive compensation, see “-D. Employees” below.
Former board member, leaving the board on April 25, 2019.The above-mentioned board members were elected to the LATAM board of directors on April 25, 2019.
As required by Chilean law, LATAM Airlines Group makes obligatory contributions to the privatized pension fund system on behalf of its senior managers and executives, but it does not maintain any separate program to provide pension, retirement or similar benefits to these or any other employees.
C. Board Practices
Our board of directors is currently comprised ofhas nine members. The terms of each of our current directors will expire in April 2021.2 years from November 15, 2022, unless previously renewed in accordance to applicable law or pursuant to the Company’s Chapter 11 proceedings. See “—Directors“-Directors and Senior Management” above.
Committees
Board of Directors’ Committee and Audit Committee
Pursuant to the Ley sobre Sociedades Anónimas No. 18,046 (“Chilean Corporation Law,Act”) and the Reglamento de Sociedades Anónimas (the “Regulation to the Chilean Corporate Law”, and together with the Chilean Corporation Act, the “Chilean Corporate Law”), LATAM Airlines Group must have a board of directors’ committee composed of no less than three board members. LATAM Airlines Group has established a three-person boardBoard of directors’Directors’ Committee, which, among other duties, is responsible for:
● | examining the reports of LATAM Airlines Group’s external auditors, the balance sheets and other financial statements submitted by LATAM Airlines Group’s administrators to the shareholders, and issuing an opinion with respect thereto prior to their presentation to the shareholders for their approval; |
● | evaluating and proposing external auditors and rating agencies; |
● | proposing a general policy for managing conflicts of interest and pronouncing on the company’s general policies; |
● | reviewing internal control reports pertaining to related-party transactions; |
● | examining and reporting on all related-party transactions; and |
● | reviewing the pay scale of LATAM Airlines Group’s senior management. |
Under Chilean CorporationCorporate Law we are required, to the extent possible, to appoint a majority of independent board members to the board of directors Committee. A board member iscommittee. Pursuant to the Chilean Corporation Act, no person shall be considered independent whenwho, at any time during the previous eighteen months: (1) Maintained any relationship, interest or economic, professional, credit or commercial dependence, of a nature and relevant volume, with the company, other companies of the financial conglomerate to which the company belongs, its comptroller, or principal executive officer of any one of them, or was a director, manager, administrator, principal executive officer or advisor of such companies; (2) Was a close relative (i.e., parents, father/mother in law, siblings, sisters/brothers in law), to any one of the persons referred to in 1 above; (3) Was a director, manager, administrator or principal executive officer of non-profit organizations that received contributions or large donations from any individual referred to in clause 1 above; (4) Was a partner or shareholder that possessed or controlled, directly or indirectly, 10% or more of the company’s capital; a director; manager; administrator or principal executive officer of entities who had provided consulting or legal services, for relevant amounts, or of external audit, to the persons referred to in 1 above; or (5) Was a partner or shareholder who possessed or controlled, directly or indirectly, 10% or more of the company’s capital; a director; manager; administrator or principal executive officer of principal competitors, suppliers or clients of the company. Should there be more than three directors entitled to participate in the directors committee, the board of directors shall elect the members of the directors committee by unanimous vote.
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 or she canis an independent director.
To be elected regardlessas independent director, the candidates must be proposed by shareholders that represent 1% or more of the votingshares of the controlling shareholders. See “Item 16. Reserved—G. Corporate Governance.”company, at least 10 days prior to the date of the shareholders’ meeting called to that end. The candidate who obtains the highest number of votes shall be elected as independent director.
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 Rule 10A-3 under the Exchange Act. Given the similarity in the functions that must be performed by our board of directors’ Committeecommittee and the audit committee, our boardBoard of directors’Directors’ Committee serves as our Audit Committee for purposes of Rule 10A-3 under the Exchange Act.
As of December 31, 2019,2022, all of the members of our boardBoard of directors’Directors’ Committee, which also serves as our Audit Committee, were independent under Rule 10A-3 of the Exchange Act. As of December 31, 2019,2022, the committee members were Mr. Eduardo Novoa Castellón,Frederico Curado, Mr. Nicolás Eblen HirmasMichael Neruda and Mr. Patrick Horn García.Mrs. Sonia J.S. Villalobos. We pay each member of the committee 80 UFs pera fixed annual remuneration of US$50,000, payable monthly assistance to meetings.at the rate of one-twelfth of such amount, regardless of the number of board meetings they attend, without limit of sessions.
Other LATAM Board Committees
LATAM’s board of directors has also has established four other committees to review, discuss and make recommendations to our board of directors. These include a Strategy & Sustainability Committee, a Leadership Committee, a Finance Committee and a Customers and Businesses Committee. The Strategy & Sustainability Committee focuses on the corporate strategy, current strategic issues and the three-year plans and budgets for the main business units and functional areas and high-level competitive strategy reviews. The Leadership Committee focuses on, among other things, group culture, high-level organizational structure, appointment of the LATAM CEO and his or her other reports, corporate compensation philosophy, compensation structures and levels for the LATAM CEO and other key executives, succession or contingency planning for the LATAM CEO and performance assessment of the LATAM CEO. The Finance Committee is responsible for financial policies and strategy, capital structure, monitoring policy compliance, taxation strategy and the quality and reliability of financial information. Finally, the Customers and Businesses Committee is responsible for setting the competitive strategies of the Customers and Commercial Vice Presidencies with a focus on sales, marketing, network and fleet initiatives, customer experience and revenue management. We pay each member of a sub-committee a fixed annual compensation of US$20,000 for each of the sub-committees of which the Director is a member, payable monthly at the rate of one-twelfth of such amount, with a cap thereon of US$40,000 per year for all the sub-committees of which the Director may be a member, payable monthly at the rate of one-twelfth of the latter amount. The compensation is payable to the Directors as members of one or more sub-committees of the board, regardless of the number of sessions of sub-committees of the board that they attend, without limit of sessions.
OnIn 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
On December, 2019, LATAM Airlines Group filedThe company follows strict procedures in order to comply with current legislation in the Company’sUnited States and in Chile on corporate governance. In this context, the Company has published a Manual for Corporate Practices Report prepared according to General Rule N° 385, previously N°341,which can be found on the LATAM investor relations website and incorporates the applicable legislation in its policies and decisions. Information obtained on, or accessible through, this website is not incorporated by reference herein and shall not be considered part of the Chilean Financial Market Commission (“CMF”) issued June 8, 2015. The reporting obligation stipulated in this rule is for practices in place as of December 31st of each year and the report must be presented no later than March 31st of the following year.annual report.
The report provided each year to the Commission must cover the following subjects:
D. Employees
The following table sets forth the number of employees in various positions at the Company.
Employees ending the period | As of December 31, | |||||||||||
2019(1) | 2018 | 2017 | ||||||||||
Administrative | 6,966 | 6,380 | 6,922 | |||||||||
Sales | 2,505 | 3,106 | 3,332 | |||||||||
Maintenance | 4,911 | 4,928 | 4,742 | |||||||||
Operations | 13,538 | 13,391 | 15,126 | |||||||||
Cabin crew | 9,511 | 9,196 | 9,016 | |||||||||
Cockpit crew | 4,298 | 4,169 | 3,957 | |||||||||
Total | 41,729 | 41,170 | 43,095 |
As of December 31, | ||||||||||||
Employees ending the period | 2022 | 2021 | 2020 | |||||||||
Administrative | 4,628 | 4,372 | 4,477 | |||||||||
Sales | 815 | 891 | 982 | |||||||||
Maintenance | 5,083 | 4,541 | 4,487 | |||||||||
Operations | 10,904 | 9,352 | 10,195 | |||||||||
Cabin crew | 7,423 | 6,708 | 5,918 | |||||||||
Cockpit crew | 3,654 | 3,250 | 3,056 | |||||||||
Total | 32,507 | 29,114 | 29,115 |
(1) | As of December 31, |
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 ofto the coverage provided by the legal system. We also grant other benefits, according to local market practice (meal, transportation, maternal and paternal leave, etc.). Additionally,In addition, we have a global staff travel program, which grants free and discounted tickets to our permanent employees.
Long Term Incentive Compensation Program
The Company implemented a long-term retention plan for executives, with an end date of December 2018 and a vesting period between October 2018 and March 2019. The plan contemplates an extraordinary bonus to be paid in cash, whose calculation formula based on the variation of the value of the Company’s shares over time.
The company implemented a long-term retention plan for executives effective between October 2019 and March 2020 that expires in March 2020, which consists of an extraordinary bonus based on the the value of the shares of LATAM. To date no payments have been made under this plan.
LP3 compensation plans (2020-2023)
The Company implemented a program for a group of executives effective between October 2020 and March 2023 tha expires in March 2023,(the “Compensation Plan”), which consistsconsisted of aan extraordinary bonus that mayto be paid anuallyannually or subject to accrual and is based on target prices of the shares of LATAM. The program expired in March 2023 without any payments having been made.
Corporate Incentive Plan
As part of the Backstop Agreements, the parties agreed on proposed terms for a Corporate Incentive Plan, subject to the approval, allocation and implementation by the company’s board of directors. The Corporate Incentive Plan is expected to be equivalent to 2.5% of the fully-diluted, fully-converted post-reorganization shares, is intended to be implemented after the date of substantial consummation of the Plan of Reorganization (the “Effective Date”) by the board of directors to be elected post-Effective Date, and is anticipated to cover senior executives, other executives, and other employees, in the terms and conditions of, and as described in the Backstop Agreements. The terms and conditions of any subsequent incentive plans are expected to be determined and approved by the current board of directors, in its sole discretion.
For more information, please see Note 34 to our consolidated financial statements.
Labor Relations
We believe we generally maintain goodLATAM has maintained and intensified its efforts to ensure that labor relations with ourbetween the group, its employees and their legal representatives are carried out through dialogue and result in agreements that benefit both parties, but always with safety criteria for the unions,operation, efficiency, sustainability and expect to continue to enjoy good relations with our employees and the unions in the future. We also believe that we have built a solid base among our employees that will support and facilitate our growth plans. We can provide no assurance, however, that our employee compensation arrangements may not be subject to change or modification after the expiration of the contracts currently in effect, or that we will not be subject to labor-related disruptions due to strikes, stoppages or walk-outs.
Chile
care for people. During the year, 2019, tenthe company has had to make the necessary adjustments essential to maintaining its sustainability, as a result of which the collective agreements (Protocols) were maintained with the different unions aimed at adapting the operational conditions and costs associated especially with the personnel of air (command and cabin crew). One of the main efforts that the company had to carry out during 2022 was the implementation of the remote work models that it had to apply as a result of the pandemic, modifications to labor legislation and restrictions from health organizations. However, the company continues to be concerned with constantly evaluating possible labor conflicts, for which it is always preparing contingency plans if necessary.
Chile
In 2022, 13 collective bargaining processes were carried out with unions, all of which were initiated voluntarily and in advance of the expiration of the legal deadlines. The aforementioned collective bargaining negotiations involved: Administration Unions (5), Maintenance Unions (4) and Pilots Unions (4), having a total of 3,583 employees involved in such negotiations. Of the 13 collective bargaining processes carried out, 10 were concluded in advance of the legal deadlines, therefore, without any possibility of contingency for the operation. The remaining 3 collective bargaining processes ended in accordance with the legal deadlines, i.e. a regulated negotiation in accordance with current legislation. On the other hand, regardless of the type of collective bargaining process (early or regulated), all of them anticipated or not regulated, which implies thatwere finally approved by large majorities of the union renounces the possibilityrespective assemblies, i.e., with an average approval of over 80%. As a strike as a meansresult of exerting legal pressurethis intense collective bargaining process, agreements were signed involving 65% of unionized workers in the negotiations. All theChile, and these processes will continue in 2023 with 7 new collective bargaining agreements that were entered into have a duration of three years, which is the maximum legal term allowedplanned: Cabin Crew Unions (4), Administration Unions (2) and allows job stability for that time.Pilots Union (1).
In parallel, during 2019s two new unions were formed: Labor Union of Workers of Easter Island, and Workers Union of LATAM Travel, forming a total of 20 unions in Chile.Ecuador
Ecuador
In 2011 a union previously exclusive to cabin crew employees was integrated into the general employee’s union. This group maintains relations with the Company, but does not have the right to enter into or negotiate collective bargaining agreements under Ecuadorian law because less than half of our employees eligible for membership are members of this union.
Additionally, three employee associations were formed in 2012, including pilots, other general employees but composed mostly of maintenance employees and other composed mostly by employees of airport administration. In July 2019, the Company renewed theits 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.
Argentina
In September 2019, we began salary negotiations with unions with respect to adjustment for inflation and reached an agreement on January 17, 2020.Colombia
LATAM CARGO international operations based in EZEIZA Airport were outsourced during last September despite a labor union disagreement.
In September 2019, we implemented an Aircraft Interchange Agreement as a new operational model. This new operation process was supported by most of the pilots despite APLA (Asociación de Pilotos de Líneas Aéreas), disagreement. As a result of this action, a new trade union was created (UPAL - Unión de Pilotos Aviadores de LATAM).
In 2020 we will continue working on different initiatives based on productivity and efficiency, avoiding conflicts or strikes, focusing on transforming LATAM Airlines Argentina into a more efficient company.
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Colombia
In Colombia we have five different unions. The company held negotiations with:during 2022 the Company maintained the agreements signed in 2021 with the following union groups: (i) the Technicians Union (ACMA), in 2018, and reached an agreement thatwhich will be in forceeffect until June of 2021,December 2024, (ii) the Cabin Crew Union (ACAV), in 2018, and reached an agreement thatwhich will be in forceeffect until June of 2021,December 2024, (iii) the Industrial Union of Aviation Workers (SINTRATAC), in 2018, and reached an agreement thatwhich will be in force until JuneDecember 2024, (iv) non-union employees of 2021, (iv)Airport and the Cabin Crew, which will be in force until December 2024.
Ending 2022, with the Pilots’ Latam Colombia Union (ADALAC), in 2018, and reached an agreement thatthe Company anticipated the collective bargaining, which will be in forceeffect until January of 2021December 2024 and (v)with respect to the pilots’ union ACDAC, in an(ACDAC), the Colombian Court resolved a partial decision regarding the arbitration during the last quarter of 2017.2019.
Peru
Peru
In Peru, there are six unions that represent workers from different functional areas: pilots, cabin crew, aircraft technicians, flight dispatchers and airport workers. Our current collective agreements havewere signed for a termduration of four years.
In 2019,July 2022 LATAM Airlines Peru concluded negotiations with the cabin crew union and one of our aeronautical technicians' unions. Collective bargaining with the cabin crew union concluded through arbitration and with the aeronautical technicianaircraft technicians union in direct agreement.
During 2019, negotiation continuedagreement (4 years). In 2022 we started the collective bargaining process with the following unions: other aircraft technicians, airport workers, pilots and flight dispatchers’ union (negotiation began in September 2018). These negotiations are expected to conclude with a collective bargaining agreement in the first half of 2020.dispatchers.
Brazil
Brazil
Under Brazilian law, the term of collective bargaining agreements is limited to two years. LATAM Airlines Brazil’s collective bargaining agreements are valid for one year. LATAM Airlines Brazil has historically negotiated collective bargaining agreements with eleven unions in Brazil—Brazil- one crew flight union, which represents pilots, copilots and flight attendants, and ten ground staff unions. In December 2019,2022, LATAM Airlines Brazil successfully renegotiated collective bargaining agreements with all the unions, which included a wage increase of 3.37%, in line with the inflation rate of the last 12 months. unions.
E. Share Ownership
As of December 31, 2019,February 28, 2023, the members of our board of directors and our executive officers as a group owned 30.3%5.02% of our shares. None of our directors or executive officers has voting rights that are different from any of our other shareholders. See “Item 7. Major Shareholders and Related Party Transactions.”
For a description of stock options granted to our executive officers, see “—D. Employees—Long“-D. Employees-Long Term Incentive Compensation Program.”
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 (Chairman of the Board of LATAM), Mr. Enrique Cueto (the CEO LATAM)(LATAM board member) and certain other Cueto family members and entities controlled by them, comprise the Cueto Group. As of February 29, 2020December 31, 2022 the Cueto Group beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act) 21.46%5.0% of LATAM Airlines Group’s common shares. ThePursuant to a shareholders’ agreement entered into by the Backstop Creditors and the Backstop Shareholders in connection with LATAM’s emergence from bankruptcy proceedings, Delta Air Lines, Inc., Qatar Airways Investments (UK) Ltd. and the Cueto Group isare entitled to elect threefour of the nine members of our board of directors and is in a position to direct the management of the Company. In connection with our combination with TAM, members of the Cueto Group entered into a shareholder’s agreement with the Amaro Family, acting through TEP Chile, and TEP Chile entered into shareholder’s agreements with LATAM and TAM.directors. See “—Shareholders’“-Shareholders’ Agreements.”
Following the combination with TAM, the Amaro Group became a major shareholder of LATAM Airlines Group. Please see Item 4. Information on the Company – History and Development of the Company. As of February 29, 2020, the Amaro Group owned 1.98%(2) of LATAM Airlines Group’s common shares. The terms of the shareholders’ agreement among the Amaro Group, LATAM and the Cueto Group require the Cueto Group and the Amaro Group to vote to elect individuals nominated to our board of directors in accordance with the direct and indirect shareholder interests in LATAM. See “—Shareholders’ Agreements.”
In addition to the Cueto Group and the Amaro Group, four other groups or entities are major shareholders of LATAM. As of February 29, 2020, the Eblen Group, which includes our director Nicolás Eblen, owned 4.56% of our common shares; the Bethia Group, which includes our vice-president of the board of directors, Carlos Heller, owned 4.23% of our common shares; Qatar Airways Investments (UK) Ltd., whose nominee, Giles Agutter, is one of our directors, owned 10.00%(4)of our common shares and Delta Air Lines owned 20.00% of our common shares.
The table below sets forth additional information regarding the beneficial ownership of our common shares, as of February 29, 2020,January 31, 2023, by our major shareholders or shareholder groups, and minority shareholders.
Beneficial ownership (as of February 29, 2020) | ||||||||
Number of shares of common stock beneficially owned | Percentage of common stock beneficially owned | |||||||
Shareholder | ||||||||
Cueto Group(1) | 130,165,390 | 21.46 | % | |||||
Costa Verde Aeronautica S.A(2) (3) | 67,878,651 | 11.19 | % | |||||
Costa Verde Aeronautica Tres SpA | 27,148,493 | 4.48 | % | |||||
Inversiones Nueva Costa Verde Aeronautica Ltda. | 18,133,406 | 2.99 | % | |||||
Costa Verde Aeronautica SpA | 9,228,949 | 1.52 | % | |||||
Others | 7,775,891 | 1.28 | % | |||||
Delta Air Lines | 121,281,538 | 20.00 | % | |||||
Delta Air Lines, Inc. | 121,281,538 | 20.00 | % | |||||
Qatar Airways(4) | 60,640,768 | 10.00 | % | |||||
Qatar Airways Investments (UK) Ltda. | 60,640,768 | 10.00 | % | |||||
Amaro Group(2)(3) | 12,009,257 | 1.98 | % | |||||
TEP Chile S.A. | 12,009,257 | 1.98 | % | |||||
Eblen Group | 27,644,702 | 4.56 | % | |||||
Inversiones Andes SpA. | 13,187,037 | 2.17 | % | |||||
Inversiones Andes II SpA | 6,152,633 | 1.01 | % | |||||
Inversiones PIA SpA. | 4,155,953 | 0.69 | % | |||||
Comercial las Vertientes SpA | 4,149,079 | 0.68 | % | |||||
Bethia Group | 25,662,136 | 4.23 | % | |||||
Axxion S.A. | 14,207,454 | 2.34 | % | |||||
Inversiones HS SpA. | 11,454,682 | 1.89 | % | |||||
All other minority shareholders | 229,003,902 | 37.76 | % | |||||
Total | 606,407,693 | 100.00 | % |
Beneficial ownership (as of January 31, 2023) | ||||||||
Number of shares of common stock beneficially owned | Percentage of common stock beneficially owned | |||||||
Shareholder | ||||||||
Sixth Street Partners Management Company | 168,669,825,995 | 27.87 | % | |||||
Strategic Value Partners | 96,815,692,279 | 16.00 | % | |||||
Delta Airlines, Inc. | 60,722,284,826 | 10.03 | % | |||||
Qatar Airways Investments (UK) LTD | 60,640,7692,249 | 10.02 | %* | |||||
Sculptor Capital | 39,480,189,422 | 6.52 | % | |||||
Cueto Group | 30,389,446,225 | 5.02 | % | |||||
Others | 148,513,940,268 | 24.54 | % | |||||
Total | 605,232,148,264 | 100 | % |
Qatar owns |
As of February 29, 2020, 3.32%28, 2023, other minority investors held 24.54% of our stock, with 0.01% of our capital stock was held in the form of ADSs. Chilean pension funds held 17.32% of our capital stock and other minority investors held 17.12% in the form of common shares. It is not practicable for us to determine the number of ADSs or common shares beneficially owned in the United States. As of February 29, 2020,28, 2023, we had 1,3152,095 record holders of our common shares. It is not practicable for us to determine the portion of shares held in Chile or the number of record holders in Chile. All of our shareholders have identical voting rights.
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
FollowingOn or around the combinationdate of LANLATAM’s emergence from bankruptcy proceedings (the “Effective Date”) in accordance with the terms and TAM inconditions of the Chapter 11 plan confirmed by the Bankruptcy Court on June 2012, TAM S.A. continues to exist as18, 2022, the Backstop Creditors and the Backstop Shareholders entered into a subsidiary of Holdco I andShareholders’ Agreement (the “Shareholders’ Agreement”) that provides, among other things, that: (A) for a subsidiary of LATAM, and LAN Airlines S.A. has been redesignated as “LATAM Airlines Group S.A.”
Priortwo year term following the Effective Date, the parties to the consummation ofShareholders’ Agreement shall vote their shares so that the business combination, LATAM Airlines Group S.A. Board of Directors will comprise, both initially and in the LATAM Controlling Shareholders entered into several shareholders’ agreementsfilling of any vacancies thereon, nine directors, who in accordance with TAM,Chilean law, shall be appointed as follows: (i) five directors, including the Amaro Group (acting through TEP Chile) and Holdco I, establishing agreements and restrictions relating to corporate governance in an attempt to balance LATAM Airlines Group’s interests, as the owner of substantially all of the economic rights in TAM, and those of the Amaro Group by prohibiting the taking of certain specified material corporate actions and decisions without prior supermajority approval of the shareholders and/or the board of directors of Holdco I or TAM. These shareholders’ agreements also set forth the parties’ agreement regarding the governance and managementvice-chair of the LATAM Airlines Group followingS.A. Board of Directors, nominated by the consummation ofBackstop Creditors; and (ii) four directors, including the combination of LAN and TAM.
Governance and Management of LATAM Airlines Group
We refer to the shareholders’ agreement among the LATAM Controlling Shareholders and the Amaro Group (acting through TEP Chile), which sets forth the parties’ agreement concerning the governance, management and operationchair of the LATAM Airlines Group S.A. Board of Directors (who shall be a Chilean national), nominated by the Backstop Shareholders; and voting and transfer(B) for the first five years after the Effective Date, in the event of their respectivea wind-down liquidation or dissolution of LATAM Airlines Group commonS.A., recoveries on the shares and TEP Chile’s voting shares of Holdco I, asdelivered in exchange for the “control group shareholders’ agreement.” We referNew Convertible Notes Class B to the shareholders’ agreement between LATAM Airlines Group S.A. and TEP Chile, which sets forth agreements concerningextent the governance, management and operationconversion option thereunder is exercised, shall be subordinated to any right of recovery for any shares delivered or to be delivered upon conversion of the LATAM Airlines Group, asNew Convertible Notes Class A or New Convertible Notes Class C, in each case held by the “LATAM Airlines Group-TEP shareholders’ agreement.” The control group shareholders’ agreement and the LATAM Airlines Group-TEP shareholders’ agreement set forth the parties’ agreementBackstop Creditors on the governance and management of the LATAM Airlines Group following the effective time.Effective Date.
This section describes the key provisions of the control group shareholders’ agreement and the LATAM Airlines Group-TEP shareholders’ agreement. The description of the LATAM Airlines Group-TEP shareholders’ agreement summarized below and elsewhere in this annual report on Form 20-F is qualified in its entirety by reference to the full text of such shareholders’ agreements, which has been filed as exhibit to this annual report on Form 20-F.
Composition of the LATAM Airlines Group Board
Since April 2017, there are no restrictions in the control group shareholders’ agreement nor in the LATAM Airlines Group-TEP shareholders’ agreement regarding the composition of LATAM Airlines Group’s board of directors. Therefore, once elected in accordance with Chilean regulation, members of the LATAM Airlines Group’s board of directors have the right to appoint any member as the chairman of LATAM Airlines Group’s board of directors, from time to time, in accordance with the LATAM Airlines Group’s by-laws. Accordingly, on May, 2017 and on May 14, 2019,On November 15, 2022, Mr. Ignacio Cueto Plaza was elgectedelected as President of the Board.
On August 2018, Mr. Antonio Pizarro resigned from the LATAM Airline’s Group’s board of directors, and as his replacement,November 15, 2022 the board of directors appointedof LATAM Airlines Group was renewed, with Mr. Ignacio Cueto Plaza, Mr. Bornah Moghbel, Mr. Enrique Cueto Plaza, Mr. Frederico Curado, Mr. Antonio Gil Nievas, Mr. Michael Neruda, Mr. Bouk van Geloven, Mrs. Sonia J.S. Villalobos, who was elected by the shareholders on the Ordinary Meeting of April, 25th 2019and Mr. Alexander Wilcox elected.
Management of the LATAM Airlines Group
On September 10, 2019, LATAM announced that Enrique Cueto Plaza, Chief Executive Officer of LATAM (“CEO LATAM”) since June 2012, will leave this position as of March 31, 2020, being replaced as of such date by Mr. Roberto Alvo, current Chief Commercial Officer of LATAM. The CEO of LATAM is the highest ranked officer of LATAM Airlines Group and reports directly to the LATAM board of directors. The CEO LATAM is chargedtasked with the general supervision, direction and control of the business of the LATAM Airlines Group and certain other responsibilities set forth inGroup. In the LATAM Airlines Group-TEP shareholders’ agreement. After anycase of a departure of the current CEO LATAM, our board of directors will select his or herthe successor after receiving the recommendation of the Leadership Committee.
The head office of the LATAM Airlines Group continues to be located in Santiago, Chile.
Governance and Management of Holdco I and TAM
We refer to the shareholders’ agreement between us, Holdco I and TEP Chile, which sets forth our agreement concerning the governance, management and operation of Holdco I, and voting and transfer of voting shares of Holdco I, as the “Holdco I shareholders’ agreement” and to the shareholders’ agreement between us, Holdco I, TAM and TEP Chile, which sets forth our agreement concerning the governance, management and operation of TAM and its subsidiaries following the effective time, as the “TAM shareholders’ agreement.” The Holdco I shareholders’ agreement and the TAM shareholders’ agreement set forth the parties’ agreement on the governance and management of Holdco I, TAM and its subsidiaries (collectively, the “TAM Group”) following the combination of LAN and TAM.
This section describes the key provisions of the Holdco I shareholders’ agreement and the TAM shareholders’ agreement. The description of the Holdco I shareholders’ agreement and the TAM shareholders’ agreement summarized below and elsewhere in this annual report on Form 20-F are qualified in their entirety by reference to the full text of the aforementioned shareholders’ agreements, which have been filed as exhibits to this annual report on Form 20-F.
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Composition of the Holdco I and TAM Boards
The Holdco I shareholders’ agreement and TAM shareholders’ agreement generally provide for identical boards of directors and the same chief executive officer at Holdco I and TAM, with LATAM appointing two directors and TEP Chile appointing four directors (including the chairman of the board of directors).
The control group shareholders’ agreement provides that the persons elected by or on behalf of the LATAM Controlling Shareholders or the Amaro Group to our board of directors must also serve on the boards of directors of both Holdco I and TAM.
Management of Holdco I and TAM
The day-to-day business and affairs of Holdco I will be managed by the TAM Group CEO under the oversight of the board of directors of Holdco I. The day-to-day business and affairs of TAM will be managed by the TAM Diretoria under the oversight of the board of directors of TAM. The TAM Diretoria will be comprised of the TAM Group CEO, the TAM CFO, the TAM COO and the TAM CCO, currently the CEO of TAM, will be the initial CEO of Holdco I and TAM, or the “TAM Group CEO” and any successor CEO will be selected by LATAM from three candidates proposed by TEP Chile. The TAM Group CEO will have general supervision, direction and control of the business and operations of the TAM Group (other than the international passenger business of the LATAM Airlines Group) and will carry out all orders and resolutions of the board of directors of TAM. The initial chief financial officer of TAM, or the “TAM CFO,” has been jointly selected by LATAM and TEP Chile and any successor CFO will be selected by TEP Chile from three candidates proposed by LATAM. The chief operating officer of TAM, or the “TAM COO,” and chief commercial officer of TAM, or the “TAM CCO,” will be jointly selected and recommended to the TAM board of directors by the TAM Group CEO and TAM CFO and approved by the TAM board of directors. These shareholders’ agreements also regulate the composition of the boards of directors of subsidiaries of TAM.
Following the combination, TAM continues to be headquartered in São Paulo, Brazil.
Supermajority Actions
Certain actions by Holdco I or TAM require supermajority approval by the board of directors or the shareholders of Holdco I or TAM which effectively require the approval of both LATAM and TEP Chile before the specified actions can be taken. Actions that require supermajority approval of the Holdco I board of directors or the TAM board of directors include, as applicable:
Actions requiring supermajority shareholder approval include:
Voting Agreements, Transfers and Other Arrangements
Voting Agreements
The LATAM Controlling Shareholders and TEP Chile have agreed in the control group shareholder’s agreement to vote their respective LATAM Airlines Group common shares as follows:
The parties to the Holdco I shareholder’s agreement and TAM shareholders agreement have agreed to vote their voting shares of Holdco I and shares of TAM so as to give effect to the agreements with respect to representation on the TAM board of directors discussed above.
Transfer Restrictions
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Transfer Restrictions
Pursuant to the control group shareholders’ agreement, the LATAM Controlling Shareholders and TEP Chile are subject to certain restrictions on sales, transfers and pledges of the LATAM Airlines Group common shares and (in the case of TEP Chile only) the voting shares of Holdco I beneficially owned by them. Except for a limited amount of LATAM Airlines Group common shares, neither the LATAM Controlling Shareholders nor TEP Chile were permitted to sell any of their LATAM Airlines Group common shares, and TEP Chile was not permitted to sell its voting shares of Holdco I, until June 2015. Since then, sales of LATAM Airlines Group common shares by either party are permitted, subject to (i) certain limitations on the volume and frequency of such sales and (ii)As provided in the case of TEP Chile only, TEP Chile satisfying certain minimum ownership requirements. On or after December 31, 2021,aforementioned shareholders’ agreements, TEP Chile may sell all of its LATAM Airlines Group common shares and voting shares of Holdco I as a block, subject to (x) approval of the transferee by the LATAM board of directors, (y) the condition that the sale not have an adverse effect and (z) a right of first offer in favor of the LATAM Controlling Shareholders, which we refer to collectively as “block sale provisions.” An “adverse effect” is defined in the control group shareholders agreement to mean a material adverse effect on our and Holdco I’s ability to own or receive the full benefits of ownership of TAM and its subsidiaries or the ability of TAM and its subsidiaries to operate their airline businesses worldwide. The LATAM Controlling Shareholders have agreed to transfer any voting shares of Holdco I acquired pursuant to such right of first offer to LATAM for the same consideration paid for such shares.
In addition, TEP Chile may sell all LATAM Airlines Group common shares and voting shares of Holdco I beneficially owned by it as a block, subject to satisfaction of the block sale provisions, if a release event (as described below) occurs or if TEP Chile is required to make two or more directed votes during any 24-month period at two meetings (consecutive or not) of the shareholders of LATAM Airlines Group held at least 12 months apart and LATAM Airlines Group has not yet fully exercised its conversion option described below.occurs. A “release event” will occur if (i) a capital increase of LATAM Airlines Group occurs, (ii) TEP Chile does not fully exercise the preemptive rights granted to it under applicable law in Chile with respect to such capital increase in respect of all of its restricted LATAM Airlines Group common shares, and (iii) after such capital increase is completed, the individual designated by TEP Chile for election to the board of directors of LATAM Airlines Group with the assistance of the LATAM Controlling ShareholdersCueto Group is not elected to the board of directors of LATAM Airlines Group.
In addition, after December 31, 2021 and after the occurrence As a result of the full ownership trigger date (as described below under the “—Conversion Option” section), TEP Chile may sell all or any portion of its LATAM Airlines Group common shares, subject to (x) a right of first offer in favorimplementation of the LATAM Controlling Shareholders and (y)restructuring set forth in our Plan of Reorganization, a “release event” occurred. However, no sale of the restrictions on sales of LATAM Airlines Group common shares more than once in a 12-month period.
The control group shareholders agreement provides certain exceptions to these restrictions on transfer for certain pledges of LATAM Airlines Group common shares made by the parties and for transfers to affiliates, in each case under certain limited circumstances.
In addition, TEP Chile agreed in the Holdco I shareholders agreement not to vote its voting shares of Holdco I or to take any other action, in support of any transferbeneficially owned by Holdco I of any equity securities or convertible securities issued by it or by any of TAM or its subsidiaries without our prior written consent.TEP Chile has been implemented.
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 Ibeneficially owned by TEP Chile in connection with any such sale.
Conversion Option
Pursuant to the control group shareholders’ agreement and the Holdco I shareholders’ agreement, we have the unilateral right to convert our shares of non-voting stock of Holdco I into shares of voting stock of Holdco I to the maximum extent allowed under law and to increase our representation on the TAM and Holdco I boards of directors if and when permitted in accordance with foreign ownership control laws in Brazil and other applicable laws if the conversion would not have an adverse effect (as defined above under the “—Transfer“-Transfer Restrictions” section). In February 2019, we completed the procedures for the exchange of shares of Holdco I S.A., through which LATAM Airlines Group SA increased its indirect participation in TAM S.A., from 48.99% to 51.04%. This transaction was undertaken pursuant to the Provisional Measure 863/2018 of December 13, 2018, through which the participation of up to 100% of foreign capital in airlines in Brazil is permitted.
On If we can purchase and/or after December 31, 2021, and after we have fully converted all ofconvert our shares of non-voting stock of Holdco I into shares of voting stock of Holdco I as permitted by Brazilian law and other applicable laws, we will have the right to purchase all of the voting shares of Holdco I held by the controlling shareholders of TAM for an amount equal to their then current tax basis in such shares and any costs incurred by them to effect such sale, which amount we refer to as the “sale consideration.” If we do not timely exercise our right to purchase these shares or if, after December 31, 2021, we have the right under applicable law in Brazil and other applicable law to fully convert all the shares of non-voting stock of Holdco I beneficially owned by us into shares of voting stock of Holdco I and such conversion would not have an adverse effect but we have not fully exercised such right within a specified period,do so, then the controlling shareholders of TAM will have the right to put their shares of voting stock of Holdco I to us for an amount equal to the sale consideration.
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 controllingmajor shareholders. In the ordinary course of our business, we render to and receive from related companies’ services of various types, including aircraft leases, aircraft interchanges, freight transportation and reservation services. Such transactions, none of which is individually material, are summarized in Note 3332 to our audited consolidated financial statements for the fiscal year ended December 31, 2019.2022.
On August 2, 2016, the board of directors approved the Policy on Control of Related-Party Transactions of LATAM Airlines Group S.A. and its subsidiaries, which states:
Related-party means, among others, subsidiaries, affiliates, natural persons or legal entities with control of 10% or more of the Company’s voting stock, vice presidents, directors or senior executives as well as their respective spouses, relatives, and companies in which said persons are either direct or indirect owners of 10% or more of the Company’s voting stock, or in which they have held a position over the last 18 months. |
Related-Party Transactions can only be executed if said transactions are in LATAM’s interest and adjust to price, terms and conditions prevalent in the market for similar transactions with other third parties at the time of its approval. |
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 “Item 3. Key Information—A. Selected Financial Data,” “Item 18. Financial Statements” and pages F-1 through F-142.F-163.
Legal and Arbitration Proceedings
We are involved in routine litigation and other proceedings relating to the ordinary course of our business. The following is a description of all the material legal and arbitration proceedings.
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 Econômica (“CADE”mica” or “CADE”), among others, initiated a global investigation of a large number of international cargo airlines (among them LAN Cargo) for possible price fixing of cargo fuel surcharges and other fees in the European and United States air cargo markets. As previously announced, LAN Cargo reached plea agreements with the DOJ and the CCB, which included the payment of fines, in relation to such investigation.
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$9.48.8 million). LAN provisioned US$25 million during the fourth quarter of 2007 for such fines, and maintained this provision until the fine was imposed in 2010. In 2010, LAN recorded a US$14.1 million gain (pre-tax) from the reversal of a portion of this provision. This was the lowest fine applied by the EC, which includes a significant reduction due to LAN’s cooperation with the Commission during the course of the investigation. In accordance with European Union law, on January 24, 2011 this administrative decision was appealed by LAN Cargo and LAN to the General Court in Luxembourg. Any judgment by the General Court may also be appealed to the Court of Justice of the European Union. The European Court of Justiceoverturnedthe Commission’s decision on December 16, 2015. On May 20 2016 the EC confirmed that they had decided not to appeal the case and to issue a new decision with the aim of correcting the faults identified in the judgementjudgment by the European Court of Justice.
On March17,2017, the EC re-adopted its decision and imposed on LAN Cargo and its parent company, LATAM, a fine in the same amount, €8.2 million, as the original fine. On May 31, 2017 LAN Cargo and LATAM requested the annulment of this EC decision to the General Court of the European Union. OnIn December 2017 LAN Cargo and LATAM presented their arguments for this annulment and onin July 2019 LAN CARGO and LATAM participated in a hearing in the Court of Justice of the European Union.LATAM is waiting in which we confirmed our request for annulment of the outcome and expectsdecision or instead a further reduction of the amount of the fine. On March 30, 2022, the European Court issued its ruling and reduced the amount of our fine included infrom MUS$8,797 ($8,220,000) to MUS$2,397 ($2,240,000). This ruling was appealed by LAN Cargo, S.A. and LATAM on June 9, 2022. All the decision byother eleven airlines also appealed the general courtruling affecting them. The European Commission responded to our appeal on September 7, 2022. LAN Cargo, S.A. and LATAM responded to the Commission’s arguments on November 11, 2022. The European Commission has until January 24, 2023 to replicate our defense. On December 17, 2020, the European Commission submitted proof of claim for the total amount of the fine (KUS$10,072 or €8,220,000) to the Bankruptcy Court. The amount of this claim has been modified to MUS$2,397, subject to the possible appeal of the judgment of the European Union.Court.
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). InThe two only judicial processes still pending in Norway and the particular case of Great Britain there was a mediation process, atNetherlands are in the end ofevidentiary stages. There has been no activity in Norway since January 2014 and in the year 2018, with the participation of all airlines involved to try to reach an agreement. LATAM Airlines Group S.A., reached an agreement for approximately GBP 636,000. A settlement was signed in December 2018 and payment was made in January 2019. This mediation process concluded the claim for all class actions except one, for which a settlement was negotiated during the year 2009, and which settled in December 2019 for the amount of approximately GBP 222,469.63.Netherlands, since February 2021. The payment was made during the month of January 2020. This concluded the claim for all class-actions in Great Britain.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$510,000 respectively. On December 5, 2013 ABSA filed its application for Administrative Reconsideration before CADE. On December 19, 2014, CADE issued a new decision which reduced the fine against ABSA to US$ 9,823,135 (based on an exchange rate of US$ 1 = R$ 3.3080). CADE also reduced the fines against ABSA’s Director and employees to US$ 247,896 and US$ 123,040, respectively (also based on an exchange rate of US$ 1 = R$ 3.3080). ABSA has initiated a judicial appeal against the Union Federal seeking an additional reduction of the fine amount. In December 2018, a Federal Court Judge ruled against ABSA, indicating that it will not apply an additional reduction to the fine imposed. The court’s decision was published inon March 12, 2019. On March 13, we2019, ABSA filed a motion seeking clarification of the federal court’s decision.
Agreements with the DOJ and the SEC. In 2011, authorities in Chile and the United States initiated investigations relating to certain payments by LATAM Airlines Group S.A. (formerly LAN Airlines S.A.) to On April 1, 2019, a consultant who assisted in the resolution of labor issues in Argentina in 2006-2007. The Company voluntarily reported this situationresponse to the Securities and Exchange Commission (“SEC”) andmotions for clarification filed by ABSA was presented. On May 24, 2019, the Justice Departmentmotions for clarification of ABSA were not accepted.
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 United States (“DOJ”) and actively cooperated in those investigations.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 4, 2016, Ignacio Cueto,8, 2022, ABSA was summoned to regularize the former CEO of LAN, consented to entrypolicy presented, by proving the existence of a cease-and-desist orderreinsurance contract. On February 16, 2022, ABSA presented proof of reinsurance by Ezze Seguros. At the SEC relating tomoment, the payments described above. Mr. Cueto agreed to pay a US$75,000 penalty to the SEC, to remain in compliance with LATAM’s compliance structure and internal accounting controls and to comply with the SEC’s books and records requirements. In July 2016, after multiple and prolonged exchangesjudgment of opinions and conversations with the DOJ and the SEC, LATAM also reached definitive agreements with both authorities.ABSA’s appeal is awaited.
In the case of the DOJ, the agreement took the form of a Deferred Prosecution Agreement (“DPA”), pursuant to which the DOJ will dismiss the charges after the expiration of a three-year period if LATAM complies with all terms of the DPA. Pursuant to the DPA, LATAM has admitted that the accounting for the payments made to the consultant in Argentina was incorrect and that, at the time that such payments were made (2006-2007), it lacked adequate internal controls. LATAM has also accepted an independent consultant, for 27 months, whose function will be to monitor, evaluate, and report to the DOJ on the effectiveness of LATAM’s compliance program. LATAM also committed to reporting to the DOJ on the effectiveness of the aforementioned compliance program for 9 months after the work of the independent consultant is finished. Lastly, LATAM paid a fine of US$12,750,000 to the DOJ.Jose Marti Airport Complaint
The settlement with the SEC included the issuance by the SEC of a cease-and-desist order, which is an administrative order closing the investigation whereby LATAM has accepted certain obligations and statements of fact. The order also refers to the obligations related to the monitorship agreed under the DPA with the DOJ. LATAM paid a fine of US$6.74 million and interest of US$2.69 million to the SEC. On May 15, 2019, the external consultant certified that the anti-corruption compliance program of LATAM Airlines Group S.A. LATAM’s anti-corruption program was reasonably designed and implemented to prevent and detect violations within LATAM to anti-corruption laws. On July 23, 2019, the DOJ approved the certification made by the consultant on May 15, 2019 regarding the anticorruption compliance program of LATAM Airlines Group S.A. On January 31, 2020, the Florida Court approved the motion of the DOJ regarding the withdrawal of the criminal action against LATAM Airlines Group SA, in response to compliance with all the conditions of the DPA by LATAM, closing the process before the DOJ.
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"“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"“trafficked” in the said property. The plaintiff seekssought all available statutory remedies, including the award of damages for the alleged trafficking in the expropriated property, plus reasonable attorney'sattorney’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 processU.S. reorganization procedure according to the rules of defendingChapter 11 in Title 11 of the claim, havingU.S. Code. On November 17, 2022, the Reorganized Debtors filed motion to dismiss followed by a motion to stay discovery pendingconsolidate 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 rulingfinal 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 dismiss. The matterconsolidate 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 stillfinal. Due to the fact that November 3, 2022 was the Effective Date of the reorganization plan approved and confirmed in preliminary stages, and very little precedent has yetthe main proceeding, on November 10, 2022, the representative of the foreign proceeding submitted to be established to predict the final outcome of litigation shouldcourt his last monthly report in accordance with the matter proceed to trial and/or to determine the amount of reserve, if any.Communications Protocol Cross-border.
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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 to date. On July 11, 2020 we requested the Court to comply with the suspension of this case, ruled by the Chile Insolvency Court, in recognition of the foreign reorganization procedure pursuant to the Chilean Insolvency Act, for the entire period that said proceeding lasts, a request that was accepted by the Court. CONADECUS filed a motion for reconsideration and an appeal against this resolution should the motion for reconsideration be dismissed. The Chile Insolvency Court dismissed the reconsideration motion on August 3, 2020, but admitted the appeal. The appeal is currently pending before the Santiago Court of Appeals. On December 22, 2022, LATAM filed a motion requesting the stay to be lifted, given the current state of the reorganization procedure. On December 30, 2022, CONADECUS agreed to LATAM’s request. On January 23, 2023, the Santiago Court of Appeals granted LATAM’s motion and lifted the stay. Notwithstanding its decision on the stay, the Santiago Court of Appeals still wants to hear oral arguments on the case, scheduling a hearing for March 1, 2023. The amount at the moment is undetermined. Parallel to the lawsuit in Chile, on August 31, 2020, CONADECUS filed on appeal with the Bankruptcy Court because of the automatic suspension imposed by Section 362 of the Bankruptcy Code that, among other things, prohibits the parties from filing or continuing with claims that involve a preliminary petition against the Borrowers. CONADECUS petitioned (i) for a stay of the automatic suspension to the extent necessary to continue with the class action against LATAM in Chile and (ii) for a joint hearing by the Bankruptcy Court and the Chile Insolvency Court to hear the matters relating to the claims of CONADECUS in Chile. On September 16, 2020, the Borrowers filed their objection against CONADECUS’ appeal and the Official Unsecured Creditors Committee presented a statement in support of the Borrowers’ position. On December 18, 2020, the Bankruptcy Court partially granted CONADECUS’s request, only in the sense of allowing them to continue with their appeal against the resolution of the 23rd Civil Court and only for the purposes that the Court of Appeals determine whether or not the suspension is appropriate under the Chilean Insolvency Act. On February 9, 2021, the Bankruptcy Court entered an order to lift the automatic stay to permit the continuation of CONADECUS’ appeal in Chile against the judicial approval of a class action settlement with the Chilean Association of Consumers and Users (“AGRECU”).
Class Action Lawsuit filed by AGRECU against LATAM Airlines Group S.A. 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. LATAM has hired specialist lawyers to undertake its defense.
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 settlement hearing on October 1, 2020. A settlement was reached with AGRECU at that hearing that was approved by the Court on October 5, 2020. On October 7, 2020, the 25th Civil Court confirmed that the decision approving the settlement was final and binding. CONADECUS filed a brief on October 4, 2020 to become a party and oppose the agreement, which was dismissed on October 5, 2020. It petitioned for an official correction on October 8, 2020 and the annulment of all proceedings on October 22, 2020, which were dismissed, costs payable by CONADECUS, on November 16, 2020 and November 20, 2020, respectively. LATAM presented reports on the implementation of the agreement on May 19, 2021, November 19, 2021 and May 19, 2022. CONADECUS still has appeals pending against these decisions. The amount at the moment is undetermined.
Legal proceedings involving TAMLATAM Airlines Brazil
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 addition to 22 actions filed by residents of the region where the accident occurred, who claimed pain and suffering, and a class action related to this accident. All suits have now been concluded except one suit brought by the association of residents of a local street in respect of which TAM has been found liable by the 2nd Instance Court for damages to be assessed, subject to an appeal to the Superior Court. Most residents of the relevant street appear to have already been compensated through individual claims, which have been satisfied and thus should not be entitled to further compensation. No steps have been taken by any residents to try to obtain further compensation through the decision in favor of the residentsresidents’ association. Any further damages resulting from the aforementioned legal claim are covered by the civil liability guarantee provided for in TAM’s insurance policy with Itaú Unibanco Seguros S.A. (now Chubb Seguros). The cap of US$400 million in that insurance policy is sufficient to cover any further potential penalties and judicial or extrajudicial agreements arising as a result of this matter
In relation to the Airbus A320 aircraft (PR-MBK) accident of TAM Linhas Aéreas S.A. (TAM) at CGH on July 17, 2007, settlements were concluded directly between the insurers/reinsurers and the victims’ families, third parties and ex-employees. Almost all claims and suits have now been concluded and there is ongoing litigation against TAM relating to only one fatal victim and one third party land owner. The administrative action regarding the extent of the primary insurance coverage payable regarding victims on board the aircraft remains on appeal by TAM and the other defendants to the Superior Court in Brasília. No steps have been taken by any party to attempt preliminary execution of the 2nd Instance decision and there should be good arguments to defend any such action based on the releases signed by all claimants upon receiving final compensation. The insurance coverage with Itaú Unibanco Seguros S.A. (now Chubb Seguros) is adequate to cover any further liabilities arising and LATAM Airlines Brazil will not incur any expenses that were not contemplated by the scope of the insurance policy.
On January 31, 2018, Airbus S.A.S., Airbus North America Customer Services, Inc. and Allianz Corporate & Specialty SE (France) filed an arbitration claim with the International Centre for Dispute Resolution against AIG Europe Limited (“AIG”), TAM S.A. (“TSA”) and TAM Linhas Aéreas S.A. (“TLA”) seeking a decision on the validity of a shared-defense agreement that had been discussed but never finalized or executed by the parties. The plaintiffs allege that the parties exchanged enough correspondence and drafts to reflect the terms of a contract. Based on this alleged contract, they are demanding that TAM reimburse Airbus a sum of approximately US$9,200 for settlement costs and US$3,000 for legal fees, in addition to interest and any other amount decided by the Arbitrator On October 8, 2018, the plaintiffs filed a formal complaint that contained declarations by their supporting experts. On November 7, 2018, the Arbitrator issued a procedural ruling dividing the jurisdiction phase from the grounds-for-arbitration phase, thus expressing his agreement with the arguments by TSA and TLA as well as AIG. Upon request of the parties, the Arbitrator postponed the respondents' deadline of December 14, 2018 to submit their briefs contesting jurisdiction, while the parties held settlement negotiations. Finally, in December 2018, the parties agreed to hold a meeting to discuss a potential settlement that resulted in an agreement whereby Allianz Corporate & Speciality SE payed AIG US$95 million toward the loss already settled by AIG for the accident. In exchange, all lawsuits and arbitration claims were withdrawn at no additional cost to LATAM. The arbitration has concluded.Tax related proceedings
Tax related
TAM Linhas Aereas and other plaintiffs filed an ordinary claim with a request for injunctive relief for non-payment of the Airline Workers Fund, a tax charged monthly at the rate of 2.5% of an airline’s total payroll. Currently, judgment is pending on an appeal that TAM lodged challenging the initial decision (which was ruled in favor of the Brazilian National Institute of Social Security (“INSS”)). Regarding the period between 2004 and 2012, the INSS issued a tax assessment notice charging amounts as a result of TAM Linhas Aereas’ non-payment of the Airline Workers Fund. The company made cash deposits withto the Court of total amounts required to guarantee the debts potentially owed. The administrative proceedings have been suspended until the conclusion of the judicial claim. The approximate adjusted value of amounts potentially due in such proceeding as of December 31, 2012 was US$43.3 million. In the opinion of our legal advisors, losing in this proceeding is probable.possible. Assuming payment of this tax is required by law, we have established a provision in the amount of US$87,473.986 million million (R$ 352.220.015,07)386.039.934,74) related to the TAM’s part as of December 31, 2019. 2022.
TAM Linhas Aereas S.A. is a plaintiff in judicial claim against the Brazilian government from 1993 seeking indemnity for damages suffered because of the break-up of an air transportation concession agreement that resulted in the freezing of TAM’s prices from 1988 to September 1993 in order to maintain operations with the prices set by the Brazilian government during that period. The process is currently being heard before the Federal Regional Court and judgment is pending an appeal by TAM. The amount of potential recovery is indeterminate at this time. The original amount is estimated value of the action on December 31, 2019 isat US$197.344.1 million (R$795million)246,086,745.00). This sum is subject to delinquent interest since September 1993 and inflation adjustment since November 1994. Based on the opinion of TAM’s legal advisors, and recent rulings handed down by the Brazilian Supreme Court of Justice in favor of airlines in similar cases (specifically, actions filed by Transbrasil and Varig), we believe that TAM’s likelihood of success is probable oncepossible, even after the second judicial level court issued decision denying the claim. The Company filed a motion for clarification on the basis of omitted points in the judgment, which is pending in the Court. WeThe motion for clarification was judged. The company will appeal to the higher courts (STJ and STF).We have not recognized these credits in our financial statements and will only do so if and when the aforementioneda positive decision is rendered final by the Court.
TAM Linhas Aereas S.A. filed an ordinary claim, with a request for early judgment, to discuss the legality of charging the Adicional das Tarifas Aeroportuárias (“Additional Airport Tariffs,” or “ATAERO”), which are charged at a rate of 50% on the value of tariffs and airport tariffs. A decision by the superior court is pending. The amount of potential recovery is indeterminate at this time. The decision by the superior court (STJ) is pending since May 2020.
In addition, one administrative proceeding had been filed against TAM Linhas Aéreas concerning the alleged failure to pay an Industrialized Products Tax (“IPI”) and Import Tax (“II”) due on imported aircraft. In response, we filed the appropriate challenges on the basis that no federal tax should be payable on the imported aircraft because it is a leased aircraft. The total amount involved in this administrative proceeding is US$2.33 million as of December 31, 2017. The administrative proceeding awaits a decision. In the opinion of our legal advisors, losing in this proceeding is possible.
A tax assessment was issued by the Brazilian IRS for the collection of Income Tax ("IRPJ"(“IRPJ”) and Social Contribution on Net Income ("CSLL"(“CSLL”), and a fine of 150% and interest was imposed on TAM. In summary, the Brazilian IRS intends to levy IRPJ and CSLL on the alleged capital gain earned by TAM S/A,S.A. as a result of the reduction of the capital stock of the controlled company Multiplus S/A. On December 31, 20192022 the updated amount of the assessment and fees discussed was approximately US$132.2114.392 million (R$ 533545.359.629,14 million). The Administrative Court issued a second level decision canceling the tax assessment. This decision can still bewas challenged by the Brazilian IRS before the third level –Administrative Superior Court. The appeal from IRS is pending judgment by Administrative Superior Court (“CSRF”).
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. On December 31, 2019 the updated amount of the assessment discussed was approximately US$95 million (R$ 383 million). The2015.The Company believes that a favorable outcome is probable.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$65.76 10.095 million (R$244.65 52.674.540,95 million) as of December 31, 2019.2022. The Administrative Court issued decisions canceling the total penalty and the major part of the amounts owed. The remaining amount is still under determination by the Brazilian IRS.
Federal Revenue Service issued a tax assessment notice against TLATAM Linhas Aereas S.A. in the amount of US$121 106.331 million (R$485554.803.668,75 million) as of December 31, 2019,2022, due to alleged irregularities of the Company related to the social security contribution on the risks of work accident (GILRAT -(“GILRAT,” former "SAT"“SAT”), in the term from November 2013 until December 2017. TLATAM Linhas Aereas S.A. has presented their defense to the Administrative Court, but on February 7, 2019 the court denied the defense and kept the tax assessment. The proceedings are now pending the judgment on the appeal filed before the second level Court (CARF)(the “CARF”). In the opinion of our legal advisors, losing in this proceeding is probable.possible. It is important to highlight that the Company recently won a similar case where the Brazilian IRS was seeking the same contribution related the years 2011-2012. This2011-2012, and this assessment was canceled by the Administrative Court.
On December 12, 2019 Brazilian IRStax authority issued a Tax Assessment of PIS COFINS credits related to 2014 on the amount of US$ 4237.062 million (R$170million).193.381.694,20 million), as of December 31, 2021. The company will filefiled the defense in the same ground of the case reported above.above about PIS COFINS. In September 2020, the company was informed that the defense was denied. The appeal filed by the Company is pending judgment.
Federal Revenue Service issued a tax assessment notice against TAM Linhas Aereas S.A. in the amount of US$ 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 Legal Proceedingslegal proceedings relating to the ordinary course of ourthe business, please see Note 31 – Contingencies – to30 (Contingencies) in our audited consolidated financial statements.
Dividend Policy
In accordance with the Chilean CorporationCorporate Law, and provided it does not have carryover financial losses, LATAM must distribute cash dividends equal to at least 30% of its annual consolidated net incomeprofits calculated in accordance with IFRS, subject to the terms ofOficio Circular No. 856 issued on October 17, 2014 by the Chilean Financial Market Commission.limited exceptions. If there is no net income in a given year, LATAM can elect but is not legally obligated to distribute dividends out of retained earnings. The board of directors may declare interim dividends out of profits earned during such interim period. Pursuant to LATAM’s by-laws, the annual cash dividend is approved by the shareholders at the annual ordinary shareholders’ meeting held between February 1 and April 30 of the year following the year with respect to which the dividend is proposed. All outstanding common shares are entitled to share equally in all dividends declared by LATAM, unlessexcept for the shares that have not been fully paid by the shareholder after being subscribed.
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 Information—Information- E. Taxation—CashTaxation-Cash Dividends and Other Distributions”). 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. Owners of the ADSs will not be charged any dividend remittance fee by the depositary with respect to cash dividends.
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). Under our Foreign Investment Contract,
LATAM Airlines did not pay the depositary,dividend planned for May 28, 2020, even though it was approved and agreed in the 2020 shareholder’s meeting of April 30, 2020, due to Chapter 11 proceedings. The rules of the Chapter 11 proceedings prohibited the Company from distributing dividends to its shareholders during the bankruptcy. In addition, any plan of reorganization cannot provide distributions to shareholders on behalfaccount of the pre-petition claims unless senior creditors are paid in full. Given that the Company presented losses in fiscal year 2021, the last ordinary shareholders’ meeting held on April 20, 2022, accordingly did not make a pronouncement on the distribution of profits for that fiscal year.
The table below sets forth the cash dividends per common share and per ADS holders, will be granted accesspaid by LATAM, as well as the number of common shares entitled to such dividends, for the years indicated. Dividends per common share amounts reflect common share amounts outstanding immediately prior to the Formal Exchange Market to convert cash dividends from pesos to U.S. dollars and to paydistribution of such U.S. dollars to ADS holders outside Chile.dividend.
Dividend for year: | Payment Date(s) | Total dividend payment | Number of common shares entitled to dividend | Cash dividend per common share | Cash dividend per ADS | |||||||||||||
(U.S. dollars) | (in millions) | (U.S. dollars) | (U.S. dollars) | |||||||||||||||
2019(1) | n.a. | $ | 0.00 | $ | 606.41 | $ | 0.00 | $ | 0.00 | |||||||||
2020 | n.a. | $ | 0.0 | $ | 606.41 | $ | 0.0 | $ | 0.0 | |||||||||
2021 | n.a. | $ | 0.0 | $ | 606.41 | $ | 0.0 | $ | 0.0 |
(1) | Although dividend reserves of US$57,129,120 were set aside for 2019, we did not pay dividends in 2020 due to our Chapter 11 proceedings. |
B. Significant Changes
None.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 Santiago Stock Exchange (“SSE”). The common shares have been listed on the SSE under the symbol “LAN” since 1989, and the ADSs were listed on the NYSE under the symbol “LFL” on November 7, 1997. On May 15, 2017, LATAM changedwas delisted from the symbolNYSE on June 22, 2020, following its filing for voluntary protection under Chapter 11 of the Bankruptcy Code. 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 August 2022, LATAM filed a registration statement on Form F-1 for the proposed resale of its ADSs listed on the NYSE from “LFL” to “LTM”, as well as its shares listed on the SSE from “LAN” to “LTM”. The common shares also tradein the form of ADSs pursuant to the Registration Rights Agreement entered into by and among LATAM, the Backstop Creditors and the Backstop Shareholders. LATAM then filed an amendment to its registration statement on Form F-1 in October 2022. There is no defined timeline for the Bolsa Electrónica de Chile. The outstanding ADSs are identified byeffectiveness of the CUSIP number 501723100.registration statement.
As of December 31, 2019,2022, the Company’s statutory capital is represented by 606,407,693,000 shares, all issued, ordinary and without nominal value. From that amount, and as of the same date, a total of 606,407,693 million common605,231,854,725 shares were outstanding,had been subscribed and paid, including common shares represented by ADSs. This is the result of the capital increase approved by the company’s shareholders at the extraordinary meeting held on July 5, 2022 in the context of the implementation of its Reorganization Plan and confirmed within its reorganization proceedings under Chapter 11 of Title 11 of the United States Code, as well as the emergence from such proceeding. The Company’s statutory capital of 606,407,693,000 shares is comprised of the sum of (i) the 606,407,693 shares outstanding prior to the capital increase, and (ii) the 605,801,285,307 shares underlying both the US$800 million Equity Rights Offering and the aggregate number of shares underlying each of the Convertible Notes A, B and C; issued as part of LATAM’s capital increase.
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 stock.
B. Plan of Distribution
Not applicable.
C. Markets
Trading
Chile
The Chilean stock market, which is regulated by the CMF under Law 18,045 of October 22, 1981, as amended, which we refer to as the Securities“Securities Market Law,Act”, is one of the most developed among emerging markets, reflecting the particular economic history and development of Chile. The Chilean government’s policy of privatizing state-owned companies, implemented during the 1980s, led to an expansion of private ownership of shares, resulting in an increase in the importance of stock markets. Privatization extended to the social security system, which was converted into a privately managed pension fund system. These pension funds have been allowed, subject to certain limitations, to invest in stocks and are currently major investors in the stock market. Some market participants, including pension fund administrators, are highly regulated with respect to investment and remuneration criteria, but the general market is less regulated than the U.S. market with respect to disclosure requirements and information usage.
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 4:3000 p.m. The SSE has an electronic system of trade, calledTelepregón HT, which operates continuously for stocks trading in high volumes from 9:30 a.m. to 4:00 p.m. (or 5:00 p.m., depending on the period of the year). The Chilean Electronic Stock Exchange operates continuously from 9:30 a.m. to 4:3000 p.m. (or 5:30 p.m., depending on the period of the year) on each business day. In February 2000, the SSE Off-Shore Market began operations. In the Off-Shore Market, publicly offered foreign securities are traded and quoted in U.S. dollars.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10 ADDITIONAL INFORMATION
This Item reflects legal amendments effectedaffected by Chilean Law No. 20,382 on Corporate Governance, which was enacted on October 13, 2009, and came into effect on October 20, 2009, and Chilean Law No. 20,552, which modernized and encouraged competition in the financial system, which was enacted on November 6, 2011 and came into effect on December 17, 2011.
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 our by-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 our by-laws, the Chilean CorporationCorporate Law and the Securities Market Law, each referred to below. For additional information regarding the common shares, reference is made to our by-laws, a copy of which is included as Exhibit 1.1 to this annual report on Form 20-F.
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. 31,759 on December 31, 1983, and registered on page 20,341, No. 11,248 of the Chilean Real Estate and Commercial Registrar (Registro de Comercio del Conservador de Bienes Raices de Santiago) for the year 1983. Our corporate purpose, as stated in our by-laws, is to provide a broad range of transportation and related services, as more fully set forth in Article Four thereof.
General
Shareholders’ rights in a Chilean corporation are generally governed by the company’s by-laws and the Chilean CorporationCorporate Law. Article 22 of the Chilean Corporation Act states that the purchaser of shares of a corporation implicitly accepts its by-laws and any prior agreements adopted at shareholders’ meetings. Additionally, the Chilean CorporationCorporate Law regulates the government and operation of corporations (“sociedades anónimas,” or S.A.) and provides for certain shareholder rights. Article 137 of the Chilean Corporation Act provides that the provisions of the Chilean Corporation Act take precedence over any contrary provision in a corporation’s by-laws. The Chilean CorporationCorporate Law and our by-laws also provide that all disputes arising among shareholders in their capacity as such or between us or our administrators and the shareholders may either be submitted to arbitration in Chile or to the courts of Chile at the election of the plaintiff initiating the action. Despite the foregoing, it is forbidden for certain individuals (directors, senior managers, administrators and main executives of the corporation, and any shareholder that directly or indirectly holds shares whose book or market value exceed 5,000 UF at the moment of filing of the action) from submitting such action before the ordinary courts, thus obligating them to proceed with arbitration in all situations. Finally, Decree-Law No. 3,500 on Pension Fund Administrators, which allows pension funds to invest in the stock of qualified corporations, indirectly affects corporate governance and prescribes certain rights of shareholders. The Chilean Corporation Act sets forth the rules and requirements under which a corporation is deemed to be “publicly held.” Article 2 of the Chilean Corporation Act defines publicly held corporations as corporations that register their shares with theRegistro de Valores (Securities Registry) of the CMF, either voluntarily or pursuant to a legal obligation. In addition,CMF. Article 5 of the Securities Market Law2 also indicates which corporation’sthat corporations must register their shares must be registered with the Securities Registry: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 CMF under the Securities Market LawAct and the Chilean CorporationCorporate Law, which imposes certain disclosure requirements, restricts insider trading, prohibits price manipulation and protects minority investors. In particular, the Securities Market LawAct establishes requirements for public offerings, stock exchanges and brokers and outlines disclosure requirements for corporations that issue publicly offered securities.
Ownership Restrictions
Under Articles 12 and 20 of the Securities Market LawAct and General Rule 269 issued by the SVSCMF in 2009, certain information regarding transactions in shares of publicly held corporations must be reported to the CMF and the Chilean stock exchanges on which the shares are listed. Since the ADRs are deemed to represent the shares underlying the ADSs, transactions in ADRs will be subject to those reporting requirements. Among other matters, the beneficial owners of ADSs that directly or indirectly hold 10% or more of the subscribed capital of LATAM Airlines Group, or that reach or exceed such percentage through an acquisition, are required to report to the CMF and the Chilean stock exchanges, the day following the event:
● | any acquisition or |
● | any acquisition or |
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 LawAct and under CMF regulations, persons or entities that intend to acquire control, whether directly or indirectly, of a publicly traded company,held corporation, must follow certain notice requirements, regardless of the acquisition vehicle or procedure or whether the acquisition will be made through direct subscriptions or private transactions. In the first place, the potential acquirer must send a written communication to the target corporation, any companies controlling or controlled by the target corporation, the CMF and the Chilean stock exchanges on which the target’s securities are listed, stating, among other things, the person or entity purchasing or selling and the price and material conditions of any negotiations. Subsequently, the potential acquirer must also inform the public of its planned acquisition by means of a publication in two Chilean newspapers with national distribution and by uploading such notice to the acquirer’s website, if available. Both requirements shall be met at least ten business days prior to the date on which the acquisition transaction is to close, and in any event, as soon as negotiations regarding the change of control have been formalized or when confidential information or documents concerning the target are delivered to the potential acquirer. The notices must state, among other things, the person or entity purchasing or selling and the price and conditions of any negotiations.
In addition to the foregoing, Article 54A of the Securities Market LawAct requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a publicly traded company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
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 LawAct on tender offers and CMF regulations provide that certain transactions entailing the following transactions shallacquisition on control of a publicly held corporation must be carried out through a tender offer:offer. In addition, Article 199 bis of the Chilean Securities Market Act extends the obligation to make a tender offer for the remaining outstanding shares to any person, or group of persons with a joint performance agreement, that, as a consequence of the acquisition of shares, becomes the owner of two-thirds or more of the issued shares with voting rights of a publicly held corporation. Such tender offer must be effected within 30 days from the date of such acquisition.
Article 200 of the Securities Market LawAct prohibits any shareholder that has taken control of a publicly traded company from acquiring, for a period of 12 months from the date of the transaction that granted it control of the publicly traded company, a number of shares equal to or higher than 3.0% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on the floor of a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.
Title XV of the Securities Market LawAct sets forth the basis for determining what constitutes a controlling power, a direct holding and a related party.
Capitalization
Under Chilean law, the shareholders of a company,corporation, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in the company’scorporation’s share capital. When an investor subscribes issued shares, the shares are registered in that investor’s name even without payment, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and returnreturns of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends of distributionor distributions of capital despite not having paid for the subscribed shares. The investor becomes eligible to receive dividends once it has paid for the shares, or, if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro rata portion of the dividends declared with respect to such shares, unless the company’s by-laws provide otherwise. If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the company is entitled under Chilean law to auction the shares on the appropriate stock exchange, and it has a cause of action against the investor to recover the difference between the subscription price and the price received for the sale of those shares at auction. However, until such shares are sold at auction, the investor continues to exercise all the rights of a shareholder (except the right to receive dividends and returnreturns of capital, as noted above). Regarding shares issued but not paid for within the period determined by the extraordinary shareholders’ meeting for their payment (which period cannot exceed three years from the date of such shareholders’ meeting), until January 1, 2010 they were canceled and no longer available for subscription and payment. As of January 1, 2010, the board of directors of LATAM Airlines Group has a legal obligation to initiate the necessary legal actions to collect the unpaid amounts, unless the shareholders’ meeting which authorized the capital increase allowed the board to abstain from taking such action by a vote of two thirds of the issued shares, in which case the former rule still applies. Once the foregoing legal actions are exhausted, the board of directors shall propose to the shareholders’ meeting the appropriate capital adjustment measures, to be decided by simple majority. Fully paid shares are not subject to further calls or assessments or to liabilities of LATAM Airlines Group.
As of December 31, 2019,2022, the Company'sCompany’s statutory capital is represented by 606,407,693606,407,693,000 ordinary shares without nominal value. AllAs of the same date, LATAM had a total of 605,231,854,725 shares are subscribed and paid considering the capital reduction that occurred in full, after the legal period of three years to subscribepaid; and the balance, corresponding to 1,175,838,275 shares underlying convertible bonds issued (still unconverted as of 466,832 outstanding shares,such date) as part of the lastLATAM’s capital increase approved in August of the year 2016. July 5, 2022, is pending subscription and payment.
Chilean law recognizes the right of corporations to issue shares of common and preferred stock. To date, we have issued and are authorized by our shareholders to issue only shares of common stock. Each share of common stock is entitled to one vote.
Preemptive Rights and Increases in Share Capital
The Chilean CorporationCorporate Law requires Chilean companiescorporations to offer existing shareholders the right to purchasesubscribe a sufficient number of shares to maintain their existing percentage of ownership in a company whenever that companycorporation issues new shares for cash, except for up to 10% of the subscribed shares arising from the capital increase which may be designated to employee compensation pursuant to article 24 of the Chilean Corporation Act. Under this requirement, any preemptive rights will be offered by us to the depositary as the registered owner of the common shares underlying the ADSs, but holders of ADSs and shareholders located in the United States will not be allowed to exercise preemptive rights with respect to new issuances of shares by us unless a registration statement under the Securities Market Act is effective with respect to those common shares or an exemption from the registration requirements thereunder is available.
WeOn 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 at the time of any preemptive rights offering the costs and potential liabilities associated with the preparation and filing of a registration statement with the SEC, as well as the indirect benefits of enabling the exercise by the holders of ADSs and shareholders located in the United States of preemptive rights and any other factors we consider appropriate at the time. No assurances can be given that anyrights. In August 2022, LATAM filed a registration statement would be filed. Ifon Form F-1 for the proposed resale of its common shares in the form of ADSs pursuant to the Registration Rights Agreement entered into by and among LATAM, the Backstop Creditors and the Backstop Shareholders. LATAM then filed an amendment to its registration statement on Form F-1 in October 2022. There is no defined timeline for the effectiveness of the registration statement.
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. TheAmounts received in exchange for the sale or assignment of preemptive rights relating to shares of our common stock will be taxable in Chile and in the United States. See “Item 10: Additional Information-E. Taxation-Chilean Tax-Capital Gains.” If the 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. Thus, 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.
Under Chilean law, preemptive rights are freely exercisable, transferable or waived by shareholders during a 30-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 such 30-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 that 30-day period and an additional 30-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 additional 30-day period, Chilean publicly held corporations are authorized to sell non-subscribed shares to third parties on any terms, provided they are sold on a Chilean stock exchange.
Directors
Our by-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 our by-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 CorporationCorporate Law, transactions of a publicly-traded companypublicly-held corporation with a “related” party must be conducted on an arm’s-length basis and must satisfy certain approval and disclosure requirements which are different from the ones that apply to a privately-held company. The conditions apply to the publicly-traded companypublicly-held corporation and to all of its subsidiaries.
These transactions include any negotiation, act, contract or operation in which the publicly-traded companypublicly-held corporation intervenes together with either (i) parties which are legally deemed related pursuant to article 100 of the Chilean Securities Market Law,Act, (ii) a director, senior manager, administrator, main executive or liquidator of the company, either on their own behalf or on behalf of a third party, including those individuals’ spouses or close relatives, (iii) companies in which the foregoing individuals own at least 10% (directly or indirectly), or in which they serve as directors, senior managers, administrators or main executives, (iv) parties indicated as such in the publicly-traded company’s by-laws, or identified by the board of directors’ committee or (v) those who have served as directors, senior managers, administrators, main executives or liquidators of the counterparty in the last 18 months and are now serving in one of those positions at the publicly-traded company.
Corporations may
Pursuant to Article 147 of Chapter XVI of the Chilean Corporation Act, a publicly held corporation shall only be entitled to enter into transactions with related parties if (i) thea related-party transaction when it is in the interest of the corporation, (ii)company, the price, terms and conditions are similar to those prevailing in the market at the time of its approval and the transaction is made oncomplies with the requirements and procedures stated below:
1. The directors, managers, administrators, principal executive officers or liquidators that have an arm’s-length basis at market conditions, (iii)interest or that take part in negotiations conducive to the individuals involved inexecution of an arrangement with a related party of the transactionsopen stock corporation, shall report themit immediately to the board (iv)of directors or whomever the board designates. Those who breach this obligation will be jointly liable for damages caused to the company and its shareholders.
2. Prior to the company’s consent to a related party transaction, isit must be approved after a reasoned explanation by the absolute majority of the members of the board excluding thoseof directors, with exclusion of the interested directors or liquidators, that are involvedwho nevertheless shall make public his/her/their opinion with respect to the transaction if it is so requested by the board of directors, which opinion shall be set forth in the transaction (who shall, nonetheless, render an opinion onminutes of the matter if required bymeeting. Likewise, the board), (v)grounds of the decisionsdecision and the reasons for excluding such directors from its adoption must also be recorded in the minutes.
3. The resolutions of the board are disclosedof directors approving a related party transaction shall be reported at the next following shareholders’ meeting, and (vi) in caseincluding a reference to the majority of the board is disqualifieddirectors who approved such transaction. A reference to vote, the majority of the non-involved directors have approved the transaction, or two thirds of the voting shares have approved the transaction).
If, as noted in clause (vi) of the preceding paragraph, the transaction is to be included in the notice of the respective shareholders’ meeting.
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 shareholders’ meeting,unanimous vote of the following additional rules apply: (i)members of the board of directors not involved in such transaction, or if it is approved in a shareholders’ extraordinary meeting by two-thirds of the voting shares of the company.
5. If a shareholders’ extraordinary meeting is called to approve the transaction, the board of directors shall appoint anat least one independent appraiser thatadvisor who shall report to the shareholders onthe terms of the transaction, (ii)its effects and the director’spotential impact for the company. In the report, the independent advisor shall include all the matters or issues the directors committee may have expressly requested to be evaluated. The directors committee of the company or, in the non-involvedabsence of such committee, directors maynot involved in the transaction, shall be entitled to appoint a secondan additional independent appraiser, (iii)advisor, in the appraiser’sevent they disagree with the appointment made by the board. The reports of the independent advisors shall be made available to the shareholders by the board on the business day immediately following their receipt by the company, at the company’s business offices and on its internet site, for a period of at least 15 business days (iv)from the receiptdate the last report was received from the independent advisor, and availabilitysuch arrangement shall be communicated to the shareholders by means of a “Relevant Fact” (Communication sent to the CMF and the stock exchanges in Chile). The directors shall decide whether the transaction is in the best interest of the reports shall be disclosed as a material fact and (iv) directors shall render an opinion on the transactioncorporation, within five business days after receivingfrom the reports.date the last report was received from the independent advisors.
Transactions which do not meet6. When the foregoing requirements are valid and enforceable, but neitherdirectors 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, northeir objection or objections that the directors committee may have expressed, as well as the conclusions of the reports of the advisors. The opinions of the directors shall be made available to the shareholders the day after they were received by the company, at the business offices of the company as well as on its internet site, and such arrangement shall be reported by the company as a “Relevant Fact.”
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 shall have a cause of actionthe right to sue the infringingrelated party involved in the transaction for reimbursement on behalfto the company of the corporation, for a total ofsum equivalent to the benefits that the operation reported to the interested party,counterpart involved in addition to indemnificationthe transaction, as well as indemnity for the damages caused.incurred. In such proceedings,this case, the defendant shall provebears the burden of proof that the transaction metcomplies with the legal requirements.requirements and procedures referred to above.
TheNotwithstanding the above, the following related party transactions may be executed, pursuant to letters a), b) and c) of Article 147 of the Chilean Corporation Law sets forth a number of exceptions to the foregoing rules. In the following situations, transactions with related parties may be carried outAct, without complying with the foregoing rules: (i) if a transaction doesrequirements and procedures stated above, with prior authorization by the board:
1. Transactions that do not involve a substantial amount (it“material amount.” For this purpose, any transaction that is deemed that a transaction does not involve a substantial amount if it does not exceed 1.0%both greater than UF 2,000 (as of December, 31, 2022, approximately Ch$70.2 million) and in excess of 1% of the net worthcorporation’s equity, or involving an amount in excess of the company and does not exceed the equivalentUF 20,000 (as of 2,000 UF orDecember 31, 2022, approximately US$79,352 as of the date of this annual report on Form 20-F) unless such a transaction exceeds 20,000 UF (for this calculation all similar transactions carried out within a consecutive 12-month period between the same parties or for the same subject matter,Ch$702.2 million) shall be deemed to involve a material amount. All transactions executed within a 12-month period that are similar or complementary to each other, with identical parties, including related parties, or objects, shall be deemed to be a single transaction.
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 single transaction), (ii) transactions“Relevant Fact” and made available to shareholders at the company’s business offices and on its internet site, and the transaction shall be reported as a “Relevant Fact,” if applicable. Such policy shall not authorize the subscription of acts or contracts that compromise more than the 10% of the assets of the company.
3. Transactions between legal entities in which according to the policies determinedcompany possesses, directly or indirectly, at least 95% of the equity of the counterpart.
The usual practice policy adopted by the board of directors are deemed to be withinin the ordinary course of business (the determination of such policies shall be disclosed as a material fact and made available to shareholders), and (iii) if the counterparty is an entity in which the publicly-traded company has, directly or indirectly, at least a 95.0% ownership. As per the exemption indicated in (ii) above,meeting held on December 29, 2009 the board of directors of LATAM Airlines Group established policies setting forth the transactions that fall within the ordinary course of business. That determination was publicly disclosed on the same day and is currently available on LATAM Airlines Group’s website under the “Corporate Governance” section.
Shareholders’ Meetings and Voting Rights
The Chilean CorporationCorporate Law requires that an ordinary annual meeting of shareholders be held within the first four months of each year after being called by the board of directors (generally they are held in April, but in any case following the preparation of our financial statements, including the report of our auditors, for the previous fiscal year). LATAM Airlines Group’s by-laws further provide that the ordinary annual meeting of shareholders must take place between February 1 and April 30. The shareholders at the ordinary annual meeting approve the annual financial statements, including the report of our auditors, the annual report, the dividend policy and the final dividend on the prior year’s profits, elect the board of directors (in our case, every two years or earlier if a vacancy occurs) and approve any other matter that does not require an extraordinary shareholders’ meeting. The most recent extraordinary meeting of our shareholders was held on April 27, 2017,November 15, 2022, and the most recent ordinary annual meeting of our shareholders was held on April 26, 2018.20, 2022.
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 CMF. In addition, as from January 1, 2010 there are two new rules in this regard: (i) the CMF may directly call for an extraordinary shareholders’ meeting in case of a publicly-traded company, and (ii) any kind of shareholders’ meeting may be self-convened and take place if all voting shares attend, regardless of the fulfillment of the notice and other type of procedural requirements.
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 notno less than 1510 days and notno more than 20 days in advance of the scheduled meeting. Notice also must be mailed not less than 15 days in advance of the meeting to each shareholder andsent to the CMF and the Chilean stock exchanges.exchanges no less than 10 days in advance of the meeting. Currently, we publish our official notices in the newspaperLa Tercera(available online at www.latercera.com).
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. Proxies addressed to us that do not designate a person to exercise the proxy are taken into account in order to determine if there is a sufficient quorum to hold the meeting, but the shares represented thereby are not entitled to vote at the meeting. The proxies must fulfill the requirements set forth by the Chilean CorporationCorporate Law and its regulatory norms. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed.
The following matters can only be considered at an extraordinary shareholders’ meeting:
● | our dissolution; |
● | a merger, transformation, division or other change in our corporate form or the amendment of our by-laws; |
● | the issuance of bonds or debentures convertible into shares; |
● | the conveyance of 50% or more of our assets (whether or not it includes our liabilities); |
● | the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage; |
● | the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets; |
● | the conveyance of shares of a subsidiary which entails the transfer of control; |
● | granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless to secure or guarantee the obligations of a subsidiary, in which case only the approval of the board of directors will suffice; and |
● | other matters that require shareholder approval according to Chilean law or the by-laws. |
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.
The by-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, underpursuant to the second paragraph of article 67 of the Chilean Corporation Law,Act, the vote of a two-thirds majority of the outstanding voting shares is required to approve any of the following actions:
● | a change in our corporate form, division or merger with another entity; |
● | amendment to our term of existence, if any; |
● | our early dissolution; |
● | change in our corporate domicile; |
● | decrease of our capital stock; |
● | approval of contributions and the assessment thereof whenever consisting of assets other than money; |
● | any modification of the authority reserved for the shareholders’ meetings or limitations on the powers of the board of directors; |
● | decrease in the number of members of the board of directors; |
● | the conveyance of 50% or more of our assets (whether or not it includes our liabilities); |
● | the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage; |
● | the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets; |
● | the conveyance of shares of a subsidiary which entails the transfer of control; |
● | the form that dividends are paid in; |
● | granting a security interest or a personal guarantee in each case to secure obligations of third parties that exceeds 50% of our assets, unless to secure or guarantee the obligations of a subsidiary, in which case only approval of the board of directors will suffice; |
● | the acquisition of our own shares, when, and on the terms and conditions, permitted by law; |
● | all other matters provided for in the by-laws; |
● | the correction of any formal defect in our incorporation or any amendment to our by-laws that refers to any of the matters indicated in the first |
● | the institution of the right of the controlling shareholder who has purchased at least 95% of the shares to purchase shares of the outstanding minority shareholders pursuant to the procedure set forth in article 71 bis of the Chilean Corporation |
● | the approval or ratification of transactions with related parties, as per article 147 of the Chilean Corporation |
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 voting shares. Upon expiration of said term, this restriction shall automatically cease and the two-thirds majority contemplated in the second paragraph of said article 67 shall apply thereafter. Amendments to the by-laws that have the effect of establishing, modifying or eliminating any special rights pertaining to any series of shares require the consenting vote of holders of two-thirds of the shares of the affected series. As noted above, LATAM Airlines Group does not have a special series of shares.
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 the 15-day period before a scheduled meeting. No later than 15 business10 days ahead of the scheduled shareholder’s meeting, the board of directors of a publicly held corporation is required to send to every shareholder notice by regular mail, a notice containing a referencepublish on its website certain information, including that related to the issues that willto be discussed in such a meeting together with instructions to obtain allcopies of the appropriate documentation regarding those issues, and publish such notice on its website.relevant supporting documents. The board is also required to make available to the shareholders the annual report and the financial statements of the company, and to publish such information in the company’s webpage at least 10 days in advance of the scheduled shareholders meeting. In addition to these requirements, we regularly have provided, and currently intend to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend for shareholder approval. See “—Dividend“-Dividend and Liquidation Rights”Rights,” below.
The Chilean CorporationCorporate Law provides that, whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include such shareholders’ comments and proposalproposals in relation to the company’s affairs, together with the comments and proposals set forth by the board of directors’ committee. Similarly, the Chilean CorporationCorporate Law provides that whenever the board of directors of a publicly held corporation convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions or other similar material, it is obligated to include as an annex to its annual report any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be included, together with the comments and proposals set forth by the board of directors’ committee.
Dividend and Liquidation Rights
In accordance with the Chilean CorporationCorporate Law, LATAM Airlines Group must distribute an annual cash dividend equal to at least 30% of its annual net incomeprofits calculated in accordance with IFRS, unless otherwise decided by a unanimous vote of the holders of all issued shares, and unless and except to the extent it has accumulated losses. If there isare no net incomeprofits in a given year, LATAM Airlines Group can elect but is not legally obligated to distribute dividends out of retained earnings. All outstanding common shares are entitled to share equally in all dividends declared by LATAM Airlines Group, unlessexcept for the shares that have not been fully paid by the shareholder after being subscribed.
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 isbe required to receive a dividend in cash. See “—Preemptive“-Preemptive Rights and Increases in Share Capital”Capital,” above.
Dividends that are declared but not paid within the appropriate time period set forth in the Chilean CorporationCorporate Law (as to minimum dividends, 30 days after declaration; as to additional dividends, the date set for payment at the time of declaration) are adjusted to reflect the change in the value of the UF. The UF is a daily indexed, Chilean peso-denominated accounting unit designed to discount the effect of Chilean inflation and it is based on the previous month’s inflation rate as officially determined. Such dividends also accrue interest at the then-prevailing rate for UF-denominated deposits during such period. The right to receive a dividend lapses if it is not claimed within five years from the date such dividend is payable. After that period, the amount not claimed is given to a non-profit organization, the National Corporation of Firefighters (Cuerpos de Bomberos de Chile(the National Corporation of Firefighters)).
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 notno later than 60 days from the date of that meeting. If the shareholders reject the new financial statements, the entire board of directors is deemed removed from office and a new board is to be elected at the same meeting. Directors who approved such financial statements are disqualified for re-election for the ensuing period.
Right of Dissenting Shareholders to Tender Their Shares
The Chilean CorporationCorporate Law provides that, upon the adoption at an extraordinary meeting of shareholders of any of the resolutions or if any of the situations enumerated below takes place, dissenting or affected shareholders acquire the right to withdraw and to compel the company to repurchase their shares, subject to the fulfillment of certain terms and conditions. However, such right shall be suspended if we are a debtor in a bankruptcy liquidation proceeding, or if we are subject to a reorganization agreement approved in accordance with the Chilean law No. 20,720,Insolvency Act, unless such agreement allows the right to withdraw, or unless it is terminated by the issuance of a liquidation resolution. In the case of holders of ADRs, however, in order to exercise such rights, holders of ADRs would be required to first withdraw the common shares represented by the ADRs pursuant to the terms of the deposit agreement. Such holders of ADRs would need to perfect the withdrawal of the common shares on or before the fifth business day prior to the date of the meeting.
“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 60 stock-exchange-business-day period elapsed between the 30th and the 90th stock-exchange-business-days-preceding the shareholder meetingresolution giving rise to the withdrawal right. If becausethe shares of the volume, frequency, number and diversity ofcorporation do not qualify as “actively traded” pursuant to the buyers and sellers,General Rules dictated by the CMF, determines that the shares are not shares actively traded on a stock exchange (acciones de transacción bursátil), themarket price corresponds to be paid to the dissenting shareholder is the book value of the shares. Book value for this purpose equals paid capital plus reserves and profits, less losses, divided by the total number of subscribed shares (whether entirely or partially paid). For the purpose of making this calculation, the last annual balance sheet submitted to the CMF is used and adjusted to reflect inflation up to the date of the shareholders’ meeting that gave rise to the withdrawal right.
The resolutions and situations that result in a shareholder’s right to withdraw are the following:
● | the transformation of the company; |
● | the merger of the company with or into another company; |
● | the conveyance of 50% or more of the assets of the company, whether or not such sale includes the company’s liabilities; |
● | the adoption or amendment of any business plan which contemplates the conveyance of assets in excess of the foregoing percentage; |
● | the conveyance of 50% or more of the assets of a subsidiary, if the latter represents at least 20% of our assets; |
● | the conveyance of shares of a subsidiary which entails the transfer of control, if the subsidiary represents at least 20% of our assets; |
● | the creation of preferential rights for a class of shares or an extension, amendment or reduction to those already existing, in which case the right to withdraw only accrues to the dissenting shareholders of the class or classes of shares adversely affected; |
● | the correction of any formal defect in the incorporation of the company or any amendment to the company’s by-laws that grants the right to withdraw; |
● | the granting of security interests or personal guarantees to secure or guarantee third parties’ obligations exceeding 50% of the company’s assets, except with regard to subsidiaries; |
● |
● | if the extraordinary shareholders’ meeting resolves to close a |
● | if the controlling shareholder of a publicly-traded company reaches over 95% of the shares (in such case, the right must be exercised within 30 days of the date in which the threshold is reached, circumstance that must be communicated by means of a publication); and |
● | such other causes as may be established by the company’s by-laws (no such additional resolutions currently are specified in our by-laws). |
In addition, shareholders of publicly held corporations have the right to withdraw if a person acquires two-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 Act, the right to withdraw also is granted to shareholders (other than pension funds that administer private pension plans under the national pension law), under certain terms and conditions, if a company were to become controlled by the Chilean government, directly or through any of its agencies, and if two independent rating agencies downgrade the rating of its stock from first class because of certain actions specified in Article 69 bis undertaken by the company or the Chilean government that affect negatively and substantially the earnings of the company. Shareholders must perfect their withdrawal rights by tendering their shares to the company within 30 days of the date of the publication of the new rating by two independent rating agencies. If the withdrawal right is exercised by a shareholder invoking Article 69 bis, the price paid to the dissenting shareholder shall be the weighted average of the sales price for the shares as reported on the stock exchanges on which the company’s shares are quoted for the six-month period preceding the publication of the new rating by two independent rating agencies. If, as previously described, the CMF determines that the shares are not actively traded on a stock exchange, the price shall be the book value calculated as described above.
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 createscreate a “squeeze out” right by the controlling shareholder with respect to those same shareholders (granting a call option by means of which the controlling shareholder may buy-out the existing ownership participationsparticipations) pursuant to the provisions of article 71 bis of the Corporation Act).Act.
Registration and Transfers
TheDepósito Central de ValoresDCV Registros S.A. (“DCV”), a local depository corporation, acts as LATAM Airlines Group’s registration agent. In the case of jointly owned common shares, an attorney-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 AircraftsAircraft
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | ||||
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Boeing 787-8/9 Fleet | ||||||||
Purchase Agreement No. 3256 with the Boeing Company | October 29, 2007 | ⮚ Boeing 787-8 aircrafts (18) | US$ | 3,200,000,000 | ||||
⮚ Boeing 787-9 aircrafts (8) | ||||||||
⮚ Option of purchasing fifteen additional aircraft to be delivered in 2017 and 2018 | ||||||||
Supplemental Agreement No. 1 to the Purchase Agreement No. 3256 | March 22, 2010 | ⮚ Advance scheduled delivery date of ten Boeing 787-8 aircraft and substitute four Boeing 787-9 aircraft into four Boeing 787-8 aircraft. | ||||||
Supplemental Agreement No. 3 to the Purchase Agreement No. 3256 | August 24, 2012 | ⮚ Replace two Boeing 787-8 aircraft with two Boeing 787-8 aircraft with a later delivery. | ||||||
Delay Settlement Agreement to the Purchase Agreement No. 3256 | September 16, 2013 | ⮚ Agreed to update delivery dates, settle consequences of delays and convert several future deliveries of B787-8 aircraft to B787-9 aircraft. This agreement was amended on April 22, 2015 to update delivery dates of certain aircraft. | ||||||
Supplemental Agreement No. 4 to the Purchase Agreement No. 3256 | April 22, 2015 | ⮚ Reschedule the delivery dates of four Boeing 787-8 aircraft and replace four Boeing 787-8 aircraft with four Boeing 787-9 aircraft. | ||||||
Supplemental Agreement No. 6 to the Purchase Agreement No. 3256 | May 27, 2016 | ⮚ Convert four Model 787-8 Aircraft to four Model 787-9 Aircraft, and Defer of two Model 787-9 Aircraft from 1Q 2018 and 2Q 2018 to 3Q 2018 and 4Q 2018 respectively. |
Supplemental Agreement No. 13 to the Purchase Agreement No. 3256 | July 3, 2019 | ⮚ To include certain letter agreements | ||||||
Supplemental Agreement No. 14 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ Reschedule the delivery dates of four Boeing 787-8 aircraft |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Supplemental Agreement No. 15 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ To incorporate Exhibit A1 | ||||||
Supplemental Agreement No. 16 to the Purchase Agreement No. 3256 | October 11, 2019 | ⮚ Deferral of PDPs. | ||||||
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Supplemental Agreement No. | February 17, 2020 | ⮚ | ||||||
Supplemental Agreement No. | April 29, 2021 | ⮚ | ||||||
787 Settlement Agreement | June 17, 2022 | ⮚ Agreed to update delivery dates and settle certain consequences. | ||||||
Airbus A320-Family Fleet | ||||||||
Second A320-Family Purchase Agreement with Airbus S.A.S. | March 20, 1998 | ⮚ Airbus A320-Family aircrafts (5) | US$ | 230,000,000 | ||||
Amendment No. 1 to the Second A320-Family Purchase Agreement | November 14, 2003 | ⮚ Exercise three purchase rights for Airbus 319 aircraft, among other things. | ||||||
Amendment No. 2 to the Second A320-Family Purchase Agreement | October 4, 2005 | ⮚ Acquire 25 additional Airbus 320 family aircraft and 15 purchase rights for Airbus A320-Family aircraft. | ||||||
Amendment No. 3 to the Second A320-Family Purchase Agreement | March 6, 2007 | ⮚ Exercise 15 purchase rights for 15 Airbus A320-Family Aircraft. | ||||||
⮚ According to clause 12.2 of the Second A320-Family Purchase Agreement, applicable to all subsequent amendments, in case of a failure, as defined in such agreement, a service life policy for a period of 12 years after delivery of any given aircraft shall apply. |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Amendment No. 5 to the Second A320-Family Purchase Agreement | December 23, 2009 | ⮚ Airbus A320-Family aircrafts (30) | US$ | 2,000,000,000 |
Amendment No. 6 to the Second A320-Family Purchase Agreement | May 10, 2010 | ⮚ Convert the aircraft type of three aircraft and advance the scheduled delivery date of 13 aircraft. | ||||||
Amendment No. 8 to the Second A320-Family Purchase Agreement | September 23, 2010 | ⮚ Convert the aircraft type of one aircraft and advance the scheduled delivery date of four aircraft. | ||||||
Amendment No. 9 to the Second A320-Family Purchase Agreement | December 21, 2010 | ⮚ Airbus A320-Family aircrafts (50) | US$ | 2,600,000,000 | ||||
Amendment No. 10 to the Second A320-Family Purchase Agreement | June 10, 2011 | ⮚ Convert the aircraft type of three aircraft, to select sharklets for some aircraft and to notify delivery dates for some aircraft. | ||||||
Amendment No. 11 to the Second A320-Family Purchase Agreement | November 3, 2011 | ⮚ Convert the aircraft type of three aircraft and defer the scheduled delivery date of four aircraft. | ||||||
Amendment No. 12 to the Second A320-Family Purchase Agreement | November 19, 2012 | ⮚ Convert the aircraft type of three aircraft, identify certain aircraft as Sharklet Installed Aircraft and others as Sharklet Capable Aircraft, as those are defined in such Purchase Agreement, and notify the scheduled delivery month for certain aircraft. | ||||||
Amendment No. 13 to the Second A320-Family Purchase Agreement | August 19, 2013 | ⮚ Convert several A320 aircraft to A321 aircraft and to postpone the scheduled delivery dates of several aircraft. | ||||||
Amendment No. 16 to the Second A320-Family Purchase Agreement | July 15, 2014 | ⮚ Covering cancellation and substitution of certain Aircraft. | ||||||
Novation Agreement to the Second A320-Family Purchase Agreement | October 30, 2014 | ⮚ Novation of the original TAM A320/A330 Family Purchase Agreement from TAM to LATAM. |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Amendment No. 17 to the Second A320-Family Purchase Agreement | December 11, 2014 | ⮚ Covering the substitution of certain Aircraft. | ||||||
Amendment No. 18 to the Second A320-Family Purchase Agreement | August 4, 2021 | ⮚ Covering the postponement of certain relevant deadlines. | ||||||
Airbus A320 NEO-Family Fleet | ||||||||
A320 NEO Purchase Agreement | June 22, 2011 | ⮚ Airbus 320 NEO Family aircraft (20) | US$ | 1,700,000,000 | ||||
⮚ Delivery scheduled to take place in 2017 and 2018 | ||||||||
Amendment No. 1 to the A320 NEO Purchase Agreement | February 27, 2014 | ⮚ Covering the advancement of the date by which LATAM selects the propulsion systems. | ||||||
Amendment No. 2 to the A320 NEO Purchase Agreement | July 15, 2014 | ⮚ Covering the order of incremental A320 NEO Aircraft. |
Amendment No. 3 to the A320 NEO Purchase Agreement | December 11, 2014 | ⮚ Covering the order of incremental A320 NEO Aircraft and A321 NEO Aircraft. | ||||||
Amendment No. 4 to the A320 NEO Purchase Agreement | April 15, 2016 | ⮚ Covering the reschedule of the delivery of eight Original NEO Aircraft and the conversion of four Original NEO Aircraft into A321 NEO Aircraft | ||||||
Amendment No. 5 to the A320 NEO Purchase Agreement | April 15, 2016 | ⮚ Changes in the technical specifications of the aircraft to be received under this agreement. | ||||||
Amendment No. 6 to the A320 NEO Purchase Agreement | August 8, 2016 | ⮚ Covering the cancellation of the delivery of four A320 NEO Aircraft. | ||||||
Amendment No. 7 to the A320 NEO Purchase Agreement | September 22, 2017 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||
Amendment No. 8 to the A320 NEO Purchase Agreement | December 21, 2018 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Amendment No. 9 to the A320 NEO Purchase Agreement | August 4, 2021 | ⮚ Covering the rescheduling of certain A320 NEO Family Aircraft. | ||||||
TAM Material Contracts – A320/A330 Family Purchase Agreement | ||||||||
Purchase Agreement with Airbus S.A.S. | November 2006 | ⮚ Airbus A320-Family aircrafts (31) | US$ | 3,300,000,000 | ||||
⮚ Airbus A330-200 aircrafts (6) | ||||||||
⮚ Delivery was scheduled to take place between 2007 and 2010 | ||||||||
New Purchase Agreement with Airbus S.A.S. | January 2008 | ⮚ Airbus A320-Family aircrafts (20) | US$ | 2,140,000,000 | ||||
⮚ Airbus A330-200 aircrafts (4) | ||||||||
⮚ Delivery was scheduled to take place between 2007 and 2014 | ||||||||
New Purchase Agreement with Airbus S.A.S. | July 2010 | ⮚ Airbus A320-Family aircrafts (20) | US$ | 1,450,000,000 | ||||
⮚ Delivery was scheduled to take place between 2014 and 2015 | ||||||||
New Purchase Agreement with Airbus S.A.S. | October 2011 | ⮚ Airbus A320-Family aircrafts (10) | US$ | 1,730,000,000 | ||||
⮚ Airbus A320 NEO Family aircrafts (22) | ||||||||
⮚ Delivery scheduled to take place between 2016 and 2018 | ||||||||
⮚ Ten option rights for Airbus A320 NEO Family aircraft | ||||||||
Amendment No. 13 to the A320/A330 Purchase Agreement | November 2012 | ⮚ Convert the aircraft type of A320 family aircraft. | ||||||
Amendment No. 14 to the A320/A330 Purchase Agreement | December 2012 | ⮚ Convert the aircraft type of an A320 family aircraft and reschedule the delivery date of such aircraft. |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Amendment No. 15 to the A320/A330 Purchase Agreement | February 2013 | ⮚ Changes to the scheduled delivery month of certain A320 Family Aircraft. | ||||||
Amendment No. 16 to the A320/A330 Purchase Agreement | February 2013 | ⮚ Change to the aircraft type of certain A320 Family Aircraft, to the scheduled delivery month/quarter of certain A320 Family Aircraft and make certain changes to the dates by which TAM will select the propulsion systems and NEO propulsion systems for certain Aircraft. | ||||||
Amendment No. 17 to the A320/A330 Purchase Agreement | August 2013 | ⮚ Change to the scheduled delivery month of a certain A320 Family Aircraft and to make the selection of the propulsion systems and NEO propulsion systems for certain Aircraft. | ||||||
Amendment No. 20 to the A320/A330 Purchase Agreement | June 2015 | ⮚ Change to the schedule delivery month of one A321 Aircraft. | ||||||
Amendment No. 21 to the A320/A330 Purchase Agreement | December 2015 | ⮚ Change to the schedule delivery month of two A320 NEO Aircraft. | ||||||
Amendment No. 23 to the A320/A330 Purchase Agreement | April 15, 2016 | ⮚ Reflect the changes in the technical specifications of the aircraft to be received under this agreement. | ||||||
Amendment No. 24 to the A320/A330 Purchase Agreement | August 8, 2016 | ⮚ Cancel the delivery of eight A320 NEO Aircraft. | ||||||
Amendment No. 26 to the A320/A330 Purchase Agreement | December 21, 2018 | ⮚ | ||||||
⮚ Cancel the delivery of one A321 Aircraft. | ||||||||
Amendment No. 27 to the A320/A330 Purchase Agreement | August 4, 2021 | ⮚ Incremental order of 28 additional A320 NEO Family Aircraft. | ||||||
⮚ Rescheduling of certain A320 NEO Family Aircraft. | ||||||||
Amendment No. 28 to the A320/A330 Purchase Agreement | July 20, 2022 | ⮚ Incremental order of 17 additional A320 NEO Family Aircraft. | ||||||
⮚ Rescheduling and type conversion of certain A320 NEO Family Aircraft. |
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
TAM Material Contracts | ||||||||
Purchase Agreement with Airbus S.A.S. | January 2008 | ⮚ Airbus A350 aircrafts (22) | US$ | 6,480,000,000 | ||||
⮚ Ten option rights for Airbus A350 | ||||||||
Amendment No. 1 to the A350 Purchase Agreement | July 2010 | ⮚ Exercise its option of five A350 XWB options. | ||||||
Amendment No. 2 to the A350 Purchase Agreement | July 2014 | ⮚ Reschedule the delivery of certain A350-900XWB and to amend certain provisions to reflect the latest aircraft specification. | ||||||
Novation Agreement to the A350 Purchase Agreement | July 2014 | ⮚ Novating the A350 purchase agreement from TAM to LATAM. | ||||||
Amendment No. 4 to the A350 Purchase Agreement | September 2015 | ⮚ Modify certain terms and conditions of such agreement and to convert a number of A350-900 XWB Aircraft into A350-1000 XWB Aircraft. | ||||||
Amendment No. 5 to the A350 Purchase Agreement | November 2015 | ⮚ Convert a number of A350-900 XWB aircraft into six A350-1000 XWB aircraft and to reschedule the delivery of certain A350-900 XWB. | ||||||
Amendment No. 7 to the A350 Purchase Agreement | August 8, 2016 | ⮚ Change aircraft type, from two A350-900 XWB Aircraft to two A350 - 1000 XWB Aircraft. | ||||||
Amendment No. 9 to the A350 Purchase Agreement | September 22, 2017 | ⮚ Convert two A350-1000 XWB Aircraft into A350-900 XWB Aircraft | ||||||
Amendment No. 10 to the A350 Purchase Agreement | December 21, 2018 | ⮚ Convert four A350-1000 XWB Aircraft into A350-900 XWB Aircraft. | ||||||
⮚ Reschedule of six A350-900 XWB Aircraft and eight A350-1000 XWB. | ||||||||
Amendment No. 11 to the A350 Purchase Agreement | April 29, 2019 | ⮚ Reschedule of two A350-900 XWB Aircraft | ||||||
Amendment No. 12 to the A350 Purchase Agreement | August 5, 2019 | ⮚ Reschedule of one A350-900 XWB Aircraft | ||||||
August 4, 2021 | ⮚ Cancellation of 2 remaining deliveries of A350-1000 XWB Aircraft |
TAM Material Contracts - Boeing 777 Purchase Agreement
Agreement | Date | Aircraft (number purchased) | Estimated Gross Value of Aircraft at List Price | |||||
Purchase Agreement with Boeing | February 2007 | ⮚ Boeing 777-32WER aircrafts (4) | US$ | 1,070,000 | ||||
Supplemental Agreement No. 1 to the Purchase Agreement | August 2007 | ⮚ Exercise four option aircraft and to define certain aircraft configuration. | ||||||
Supplemental Agreement No. 2 to the Purchase Agreement | March 2008 | ⮚ Document its agreement on the descriptions and pricing of some options and master changes related to certain aircraft. | ||||||
Supplemental Agreement No. 3 to the Purchase Agreement | December 2008 | ⮚ Purchase of two incremental 777 aircraft. | ||||||
Supplemental Agreement No. 5 to the Purchase Agreement | July 2010 | ⮚ Reschedule the delivery of certain aircraft. | ||||||
Supplemental Agreement No. 6 to the Purchase Agreement | February 2011 | ⮚ Purchase of two incremental 777 aircraft. | ||||||
Supplemental Agreement No. 7 to the Purchase Agreement | May 2014 | ⮚ Substitute two 777-300ER aircraft originally scheduled for delivery in 2014 for two 777-F aircraft for scheduled delivery in 2017. | ||||||
Supplemental Agreement No. 8 to the Purchase Agreement | April 2015 | ⮚ Reschedule the delivery of certain aircraft. | ||||||
Supplemental Agreement No. 11 to the Purchase Agreement | October 11, 2019 | ⮚ Option to cancel two Aircraft | ||||||
Supplemental Agreement No. 12 to the Purchase Agreement | February 3, 2020 | ⮚ Cancellation of one Aircraft | ||||||
Supplemental Agreement No. 13 to the Purchase Agreement | April 29, 2021 | ⮚ Cancellation of one Aircraft |
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Other Material Contracts
Boeing
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 May 8, 2018, we also entered into an Aircraft Lease Common Terms Agreement with The Boeing Aircraft Holding Company for the lease of two B777-200ER aircraft. The average term of the lease is 12 months.
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, which were returned to the lessor, and several new aircraft to be received from the manufacturer including A350-900, B787-8 and B787-9 aircraft. The estimated gross value (at list prices) of these aircraft is US$3.0 billion.
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 no longer part of such framework deed with Aircastle, but the aircraft remains in our fleet with a different lessor.
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 of CF6-80C2B6F engines (which powers our B767 fleet) during 200 shop visits or 10 years, whichever occurs first.
On July 28, 2009, TAM Linhas Aereas S.A.June 18, 2021, we entered into an engine services agreement with GE Engine Services, Inc.LLC for the provision of maintenance services of GE90-115BL engines, which power 10 B777 passenger fleet and 43 spare engines, for a period of 12 years per engine.6 years.
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 of CFM56-5B engines to power 70 A320 family aircraft and up to 14 CFM56-5B 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 International, Inc. (“CFM”) for the sale and support by CFM of CFM56-5B engines to power 20 A320 family aircraft and one spare engine.
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 for CFM56-5B engines, which power 47 A320 Fam passenger fleet and 6 spare engines, for a period of 15 years per engine.
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PW1100G-JM Engine Maintenance Agreement
In February 2014, we entered into an engine support and maintenance agreement with United Technologies International Corporation, Pratt & Whitney Division (“PW”) for the sale, support and maintenance by PW of PW1100G-JM engines to power 42 A320NEO family aircraft and nine spare engines. It is also a rate per engine flight hour contract agreement, which includes cost control mechanisms for LATAM.
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 January 11, 2011, TAM Linhas Aereas S.A.December 1, 2021, we entered into General Terms Agreement No. DEG5292 (the “GTA”)Amendment 7 to the above-mentioned services agreement with Rolls-Royce PLC, for the sale and support by Rolls-Royce of Trent XWB1000 engines to power 27 A350XWB28 B787 family aircraft and additional option aircraft, and up to 713 Trent XWB1000 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 12 years per engine. Subsequently, on July 31, 2015, the aforementioned agreements were assigned, so that LATAM Airlines Group S.A. replaces TAM Linhas Aereas S.A. in both agreements.
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 of V2500-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 of V2500-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 certain CFM56-5B engines.
PAAL Gemini Company Limited – PAAL Aquila Company Limited
During 2016, we entered into lease agreements with PAAL Gemini Company Limited and PAAL Aquila Company Limited, for the sale and lease back of four Airbus A321 received in our fleet in 2016. The term of each of the leases is 10 years and the estimated market value (at list prices) of these aircraft is US$200 million.Avolon Aerospace
Jackson Square
During 2016, we entered into lease agreements with JSA Aircraft 7126, LLC, JSA Aircraft 7128, LLC, JSA Aircraft 7239, LLC and JSA Aircraft 7298, LLC, for the sale and lease back of three Airbus A321 and one Airbus A320 Neo received in our fleet in 2016. The term of each of the leases is 10 years and the estimated market value (at list prices) of these aircraft is US$200 million.
Avolon Aerospace
On May 10, 2017, we entered into a Framework Agreement with Avolon Aerospace for the assignment of two A350-900 aircraft. The estimated market value of these aircraft is US$ 246,000,000.
On September 8, 2017, we entered into a Lease Agreementlease agreement with Avolon Aerospace for the Sale and Leaseback of five A320 neo aircraft. The estimated market value of these aircraft is US$ 241,000,000. The average term of the leases is 144 months.
On January 16, 2018, we entered into a Lease Agreementlease agreement with Avolon Aerospace of two A321-200 aircraft. The estimated market value of these aircraft is US$ 88,600,000. The average term of the lease is 124 months.
Aircastle
On January 11, 2019, September 9, 2021,we entered into lease agreements with AircastleAvolon for the lease of 10 A320 aircraft.three 787-9. The lease agreements are for a duration of approximately seven to eightthirteen years.
Vermillion Aviation
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 4four A320 aircraft. The lease agreements are for a duration of approximately seven and eight years.
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 Contract
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 be effective for an initial period of 10 years.
In addition, LATAM has distribution agreements in place with SABRE as well as with other distribution providers. On May 1, 2020 we entered into a new Sabre Participant Carrier Distribution and Services Agreement. This agreement will be effective for successive 1-year periods until terminated anytime by either party upon at least 180 days’ notice.
AMADEUS Contract
On May 1, 2020, we entered into the Amended and Restated Addendum to the Global Distribution Agreement for Full Content and Channel Parity with Amadeus, an agreement effective for an initial period of two years. On January 14, 2021, LATAM rejected this contract, as part of its Chapter 11 proceedings, which took effect on March 1, 2021. Notwithstanding the foregoing, on March 12, 2021 LATAM and Amadeus entered into a new Amended and Restated Addendum to the Global Distribution Agreement for Full Content and Channel Parity. This Addendum will be automatically renewed for periods of one year, until terminated anytime upon at least 90 days’ notice.
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 2020, LATAM together with TAM entered into an Engine Maintenance Services Agreement with MTU Maintenance Hannover GmBH, for the maintenance of certain V2500 engines.
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 of CFM56-5B 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.
V2500-A5 Engine Maintenance AgreementPetrobras
In 2000, TAM entered into an engine maintenance contract with MTU Motoren-und Turbinen-Union München GmbH, or MTU, pursuant to which MTU agreed to provide certain maintenance, refurbishment, repair and modification services with respect to approximately 105 TAY650-15 aircraft engines. This contract is complemented by a novation and amendment agreement between us and Rolls-Royce Brazil Ltda. pursuant to which Rolls-Royce Brazil Ltda. replaced MTU as contract counterparty. This agreement terminates on June 30, 2015.
Raizen
In January 2013, we entered into an Aviation Fuel Supply Agreement with Raizen Combustiveis S.A. and a local agreement for services in Brazil. On December 28, 2015, we entered into a First Amendment to the agreement to extend its term and modify some commercial conditions for the services in Brazil. On November 19th 2018, we entered into a Second Amendment to the agreement to establish new commercial conditions, effective from January 2019 and valid for 3 years.
Petrobras
In April 2019,July 2021, we entered into an Aviation Fuel Supply Agreement with Petrobras Distribuidora S.A. and a local agreement for services in Brazil. ThisThese Agreements will be effective until December 31, 2021.June 30, 2024.
World Fuel Services
In addition,October 2006, we entered into an Aviation Fuel Supply Agreement with Esmax Distribuidora S.A (Ex Petrobras Chile) and aWorld Fuel Services INC. Later we entered into local agreementagreements for services in Chile, in January 2019.México, Colombia and USA. These Agreements will be effective until December 31,st 2021. 2023.
Air BP-Copec
In July 2018,December 2021, we entered into an Aviation Fuel Supply Agreement with Air BP Copec S.A. for services in Chile. These Agreements will be effective until DecemberJanuary 31,st 2021. 2023. An extension until April 30, 2023 has been agreed until new conditions are negotiated.
Pure BiofuelsRepsol
In November 2014,January 2023, we entered into an Aviation Fuel Supply Agreement with Repsol Marketing SAC and related companies. The agreement includes a General Terms and Conditions of a Contract Confirmation with Pure Biofuels del Peru S.A.C.local agreement for fuel supply services in Peru. Later, in 2016 and 2017, the agreement was modified by a first and second amendment.
On January 1st 2018, we entered into a Third Amendment to the agreement to establish new commercial conditions, effective from January 2018 andPeru valid until November 11, 2020.December 31, 2023.
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 are non-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:
● | prior foreign exchange restrictions would be eliminated; and |
● | a new Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) would be |
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:
● | a reserve requirement with the Central Bank of Chile for a period of one year (this mandatory reserve was imposed on foreign loans and funds brought into Chile to purchase shares other than those acquired in the establishment of a new company or in the capital increase of the issuing company; the reserve requirement was gradually decreased from 30% of the proposed investment to 0%); |
● | the requirement of prior approval by the Central Bank of Chile for certain operations; |
● | mandatory return of foreign currency to Chile; |
● | mandatory conversion of foreign currency into Chilean |
Under the new regulations, only the following limitations apply to these operations:
● | Under the new regulations, only the following limitations apply to these operations: |
● | the Central Bank of Chile must be provided with information related to certain operations; and |
● | certain operations must be conducted with the Formal Exchange Market. |
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. The establishment of an ADR facility is now regarded as an ordinary foreign investment, and simply requires that the Central Bank of Chile be informed of the transaction pursuant to Chapter XIV of the amended Compendium of Foreign Exchange Regulations and that the foreign currency transactions related thereby be conducted through the Formal Exchange Market.
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.
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Investment in Our Shares and ADRs after the business combination with TAM
As a result of the combination with TAM,Currently, investments made by foreign investors in shares of our common stock are subject to the following requirements:
● | any foreign investor acquiring shares of our common stock who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market; |
● | any foreign investor acquiring shares of our common stock to be converted into ADSs or deposited into an ADR program who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market; |
● | in both cases, the entity of the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile; |
● | all remittances of funds from Chile to the foreign investor upon the sale of the acquired shares of our common stock or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; |
● | all remittances of funds from Chile to the foreign investor upon the sale of shares underlying ADSs or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and |
● | all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile by the intervening entity of the Formal Exchange Market. |
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 “Vote Cut-Off Date.” The depositary will try, as far as practical, subject to Chilean law and the provisions of our by-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:
we do not wish to receive a discretionary proxy; |
we think there is substantial |
we think the particular question would have an adverse impact on our shareholders. |
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 (dó(dólar acuerdo)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.
PriorIn 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 3, 1999, the Central Bank of Chile was authorizeddecided to buy or sell dollarslimit its formal commitment to intervene and decided to exercise it only under extraordinary circumstances, which are to be announced in the Formal Exchange Market to maintain the observed exchange rate within a specified range above or below the reference exchange rate. On September 3, 1999, theadvance. The Central Bank of Chile eliminatedalso committed to provide periodic information about the exchange band. As a result, the Central Banklevels of Chile may buy and sell foreign exchange in the Formal Exchange Market in order to maintain the observed exchange rate at a level the Central Bank of Chile determines.its international reserves.
Purchases and sales of foreign exchange may be effectedeffectuated outside the Formal Exchange Market are made through the Informal Exchange Market (Mercado Cambiario Informal) established by the Central Bank in 1990.. There are no limits on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate.
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
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 Internal Revenue ServiceServicio de Impuestos Internos (“Chilean IRS”) and other applicable regulations and rulings, all of which are subject to change. The discussion summarizes the principal Chilean income tax consequences of an investment in the ADSs or common shares by a person who is neither domiciled in, nor a resident of, Chile or by a legal entity that is incorporated abroad not organized under the laws of Chile and does not have a branch or a permanent establishment located in Chile (such an individual or entity is referred to herein as a Foreign Holder). For purposes of Chilean tax law, an individual holder is (i) a resident of Chile if such person remains in Chile, whether continuously or not, for a period or periods exceeding a total of 183 days, within any twelve-month period.period; and/or (ii) domiciled in Chile if such person’s main place of business is located in the country. The discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.
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 and before it becomes effective (theand considering the latest changes proposed by the U.S. Congress, if approved in that jurisdiction the Chilean Congress ratified it in 2017).government also will have to move the tax treaty through its own Congress.
On February 4, 2022, Law No. 20,780, enacted21,420 was published. The law aims to reduce or eliminate certain tax exemptions. The new law limits the non-taxable income benefit on capital gain on the disposal of public traded instruments, incorporating a 10% single tax on capital gains obtained by non-institutional investors on the sale of those instruments, tax effective for operations as of September 29, 2014, in conjunction with Law No. 20,899, enacted2, 2022.
Finally, on February 8, 2016 (both,July 7, 2022 the “Tax Reform Act”) introducedChilean government submitted to Congress a comprehensive modificationtax reform bill that includes amendments to the Chilean incomeIncome Tax Law, the Tax Code, the VAT Law, the introduction of a new wealth tax, system. The Tax Reform Act introduced changesamong others. Among the aspects to be highlighted are: (i) the corporateincorporation of a new general tax rate, mandating a gradual increase of the rate from 20% to 25% or 27% in certain cases, the rules regarding minimum capitalization, andregime for large companies, which would separate the taxation of Chilean investments abroad (the controlled-foreign-corporation rules),companies from that of their owners, and introduced two new alternative general income tax regimes for Chilean taxpayers (Fully Integrated Regime andreplace the current Partially Integrated Regime), among others. Both regimes apply as from January 1, 2017. The mandatoryRegime. Under this new proposed regime for entities organized asthere would be a new Chilean Withholding Tax on dividends of 22% without the First Category Tax or “FCIT” credit. However, in the case of taxpayers resident in a country with which Chile has signed a double tax treaty that is currently in force, and who are also beneficiaries of such income, the FCIT will be credited against the respective Chilean withholding tax; (ii) alignment of capital gains obtained in the disposal of stock corporations like Latam Airlines Group S.A. ismarket instruments (shares and others) tax treatment to dividends, subjecting them to a 22% tax rate; (iii) administrative qualification of the Partially Integrated System andGeneral Anti-Avoidance Rule (GAAR); (iv) incorporation of an anonymous tax whistleblower; (v) modification of the Corporate IncomeChilean IRS’ appraisal authority (Article 64 of the Chilean Tax rate for companies under this regime is 27% from 2018 onward.
In addition,Code); (vi) limitation on February 24, 2020the use of carry-forward tax losses; (vi) the introduction of a new tax reform law was enacted which in general will be in force as of March 1, 2020 with some provisions entering into force at different dates. The main new rules are: (i) repealing bothapplied on undistributed taxable profits held by Chilean passive investment companies; (vii) the Fully and the Partially Integrated Regimes. A new tax regime is established for small and medium enterprises (SMEs) whose sales do not exceed app US$2.55 million annually (the threshold might consider related party income) with a 25% rate Corporate Tax, and 100% of credit against final taxes (please note that amounts expressed in USD may be subject to change due to exchange rate fluctuations). The Partially Integrated regime would remain for companies exceeding such threshold; (ii) incorporating a surcharge of the current real estate tax applicable on the aggregate valuecreation of a taxpayer’s real estate higher than US$600,000 app; (iii) limiting and eventually impeding Chilean holding companies in2% development tax aimed at promoting R&D expenditure, among other relevant proposed changes. However, on March 8, 2023, the bill was rejected by the House of Representatives. In this scenario, the government may insist that the bill be approved by the Senate (which requires a tax loss position from claimingquorum of 2/3) or re-submit the bill to the House of Representatives after a refund of the corporate taxes paid by local subsidiaries remitting dividends. Full implementation would occur in 2024; (iv) increasing the higher marginal personal income tax rate for Chilean domiciled individuals up to a 40% from the current 35%; and (v) modifying some requirements from the capital gain tax exemption in the sale of shares with high stock market presence, amongst other. We do not expect any material adverse effect on our business from this new tax reform law.1-year period.
Cash Dividends and Other Distributions
Under the new Partially Integrated Regime, cash dividends we pay with respect to the ADSs or common shares held by a Foreign Holder will be subject to a 35% Chilean withholding tax, which we withhold and pay over to the Chilean tax authorities and which we refer to as the Withholding Tax.(the “Withholding Tax”). A credit against the Withholding Tax is available based on the corporate income tax rate of the year of distribution and provided a sufficient balance of accumulated corporate income tax credits is available. These credits correspond to corporate income tax we actually paid on the accumulated income (referred to herein as the First“First Category TaxTax” or FCIT)“FCIT”). However, this credit does not reduce the Withholding Tax on a one-for-one basis because it also increases the base on which the Withholding Tax is imposed. In addition, if we distribute less than all of our distributable income, the credit for First Category Tax we pay is proportionately reduced. If we register net income but taxable losses,and a tax loss, no credit against the Withholding Tax may be available.
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. However, if a tax treaty is in place between Chile and the country of domicile of a Foreign Holder and such Foreign Holder is entitled to treaty benefits in relation to the income, the full First Category Tax credit will continue to be available to be offset against the Withholding Tax.
Under a transitory provision included in forceLaw No. 21,210, in effect until December 31, 2021,2026, the full 27% First Category Tax will also be creditable against the 35% Withholding Tax if the recipient of a dividend distribution is a shareholder resident in a country with which Chile has a tax treaty signed before January 1st, 2019, although2020, even if such treaty is not yet in force. TheThis last tax reform modifiesextended this provisionbenefit which was included by the Law No. 20,780 and was in terms of allowing the full First Category Tax creditforce until December 31, 2026 for treaties signed before January 1, 2020.2021.
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:
Foreign Holder in Treaty Country | Foreign Holder in Non Treaty Country | |||||||
The Company’s taxable income | 100.00 | 100.00 | ||||||
First Category Tax (27% of Ch$100) . | (27.00 | ) | (27.00 | ) | ||||
Net distributable income | 73.00 | 73.00 | ||||||
Dividend distributed (*) | 21.90 | 21.90 | ||||||
First category increase | 8.10 | 8.10 | ||||||
Amount subject to Withholding Tax (**) | 30.00 | 30.00 | ||||||
Withholding Tax | (10.50 | ) | (10.50 | ) | ||||
Credit for First Category Tax | 8.10 | 8.10 | ||||||
Add back 35% of the First Category Tax | N/A | (2.84 | ) | |||||
Net tax withheld | (2.40 | ) | (5.27 | ) | ||||
Net dividend received | 19.5 | 16.64 | ||||||
Effective dividend withholding rate | 11 | % | 24 | % |
Foreign Holder in Treaty Country | Foreign Holder in Non-Treaty Country | |||||||
The Company’s taxable income | 100.00 | 100.00 | ||||||
First Category Tax (27% of Ch$100). | (27.00 | ) | (27.00 | ) | ||||
Net distributable income | 73.00 | 73.00 | ||||||
Dividend distributed (*) | 21.90 | 21.90 | ||||||
First category increase | 8.10 | 8.10 | ||||||
Amount subject to Withholding Tax (**) | 30.00 | 30.00 | ||||||
Withholding Tax | (10.50 | ) | (10.50 | ) | ||||
Credit for First Category Tax | 8.10 | 8.10 | ||||||
Add back 35% of the First Category Tax | N/A | (2.84 | ) | |||||
Net tax withheld | (2.40 | ) | (5.27 | ) | ||||
Net dividend received | 19.5 | 16.64 | ||||||
Effective dividend withholding rate | 11 | % | 24 | % |
(*) | 30% of net distributable income. |
(**) | The dividend of Ch$21.90 grossed up with the First Category Tax credit of Ch$8.10. |
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 company.Company. The First Category Tax rate will beis 27% for 2018 and following years. The First Category Tax credits generated as of 2017, will be allocated first. Once the balance of First Category Tax credits generated as of 2017 are exhausted, the First Category Tax credits accumulated until December 31, 2016 will be used. In that event the First Category Tax credit available against the Withholding Tax will not correspond to the First Category Tax rate of the year of distribution but to the average rate of First Category Tax credits accumulated until December 31, 2016. This average rate will be determined by dividing the aggregate First Category Tax Credits accumulated until December 31, 2016 by the aggregate retained taxable profits accumulated at the same date. The First Category Tax credits accumulated until December 31, 2016 are not subject to the First Category Tax Credit Restitution irrespective of whether a tax treaty is in place with the country of the Foreign Holder or not.
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, 24% in 2016 and 25.5% in 2017 for companies subject to the Partially Integrated Regime.
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 kind would be subject to the same Chilean tax rules as cash dividends based on the fair market value of the relevant assets. Stock dividends and the distribution of preemptive rights are not subject to Chilean taxation.
Capital Gains
GainGains 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.
Gain recognizedGains 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% Withholding Tax. Moreover,However, a gain not exceeding 10 Annual Tax Units (US$7,310(app US 8,650 as of February 28, 2020)January 6, 2023) recognized by a Foreign Holder without taxable presence in Chile in a sale to a non-related buyer will not be taxable.
The gain onproceeds of the sale of shares of common stock by a Foreign Holder isor disposition are subject to a withholding of 35% ofapplicable on the gain. If the gain subject to taxation cannot be determined, the Foreign Holder is subject to a provisional withholding of 10% of the total (sale price) amount,proceeds, without any deduction, when the amounts are paid to, credited to, accounted for, put at the disposal of, or corresponding to, the Foreign Holder. The Foreign Holder would be entitled to request a tax refund for any amounts withheld in excess of the taxes actually due in April of the following year upon filing its corresponding tax return. Gain recognized in
Notwithstanding the transferabove, Article 107 of commonthe Chilean Income Tax Law provides for a 10% sole tax on capital gains arising from the sale of shares that have a high presenceof listed companies traded in the stock exchange, however, is notmarkets (except for capital gains obtained by “institutional investors” –as defined in Article 4 bis (d) of the Chilean Securities Market Act–, whether domiciled or resident in Chile or abroad, which will be tax exempt if the legal requirements are met). In general terms, the referred provision mandates that in order to qualify for this special tax treatment: (i) the shares must be of a publicly held stock corporation with a “high trading presence” status in the Chilean Stock Exchanges; (ii) the sale must be carried out in a Chilean Stock Exchange authorized by the CMF, or in a tender offer subject to capital gains taxChapter XXV of the Chilean Securities Market Act or as the consequence of a contribution to a fund as regulated in Chile, provided thatArticle 109 of the commonChilean Income Tax Law; (iii) the shares which are transferredbeing sold must have been acquired on a Chilean Stock Exchange, or in a local stock exchangetender offer subject to Chapter XXV of the Chilean Securities Market Act, or withinin an initial public offering (due to the processcreation of a public tendercompany or to a capital increase), or due to the exchange of common shares governed byconvertible publicly offered securities, or due to the Securities Market Law. The commonredemption of a fund’s quota as regulated in Article 109 of the Chilean Income Tax Law; and (iv) the shares must have been acquired either in a local stock exchange, within the process of a public tender of common shares governed by the Securities Market Law, in an initial public offer of common shares resulting from the formation of a corporationafter April 19, 2001.
The buyer or a capital increasestockbroker or securities agent acting on behalf of the same,Foreign Holder shall withhold the amount of the sole tax at the time the sales price is paid, remitted, credited into account or placed at the disposal of the Foreign Holder. The withholding shall be made at 10% rate on the taxable gain, unless the buyer or stockbroker or securities agent acting on behalf of the Foreign Holder does not have sufficient information to determine such capital gain, in which case the withholding shall be made at a provisional rate of 1% on the total price, without any deduction. In this last case, the Foreign Holder must file an exchangeannual tax return to pay any differences between the withheld amounts and the final applicable tax, or to request a refund if the first were made in excess of convertible bonds.the final tax.
Notwithstanding the foregoing paragraph, Chile’s tax authority
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 capital gains taxtaxes in Chile. Thus, according to the recent modifications, such ruling should imply that they would be subject to the sole tax at a rate of 10%. Such exemptionreduced rate is applicable provided that the ADRs comply with the requirements established by the CMF for the public offering of securities in Chile (i.e. if the ADRs are registered in the Foreign Securities Registry of the CMF, or their registration has been exempted by the CMF under a cooperation agreement signed with regulators of foreign markets), and the underlying shares have been registered in the Securities Registry of the CMF and on a Chilean Stock exchange. SharesExchange. According to General Ruling No. 327, issued by the CMF on January 17, 2012, shares are considered to have a high presence in the stock exchange when they:
are registered in the Securities Registry; |
are registered in a Chilean Stock |
meet at least one of the following requirements: |
have an adjusted presence equal to or above 25%; |
have a Market Maker (this requirement is limited under |
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 (US$34,864(app US$ 41,080 as of February 28, 2020)January 6, 2023) within the previous 180 business days of the stock market. That number must then be divided by 180, multiplied by 100, and expressed in a percentage value.
To meet the “Market Maker” requirement the issuer of the shares must execute a written contract with a stock brokerstockbroker incorporated in Chile that fulfills some additional requirements. The tax reform modifiesLaw No. 21,210 modified this provision in those cases where the high stock market presence is given exclusively by virtue of a Market Maker. Under the proposed provision,In such cases, the capital gain tax exemption would apply only for the term of one year from the first public offering of the securities.
A capital gainsgain tax exemption for “foreign institutional investors” such as mutual funds and pension funds was repealed as from May 1, 2014, by Law 20,712. However, the law includes a grandfathering provision for shares acquired before May 1, 2014. This provision establishes an exemption on the capital gain obtained in the sale of shares that are publicly traded and have a high presence in a stock exchange when the sale is made by a foreign institutional investor, provided that the sale is made in a local stock exchange or in a public tender in accordance with the provisions of the Securities Market Law,Act, or in the redemption of fund quotas, and the shares were acquired before May 1, 2014.
Pursuant to the regulations of the grandfathering rule, to qualify as a foreign institutional investor an entityfor the exemption, the taxpayer must be incorporated or formed outside of Chile, not have a domicile in Chile, and must be at least one ofqualify as a foreign institutional investor according to the following:
The foreign institutional investor must not directly or indirectly participate in the control of the corporations issuing the shares it invests in, nor possess or participate directly or indirectly in 10% or more of the capital or the profits of such corporations.
Another requirement for the exemption is that Furthermore, the foreign institutional investor must execute a written contract with a bank, or a stock brokerstockbroker incorporated in Chile. In this contract, the bank or stock brokerstockbroker must undertake to execute purchase and sale orders, verify the applicability of the tax exemption or tax withholding, and inform the Chilean IRS of the investors it works with and the transactions it performs. Finally, the foreign institutional investor must register with the Chilean IRS by means of a sworn statement issued by such bank or stock broker.stockbroker.
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. TheFor purposes of Ruling No. 324, dated January 29, 1990, issued by the Chilean IRS, the valuation procedure set forth in the deposit agreement, which values commonthe shares whichthat are being exchanged at the highest reported sales price at which they trade on the SSEstock exchange on the dateday on which the transfer of such shares is recorded on the books of the exchange,company’s share registrar, will determine the Foreign Holder’s acquisition value for this purpose. Consequently,In the surrender of ADRs for common shares andcase where the immediate sale of the common shares foris made on a day that is different from the value established underdate on which the Deposit Agreement will not generate aexchange is recorded, capital gaingains subject to taxation in Chile providedmay be generated. Notwithstanding the foregoing, following the criteria of Ruling No. 3708, dated October 1, 1999, issued by the Chilean IRS, the deposit agreement provides that in the event that the sale ofexchanged shares are sold by the common shares is madeForeign Holder on a Chilean stock exchange on the same day on which the transfer is recorded on the company’s share registrar or within two Chilean business days prior to the date on which the exchange of ADRs for common sharessale is recorded or ifon those books, the acquisition value of such exchanged shares shall be the price registered in the invoice issued by the stock broker that participated in the sale transaction.
The date of acquisition of the commonADSs is considered to be the date of acquisition of the shares at the exchange date, as determined above, is higher than the price atfor which the common sharesADSs are sold.exchanged.
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
There are noPlease 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 U.S. federal income tax consequences to a U.S. holder (as defined below) of owning common shares or ADSs. It applies to you only if you hold your common shares or ADSs as capital assets for tax purposes. This section does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may be relevant to U.S holders with respect to their ownership and disposition of ADSs or common shares. Accordingly, it is not intended to be, and should not be construed as, tax advice. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
● | a dealer in securities, |
● | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, |
● | a tax-exempt organization, |
● | a financial institution, |
● | a regulated investment company, |
● | a real estate investment trust, |
● | a life insurance company, |
● | a person liable for alternative minimum tax, |
● | a person that directly, indirectly or constructively owns 10% or more of the vote or value of our stock, |
● | a person that holds common shares or ADSs as part of a straddle or a hedging or conversion transaction, |
● | a person that purchases or sells common shares or ADSs as part of a wash sale for tax purposes, |
● | a U.S. holder (as defined below) whose functional currency is not the U.S. |
● | a U.S. expatriate, |
● | a person who acquired our ADSs or common shares pursuant to the exercise of any employee share option or otherwise as compensation, or |
● | a partnership or other pass-through entity or arrangement treated as such (or a person holding our ADSs or common shares through a partnership or other |
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 ADSs, including the potential impact of recently enacted legislation (P.L. 115-97) commonly referred to as the Tax Cut and Jobs Act (the “Act”).ADSs. Moreover, this summary does not address the U.S. federal estate, gift, or the Medicare contribution tax applicable to net investment income of certain non-corporate U.S. holders or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the acquisition, ownership and disposition of common shares and ADSs.
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 asof the date hereof.hereof. These laws are subject to change, or differing interpretation, possibly on a retroactive basis. On February 4, 2010, representatives of the governments of the United States and Chile signed a proposed income tax treaty, but the proposed treaty is not in force or effect, because the U.S. Senate has not consented to its ratification by the President of the United States.
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. Internal Revenue ServiceIRS or a court will not take a contrary position. On February 4, 2010, representatives of the governments of the United States and Chile signed an income tax treaty but the treaty is not yet in effect since it has not yet been ratified by both the U.S. Senate and the Chilean Congress.
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 U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the common shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in the common shares or ADSs, including the potential impactADSs.
For purposes of the Act.
You arethis summary, a U.S. holder if you are“U.S. holder” is a beneficial owner of common shares or ADSs and you are:that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise is subject to U.S. federal income taxation on a net income basis in respect of such common shares or ADSs.
ADSs
As a result of our Chapter 11 proceedings, LATAM was delisted from the NYSE on June 22, 2020. Our ADSs
continue to trade in the over-the-counter market under the ticker “LTMAY.” In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the beneficial owner of the common shares represented by those ADRs. Exchanges of common shares for ADRs, and ADRs for common shares, generally will not be subject to U.S. federal income tax.
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 U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your adjusted tax basis in the common shares or ADSs, as the case may be, and thereafter as capital gain from the sale or exchange of the common shares or ADSs, as the case may be. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to generally treat any distributions we make as dividend income for U.S. federal income tax purposes.
If you are a U.S. holder who is an individual, trust, or estate, U.S. holder, then dividends paid on the ADSs or common shares that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains.gains. Dividends paid on the ADSs or common shares will be treated as qualified dividend income if:
● | (a) the ADSs or common shares, as applicable, are readily tradable on an established securities market in the United States; or (b) we are eligible for benefits of a comprehensive tax treaty with the United States, which the |
● | we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a |
● | you hold the ADSs or common shares, as applicable, for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period |
We believe that our common shares and ADSs should not be treated as stock of a PFIC for U.S. federal income tax purposes.2022. See “—PFIC Rules”“PFIC Rules,” below.
TheU.S. IRS guidance provides that shares and ADSs are listed on the New York Stock Exchange, and should qualifyconsidered as readily tradable on an established securities market in the United States so long asif they are so listed. listed on certain national U.S. securities exchanges, including the NYSE. In the case of stock that is not listed in a manner that meets this definition (such as stock listed on the OTC Bulletin Board or on the electronic pink sheets), the U.S. IRS indicated in 2003 that it was considering whether, or to what extent, treatment as “readily tradable on an established securities market in the United States” should be conditioned on the satisfaction of parameters regarding minimum trading volume, minimum number of market makers, maintenance and publication of historical trade or quotation data, issuer reporting requirements under SEC or exchange rules, or issuer disclosure or determinations regarding PFIC or similar status. To date the U.S. IRS has not issued further guidance on this topic.
Accordingly, we expect that dividends we pay with respect tobecause our ADSs were delisted from the ADSs will be qualified dividend income (provided thatNYSE on June 22, 2020 and currently trade only on the other conditions listed above are met). Becauseover-the-counter market, and because our common shares are not expected to be listed on any United States securities market,exchange, the U.S. IRS may (as long as there is no income tax treaty in force and effect between Chile and the United States) take the position that dividends we pay with respect to the common shares willare not be qualified dividend income,(as long as there is no income tax treaty in effect between Chile and the United States), and therefore, that the U.S. dollar amount of such dividends received byan individual, trust, or estate U.S. holder will beare subject to taxation at ordinaryU.S. federal income tax rates. Corporate U.S. holders are taxed on dividend income at the U.S. federal corporate income tax rate whether or not the dividend income is qualified dividend income.
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 United StatesU.S. domestic corporations in respect of dividends received from other United StatesU.S. domestic corporations or certain foreign corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean pesos payments made, determined at the spot Chilean pesos/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
The amount of dividend income you have to include in gross income includes the amount of any Chilean tax withheld from the dividend payment even though you do not in fact receive such amount.Subject to generally applicable limitations and conditions under the Code, Chilean Withholding Tax withheld and paid over to the Chilean tax authorities (after taking into account the credit for the First Category Tax, when it is available) generally willmay be creditable or deductible against your U.S. federal income tax liability. Special rules applyThese generally applicable limitations and conditions include new requirements recently adopted by the U.S. IRS and any Chilean tax will need to satisfy these requirements in determiningorder to be eligible to be a creditable tax for a U.S. holder. The application of these requirements to the Chilean tax on dividends is uncertain and we have not determined whether these requirements have been met. If the Chilean dividend tax is not a creditable tax or you do not elect to claim a foreign tax credit limitation with respectfor any foreign income taxes paid or accrued in the same taxable year, you may be able to qualified dividenddeduct the Chilean tax in computing your taxable income that is subject to preferentialfor U.S. federal income tax rates. To the extent a refund of the tax withheld is available to you under Chilean law, as is the case if the amount of Chilean Withholding Tax initially withheld from a dividend is determined to be excessive as described above under “—Taxation—Chilean Tax—Cash Dividends and Other Distributions,” the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. purposes.
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 either “passive” or “general” or “foreign branch” income“passive category income” for purposes of computing the foreign tax credit allowable to you.purposes. The rules relating to foreign tax credits and deductions are complex. U.S. holders should consult their tax advisors concerning the application of these rules in their particular circumstances.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your common shares or ADSs, you will generally recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your adjusted tax basis, determined in U.S. dollars, in your common shares or ADSs.ADSs, as determined in U.S. dollars. Capital gain of a U.S. holder who is an individual, trust, or estate, U.S. holder is generally taxed at preferential rates(i.e. a maximum U.S. federal income tax rate of 20% plus 3.8% “Net Investment Income Tax” if certain income thresholds are met; see “Net Investment Income Tax” below)where the property is held for more than one year.The deductibility of capital losses is subject to significant limitations.The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Consequently, you may not be able to useUnder the new foreign tax credit requirements recently adopted by the U.S. IRS, any Chilean tax imposed on the sale or other disposition of the common shares or ADSs generally will not be treated as a creditable tax for U.S. foreign tax credit purposes. If the Chilean tax is not a creditable tax, the tax would reduce the amount realized on the sale or other disposition of the common shares or ADSs even if the U.S. holder has elected to claim a foreign tax credit against your U.S. federal incomefor other taxes in the same year. U.S holders should consult their own tax liability on such disposition, but you may apply such Chilean taxes as aadvisors regarding the application of the foreign tax credit against U.S. federal incomerules to a sale or other disposition of the common shares or ADSs and any Chilean tax dueimposed on other income you may have that is treated as derived from foreign sources in the appropriate foreign tax credit limitation category.such sale or disposition.
If the consideration received for our common shares or ADSs is paid in foreign currency, (which should not be the case in respect of our ADSs), the amount realized will generally be the U.S. dollar value of the payment received translated at the spot rate of exchange on the date of disposition. If ourdisposition (or, if the common shares or ADSs are treated as traded on an established securities market at such time, in the case of cash-basis and electing accrual-basis U.S. holders, the relevantsettlement date). An accrual basis U.S. holder is either a cash basis taxpayer or an accrual basis taxpayer who has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the U.S. Internal Revenue Service), such holder will determine the U.S. dollar value of the amount realized in a foreign currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If our common shares or ADSs are not treated as traded on an established securities market, or the relevant U.S. holder is an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot exchange rate on the settlement date such U.S. holder will recognize foreign currency gain or loss equal to the extent of any difference between the U.S. dollar amount realized on the date of disposition (as determined above) and the U.S. dollar value of the currencyamount received atbased on the spot rateexchange rates in effect on the date of the sale or other disposition and the settlement date. Our ADSs were delisted from the NYSE on June 22, 2020 and currently trade only on the over-the-counter market. It is unclear whether an over-the-counter market is treated as an established securities market for purposes of these rules. A U.S. holder’s initial tax basis in our common shares or ADSs will equal the cost of such ADSs or common shares. If a U.S. holder used foreign currency to purchase our common shares or ADSs, the cost of our common shares or ADSs will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. If our common shares or ADSs are treated as traded on an established securities market and the relevant U.S. holder is either a cash basis taxpayer or an accrual basis taxpayer who has made the special election described above, such holder will determine the U.S. dollar value of the cost of such common shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
Net Investment Income Tax
A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8%“net investment income”tax on the lesser of (1) the U.S. holder’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment income generally includes its dividend income and its net gains from the disposition of common shares or ADSs, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the“net investment income” tax to your income and gains in respect of your investment in the common shares or ADSs.
PFIC Rules
We believe that our common shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes,2022 and we do not anticipate becoming a PFIC in future taxable years, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your common shares or ADSs would in general not be treated as capital gain that is eligible for preferential tax rates in the case of non-corporate U.S. holders.gain. Instead, if you are a U.S. holder, unless you make a timely “mark-to-market” election electing to be taxed annually on a mark-to-market basis with respect to your common shares or ADSs, or you make a timely “qualified electing fund” election electing to be taxed annually on the earnings and gains of the PFIC attributable to your shares or ADSs (irrespective of distributions), you would be treated as if you had realized such gain ratably over your holding period in the common shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year except for the current year. In addition, unless you make a timely “mark-to-market” election or “qualified electing fund” election, distributions that you receive from us as a direct or indirect U.S. holder will not be eligible for the preferential tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at the tax rates applicable to ordinary income, and to the extent they are treated as “excess distributions” under the PFIC rules, they will also be subject to the PFIC interest charge described above. A U.S. holder will be required to make an annual filing with the U.S. Internal Revenue ServiceIRS if such holder holds or ADSs or common shares in any year in which we are classified as a PFIC. With certain exceptions, your common shares or ADSs will continue to be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your common shares or ADSs even if we no longer meet the PFIC tests in a later year.
The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investorsholders 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
U.S. information reporting and backup withholding tax requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply to payments of dividendsDividends paid on, and to proceeds from the sale or redemptionother disposition of, commonthe shares or ADSs made within the United States to a holder of common shares or ADSs (other than an exempt recipient, including a corporation, a payee that is not a U.S. holder thatgenerally are subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder provides an appropriate certification, and certain other persons).
A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, common shares or ADSs within the United States to you, unless you are an exempt recipient, if you fail to furnish your correctaccurate taxpayer identification number and makes any other required certification or otherwise fail to establishestablishes an exception from backup withholding tax requirements. U.S. holders who are required to establish their exempt status may be required to provide such certification on U.S. Internal Revenue Service Form W-9.exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you maya U.S. holder will be allowed as a refund or credit against yourthe U.S. holder’s U.S. federal income tax liability, and may entitle you to a refund, provided that the required information is furnished timely to the U.S. Internal Revenue Service.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 certain threshold amountsU.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.
116
H. Documents on Display
We are subject to the information requirements of the Exchange Act, as amended. In accordance with these requirements, we file reports, including annual reports on Form 20-F, and other information with the SEC. These materials, including this annual reportSEC pursuant to the rules and the exhibits hereto, may be inspected and copied at the SEC’s public reference rooms in Washington, D.C. Please callregulations of the SEC at 1-800-SEC-0330 for further information onthat apply to foreign private issuers. Filings we make electronically with the public reference rooms. In addition, some of our SEC filings, including those filed on and after February 19, 2002, are also available to the public throughon the Internet at the SEC’s website at www.sec.gov.
As a foreign private issuer, we arewww.sec.gov and at our website at http://www.latamairlinesgroup.net/financial-information/sec-filings. (This URL is intended to be an inactive textual reference only. It is not subjectintended to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we furnish our shareholders with annual reports containing financial statements audited by our independent auditors and make availablebe an active hyperlink to our shareholders quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. We file such quarterly reports with the SEC within two months of each quarter ofwebsite. The information on our fiscal year,website, which might be accessible through a hyperlink resulting from this URL, is not and we fileshall not be deemed to be incorporated into this annual reports on Form 20-F within the time period required by the SEC, which is currently six months from December 31, the end of our fiscal year. report.)
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
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:
● | Fuel price fluctuations; |
● | Foreign exchange fluctuations; and |
● | Interest rate fluctuations. |
Management assesses the level of our exposure to these risks periodically to determine which one should be hedged and the most effective mechanisms to be implemented. LATAM purchases derivative instruments in foreign markets to offset market risk exposure, typically utilizing a mix of financial and commodity derivatives. LATAM does not enter into or hold derivative contracts for trading purposes.
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 20192022 was 1,272.71,028 million gallons. To manage its exposure to the cost of fuel, LATAM has a hedging program based on our Fuel Hedging Policy, which is annually updated and approved by the board of directors. LATAM’s Fuel Hedging Policy aims to mitigate the liquidity risk in the short/medium term, avoiding cash and financial distress. LATAM has established four hedging zones based on advance purchase behavior, pass-through and fuel invoicing process.
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 ICE Brent, West Texas Intermediate (WTI) or NYMEX Heating Oil (HO).
LATAM has decided to use protective and non-speculative instruments to reduce the operating margin exposure. Also, LATAM will not use financial derivatives to speculate on financial markets and consequently obtain gains from these types of transactions, and will not receive premiums as cash from sold options (nevertheless LATAM could buy and sell options as a structured product).
LATAM periodically reviews its exposure with each counterparty in order to monitor its credit concentration. For more information, see “Item 3. Key Information— D.Information-D. Risk Factors—Risks RelatedFactors-Risks Relating to Our Operations and the Airline Industry—our Company-Our operations are subject to fluctuations in the supply and cost of jet fuel, which could adversely impact our business.”
During 2019, 20182022, 2021 and 20172020 we entered into a mix of swaps and option contracts on NYMEX HEATING OIL and JET FUEL 54 USGC with investment grade banks and other financial entities for notional fuel purchases (non-delivery). Details of the fuel hedging program are shown below:
LATAM Fuel Hedging Year ended December 31, | ||||||||||||
2019 LATAM | 2018 LATAM | 2017 LATAM | ||||||||||
Gallons Purchased (million) | 779.8 | 521.9 | 441.1 | |||||||||
% Total Annual Fuel Consumption | 61.5 | % | 40.8 | % | 37.7 | % | ||||||
Combined Result of Hedges (in million of US$) | (23.1 | ) | 29.7 | 15.1 |
LATAM Fuel Hedging Year ended December 31, | ||||||||||||
2022 LATAM | 2021 LATAM | 2020 LATAM | ||||||||||
Gallons Purchased (million) | 249.4 | 117.4 | 864.3 | |||||||||
% Total Annual Fuel Consumption | 24.6 | % | 16.1 | % | 146.4 | %* | ||||||
Combined Result of Hedges (in millions of US$) | 18.8 | 10.1 | (98.3 | ) |
* | The percentage shown in the table considers all the hedging instruments (swap and options), which between March 2020 and December 31, 2020, were not accounted as hedge accounting. |
As of December 31, 2019,2022, the fair value of our outstanding fuel related derivative contracts was estimated to be US$ 48.512.6 million (positive).
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 a non-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 2.102.9 to our audited consolidated financial statements. As the current positions do not represent changes in cash flows but a variation in the exposure to the market value, the Company’s current hedge positions have no impact on income; they are booked as cash flow hedge contracts, so a variation in fuel prices has an impact on the Company’s net equity.
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 December 31, 2019,2023, the last maturity date of our current fuel hedge contracts. The calculations were made considering a parallel movement of US$5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2019, 2018 and 2017.2022, 2021, 2020.
LATAM fuel price sensitivity (effect on equity) Position as of December 31, | ||||||||||||
2019 LATAM | 2018 LATAM | 2017 LATAM | ||||||||||
(millions of US$ per barrel) | ||||||||||||
HO or JET benchmark price | ||||||||||||
+5 | +15.4 | +7.4 | +1.8 | |||||||||
–5 | -34.5 | -5.5 | -3.3 |
LATAM fuel price sensitivity Position as of December 31 | |||||||
2022 LATAM (effect on equity) | 2021 LATAM (effect on equity) | 2020 LATAM (effect on equity) | |||||
(millions of US$ per barrel) | |||||||
HO or JET benchmark price | |||||||
+5 | +2.2 | +2.7 | +0.6 | ||||
-5 | -2.3 | -3.3 | -0.6 |
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 asduring the year 2022, which considers a portion free of December 31, 2019, which reflects only a partial hedge, of our expected fuel consumption, a vertical fall by US$5 in the BRENT and JET benchmark price (the monthly daily average) for each month would have meant savingsdrop of approximately US$ 121.8 million in the cost of the Company’s total fuel consumption. A vertical increase by US$5 in the JET and BRENT benchmarkreference price (the(considered as the monthly daily average) for each month, would have meanthad an additional costapproximate impact of approximately US$ 114.2123 million lower fuel cost. For the same period, a vertical increase of US$5 dollars in the Company’s totalJET reference price (considered as the monthly daily average), would have had an approximate impact of US$122.1 million higher fuel consumption.costs.
Risk of Variation in Foreign Exchange Rates
The functional currency of the LATAM holding company is the U.S. dollar. Since LATAM conducts its business in local currencies in several countries, it faces the risk of variations in multiple foreign currency exchange rates. Depreciation of these currencies against the U.S. dollar could have adverse effects both transactional and translational, because part of our revenues and expenses are denominated in those currencies.
At the same time, LATAM’s affiliates are exposed to foreign exchange risk, which could in turn impact the consolidated results of the Company.
The greatest exposure to future cash flows is mainly presented by the subsidiary LATAM Airlines Brazil.Brazil and volatility in the R$/US$ exchange rate. LATAM Airlines Brazil’s earnings are generated largely in R$. We actively manage the R$/US$ exchange rate risk by entering into FX derivative contracts and carrying out internal operations for obtaining natural hedging.
In lower concentration,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, ArgentineanArgentine Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Nuevo Sol, Colombian Peso and New Zealand 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, 2019,2022, LATAM has US$15 108 million current hedge instruments in its portfolio.notional for FX Hedges.
Because of changes in the values of existing FX derivative positions do not represent changes in cash flows, but a variation in the exposure of market value, the outstanding hedging positions do not impact results (they are registered as cash flow hedges under IFRS, therefore, a change in the foreign exchange rate has an impact on the equity of the Company).
As of December 31, 2019 the Company has entered into derivatives that are not registered under hedge accounting. The fair value of that derivatives was estimated to be US$ 0.04 million (negative). Balance sheet exposure of LATAM to the Brazilian Real is related to the functional currency of LATAM Airlines Brazil and its balance sheet currency mismatch, as LATAM Airlines Brazil has a net US$ liability position. When the balance sheet denominated in U.S. dollars is translated to Brazilian Real, the financial results of LATAM Airlines Brazil may fluctuate and therefore could impact LATAM’s financial results.
The exposure to the Brazilian real on LATAM Airlines Brazil balance sheet has been reduced from over US$4.0 4 billion since the combination between LAN and TAM in June 2012 to around US$0.1 billion 707 million as of December 31, 2019.2022. The Company continues working to mitigate this exposure through financial and operational proposals.mechanisms.
The following table shows the sensitivity of LATAM Airlines Brazil’s financial results to changes in the R$/US$ exchange rate:
LATAM Airlines Brazil exchange rate sensitivity Position effect on pre-tax earnings as of December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
LATAM | LATAM | LATAM | ||||||||||
(millions of US$) | ||||||||||||
Appreciation (depreciation) of R$/US$ | ||||||||||||
–10% | +9.5 | +39.8 | +80.5 | |||||||||
+10% | -9.5 | -39.8 | -80.5 |
LATAM Airlines Brazil exchange rate sensitivity Position effect on pre-tax earnings as of December 31, | |||||||||
2022 LATAM | 2021 LATAM | 2020 LATAM | |||||||
(millions of US$) | |||||||||
Appreciation (depreciation) of R$/US$ | |||||||||
-10% | +70.7 | +51.9 | -10.9 | ||||||
+10% | -70.7 | -51.9 | +10.9 |
Our foreign currency exchange exposure as of December 31, 20192022 was as follows:
LATAM foreign currency exchange exposure | ||||||||||||||||||||||||||||||||||||
U.S. Dollars MUS$ | % of total | Brazilian real MUS$ | % of total | Chilean pesos MUS$ | % of total | Other currencies MUS$ | % of total | Total MUS$ | ||||||||||||||||||||||||||||
Current assets | 1,428,160 | 35.1 | % | 1,938,824 | 47.6 | % | 260,892 | 6.4 | % | 444,346 | 10.9 | % | 4,072,222 | |||||||||||||||||||||||
Other assets | 12,425,903 | 72.8 | % | 4,415,997 | 25.9 | % | 31,202 | 0.2 | % | 184,780 | 1.1 | % | 17,057,882 | |||||||||||||||||||||||
Total assets | 13,854,063 | 65.6 | % | 6,354,821 | 30.1 | % | 292,094 | 1.4 | % | 629,126 | 3.0 | % | 21,130,104 | |||||||||||||||||||||||
Current liabilities | 3,516,716 | 51.1 | % | 1,640,092 | 23.8 | % | 708,145 | 10.3 | % | 1,017,626 | 14.8 | % | 6,882,579 | |||||||||||||||||||||||
Long-term liabilities | 9,736,143 | 87.6 | % | 661,063 | 5.9 | % | 704,087 | 6.3 | % | 17,067 | 0.2 | % | 11,118,360 | |||||||||||||||||||||||
Total liabilities and shareholders’ equity | 13,252,859 | 73.6 | % | 2,301,155 | 12.8 | % | 1,412,232 | 7.8 | % | 1,034,693 | 5.7 | % | 18,000,939 |
LATAM foreign currency exchange exposure | ||||||||||||||||||||||||||||||||||||
U.S. Dollars MUS$ | % of total | Brazilian real MUS$ | % of total | Chilean pesos MUS$ | % of total | Other currencies MUS$ | % of total | Total MUS$ | ||||||||||||||||||||||||||||
Current assets | 1,828,053 | 51.7 | % | 1,178,918 | 33.3 | % | 173,564 | 4.9 | % | 355,889 | 10.1 | % | 3,536,424 | |||||||||||||||||||||||
Other assets | 8,201,681 | 84.8 | % | 1,353,605 | 14 | % | 62,428 | 0.6 | % | 56,886 | 0.6 | % | 9,674,600 | |||||||||||||||||||||||
Total assets | 10,029,734 | 75.9 | % | 2,532,523 | 19.2 | % | 235,992 | 1.8 | % | 412,775 | 3.1 | % | 13,211,024 | |||||||||||||||||||||||
Current liabilities | 1,029,042 | 20.2 | % | 1,541,030 | 30.1 | % | 434,940 | 8.5 | % | 2,083,683 | 40.7 | % | 5,088,695 | |||||||||||||||||||||||
Long-term liabilities | 6,879,832 | 85.0 | % | 876,820 | 10.9 | % | 255,930 | 3.2 | % | 79,026 | 1 | % | 8,091,608 | |||||||||||||||||||||||
Total liabilities and shareholders’ equity | 7,908,874 | 60.0 | % | 2,417,850 | 18.4 | % | 690,870 | 5.3 | % | 2,162,709 | 16.4 | % | 13,211,024 |
Risk of Fluctuations in Interest Rates
As of December 31, 2019,2022, LATAM had US$7,194 million4.7 billion in outstanding interest bearinginterest-bearing loans. LATAM usually uses interest rate derivatives to reduce the impact of an increase of interest rates. 61.6%rates, although at this moment, given the Chapter 11 proceedings, LATAM has no derivatives ongoing. Given this situation, approximately 52% of LATAM outstanding debt as of December 31, 20192022, was effectively at a fixed rate, either as fixed rate loans or variable rate loans hedged using a floating to fixed rate derivative instrument.rate.
LATAM’s interest bearinginterest-bearing loans can be classified by: variable interest rate debt and fixed interest rate debt and interest rate hedged debt.rate. LATAM’s variable interest rate debt amounts to US$2,7602,266 million, from which 82.7%48% is assigned to aircraft financing and 17.3%52% to non-aircraft financing. The fixed interest rate debt amounts are US$ 4,3682,407 million of which 50.4%33% is assigned to aircraft financing and 49.6%67% to non-aircraft financing. The interest rate hedged debt amounts to US$66 million of which 100% is assigned to interest rate swaps.
Under IFRS, the positive fair value of these interest rate swaps is reflected in the balance sheet as hedging assets and the negative fair value of these agreements is reflected as hedging liabilities. As of December 31, 2019, the fair value of all the interest rate swaps was US$ 2.6 million (positive).
The use of the aforementioned hedging instruments, combined with fixed interest rate financing for our aircraft financing, has enabled the Company to have predictable interest rate costs, reducing the cash volatility.
As of December 31, 2019,2022, the value of interest rate derivative positions amounted to MUS$ 8.8 (positive) corresponding to operating lease hedges in order to fix the rents upon delivery of the aircraft. As of December 31, 2021, the Company did not maintain interest rate derivative positions in force.
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 entire outstanding interest-bearing long-term debt rate was 4.63%9.3%.
The following table summarizes our principal payment obligations on all of our interest-bearing debt as of December 31, 20192022, and the related average interest rate for such debt. The average interest rate has been calculated based on the prevailing interest rate on December 31, 20192022 for each loan.
LATAM’s principal payment obligations by year of expected maturity(1) | ||||||||||||||||||||||||||||
Average interest rate(2) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 and thereafter | ||||||||||||||||||||||
(millions of US$) | ||||||||||||||||||||||||||||
Interest-bearing liabilities | 4,63 | % | 1,367 | 1,168 | 839 | 555 | 1,082 | 2,183 |
LATAM’s principal payment obligations by year of expected maturity(1) | ||||||||||||||||||||||||||||
Average interest rate(2) | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 and thereafter | ||||||||||||||||||||||
(millions of US$) | ||||||||||||||||||||||||||||
Interest-bearing liabilities | 9.3 | % | 605 | 199 | 241 | 191 | 1676 | 1,350 |
(1) | At cost. |
(2) | Average interest rate means the average prevailing interest rate on our debt on December 31, |
(3) | This does not include disputed claims. |
The following table shows the sensitivity of changes in our long-term interest bearinginterest-bearing liabilities and capital leases that are not hedged against interest-rate variations. These changes are considered reasonably possible based on current market conditions.
LATAM’s interest rate sensitivity (effect on pre-tax earnings) Position as of December 31, | ||||||||||||
2019 LATAM | 2018 LATAM | 2017 LATAM | ||||||||||
(millions of US$) | ||||||||||||
Increase (decrease) in LIBOR | ||||||||||||
+100 basis points | -27.6 | -29.62 | –29.26 | |||||||||
–100 basis points | +27.6 | +29.62 | +29.26 |
LATAM’s interest rate sensitivity (effect on pre-tax earnings) Position as of December 31, | ||||||||||||
2022 LATAM | 2021 LATAM | 2020 LATAM | ||||||||||
(millions of US$) | ||||||||||||
Increase (decrease) in LIBOR | ||||||||||||
+100 basis points | -22.67 | -46.31 | -42.11 | |||||||||
-100 basis points | +22.67 | +46.31 | +42.11 |
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 three-month Libor futuresinterest rate curve.
LATAM’s interest rate sensitivity (effect on equity) Position as of December 31, | ||||||||||||
2019 LATAM | 2018 LATAM | 2017 LATAM | ||||||||||
(millions of US$) | ||||||||||||
Increase (decrease) in three month LIBOR | ||||||||||||
Future rates | ||||||||||||
+100 basis points | +13.6 | +0,7 | +1,9 | |||||||||
–100 basis points | -14.7 | -0,7 | –1,9 |
LATAM’s interest rate sensitivity (effect on equity) Position as of December 31, | ||||||||||||
2022 LATAM | 2021 LATAM | 2020 LATAM | ||||||||||
(millions of US$) | ||||||||||||
Increase (decrease) in three month LIBOR | ||||||||||||
Future Rates | ||||||||||||
+100 basis points | +6.9 | +0 | +0 | |||||||||
-100 basis points | -8.2 | -0 | -0 |
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”). The Company plans to enter into a Deposit Agreement with CitiBank, N.A. pursuant to which Citibank N.A. will replace JP Morgan as the Company’s Depository bank.
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 provide fee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay: | For: | ||
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | ● | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
● | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
US$0.05 (or less) per ADS | ● | Any cash distribution to ADS registered holders | |
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs | ● | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders |
US$0.05 | ● | Depositary services | |
Registration or transfer fees | ● | Transfer and registration of shares on the depositary’s share register to or from the name of the depositary or its agent when investors deposit or withdraw shares | |
Expenses of the depositary | ● | Cable, telex and facsimile transmissions | |
| |||
Taxes and other governmental charges the depositary or the custodian has to pay on any ADS or share underlying an ADS, such as stock transfer taxes, stamp duty or withholding taxes | ● | As necessary | |
Any charges incurred by the depositary or its agents for servicing the deposited securities | ● | As necessary |
Fees and Direct and Indirect Payments Made by the Depositary to the Foreign Issuer
Past Fees and Payments
During 2019,2022, the Company received US$666,148976,842.29 from the depositary for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), payments related to applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.
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 Form 20-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)
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, 2019.2022. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon such evaluation, management, with the participation of the chief executive officerChief Executive Officer and chief financial officerChief Financial Officer concluded that the disclosure controls and procedures, as of December 31, 2019,2022, were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
2 Withdrawing Deposited Securities; there are no such fees in respect of the Shares as of the date of the Deposit Agreement), and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). Such charges may at any time and from time to time be changed by agreement between the Company and the Depositary.
122
(b)B. Management’s annual reportAnnual Report on internal control over financial reportingInternal Control Over Financial Reporting
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 Rules 13a-15(f) and 15d-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, 20192022 based on the criteria established in “Internal Control-IntegratedInternal Control - “Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and, based on such criteria, LATAM Airlines Group S.A.’s management has concluded that, as of December 31, 2019,2022, the Company’s internal control over financial reporting is effective. The company’s internal control over financial reporting effectiveness as of December 31, 20192022 has been audited by PricewaterhouseCoopers Consultores Auditores SpA,y Compañía Limitada, an independent registered public accounting firm, as stated in their report included herein.
(c)
C. Attestation report of the registered public accounting firm.
See page F-2 of our audited consolidated financial statementsstatements.
(d)D. Changes in internal controls over financial reporting.
There have been no changes that have materiallyaffectedor are reasonably likely to materially affect the company’s internal control over financial reporting.
ITEM 16 RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has not designated on June 11, 2019 Nicolás Eblen Hirmas as an “audit committee financial expert”, within the meaning of this Item 16. A. Mr. EblenAs of the date of publication, the reason for not having an audit committee financial expert is independent withindue to the meaningrecent election of Rule 10A-3 under the Exchange Act. See “Item 6. Directors, Senior Managementboard of directors. This and Employees— A. Directorsother matters are expected to be discussed and Senior Management.”resolved in the upcoming sessions of the board.
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics and conduct, as defined in Item 16B of Form 20-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, www.latamairlinesgroup.net, under the heading “Corporate Governance” on the Investor Relations page. In addition, upon written request, by regular mail, to the following address: LATAM Airlines Group S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, 20th Floor, Las Condes, Santiago, Chile or by e-mail at InvestorRelations@latam.com we will provide any person with a copy of it without charge. If we amend the provisions of our code of ethics that apply to our senior management or to other persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Audit and Non-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, 20192022 and 2018:2021:
2019 | 2018 | |||||||
USD (in thousands) | ||||||||
Audit fees | 1,821 | 2,213 | ||||||
Audit-related fees | 11 | 9 | ||||||
Tax fees | - | - | ||||||
All Other fees | 30 | 5 | ||||||
Total fees | 1,862 | 2,227 |
2022 | 2021 | |||||||
USD (in thousands) | ||||||||
Audit fees | 3,026 | 1,590 | ||||||
Audit-related fees | - | - | ||||||
Tax fees | - | - | ||||||
All Other fees | 45 | - | ||||||
Total fees | 3,071 | 1,590 |
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. Fees in 2019 and 2018 correspond to attestation services related with revenues in Argentina.
Other fees in the table above are fees billed by PricewaterhouseCoopers as of December 31, 2019 related to the Benchmark Study on Internal Audit departments. Fees incurred in 2018 correspond to foreign trade & customs training.
Board of Directors’ Committee Pre-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 board of directors’ Committee (which serves as our Audit Committee) has decided to automatically authorize any such accepted services, individually or jointly considered during one calendar year, for an amount of up to 10%20% of the fees charged by the auditing firm, and for an amount of up to 50% when adding all such services provided by the auditing firm in the aggregate.firm. If the amount of any services, individually or jointly considered during one calendar year, is larger than these thresholds, approval by the board of directors’ Committee will be required.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
Month #1 Jan 1 - Jan 31 | - | - | - | - | ||||||||||||
Month #2 Feb 1 - Feb 28 | - | - | - | - | ||||||||||||
Month #3 Mar 1 - Mar 31 | - | - | - | - | ||||||||||||
Month #4 Apr 1 - Apr 30 | - | - | - | - | ||||||||||||
Month #5 May 1 - May 31 | - | - | - | - | ||||||||||||
Month #6 Jun 1 - Jun 30 | - | - | - | - | ||||||||||||
Month #7 Jul 1 - Jul 31 | - | - | - | - | ||||||||||||
Month #8 Aug 1 - Aug 31 | - | - | - | - | ||||||||||||
Month #9 Sep 1 - Sep 30 | - | - | - | - | ||||||||||||
Month #10 Oct 1 - Oct 31 | 36,917,303,811 | 0.01083866 | 36,917,303,811 | - | ||||||||||||
Month #11 Nov 1 - Nov 30 | - | - | - | - | ||||||||||||
Month #12 Dec 1 - Dec 31 | - | - | - | - | ||||||||||||
Total | 36,917,303,811 | 0.01083866 | 36,917,303,811 | - |
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
None.
None.
As a result of our Chapter 11 proceedings, the New York Stock Exchange Corporate Governance Comparison
Pursuant(the “NYSE”) filed with the SEC a notice on June 10, 2020 in order to Section 303A.11 ofdelist our American Depositary Shares (ADSs). The delisting became effective on June 22, 2020. Our ADSs continue to trade in the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companiesover-the-counter market under the NYSE listing standards. We are a Chilean corporation with shares listed on the SSE and the Chilean Electronic Exchange and our ADSs listed on the NYSE. Our corporate governance practices are governed by our bylaws, the Chilean Corporation Law and the Securities Market Law.
The table below discloses the significant differences between our corporate governance practices and the NYSE standards.
ticker “LTMAY.”
The disclosure of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards is also posted on our website and can be accessed at www.latamairlinesgroup.netITEM 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 page F-1.
126
ITEM 19 EXHIBITS
Documents filed as exhibits to this annual report
* | Filed herewith. |
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20192022
CONTENTS
CLP | - | CHILEAN PESO |
- | ||
- | ARGENTINE PESO | |
US$ | - | united states dollar |
THUS$ | - | THOUSANDS OF UNITED STATES DOLLARS |
mUS$ | - | millions of united states dollars |
COP | - | COLOMBIAN PESO |
brl/R$ | - | braZILIAN REAL |
thr$ | - | Thousands of Brazilian reaL |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholdersShareholders 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, 20192022 and 2018,2021, 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, 2019,2022, 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, 2019,2022, based on criteria established inInternal 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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192022 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, 2019,2022, based on criteria established inInternal Control - Integrated Framework(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2.1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
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.
Goodwill and Intangible Assets with Indefinite Useful Life (airport slots and loyalty program) Impairment AssessmentsAssessment
As described in Notes 2.8,2.7, 4(a), and 15 and 16 to the consolidated financial statements, the Company’s consolidated goodwill and intangible assets with indefinite useful life (airport slots and loyalty program) balance at December 31, 2019 were2022 was US$2,210 million and US$1,110 million, respectively.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 goodwill and intangible assets with indefinite useful life (airport slots and loyalty program) impairment assessmentsassessment is a critical audit matter are there was(i) the significant judgment by management when developing the value-in-use calculation. This in turn led tocalculation; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluateand evaluating management’s cash flow projections and significant assumptions including therelated to revenue growth rates, exchange rates, discount rate, inflation rates and fuel price. In addition,price; 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.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 goodwill and intangible assets with indefinite useful life (airport slots and loyalty program) impairment assessments,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 accuracy, and relevanceaccuracy of underlying data used in the model; and (iv) evaluating the significant assumptions used by management includingrelated 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.
Recoverability of Deferred Tax Assets
As described in Notes 2.17, 4(c) and 18 to the consolidated financial statements, the Company has recorded US$236 million of deferred tax assets as of December 31, 2019. Management records deferred tax assets on the temporary differences arising between the tax bases of assets and their reported amounts. Deferred tax assets are recognized to the extent it is probable that future taxable profit will be available against which the temporary differences can be utilized. Management applied significant judgement in assessing the recoverability of these deferred tax assets. In determining the amount of deferred tax assets to be recognized, management considered historical profitability, projected future taxable profit, including assumptions related to the revenue growth rates, exchange rates, discount rate, inflation rates and fuel price, and the expected timing of the reversals of existing temporary differences.
The principal considerations for our determination that performing procedures relating to the recoverability of deferred tax assets is a critical audit matter are there was significant judgment by management in assessing the available positive and negative evidence surrounding the recoverability of deferred tax assets. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s significant assumptions related to projected future taxable profit and application of tax law. In addition, 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 the recoverability of deferred tax asset, including controls over projected future taxable profit. These procedures also included, among others, evaluating management’s assessment of the recoverability of deferred tax assets, including evaluating the assumptions relating to the projected future taxable profit. Evaluating management’s assumptions related to the projected future taxable profit involved evaluating historical profitability as well as other audit evidence related to management’s forecasts. Professionals with specialized skill and knowledge were also used to assist in evaluating management’s application of income tax law and the recoverability of deferred tax assets.
Valuation of Loyalty Programs Breakage
As described in Notes 2.20,2.19, 4(e) and 2221 to the consolidated financial statements, the Company has recorded deferred income of US$3,5402,953 million as of December 31, 2019,2022, of which US$1,6871,261 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.
Latam Airlines Group S.A.
The principal considerations for our determination that performing procedures relating to the valuation of loyalty programs breakage is a critical audit matter are there was(i) the significant judgment by management to develop the breakage estimate. This in turn led toestimate; (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. In addition,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.
/s/ PricewaterhouseCoopers | ||
PricewaterhouseCoopers Consultores | ||
Auditores y Compañia Limitada |
Santiago, – Chile
March 16, 20209, 2023
We have served as the Company’s auditor since 1991.
Contents of the Notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL POSITION
ASSETS | ||||||||||||||
As of | As of | As of | ||||||||||||
December 31, | December 31, | January 1, | ||||||||||||
Note | 2019 | 2018 | 2018 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | Restated | |||||||||||||
Cash and cash equivalents | ||||||||||||||
Cash and cash equivalents | 6 - 7 | 1,072,579 | 1,081,642 | 1,142,004 | ||||||||||
Other financial assets | 7 - 11 | 499,504 | 383,984 | 559,919 | ||||||||||
Other non-financial assets | 12 | 313,449 | 290,476 | 244,778 | ||||||||||
Trade and other accounts receivable | 7 - 8 | 1,244,348 | 1,162,582 | 1,202,945 | ||||||||||
Accounts receivable from related entities | 7 - 9 | 19,645 | 2,931 | 2,582 | ||||||||||
Inventories | 10 | 354,232 | 279,344 | 236,666 | ||||||||||
Current tax assets | 18 | 29,321 | 69,134 | 77,987 | ||||||||||
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners | 3,533,078 | 3,270,093 | 3,466,881 | |||||||||||
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners | 13 | 485,150 | 5,768 | 291,103 | ||||||||||
Total current assets | 4,018,228 | 3,275,861 | 3,757,984 | |||||||||||
Non-current assets | ||||||||||||||
Other financial assets | 7 - 11 | 46,907 | 58,700 | 88,090 | ||||||||||
Other non-financial assets | 12 | 204,928 | 227,541 | 212,203 | ||||||||||
Accounts receivable | 7 - 8 | 4,725 | 5,381 | 6,891 | ||||||||||
Intangible assets other than goodwill | 15 | 1,448,241 | 1,441,072 | 1,617,247 | ||||||||||
Goodwill | 16 | 2,209,576 | 2,294,072 | 2,672,550 | ||||||||||
Property, plant and equipment | 17 | 12,919,618 | 12,501,809 | 12,930,652 | ||||||||||
Current tax assets, non-current | 18 | - | 757 | 17,532 | ||||||||||
Deferred tax assets | 18 | 235,583 | 273,529 | 370,564 | ||||||||||
Total non-current assets | 17,069,578 | 16,802,861 | 17,915,729 | |||||||||||
Total assets | 21,087,806 | 20,078,722 | 21,673,713 |
ASSETS
Note | As of December 31, 2022 | As of December 31, 2021 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
Cash and cash equivalents | ||||||||||||
Cash and cash equivalents | 6 - 7 | 1,216,675 | 1,046,835 | |||||||||
Other financial assets | 7 - 11 | 503,515 | 101,138 | |||||||||
Other non-financial assets | 12 | 191,364 | 108,368 | |||||||||
Trade and other accounts receivable | 7 - 8 | 1,008,109 | 881,770 | |||||||||
Accounts receivable from related entities | 7 - 9 | 19,523 | 724 | |||||||||
Inventories | 10 | 477,789 | 287,337 | |||||||||
Current tax assets | 17 | 33,033 | 41,264 | |||||||||
Total current assets other than non-current assets (or disposal groups) classified as held for sale | 3,450,008 | 2,467,436 | ||||||||||
Non-current assets (or disposal groups) classified as held for sale | 13 | 86,416 | 146,792 | |||||||||
Total current assets | 3,536,424 | 2,614,228 | ||||||||||
Non-current assets | ||||||||||||
Other financial assets | 7 - 11 | 15,517 | 15,622 | |||||||||
Other non-financial assets | 12 | 148,378 | 125,432 | |||||||||
Accounts receivable | 7 - 8 | 12,743 | 12,201 | |||||||||
Intangible assets other than goodwill | 15 | 1,080,386 | 1,018,892 | |||||||||
Property, plant and equipment | 16 | 8,411,661 | 9,489,867 | |||||||||
Deferred tax assets | 17 | 5,915 | 15,290 | |||||||||
Total non-current assets | 9,674,600 | 10,677,304 | ||||||||||
Total assets | 13,211,024 | 13,291,532 |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
F-8
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL POSITION
LIABILITIES AND EQUITY | ||||||||||||||
As of | As of | As of | ||||||||||||
December 31, | December 31, | January 1, | ||||||||||||
LIABILITIES | Note | 2019 | 2018 | 2018 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | Restated | |||||||||||||
Current liabilities | ||||||||||||||
Other financial liabilities | 7 - 19 | 1,885,660 | 1,794,286 | 1,619,979 | ||||||||||
Trade and other accounts payables | 7 - 20 | 2,222,874 | 1,674,303 | 1,668,612 | ||||||||||
Accounts payable to related entities | 7 - 9 | 56 | 382 | 760 | ||||||||||
Other provisions | 21 | 5,206 | 4,794 | 2,783 | ||||||||||
Current tax liabilities | 18 | 11,925 | 3,738 | 3,511 | ||||||||||
Other non-financial liabilities | 22 | 2,835,221 | 2,454,746 | 2,901,603 | ||||||||||
Total current liabilities other than non-current liabilities (or disposal groups) classified as held for sale | 6,960,942 | 5,932,249 | 6,197,248 | |||||||||||
Liabilities included in disposal groups classified as held for sale | 13 | - | - | 15,546 | ||||||||||
Total current liabilities | 6,960,942 | 5,932,249 | 6,212,794 | |||||||||||
Non-current liabilities | ||||||||||||||
Other financial liabilities | 7 - 19 | 8,530,418 | 8,359,462 | 9,433,450 | ||||||||||
Accounts payable | 7 - 24 | 619,110 | 529,277 | 559,443 | ||||||||||
Other provisions | 21 | 286,403 | 303,495 | 374,593 | ||||||||||
Deferred tax liabilities | 18 | 616,803 | 786,571 | 877,748 | ||||||||||
Employee benefits | 23 | 93,570 | 82,365 | 101,087 | ||||||||||
Other non-financial liabilities | 22 | 851,383 | 644,702 | 158,305 | ||||||||||
Total non-current liabilities | 10,997,687 | 10,705,872 | 11,504,626 | |||||||||||
Total liabilities | 17,958,629 | 16,638,121 | 17,717,420 | |||||||||||
EQUITY | ||||||||||||||
Share capital | 25 | 3,146,265 | 3,146,265 | 3,146,265 | ||||||||||
Retained earnings | 25 | 352,272 | 218,971 | (41,012 | ) | |||||||||
Treasury Shares | 25 | (178 | ) | (178 | ) | (178 | ) | |||||||
Other reserves | (367,577 | ) | (4,365 | ) | 760,761 | |||||||||
Parent’s ownership interest | 3,130,782 | 3,360,693 | 3,865,836 | |||||||||||
Non-controlling interest | 14 | (1,605 | ) | 79,908 | 90,457 | |||||||||
Total equity | 3,129,177 | 3,440,601 | 3,956,293 | |||||||||||
Total liabilities and equity | 21,087,806 | 20,078,722 | 21,673,713 |
LIABILITIES AND EQUITY
Note | As of December 31, 2022 | As of December 31, 2021 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
LIABILITIES | ||||||||||||
Current liabilities | ||||||||||||
Other financial liabilities | 7 - 18 | 802,841 | 4,453,451 | |||||||||
Trade and other accounts payables | 7 - 19 | 1,627,992 | 4,839,251 | |||||||||
Accounts payable to related entities | 7 - 9 | 12 | 661,602 | |||||||||
Other provisions | 20 | 14,573 | 27,872 | |||||||||
Current tax liabilities | 17 | 1,026 | 675 | |||||||||
Other non-financial liabilities | 21 | 2,642,251 | 2,332,576 | |||||||||
Total current liabilities | 5,088,695 | 12,315,427 | ||||||||||
Non-current liabilities | ||||||||||||
Other financial liabilities | 7 - 18 | 5,979,039 | 5,948,702 | |||||||||
Accounts payable | 7 - 23 | 326,284 | 472,426 | |||||||||
Other provisions | 20 | 927,964 | 712,581 | |||||||||
Deferred tax liabilities | 17 | 344,625 | 341,011 | |||||||||
Employee benefits | 22 | 93,488 | 56,233 | |||||||||
Other non-financial liabilities | 21 | 420,208 | 512,056 | |||||||||
Total non-current liabilities | 8,091,608 | 8,043,009 | ||||||||||
Total liabilities | 13,180,303 | 20,358,436 | ||||||||||
EQUITY | ||||||||||||
Share capital | 24 | 13,298,486 | 3,146,265 | |||||||||
Retained earnings/(losses) | 24 | (7,501,896 | ) | (8,841,106 | ) | |||||||
Treasury Shares | 24 | (178 | ) | (178 | ) | |||||||
Other equity | 24 | 39 | - | |||||||||
Other reserves | 24 | (5,754,173 | ) | (1,361,529 | ) | |||||||
Parent’s ownership interest | 42,278 | (7,056,548 | ) | |||||||||
Non-controlling interest | 14 | (11,557 | ) | (10,356 | ) | |||||||
Total equity | 30,721 | (7,066,904 | ) | |||||||||
Total liabilities and equity | 13,211,024 | 13,291,532 |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF INCOME BY FUNCTION
For the year ended December 31, | ||||||||||||||
Note | 2019 | 2018 | 2017 | |||||||||||
ThUS$ | ThUS$ Restated | ThUS$ Restated | ||||||||||||
Revenue | 26 | 10,070,063 | 9,895,456 | 9,613,907 | ||||||||||
Cost of sales | (7,951,269 | ) | (7,773,432 | ) | (7,279,358 | ) | ||||||||
Gross margin | 2,118,794 | 2,122,024 | 2,334,549 | |||||||||||
Other income | 28 | 360,864 | 472,758 | 549,889 | ||||||||||
Distribution costs | (580,046 | ) | (615,214 | ) | (696,784 | ) | ||||||||
Administrative expenses | (735,218 | ) | (736,333 | ) | (952,768 | ) | ||||||||
Other expenses | (422,792 | ) | (356,250 | ) | (365,460 | ) | ||||||||
Other gains/(losses) | 11,525 | 53,499 | (7,754 | ) | ||||||||||
Income from operation activities | 753,127 | 940,484 | 861,672 | |||||||||||
Financial income | 26,283 | 53,253 | 78,695 | |||||||||||
Financial costs | 27 | (589,934 | ) | (539,137 | ) | (579,233 | ) | |||||||
Foreign exchange gains/(losses) | 29 | (32,571 | ) | (38,070 | ) | (48,498 | ) | |||||||
Result of indexation units | (14,989 | ) | (865 | ) | 748 | |||||||||
Income (loss) before taxes | 141,916 | 415,665 | 313,384 | |||||||||||
Income tax expense / benefit | 18 | 53,697 | (73,879 | ) | (158,998 | ) | ||||||||
NET INCOME (LOSS) FOR THE YEAR | 195,613 | 341,786 | 154,386 | |||||||||||
Income (loss) attributable to owners of the parent | 190,430 | 309,811 | 108,896 | |||||||||||
Income (loss) attributable to non-controlling interest | 14 | 5,183 | 31,975 | 45,490 | ||||||||||
Net income (loss) for the year | 195,613 | 341,786 | 154,386 | |||||||||||
EARNINGS PER SHARE | ||||||||||||||
Basic earnings (losses) per share (US$) | 30 | 0.31403 | 0.51090 | 0.17958 | ||||||||||
Diluted earnings (losses) per share (US$) | 30 | 0.31403 | 0.51090 | 0.17958 |
For the year ended December 31, | ||||||||||||||||
Note | 2022 | 2021 | 2020 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
Revenue | 5 - 25 | 9,362,521 | 4,884,015 | 3,923,667 | ||||||||||||
Cost of sales | 26 | (8,103,483 | ) | (4,963,485 | ) | (4,513,228 | ) | |||||||||
Gross margin | 1,259,038 | (79,470 | ) | (589,561 | ) | |||||||||||
Other income | 27 | 154,286 | 227,331 | 411,002 | ||||||||||||
Distribution costs | 26 | (426,599 | ) | (291,820 | ) | (294,278 | ) | |||||||||
Administrative expenses | 26 | (576,429 | ) | (439,494 | ) | (499,512 | ) | |||||||||
Other expenses | 26 | (531,575 | ) | (535,824 | ) | (692,939 | ) | |||||||||
Gain (losses) from restructuring activities | 26 | 1,679,934 | (2,337,182 | ) | (990,009 | ) | ||||||||||
Other gains/(losses) | 26 | (347,077 | ) | 30,674 | (1,874,789 | ) | ||||||||||
Income (Loss) from operation activities | 1,211,578 | (3,425,785 | ) | (4,530,086 | ) | |||||||||||
Financial income | 26 | 1,052,295 | 21,107 | 50,397 | ||||||||||||
Financial costs | 26 | (942,403 | ) | (805,544 | ) | (586,979 | ) | |||||||||
Foreign exchange gains/(losses) | 25,993 | 131,408 | (48,403 | ) | ||||||||||||
Result of indexation units | (1,412 | ) | (5,393 | ) | 9,348 | |||||||||||
Income (Loss) before taxes | 1,346,051 | (4,084,207 | ) | (5,105,723 | ) | |||||||||||
Income tax (expense) / benefits | 17 | (8,914 | ) | (568,935 | ) | 550,188 | ||||||||||
NET INCOME (LOSS) | 1,337,137 | (4,653,142 | ) | (4,555,535 | ) | |||||||||||
Income (Loss) attributable to owners of the parent | 1,339,210 | (4,647,491 | ) | (4,545,887 | ) | |||||||||||
Loss attributable to non-controlling interest | 14 | (2,073 | ) | (5,651 | ) | (9,648 | ) | |||||||||
Net Income (Loss) | 1,337,137 | (4,653,142 | ) | (4,555,535 | ) | |||||||||||
EARNING (LOSS) PER SHARE | ||||||||||||||||
Basic earning (loss) per share (US$) | 29 | 0.013861 | (7.66397 | ) | (7.49642 | ) | ||||||||||
Diluted earning (loss) per share (US$) | 29 | 0.013592 | (7.66397 | ) | (7.49642 | ) |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME
For the year ended | |||||||||||||||
December 31, | |||||||||||||||
Note | 2019 | 2018 | 2017 | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Restated | Restated | ||||||||||||||
NET INCOME | 195,613 | 341,786 | 154,387 | ||||||||||||
Components of other comprehensive income that will not be reclassified to income before taxes | |||||||||||||||
Other comprehensive income, before taxes, gains by new measurements on defined benefit plans | 25 | (10,636 | ) | (5,819 | ) | 2,763 | |||||||||
Total other comprehensive (loss) that will not be reclassified to income before taxes | (10,636 | ) | (5,819 | ) | 2,763 | ||||||||||
Components of other comprehensive income that will be reclassified to income before taxes | |||||||||||||||
Currency translation differences Gains (losses) on currency translation, before tax | 29 | (243,271 | ) | (743,516 | ) | (56,917 | ) | ||||||||
Other comprehensive loss, before taxes, currency translation differences | (243,271 | ) | (743,516 | ) | (56,917 | ) | |||||||||
Cash flow hedges | |||||||||||||||
Gains (losses) on cash flow hedges before taxes | 19 | 66,856 | (27,797 | ) | 18,344 | ||||||||||
Other comprehensive income (losses), before taxes, cash flow hedges | 66,856 | (27,797 | ) | 18,344 | |||||||||||
Total other comprehensive (loss) that will be reclassified to income before taxes | (176,415 | ) | (771,313 | ) | (38,573 | ) | |||||||||
Other components of other comprehensive income (loss), before taxes | (187,051 | ) | (777,132 | ) | (35,810 | ) | |||||||||
Income tax relating to other comprehensive income that will not be reclassified to income | |||||||||||||||
Income tax relating to new measurements on defined benefit plans | 18 | 2,873 | 1,566 | (785 | ) | ||||||||||
Accumulate income tax relating to other comprehensive income (loss) that will not be reclassified to income | 2,873 | �� | 1,566 | (785 | ) | ||||||||||
Income tax relating to other comprehensive income (loss) that will be reclassified to income | |||||||||||||||
Income tax related to cash flow hedges in other comprehensive income (loss) | 414 | (269 | ) | (1,770 | ) | ||||||||||
Income taxes related to components of other comprehensive loss will be reclassified to income | 414 | (269 | ) | (1,770 | ) | ||||||||||
Total Other comprehensive (loss) | (183,764 | ) | (775,835 | ) | (38,365 | ) | |||||||||
Total comprehensive income (loss) | 11,849 | (434,049 | ) | 116,022 | |||||||||||
Comprehensive income (loss) attributable to owners of the parent | 15,250 | (452,844 | ) | 73,046 | |||||||||||
Comprehensive income (loss) attributable to non-controlling interests | (3,401 | ) | 18,795 | 42,976 | |||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | 11,849 | (434,049 | ) | 116,022 |
For the year ended December 31, | ||||||||||||||||
Note | 2022 | 2021 | 2020 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
NET INCOME/(LOSS) | 1,337,137 | (4,653,142 | ) | (4,555,535 | ) | |||||||||||
Components of other comprehensive income that will not be reclassified to income before taxes | ||||||||||||||||
Other comprehensive income, before taxes, gains (losses) by new measurements on defined benefit plans | 24 | (9,935 | ) | 10,018 | (3,968 | ) | ||||||||||
Total other comprehensive (loss) that will not be reclassified to income before taxes | (9,935 | ) | 10,018 | (3,968 | ) | |||||||||||
Components of other comprehensive income that will be reclassified to income before taxes | ||||||||||||||||
Currency translation differences Gains (losses) on currency translation, before tax | (32,563 | ) | 20,008 | (894,394 | ) | |||||||||||
Other comprehensive loss, before taxes, currency translation differences | (32,563 | ) | 20,008 | (894,394 | ) | |||||||||||
Cash flow hedges | ||||||||||||||||
Gains (losses) on cash flow hedges before taxes | 24 | 52,017 | 38,870 | (105,280 | ) | |||||||||||
Reclassification adjustment on cash flow hedges before tax | 24 | 31,293 | (16,641 | ) | (14,690 | ) | ||||||||||
Amounts removed from equity and included in the carrying amount of non-financial assets (liabilities) that were acquired or incurred through a highly probable hedged forecast transaction, before tax | 24 | (8,143 | ) | - | - | |||||||||||
Other comprehensive income (losses), before taxes, cash flow hedges | 75,167 | 22,229 | (119,970 | ) | ||||||||||||
Change in value of time value of options | ||||||||||||||||
Losses on change in value of time value of options before tax | 24 | (24,005 | ) | (23,692 | ) | - | ||||||||||
Reclassification adjustments on change in value of time value of options before tax | 24 | 19,946 | 6,509 | - | ||||||||||||
Other comprehensive income (losses), before taxes, changes in the time value of the options | (4,059 | ) | (17,183 | ) | - | |||||||||||
Total other comprehensive income (loss) that will be reclassified to income before taxes | 38,545 | 25,054 | (1,014,364 | ) | ||||||||||||
Other components of other comprehensive income (loss), before taxes Income tax relating to other comprehensive income that will not be reclassified to income | 28,610 | 35,072 | (1,018,332 | ) | ||||||||||||
Income (loss) tax relating to new measurements on defined benefit plans | 17 | 567 | (2,783 | ) | 924 | |||||||||||
Income tax relating to other comprehensive income (loss) that will not be reclassified to income | 567 | (2,783 | ) | 924 | ||||||||||||
Income tax relating to other comprehensive income (loss) that will be reclassified to income | ||||||||||||||||
Income tax related to cash flow hedges in other comprehensive income (loss) | (235 | ) | (58 | ) | 959 | |||||||||||
Income taxes related to components of other comprehensive loss will be reclassified to income | (235 | ) | (58 | ) | 959 | |||||||||||
Total Other comprehensive income (loss) | 28,942 | 32,231 | (1,016,449 | ) | ||||||||||||
Total comprehensive income (loss) | 1,366,079 | (4,620,911 | ) | (5,571,984 | ) | |||||||||||
Comprehensive income (loss) attributable to owners of the parent | 1,367,315 | (4,616,914 | ) | (5,566,991 | ) | |||||||||||
Comprehensive income (loss) attributable to non-controlling interests | (1,236 | ) | (3,997 | ) | (4,993 | ) | ||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | 1,366,079 | (4,620,911 | ) | (5,571,984 | ) |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gains | ||||||||||||||||||||||||||||||||||||||||||||||||||
or losses on | ||||||||||||||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | defined benefit | Shares based | Other | Total | Parent’s | Non- | |||||||||||||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | plans | payments | sundry | other | Retained | ownership | controlling | Total | |||||||||||||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | reserve | reserve | reserve | reserve | earnings | interest | interest | equity | ||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Restated | 3,146,265 | (178 | ) | (2,656,644 | ) | (9,333 | ) | (15,178 | ) | 37,874 | 2,638,916 | (4,365 | ) | 218,971 | 3,360,693 | 79,908 | 3,440,601 | |||||||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income for the year | 25 | - | - | - | - | - | - | - | - | 190,430 | 190,430 | 5,183 | 195,613 | |||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | (233,643 | ) | 66,225 | (7,762 | ) | - | (175,180 | ) | - | (175,180 | ) | (8,584 | ) | (183,764 | ) | |||||||||||||||||||||||||||||||||
Total comprehensive income | - | - | (233,643 | ) | 66,225 | (7,762 | ) | - | - | (175,180 | ) | 190,430 | 15,250 | (3,401 | ) | 11,849 | ||||||||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 25 | - | - | - | - | - | - | - | - | (57,129 | ) | (57,129 | ) | - | (57,129 | ) | ||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | - | - | - | - | - | (1,585 | ) | (186,447 | ) | (188,032 | ) | - | (188,032 | ) | (78,112 | ) | (266,144 | ) | |||||||||||||||||||||||||||||||
Total transactions with shareholders | - | - | - | - | - | (1,585 | ) | (186,447 | ) | (188,032 | ) | (57,129 | ) | (245,161 | ) | (78,112 | ) | (323,273 | ) | |||||||||||||||||||||||||||||||
Closing balance as of December 31, 2019 | 3,146,265 | (178 | ) | (2,890,287 | ) | 56,892 | (22,940 | ) | 36,289 | 2,452,469 | (367,577 | ) | 352,272 | 3,130,782 | (1,605 | ) | 3,129,177 |
Attributable to owners of the parent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital | Other equity | Treasury shares | Currency translation reserve | Cash flow hedging reserve | Gains (Losses) from changes in the time value of the options | Actuarial gains or losses on defined benefit plans reserve | Shares based payments reserve | Other sundry reserve | Total other reserve | Retained earnings/(losses) | Parent’s ownership interest | Non- controlling interest | Total equity | |||||||||||||||||||||||||||||||||||||||||||||
ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS | $ThUS$ | ||||||||||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2022 | 3,146,265 | - | (178 | ) | (3,772,159 | ) | (38,390 | ) | (17,563 | ) | (18,750 | ) | 37,235 | 2,448,098 | (1,361,529 | ) | (8,841,106 | ) | (7,056,548 | ) | (10,356 | ) | (7,066,904 | ) | |||||||||||||||||||||||||||||||||||
Total increase (decrease) in equity Net income/(loss) for the period | 24 | - | - | - | - | - | - | - | - | - | - | 1,339,210 | 1,339,210 | (2,073 | ) | 1,337,137 | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | (33,401 | ) | 74,932 | (4,059 | ) | (9,367 | ) | - | - | 28,105 | - | 28,105 | 837 | 28,942 | ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | - | - | - | (33,401 | ) | 74,932 | (4,059 | ) | (9,367 | ) | - | - | 28,105 | 1,339,210 | 1,367,315 | (1,236 | ) | 1,366,079 | |||||||||||||||||||||||||||||||||||||||||
Transactions with shareholders Equity issue | 24-34 | 800,000 | - | - | - | - | - | - | - | - | - | - | 800,000 | - | 800,000 | ||||||||||||||||||||||||||||||||||||||||||||
Increase for other contributions from the owners | 24 | - | 9,250,229 | - | - | - | - | - | - | (4,340,749 | ) | (4,340,749 | ) | - | 4,909,480 | - | 4,909,480 | ||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 24-34 | 9,352,221 | (9,250,190 | ) | - | - | - | - | - | - | (80,000 | ) | (80,000 | ) | - | 22,031 | 35 | 22,066 | |||||||||||||||||||||||||||||||||||||||||
Total transactions with shareholders | 10,152,221 | 39 | - | - | - | - | - | - | (4,420,749 | ) | (4,420,749 | ) | - | 5,731,511 | 35 | 5,731,546 | |||||||||||||||||||||||||||||||||||||||||||
Closing balance as of December 31, 2022 | 13,298,486 | 39 | (178 | ) | (3,805,560 | ) | 36,542 | (21,622 | ) | (28,117 | ) | 37,235 | (1,972,651 | ) | (5,754,173 | ) | (7,501,896 | ) | 42,278 | (11,557 | ) | 30,721 |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gains | ||||||||||||||||||||||||||||||||||||||||||||||||||
or losses on | ||||||||||||||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | defined benefit | Shares based | Other | Total | Parent’s | Non- | |||||||||||||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | plans | payments | sundry | other | Retained | ownership | controlling | Total | |||||||||||||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | reserve | reserve | reserve | reserve | earnings | interest | interest | equity | ||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2018 | 3,146,265 | (178 | ) | (1,925,714 | ) | 18,140 | (10,926 | ) | 39,481 | 2,639,780 | 760,761 | (31,464 | ) | 3,875,384 | 90,457 | 3,965,841 | ||||||||||||||||||||||||||||||||||
Increase (decrease) by application of new accounting standards | 2 - 25 | - | - | - | - | - | - | - | - | (9,548 | ) | (9,548 | ) | - | (9,548 | ) | ||||||||||||||||||||||||||||||||||
Initial balance Restated | 3,146,265 | (178 | ) | (1,925,714 | ) | 18,140 | (10,926 | ) | 39,481 | 2,639,780 | 760,761 | (41,012 | ) | 3,865,836 | 90,457 | 3,956,293 | ||||||||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income for the year | 25 | - | - | - | - | - | - | - | - | 309,811 | 309,811 | 31,975 | 341,786 | |||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | (730,930 | ) | (27,473 | ) | (4,252 | ) | - | - | (762,655 | ) | - | (762,655 | ) | (13,180 | ) | (775,835 | ) | |||||||||||||||||||||||||||||||
Total comprehensive income | - | - | (730,930 | ) | (27,473 | ) | (4,252 | ) | - | - | (762,655 | ) | 309,811 | (452,844 | ) | 18,795 | (434,049 | ) | ||||||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 25 | - | - | - | - | - | - | - | - | (54,580 | ) | (54,580 | ) | - | (54,580 | ) | ||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | - | - | - | - | - | (1,607 | ) | (864 | ) | (2,471 | ) | 4,752 | 2,281 | (29,344 | ) | (27,063 | ) | ||||||||||||||||||||||||||||||||
Total transactions with shareholders | - | - | - | - | - | (1,607 | ) | (864 | ) | (2,471 | ) | (49,828 | ) | (52,299 | ) | (29,344 | ) | (81,643 | ) | |||||||||||||||||||||||||||||||
Closing balance as of December 31, 2018 Restated | 3,146,265 | (178 | ) | (2,656,644 | ) | (9,333 | ) | (15,178 | ) | 37,874 | 2,638,916 | (4,365 | ) | 218,971 | 3,360,693 | 79,908 | 3,440,601 |
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains (Losses) | Actuarial gains | |||||||||||||||||||||||||||||||||||||||||||||||||||||
from changes | or losses on | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | in the time | defined benefit | Shares based | Other | Total | Parent’s | Non- | ||||||||||||||||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | value of the | plans | payments | sundry | other | Retained | ownership | controlling | Total | ||||||||||||||||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | options | reserve | reserve | reserve | reserve | earnings/(losses) | interest | interest | equity | |||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2021 | 3,146,265 | (178 | ) | (3,790,513 | ) | (60,941 | ) | - | (25,985 | ) | 37,235 | 2,452,019 | (1,388,185 | ) | (4,193,615 | ) | (2,435,713 | ) | (6,672 | ) | (2,442,385 | ) | ||||||||||||||||||||||||||||||||
Increase (decrease) by application of new accounting standards | 2-25 | - | - | - | 380 | (380 | ) | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Initial balance restated | 3,146,265 | (178 | ) | (3,790,513 | ) | (60,561 | ) | (380 | ) | (25,985 | ) | 37,235 | 2,452,019 | (1,388,185 | ) | (4,193,615 | ) | (2,435,713 | ) | (6,672 | ) | (2,442,385 | ) | |||||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income/(loss) for the year | 25 | - | - | - | - | - | - | - | - | - | (4,647,491 | ) | (4,647,491 | ) | (5,651 | ) | (4,653,142 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | 18,354 | 22,171 | (17,183 | ) | 7,235 | - | - | 30,577 | - | 30,577 | 1,654 | 32,231 | ||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | - | - | 18,354 | 22,171 | (17,183 | ) | 7,235 | - | - | 30,577 | (4,647,491 | ) | (4,616,914 | ) | (3,997 | ) | (4,620,911 | ) | ||||||||||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | - | - | - | - | - | - | - | (3,921 | ) | (3,921 | ) | - | (3,921 | ) | 313 | (3,608 | ) | ||||||||||||||||||||||||||||||||||||
Total transactions with shareholders | - | - | - | - | - | - | - | (3,921 | ) | (3,921 | ) | - | (3,921 | ) | 313 | (3,608 | ) | |||||||||||||||||||||||||||||||||||||
Closing balance as of December 31, 2021 | 3,146,265 | (178 | ) | (3,772,159 | ) | (38,390 | ) | (17,563 | ) | (18,750 | ) | 37,235 | 2,448,098 | (1,361,529 | ) | (8,841,106 | ) | (7,056,548 | ) | (10,356 | ) | (7,066,904 | ) |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital | Treasury shares | Currency translation reserve | Cash flow hedging reserve | Actuarial gains or losses on defined benefit plans reserve | Shares based payments reserve | Other sundry reserve | Total other reserve | Retained earnings | Parent’s ownership interest | Non- controlling interest | Total equity | ||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2017 | 3,149,564 | (178 | ) | (2,086,555 | ) | 1,506 | (12,900 | ) | 38,538 | 2,640,281 | 580,870 | 366,404 | 4,096,660 | 88,644 | 4,185,304 | |||||||||||||||||||||||||||||||||||
Increase (decrease) by application of new accounting standards | 2 - 25 | - | - | 215,299 | - | - | - | - | 215,299 | (460,173 | ) | (244,874 | ) | (771 | ) | (245,645 | ) | |||||||||||||||||||||||||||||||||
Initial balance Restated | 3,149,564 | (178 | ) | (1,871,256 | ) | 1,506 | (12,900 | ) | 38,538 | 2,640,281 | 796,169 | (93,769 | ) | 3,851,786 | 87,873 | 3,939,659 | ||||||||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income for the year | 25 | - | - | - | - | - | - | - | - | 108,896 | 108,896 | 45,491 | 154,387 | |||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | (54,458 | ) | 16,634 | 1,974 | - | - | (35,850 | ) | - | (35,850 | ) | (2,515 | ) | (38,365 | ) | |||||||||||||||||||||||||||||||||
Total comprehensive income | - | - | (54,458 | ) | 16,634 | 1,974 | - | - | (35,850 | ) | 108,896 | 73,046 | 42,976 | 116,022 | ||||||||||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 25 | - | - | - | - | - | - | - | - | (46,591 | ) | (46,591 | ) | - | (46,591 | ) | ||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | (3,299 | ) | - | - | - | - | 943 | (501 | ) | 442 | - | (2,857 | ) | (40,392 | ) | (43,249 | ) | ||||||||||||||||||||||||||||||||
Total transactions with shareholders | (3,299 | ) | - | - | - | - | 943 | (501 | ) | 442 | (46,591 | ) | (49,448 | ) | (40,392 | ) | (89,840 | ) | ||||||||||||||||||||||||||||||||
Closing balance as of December 31, 2017 Restated | 3,146,265 | (178 | ) | (1,925,714 | ) | 18,140 | (10,926 | ) | 39,481 | 2,639,780 | 760,761 | (31,464 | ) | 3,875,384 | 90,457 | 3,965,841 |
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in other reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gains | ||||||||||||||||||||||||||||||||||||||||||||||||||
or losses on | ||||||||||||||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | defined benefit | Shares based | Other | Total | Parent’s | Non- | |||||||||||||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | plans | payments | sundry | other | Retained | ownership | controlling | Total | |||||||||||||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | reserve | reserve | reserve | reserve | earnings/(losses) | interest | interest | equity | ||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2020 | 3,146,265 | (178 | ) | (2,890,287 | ) | 56,892 | (22,940 | ) | 36,289 | 2,452,469 | (367,577 | ) | 352,272 | 3,130,782 | (1,605 | ) | 3,129,177 | |||||||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income/(loss) for the year | 25 | - | - | - | - | - | - | - | - | (4,545,887 | ) | (4,545,887 | ) | (9,648 | ) | (4,555,535 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | (900,226 | ) | (117,833 | ) | (3,045 | ) | - | - | (1,021,104 | ) | - | (1,021,104 | ) | 4,655 | (1,016,449 | ) | ||||||||||||||||||||||||||||||||
Total comprehensive income | - | - | (900,226 | ) | (117,833 | ) | (3,045 | ) | - | - | (1,021,104 | ) | (4,545,887 | ) | (5,566,991 | ) | (4,993 | ) | (5,571,984 | ) | ||||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | - | - | - | - | - | 946 | (450 | ) | 496 | - | 496 | (74 | ) | 422 | |||||||||||||||||||||||||||||||||||
Total transactions with shareholders | - | - | - | - | - | 946 | (450 | ) | 496 | - | 496 | (74 | ) | 422 | ||||||||||||||||||||||||||||||||||||
Closing balance as of December 31, 2020 | 3,146,265 | (178 | ) | (3,790,513 | ) | (60,941 | ) | (25,985 | ) | 37,235 | 2,452,019 | (1,388,185 | ) | (4,193,615 | ) | (2,435,713 | ) | (6,672 | ) | (2,442,385 | ) |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.statements
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS - DIRECT – METHOD
For the year ended December 31, | ||||||||||||||
Note | 2019 | 2018 | 2017 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | Restated | |||||||||||||
Cash flows from operating activities | ||||||||||||||
Cash collection from operating activities | ||||||||||||||
Proceeds from sales of goods and services | 11,079,333 | 10,787,804 | 10,595,718 | |||||||||||
Other cash receipts from operating activities | 127,683 | 95,099 | 73,668 | |||||||||||
Payments for operating activities | ||||||||||||||
Payments to suppliers for goods and services | (6,663,875 | ) | (6,775,003 | ) | (6,202,631 | ) | ||||||||
Payments to and on behalf of employees | (1,644,806 | ) | (1,789,022 | ) | (1,955,310 | ) | ||||||||
Other payments for operating activities | (267,643 | ) | (255,988 | ) | (223,706 | ) | ||||||||
Income taxes (paid) | (45,311 | ) | (29,186 | ) | (91,986 | ) | ||||||||
Other cash inflows (outflows) | 35 | 241,286 | 39,612 | (8,931 | ) | |||||||||
Net cash flows from operating activities | 2,826,667 | 2,073,316 | 2,186,823 | |||||||||||
Cash flows from investing activities | ||||||||||||||
Cash flows from losses of control of subsidiaries or other businesses | - | 69,724 | 6,503 | |||||||||||
Other cash receipts from sales of equity or debt instruments of other entities | 4,063,582 | 3,640,208 | 3,248,693 | |||||||||||
Other payments to acquire equity or debt instruments of other entities | (4,131,890 | ) | (3,542,839 | ) | (3,106,411 | ) | ||||||||
Amounts raised from sale of property, plant and equipment | 50,322 | 223,753 | 51,316 | |||||||||||
Purchases of property, plant and equipment | (1,276,621 | ) | (660,707 | ) | (403,666 | ) | ||||||||
Purchases of intangible assets | (140,173 | ) | (96,206 | ) | (87,318 | ) | ||||||||
Interest received | 17,822 | 10,175 | 12,684 | |||||||||||
Other cash inflows (outflows) | 35 | (2,249 | ) | (2,476 | ) | (9,223 | ) | |||||||
Net cash flow (used in) investing activities | (1,419,207 | ) | (358,368 | ) | (287,422 | ) | ||||||||
Cash flows from financing activities | 35 | |||||||||||||
Payments for changes in ownership interests in subsidiaries that do not result in loss of control | (294,105 | ) | (2 | ) | - | |||||||||
Amounts raised from long-term loans | 1,781,728 | 779,062 | 1,305,384 | |||||||||||
Amounts raised from short-term loans | 93,000 | 293,000 | 132,280 | |||||||||||
Loans repayments | (1,860,455 | ) | (1,738,348 | ) | (2,174,092 | ) | ||||||||
Payments of lease liabilities | (398,992 | ) | (373,439 | ) | (338,179 | ) | ||||||||
Dividends paid | (55,116 | ) | (72,620 | ) | (66,642 | ) | ||||||||
Interest paid | (550,877 | ) | (540,303 | ) | (571,627 | ) | ||||||||
Other cash inflows (outflows) | (58,704 | ) | 44,053 | 13,706 | ||||||||||
Net cash flows (used in) financing activities | (1,343,521 | ) | (1,608,597 | ) | (1,699,171 | ) | ||||||||
Net increase in cash and cash equivalents before effect of exchanges rate change | 63,939 | 106,351 | 200,230 | |||||||||||
Effects of variation in the exchange rate on cash and cash equivalents | (73,002 | ) | (166,713 | ) | (7,553 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | (9,063 | ) | (60,362 | ) | 192,677 | |||||||||
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR | 6 | 1,081,642 | 1,142,004 | 949,327 | ||||||||||
CASH AND CASH EQUIVALENTS AT THE END OF YEAR | 6 | 1,072,579 | 1,081,642 | 1,142,004 |
For the year ended December 31, | ||||||||||||||
Note | 2022 | 2021 | 2020 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Cash flows from operating activities | ||||||||||||||
Cash collection from operating activities | ||||||||||||||
Proceeds from sales of goods and services | 10,549,542 | 5,359,778 | 4,620,409 | |||||||||||
Other cash receipts from operating activities | 117,118 | 52,084 | 51,900 | |||||||||||
Payments for operating activities | ||||||||||||||
Payments to suppliers for the supply goods and services | 34 | (9,113,130 | ) | (4,391,627 | ) | (3,817,339 | ) | |||||||
Payments to and on behalf of employees | (1,039,336 | ) | (941,068 | ) | (1,227,010 | ) | ||||||||
Other payments for operating activities | (272,823 | ) | (156,395 | ) | (70,558 | ) | ||||||||
Income taxes (paid) | (14,314 | ) | (9,437 | ) | (65,692 | ) | ||||||||
Other cash inflows (outflows) | 34 | (130,260 | ) | (87,576 | ) | 13,593 | ||||||||
Net cash (outflow) inflow from operating activities | 96,797 | (174,241 | ) | (494,697 | ) | |||||||||
Cash flows from investing activities | ||||||||||||||
Cash flows from losses of control of subsidiaries or other businesses | - | 752 | - | |||||||||||
Other collections from the sale of equity or debt instruments of other entities | - | - | - | |||||||||||
Other cash receipts from sales of equity or debt instruments of other entities | 417 | 35 | 1,464,012 | |||||||||||
Other payments to acquire equity or debt instruments of other entities | (331 | ) | (208 | ) | (1,140,940 | ) | ||||||||
Amounts raised from sale of property, plant and equipment | 56,377 | 105,000 | 75,566 | |||||||||||
Purchases of property, plant and equipment | (780,538 | ) | (597,103 | ) | (324,264 | ) | ||||||||
Purchases of intangible assets | (50,116 | ) | (88,518 | ) | (75,433 | ) | ||||||||
Interest received | 18,934 | 9,056 | 36,859 | |||||||||||
Other cash inflows (outflows) | 34 | 6,300 | 18,475 | (2,192 | ) | |||||||||
Net cash (outflow) inflow from investing activities | (748,957 | ) | (552,511 | ) | 33,608 | |||||||||
Proceeds from the issuance of shares | 34 | 549,038 | - | - | ||||||||||
Payments for changes in ownership interests in subsidiaries that do not result in loss of control | - | - | (3,225 | ) | ||||||||||
Amounts from the issuance of other equity instruments | 34 | 3,202,790 | - | - | ||||||||||
Amounts raised from long-term loans | 34 | 2,361,875 | - | 1,425,184 | ||||||||||
Amounts raised from short-term loans | 34 | 4,856,025 | 661,609 | 560,296 | ||||||||||
Loans from Related Entities | 32 | 770,522 | 130,102 | 373,125 | ||||||||||
Loans repayments | 34 | (8,759,413 | ) | (463,048 | ) | (793,712 | ) | |||||||
Payments of lease liabilities | 34 | (131,917 | ) | (103,366 | ) | (122,062 | ) | |||||||
Payments of loans to related entities | 34 | (1,008,483 | ) | - | - | |||||||||
Dividends paid | - | - | (571 | ) | ||||||||||
Interest paid | (521,716 | ) | (104,621 | ) | (210,418 | ) | ||||||||
Other cash (outflows) inflows | 34 | (463,766 | ) | (11,034 | ) | (107,788 | ) | |||||||
Net cash inflow (outflow) from financing activities | 854,955 | 109,642 | 1,120,829 | |||||||||||
Net (decrease) increase in cash and cash equivalents before effect of exchanges rate change | 202,795 | (617,110 | ) | 659,740 | ||||||||||
Effects of variation in the exchange rate on cash and cash equivalents | (32,955 | ) | (31,896 | ) | (36,478 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | 169,840 | (649,006 | ) | 623,262 | ||||||||||
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 6 | 1,046,835 | 1,695,841 | 1,072,579 | ||||||||||
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 6 | 1,216,675 | 1,046,835 | 1,695,841 |
The accompanying Notes 1 to 3736 form an integral part of these consolidated financial statements.
LATAM AIRLINES GROUP S.A.AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019 AND 20182022
LATAM Airlines Group S.A. (the(“LATAM” or the “Company”) is a public limitedan open stock company registered withwhich holds the values inscribed in the Registro de Valores of the Commission for the Financial Market under No. 306, whose shares are listed in Chile on the Electronic Stock Exchange of Chile - Stock Exchange and the Santiago Stock Exchange - Stock Exchange, besides being listedExchange. Latam’s ADR are currently trading in the United States of America on the OTC (Over-The-Counter) markets. LATAM Airlines Group S.A. and certain of its direct and indirect affiliates announced their emergence on November 3, 2022, from their reorganization proceedings in the United States of America under Chapter 11 of Title 11 of the United States Code at the United States Bankruptcy Court for the Southern District of New York Stock Exchange (“NYSE”(the Chapter 11 Proceedings”), in the form of American Depositary Receipts (“ADRs”).
Its main business is the air transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by its subsidiaries in Ecuador, Peru, Brazil, Colombia, ArgentinaArgentine and Paraguay. In addition, the Company has subsidiaries that operate in the cargo business in Chile, Brazil and Colombia.
The Company is located in Chile, in the city of Santiago, on Avenida Américo Vespucio SurPresidente Riesco No. 901, Renca5711, Las Condes commune.
As of December 31, 2019,2022, the Company’s statutory capital is represented by 606,407,693606,407,693,000 ordinary shares without nominal value. AllOf such amount, as of said date, 605,231,854,725 shares arewere subscribed and paid. The foregoing, considering the capital increase approved by the shareholders of the company at an extraordinary meeting held on July 5, 2022, in the context of the implementation of its reorganization plan approved and confirmed in the Chapter 11 Proceedings.
The major shareholders of the Company considering the total amount of subscribed and paid shares are Banco de Chile on behalf of State Street which owns 46,96%, Banco de Chile on behalf of Non-Resident Third Parties with 12.68%, Delta Air Lines with 10.03% and Qatar Airways with 10,02% ownership (9.999999992% considering the capital reduction that occurred in full, after the legal periodtotal amount of three years to subscribe the balance of 466,832 outstanding shares, of the last capital increase approved in August of the year 2016.authorized shares).
The shareholder major of the Company is the Cueto Group, which through the companies Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Ltda., Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A. e Inversiones La Espasa Dos y Cía. Ltda., Owns 21.46% of the shares issued by the Company.
As of December 31, 2019,2022, the Company had a total of 1,2282,092 shareholders in its registry. At that date, approximately 4.17%0.01% of the Company’s propertycapital stock was in the form of ADRs.
ForDuring 2022, the period ended December 31, 2019, the CompanyLATAM Group had an average of 41,04330,877 employees, ending this periodyear with a total number of 41,72932,507 people, distributed in 6,9664,627 Administration employees, 4,911 in Maintenance, 13,53816,803 in Operations, 9,5117,423 Cabin Crew 4,298 Cockpit Crew and 2,505 in Sales.3,654 Command crew.
The main subsidiaries included in these consolidated financial statements are as follows:
Country | Functional | As December 31, 2019 | As December 31, 2018 | As December 31, 2017 | ||||||||||||||||||||||||||||||||||||||
Tax No. | Company | of origin | Currency | Direct | Indirect | Total | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||||||||||
% | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||
96.518.860-6 | Latam Travel Chile S.A. and Subsidiary | Chile | US$ | - | - | - | 99.9900 | 0.0100 | 100.0000 | 99.9900 | 0.0100 | 100.0000 | ||||||||||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries | Chile | US$ | 99.8361 | 0.1639 | 100.0000 | 99.8361 | 0.1639 | 100.0000 | 99.8361 | 0.1639 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Latam Airlines Perú S.A. | Peru | US$ | 49.0000 | 21.0000 | 70.0000 | 49.0000 | 21.0000 | 70.0000 | 49.0000 | 21.0000 | 70.0000 | ||||||||||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | Chile | US$ | 99.8940 | 0.0041 | 99.8981 | 99.8940 | 0.0041 | 99.8981 | 99.8940 | 0.0041 | 99.8981 | ||||||||||||||||||||||||||||||
Foreign | Connecta Corporation | U.S.A. | US$ | 100.0000 | 0.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary | U.S.A. | US$ | 99.9714 | 0.0286 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | 99.9999 | 0.0001 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | 99.8900 | 0.1100 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | Argentina | ARS | 96.2208 | 3.7792 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries | Bahamas | US$ | 99.9800 | 0.0200 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary | Chile | US$ | 99.0000 | 1.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries | Chile | US$ | 99.7100 | 0.2900 | 100.0000 | 99.7100 | 0.2900 | 100.0000 | 99.7100 | 0.2900 | 100.0000 | ||||||||||||||||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | Chile | CLP | 99.8300 | 0.1700 | 100.0000 | 99.8300 | 0.1700 | 100.0000 | 99.8300 | 0.1700 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Latam Finance Limited | Cayman Island | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Peuco Finance Limited | Cayman Island | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Profesional Airline Services INC. | U.S.A. | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Jarletul S.A. | Uruguay | US$ | 99.0000 | 1.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | Brazil | BRL | 63.0901 | 36.9099 | 100.0000 | 63.0901 | 36.9099 | 100.0000 | 63.0901 | 36.9099 | 100.0000 |
a) | Percentage ownership |
As December 31, 2022 | As December 31, 2021 | As December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
Country | Functional | |||||||||||||||||||||||||||||||||||||||||
Tax No. | Company | of origin | Currency | Direct | Indirect | Total | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||||||||||
% | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries | Chile | US$ | 99.9959 | 0.0041 | 100.0000 | 99.8361 | 0.1639 | 100.0000 | 99.8361 | 0.1639 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Latam Airlines Perú S.A. | Peru | US$ | 23.6200 | 76.1900 | 99.8100 | 23.6200 | 76.1900 | 99.8100 | 23.6200 | 76.1900 | 99.8100 | ||||||||||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | Chile | US$ | 99.8940 | 0.0041 | 99.8981 | 99.8940 | 0.0041 | 99.8981 | 99.8940 | 0.0041 | 99.8981 | ||||||||||||||||||||||||||||||
Foreign | Connecta Corporation | U.S.A. | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary | U.S.A. | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 99.9714 | 0.0286 | 100.0000 | ||||||||||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 99.8900 | 0.1100 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | Argentina | ARS | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 96.2208 | 3.7792 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries | Bahamas | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 99.9800 | 0.0200 | 100.0000 | ||||||||||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | ||||||||||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. | Chile | US$ | 99.9000 | 0.1000 | 100.0000 | 99.9000 | 0.1000 | 100.0000 | 99.7100 | 0.2900 | 100.0000 | ||||||||||||||||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | Chile | CLP | 99.8300 | 0.1700 | 100.0000 | 99.8300 | 0.1700 | 100.0000 | 99.8300 | 0.1700 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Latam Finance Limited | Cayman Island | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Peuco Finance Limited | Cayman Island | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Profesional Airline Services INC. | U.S.A. | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Jarletul S.A. | Uruguay | US$ | 0.0000 | 100.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | LatamTravel S.R.L. | Bolivia | US$ | 99.0000 | 1.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | 99.0000 | 1.0000 | 100.0000 | ||||||||||||||||||||||||||||||
76.262.894-5 | Latam Travel Chile II S.A. | Chile | US$ | 99.9900 | 0.0100 | 100.0000 | 99.9900 | 0.0100 | 100.0000 | 99.9900 | 0.0100 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | Latam Travel S.A. | Argentina | ARS | 94.0100 | 5.9900 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | Brazil | BRL | 63.0901 | 36.9099 | 100.0000 | 63.0901 | 36.9099 | 100.0000 | 63.0901 | 36.9099 | 100.0000 |
(*) | As of December 31, |
b) | Financial Information |
Statement of financial position | Net Income | |||||||||||||||||||||||||||||||||||||||||||||||||
For the period ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Company | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Gain /(loss) | |||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (*) | 392,232 | 1,727,968 | (1,342,687 | ) | 432,271 | 1,648,715 | (1,236,243 | ) | 404,944 | 1,487,248 | (853,624 | ) | (120,717 | ) | (7,289 | ) | (290,980 | ) | |||||||||||||||||||||||||||||||
Foreign | Latam Airlines Perú S.A. | 335,773 | 281,178 | 54,595 | 484,388 | 417,067 | 67,321 | 661,721 | 510,672 | 8,691 | (12,726 | ) | (109,392 | ) | (175,485 | ) | ||||||||||||||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | 394,378 | 212,094 | 182,284 | 721,484 | 537,180 | 184,304 | 749,789 | 462,666 | 172,186 | (1,230 | ) | 1,590 | 10,936 | ||||||||||||||||||||||||||||||||||||
Foreign | Connecta Corporation | 78,905 | 22,334 | 56,571 | 61,068 | 19,312 | 41,756 | 57,922 | 24,023 | 40,087 | 14,814 | 1,169 | 500 | |||||||||||||||||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary (*) | 25,118 | 24,325 | 813 | 24,654 | 25,680 | (1,026 | ) | 25,050 | 23,102 | (1,034 | ) | 1,838 | 190 | (181 | ) | ||||||||||||||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | 283,166 | 177,109 | 106,057 | 471,094 | 327,955 | 143,139 | 546,216 | 142,423 | 216,912 | (36,190 | ) | (56,135 | ) | (39,032 | ) | ||||||||||||||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | 16,150 | 12,623 | 3,527 | 18,303 | 10,948 | 7,355 | 20,132 | 12,601 | 7,581 | 1,154 | 48 | 500 | |||||||||||||||||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | (3 | ) | - | (3 | ) | (5 | ) | - | (5 | ) | (6 | ) | - | (10 | ) | - | - | - | |||||||||||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries (*) | 35,991 | 15,334 | 20,656 | 36,617 | 14,669 | 21,940 | 218,435 | 14,355 | 203,829 | (1,287 | ) | (806 | ) | (92,623 | ) | ||||||||||||||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary (*) | 220,144 | 148,489 | 11,661 | 202,402 | 113,930 | 23,563 | 250,027 | 86,691 | 130,823 | (11,901 | ) | (54,961 | ) | 1,452 | |||||||||||||||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. (*) | 1,281 | 56 | 1,225 | 1,284 | 45 | 1,239 | 1,394 | 65 | 1,329 | (14 | ) | (90 | ) | 50 | |||||||||||||||||||||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | 1,417 | 1,110 | 307 | 2,004 | 467 | 1,537 | 2,181 | 625 | 1,556 | 77 | 181 | 60 | |||||||||||||||||||||||||||||||||||||
Foreign | Latam Finance Limited | 3,011 | 211,517 | (208,506 | ) | 1,310,733 | 1,688,821 | (378,088 | ) | 1,310,735 | 1,584,311 | (273,576 | ) | 169,582 | (104,512 | ) | (105,100 | ) | ||||||||||||||||||||||||||||||||
Foreign | Peuco Finance Limited | - | - | - | 1,307,721 | 1,307,721 | - | 1,307,721 | 1,307,721 | - | - | - | ||||||||||||||||||||||||||||||||||||||
Foreign | Profesional Airline Services INC. | 56,895 | 53,786 | 3,109 | 61,659 | 58,808 | 2,851 | 17,345 | 14,772 | 2,573 | 258 | 278 | 1,014 | |||||||||||||||||||||||||||||||||||||
Foreign | Jarletul S.A. | 16 | 1,109 | (1,093 | ) | 24 | 1,116 | (1,092 | ) | 34 | 1,076 | (1,042 | ) | (2 | ) | (50 | ) | (332 | ) | |||||||||||||||||||||||||||||||
Foreign | LatamTravel S.R.L. | 92 | 5 | 87 | 64 | 132 | (68 | ) | 1,061 | 1,106 | (45 | ) | 154 | (23 | ) | (33 | ) | |||||||||||||||||||||||||||||||||
76.262.894-5 | Latam Travel Chile II S.A. | 368 | 1,234 | (866 | ) | 588 | 1,457 | (869 | ) | 943 | 1,841 | (898 | ) | 2 | 29 | 392 | ||||||||||||||||||||||||||||||||||
Foreign | Latam Travel S.A. | 7,303 | 2,715 | 4,588 | 3,778 | 6,135 | 2,357 | 3,977 | 6,018 | (2,041 | ) | (6,187 | ) | (2,804 | ) | (5,610 | ) | |||||||||||||||||||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | 3,497,848 | 4,231,547 | (733,699 | ) | 2,608,859 | 3,257,148 | (648,289 | ) | 3,110,055 | 3,004,935 | 105,120 | (69,932 | ) | (756,633 | ) | (1,025,814 | ) |
Statement of financial position | Net Income | |||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Company | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Gain /(loss) | |||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||
Restated | Restated | Restated | Restated | |||||||||||||||||||||||||||||||||||||||||||||||
96.518.860-6 | Latam Travel Chile S.A. and Subsidiary | - | - | - | 10,841 | 3,909 | 6,932 | 6,771 | 2,197 | 4,574 | - | 2,385 | 1,833 | |||||||||||||||||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (*) | 632,673 | 1,487,248 | (853,624 | ) | 526,017 | 1,281,800 | (751,960 | ) | 499,345 | 1,101,548 | (596,406 | ) | (26,551 | ) | (48,061 | ) | (35,943 | ) | |||||||||||||||||||||||||||||||
Foreign | Latam Airlines Perú S.A. | 519,363 | 510,672 | 8,691 | 419,325 | 409,221 | 10,104 | 315,607 | 303,204 | 12,403 | (3,550 | ) | 5,416 | 1,205 | ||||||||||||||||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | 634,852 | 462,666 | 172,186 | 513,367 | 336,715 | 176,652 | 584,169 | 371,934 | 212,235 | (4,157 | ) | (34,322 | ) | (30,220 | ) | ||||||||||||||||||||||||||||||||||
Foreign | Connecta Corporation | 64,110 | 24,023 | 40,087 | 66,593 | 28,183 | 38,410 | 38,735 | 17,428 | 21,487 | 1,677 | 16,923 | 13,030 | |||||||||||||||||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary (*) | 22,068 | 23,102 | (1,034 | ) | 15,817 | 17,654 | (1,837 | ) | 12,671 | 15,722 | (3,051 | ) | 802 | 1,225 | 857 | ||||||||||||||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | 359,335 | 142,423 | 216,912 | 331,496 | 129,233 | 202,263 | 324,498 | 104,357 | 220,141 | 14,610 | (17,609 | ) | 2,172 | ||||||||||||||||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | 20,182 | 12,601 | 7,581 | 17,057 | 9,614 | 7,443 | 12,931 | 4,863 | 8,068 | 796 | (3 | ) | 939 | ||||||||||||||||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | (10 | ) | - | (10 | ) | 26 | 13 | 13 | 18 | 27 | (9 | ) | - | (3 | ) | 2 | |||||||||||||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries (*) | 48,929 | 15,228 | 33,450 | 53,326 | 13,040 | 40,028 | 66,039 | 42,271 | 18,808 | (6,579 | ) | 19,121 | 3,438 | ||||||||||||||||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary (*) | 65,422 | 78,890 | (12,111 | ) | 181,522 | 192,059 | (9,614 | ) | 144,884 | 156,005 | (10,112 | ) | (2,497 | ) | 497 | 3,389 | |||||||||||||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries (*) | 1,329 | 50 | 1,279 | 1,383 | 50 | 1,333 | 11,681 | 5,201 | 6,377 | (54 | ) | (4,774 | ) | 1,561 | |||||||||||||||||||||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | 2,378 | 1,075 | 1,303 | 2,879 | 1,031 | 1,848 | 1,967 | 367 | 1,600 | (282 | ) | 884 | 109 | ||||||||||||||||||||||||||||||||||||
Foreign | Latam Finance Limited | 1,362,762 | 1,531,238 | (168,476 | ) | 679,034 | 756,774 | (77,740 | ) | 678,289 | 708,306 | (30,017 | ) | (90,736 | ) | (47,723 | ) | (30,017 | ) | |||||||||||||||||||||||||||||||
Foreign | Peuco Finance Limited | 664,458 | 664,458 | - | 608,191 | 608,191 | - | 608,191 | 608,191 | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Foreign | Profesional Airline Services INC. | 3,509 | 1,950 | 1,559 | 2,430 | 1,967 | 463 | 3,703 | 3,438 | 265 | 1,096 | 197 | 294 | |||||||||||||||||||||||||||||||||||||
Foreign | Jarletul S.A. | 150 | 860 | (710 | ) | 18 | 125 | (107 | ) | - | - | - | (603 | ) | (107 | ) | - | |||||||||||||||||||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | 5,090,180 | 3,550,875 | 1,539,305 | 4,420,546 | 3,256,017 | 1,164,529 | 4,490,714 | 3,555,423 | 856,829 | 186,140 | 389,072 | 160,582 |
The Equity reported corresponds to Equity attributable to owners of the parent, it does not include Non-controlling |
Additionally,
In addition, special purpose entities have been consolidated: 1. Chercán Leasing Limited, created for aircraft advances financing;intended to finance advance payments of aircraft; 2. Guanay Finance Limited, createdintended for the issuanceissue of secured bondsa securitized bond with future credit card payments; 3. Private investment funds; 4. Dia Patagonia Limited, Alma Leasing C.O. Limited, FC Initial Leasing Limited, Vari Leasing Limited, Dia Iguazu Limited, Condor Leasing C.O. Limited, FI Timothy Leasing Limited, Yamasa Sangyo Aircraft LA1 Kumiai, Yamasa Sangyo Aircraft LA2 Kumiai, LS-Aviation No.19 C.O. Limited, LS-Aviation No.20 C.O. Limited, LS-Aviation No.21 C.O. Limited, LS-Aviation No.22 C.O. Limited and LS-Aviation No.23 Co. Limited created
earmarked for aircraft financing. ThoseThese companies have been consolidated as required by IFRS 10.
All controlled entities over which Latam has control have been included in the consolidation. The Company has analyzed the control criteria in accordance with the requirements of IFRS 10.
Changes occurred in the consolidation perimeter between January 1, 20182021 and December 31, 2019,2022, are detailed below:
(1) | Incorporation or acquisition of companies |
- | On |
- | On January 21, 2021, Transporte Aéreos del Mercosur S.A. puchased 2,392,166 preferred shares of |
- | On |
The value of the acquisition of this transaction was ThUS $ 294,105.
Under the provisions of No. 2 of Art. 103 of Law No. 18,046 on Corporations, for having collected all the shares held by a single shareholder and for having elapsed the period of 10 days without having amended said situation, the company LATAM Travel Chile S.A. It has been fully dissolved on December 1, 2019.
As a result of the dissolution of the company LATAM Travel Chile S.A., the company LATAM Airlines Group S.A. assumes from that date all obligations and rights corresponding to the first.
The sale value of Andes Airport Services S.A. it was ThUS$ 39,108
The sale value of this transaction was ThUS$ 29,466.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.
2.1. | Basis of Preparation |
These consolidated financial statements of LATAM Airlines Group S.A. as of December 31, 2022 and 2021, for the three years ended December 31, 2022 and have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) and with the interpretations issued by the interpretations committee of the International Financial Reporting Standards (IFRIC).
The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments.
The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.
The consolidated financial statements have been prepared in accordance with the accounting policies used by the Company for the 2021 consolidated financial statements, 2018, except for the standards and interpretations adopted as of January 1, 2019.2022.
(a) | Application of new standards for the year 2022: |
(a) Accounting pronouncements with implementation effective from January 1, 2019:
(a.1.) | Accounting pronouncements with implementation effective from January 1, 2022: |
Date of issue | Effective Date: | |||
(i) Standards and amendments | ||||
Amendment to IFRS | 01/01/ | |||
Amendment to IAS | 01/01/ | |||
Amendment to IAS | 01/01/ | |||
2022 | ||||
Improvements to International Financial Reporting Standards | 01/01/ | |||
The application of these accounting pronouncements as of January 1, 2019,2022, had no significant effectseffect on the Company’s consolidated financial statements of the Company; with the exception of those originated by the application of IFRS 16: Leases described as follow.statements.
During the year, the Company has recognized the changes, in the consolidated financial statements, as a result of the adoption of IFRS 16 retrospectively; restating the comparative figures, in accordance with the provisions of IAS 8 Accounting policies, changes in accounting estimates and errors.
The impacts of the adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases are as follows:
Consolidated statement of financial position (extract)
a) As of January 1, 2017:
As of | Adoption | As of | ||||||||||||
December 31 | impact | January 1, | ||||||||||||
Note | 2016 | IFRS 16 | 2017 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | ||||||||||||||
Current assets | ||||||||||||||
Other non-financial assets, current | 12 | 212,242 | (25,567 | )(9) | 186,675 | |||||||||
Non-current assets | ||||||||||||||
Properties, plants and equipment | 17 | 10,498,149 | 2,931,101 | (9) | 13,429,250 | |||||||||
Current liabilities | ||||||||||||||
Other current financial liabilities | 7-19 | 1,839,528 | 311,307 | (11) | 2,150,835 | |||||||||
Non-current liabilities | ||||||||||||||
Other non current financial liabilities | 7-19 | 6,796,952 | 2,881,149 | (11) | 9,678,101 | |||||||||
Accounts payable commercial and other | 7-24 | 359,391 | 20,065 | (9) | 379,456 | |||||||||
Deferred tax liability | 18 | 915,759 | (61,343 | )(10) | 854,416 | |||||||||
Equity | ||||||||||||||
Equity attributable to the owners of the parent | ||||||||||||||
Accumulated earnings | 25 | 366,404 | (460,173 | )(12) | (93,769 | ) | ||||||||
Other reserves | 25 | 580,870 | 215,299 | (12) | 796,169 | |||||||||
Non-controlling interest | 14 | 88,644 | (771 | )(12) | 87,873 |
b) As of January 1, 2018:
As of | Adoption | As of | Adoption | As of | ||||||||||||||||||||||
December 31, | impact | January 1 | impact | January 1, | ||||||||||||||||||||||
Note | 2017 | IFRS 9 | IFRS 15 | 2018 | IFRS 16 | 2018 | ||||||||||||||||||||
ThUS$ | THUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Restated | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||
Other non-financial assets, current | 12 | 221,188 | - | 54,361 | (4) | 275,549 | (30,771 | )(9) | 244,778 | |||||||||||||||||
Trade debtors and other accounts receivable, current | 7 - 8 | 1,214,050 | (11,105 | )(1) | - | 1,202,945 | - | 1,202,945 | ||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||
Other non-financial assets, non current | 12 | 220,807 | - | - | 220,807 | (8,604 | )(9) | 212,203 | ||||||||||||||||||
Properties, plants and equipment | 17 | 10,065,335 | - | - | 10,065,335 | 2,865,317 | (9) | 12,930,652 | ||||||||||||||||||
Deferred tax assets | 18 | 364,021 | 89 | (2) | 6,005 | (7) | 370,115 | 449 | (10) | 370,564 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||
Other current financial liabilities | 7 - 19 | 1,300,949 | - | - | 1,300,949 | 319,030 | (11) | 1,619,979 | ||||||||||||||||||
Trade and other accounts payables | 7 - 20 | 1,695,202 | - | (22,192 | )(5) | 1,673,010 | (4,398 | )(9) | 1,668,612 | |||||||||||||||||
Other non-financial liabilities, current | 22 | 2,823,963 | - | 77,640 | (6) | 2,901,603 | - | 2,901,603 | ||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||
Other non current financial liabilities | 7 - 19 | 6,605,508 | - | - | 6,605,508 | 2,827,942 | (11) | 9,433,450 | ||||||||||||||||||
Accounts payable commercial and other | 7 - 24 | 498,832 | - | - | 498,832 | 60,611 | (9) | 559,443 | ||||||||||||||||||
Deferred tax liability | 18 | 949,697 | (1,021 | )(2) | 4,472 | (5) | 953,148 | (75,400 | )(10) | 877,748 | ||||||||||||||||
Equity | ||||||||||||||||||||||||||
Equity attributable to the owners of the Accumulated earnings | 25 | 475,118 | (9,995 | )(3) | 446 | (8) | 465,569 | (506,581 | )(12) | (41,012 | ) | |||||||||||||||
Other reserves | 25 | 554,884 | - | - | 554,884 | 205,877 | (12) | 760,761 | ||||||||||||||||||
Non-controlling interest | 14 | 91,147 | - | - | 91,147 | (690 | )(12) | 90,457 |
c) As of December 31, 2018:
As of | Adoption | As of | ||||||||||||
December 31, | impact | December 31, | ||||||||||||
Note | 2018 | IFRS 16 | 2018 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Restated | ||||||||||||||
Current assets | ||||||||||||||
Other non-financial assets, current | 12 | 320,977 | (30,501 | )(9) | 290,476 | |||||||||
Non-current assets | ||||||||||||||
Other non-financial assets, non current | 12 | 233,741 | (6,200 | )(9) | 227,541 | |||||||||
Properties, plants and equipment | 17 | 9,953,365 | 2,548,444 | (9) | 12,501,809 | |||||||||
Deferred tax assets | 18 | 273,328 | 201 | (10) | 273,529 | |||||||||
Current liabilities | ||||||||||||||
Other current financial liabilities | 7-19 | 1,430,789 | 363,497 | (11) | 1,794,286 | |||||||||
Non-current liabilities | ||||||||||||||
Other non current financial liabilities | 7-19 | 5,864,910 | 2,494,552 | (11) | 8,359,462 | |||||||||
Accounts payable commercial and other | 7-24 | 483,656 | 45,621 | (9) | 529,277 | |||||||||
Deferred tax liability | 18 | 872,121 | (85,550 | )(10) | 786,571 | |||||||||
Equity | ||||||||||||||
Equity attributable to the owners of the parent | ||||||||||||||
Accumulated earnings | 25 | 597,676 | (378,705 | )(12) | 218,971 | |||||||||
Other reserves | 25 | (76,926 | ) | 72,561 | (12) | (4,365 | ) | |||||||
Non-controlling interest | 14 | 79,940 | (32 | )(12) | 79,908 |
- Effects of adopting IFRS 9
This standard also includes requirements related to the classification and measurement of financial assets and liabilities and an expected credit loss model that replaces the current loss impairment model incurred.
As of January 1, 2018, the calculation of the impairment losses provision are as follows:
Portfolio maturity | ||||||||||||||||||||||||
Up to | Up to | More than | ||||||||||||||||||||||
Up to | 91 to | 181 to | 360 | |||||||||||||||||||||
Up to date | 90 days | 180 days | 360 days | days | Total | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Expected loss rate | 1 | % | 21 | % | 46 | % | 67 | % | 94 | % | 8 | % | ||||||||||||
Gross book value | 1,046,909 | 36,241 | 12,001 | 14,623 | 66,022 | 1,175,796 | ||||||||||||||||||
Impairment provision | (13,570 | ) | (7,774 | ) | (5,499 | ) | (9,803 | ) | (61,787 | ) | (98,433 | ) |
In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition.
The Company analyzed the business models and classified its financial assets and liabilities according to the following:
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||||||||||||||
Assets | Loans and receivables | Hedge and derivatives | Held for trading | Initial as fair value through profit and loss | Cost amortized | At fair value with changes in results | Total | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||
Balance as of December 31, 2017 | 2,446,864 | 62,867 | 1,915 | 501,890 | - | - | 3,013,536 | |||||||||||||||||||||
Cash and cash equivalents | (1,112,346 | ) | - | - | (29,658 | ) | 1,112,346 | 29,658 | - | |||||||||||||||||||
Other financial assets, current | (23,918 | ) | - | (1,421 | ) | (472,232 | ) | 23,918 | 473,653 | - | ||||||||||||||||||
Trade debtors and other accounts receivable, current | (1,214,050 | ) | - | - | - | 1,214,050 | - | - | ||||||||||||||||||||
Accounts receivable from entities related, current | (2,582 | ) | - | - | - | 2,582 | - | - | ||||||||||||||||||||
Other financial assets, non-current | (87,077 | ) | - | (494 | ) | - | 87,077 | 494 | - | |||||||||||||||||||
Accounts receivable, non-current | (6,891 | ) | - | - | - | 6,891 | - | - | ||||||||||||||||||||
Balance as of January 1, 2018 | - | 62,867 | - | - | 2,446,864 | 503,805 | 3,013,536 |
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||
Liabilities | Others financial liabilities | Held hedge derivatives | Cost amortized | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Balance as of December 31, 2017 | 10,086,434 | 14,817 | - | 10,101,251 | ||||||||||||
Other current financial liabilities | (1,288,749 | ) | - | 1,288,749 | - | |||||||||||
Trade accounts payable and other accounts payable, current | (1,695,202 | ) | - | 1,695,202 | - | |||||||||||
Accounts payable to related entities, current | (760 | ) | - | 760 | - | |||||||||||
Other financial liabilities, not current | (6,602,891 | ) | - | 6,602,891 | - | |||||||||||
Accounts payable, not current | (498,832 | ) | - | 498,832 | - | |||||||||||
Balance as of January 1, 2018 (*) | - | 14,817 | 10,086,434 | 10,101,251 |
- Effects of adopting IFRS 15
(4) Contract costs: The Company has capitalized the costs related to the revenues from air transport of passengers, corresponding to: the commissions charged by the credit card administrators for US$ 22.0 million and the air ticket booking services through the system general distribution (GDS) for US$ 15.6 million. Additionally, there is a reclassification of commissions from travel agencies for US$ 16.8 million, which previously were presented, according IAS 18, net of the liability to fly in other non-financial liabilities.
(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore, they must be deferred until the benefit of the service have been rendered. These concepts are mainly related to the ground transportation service for US $ 15.6 million and traveler’s checks for US $ 6.6 million.
(6) Performance Obligations: The Company analyzed the moment in which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redeem of some products associated with loyalty programs for US$ 60.8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16.8 million.
(7) Deferred tax adjustments originated by the application of IFRS 15.
(8) Net effect on accumulated results of the adjustments indicated above.
Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of these services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.
- Effects of adopting IFRS 16
(9) Company recognized under Property, plant and equipment right of use assets for US $ 2,865.3 million as of January 1, 2018 and US $ 2,548.4 as of December 31, 2018, associated with contracts that meet the definition of lease (Note 2.21 & 17).
The Company decrease other financial assets related to advance payments for leases for US $ 39.4 million as of January 1, 2018 and US $ 36.7 as of December 31, 2018, since with the application of the standard these amounts are considered in the initial measurement of the right of use asset.
The Company increased the cost of restoration associated with the return of aircraft and engines for US $ 56.2 million as of January 1, 2018 and US $ 45.6 million as of December 31, 2018. With the application of the standard, the net present value of this cost was included in the asset for right of use and its counterpart in the line of accounts payable, current or non-current, depending on the return date of the aircraft or engines.
(10) Deferred taxes: adjustments originated by the application of IFRS 16.
(11) Lease liabilities: The Company recognized within the Other financial liabilities for lease for US$ 3,147.0 million as of January 1, 2018 and US$ 2,858.0 million as of December 31, 2018, associated with contracts that meet the definition of lease (Note 2.21 & 19).
(12) The effect of the recognition of the leases under IFRS 16 generated a decrease in retained earnings of US$ 506.6 million as of January 1, 2018 (US$ 378.7 million as of December 31, 2018). The increase in Other reserves of US$ 205.9 million as of January 1, 2018 (decrease of US$ 72,5 million as of December 31, 2018), was caused by the Cumulative translation adjustment of those subsidiaries with functional currencies other than the US dollar. The application of IFRS 16 also affected non-controlling interests.
The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of December 31, 2017 are presented in the consolidated income statement:
Impact recognized as a result of the adoption of IFRS 16 as of December 31, 2017 are presented in the consolidated income statement:
For the year ended december 31, 2017 | ||||||||||||||
Reconciliation income | Adjustments for reconciliation | |||||||||||||
Results under | Adoption impact | Results under | ||||||||||||
Nota | IAS 17 | IFRS16 | IFRS 16 | |||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||
Published | Restated | |||||||||||||
Revenue | 26 | 9,613,907 | - | 9,613,907 | ||||||||||
Cost of sales | (7,441,849 | ) | 162,491 | (7,279,358 | ) | |||||||||
Gross margin | 2,172,058 | 162,491 | 2,334,549 | |||||||||||
Other income | 28 | 549,889 | - | 549,889 | ||||||||||
Distribution costs | (699,600 | ) | 2,816 | (696,784 | ) | |||||||||
Administrative expenses | (938,931 | ) | (13,837 | ) | (952,768 | ) | ||||||||
Other expenses | (368,883 | ) | 3,423 | (365,460 | ) | |||||||||
Other gains (losses) | (7,754 | ) | - | (7,754 | ) | |||||||||
Income from operation activities | 706,779 | 154,893 | 861,672 | |||||||||||
Financial income | 78,695 | - | 78,695 | |||||||||||
Financial costs | 27 | (393,286 | ) | (185,947 | ) | (579,233 | ) | |||||||
Foreign exchange gains (losses) | 29 | (18,718 | ) | (29,780 | ) | (48,498 | ) | |||||||
Result of indexation units | 748 | - | 748 | |||||||||||
Income (loss) before taxes | 374,218 | (60,834 | ) | 313,384 | ||||||||||
Income (loss) tax expense / benefit | 18 | (173,504 | ) | 14,506 | (158,998 | ) | ||||||||
NET INCOME (LOSS) FOR THE YEAR | 200,714 | (46,328 | ) | 154,386 | ||||||||||
Income (loss) attributable to owners of the parent | 155,304 | (46,408 | ) | 108,896 | ||||||||||
Income (loss) attributable to non- controlling interest | 14 | 45,410 | 80 | 45,490 | ||||||||||
Net income (loss) for the year | 200,714 | (46,328 | ) | 154,386 |
Impact recognized as a result of the adoption of IFRS 15 and IFRS 16 as of December 31, 2018 are presented in the consolidated income statement:
For the year ended december 31, 2018 | ||||||||||||||||||||||||||||||||
Reconciliation Revenue | Adjustments for reconciliation | |||||||||||||||||||||||||||||||
Nota | Results under IFRS 15 | Adoption impact IFRS 16 | Results under IFRS 15 | Contract costs (4) | Deferred revenues recognition [(5), (6)] | Reclassifications | Results under IAS 18 | |||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||
Published | Restated | |||||||||||||||||||||||||||||||
IFRS 16 | ||||||||||||||||||||||||||||||||
Revenue | 26 | 9,895,456 | - | 9,895,456 | - | 48,561 | 31,501 | 9,975,518 | ||||||||||||||||||||||||
Cost of sales | (7,962,843 | ) | 189,411 | (7,773,432 | ) | - | (34,986 | ) | - | (7,808,418 | ) | |||||||||||||||||||||
Gross margin | 1,932,613 | 189,411 | 2,122,024 | - | 13,575 | 31,501 | 2,167,100 | |||||||||||||||||||||||||
Other income | 28 | 472,758 | - | 472,758 | - | - | 42,563 | 515,321 | ||||||||||||||||||||||||
Distribution costs | (619,200 | ) | 3,986 | (615,214 | ) | (43 | ) | - | (20,003 | ) | (635,260 | ) | ||||||||||||||||||||
Administrative expenses | (721,270 | ) | (15,063 | ) | (736,333 | ) | (806 | ) | - | (54,061 | ) | (791,200 | ) | |||||||||||||||||||
Other expenses | (359,781 | ) | 3,531 | (356,250 | ) | - | - | - | (356,250 | ) | ||||||||||||||||||||||
Other gains (losses) | 53,499 | - | 53,499 | - | - | - | 53,499 | |||||||||||||||||||||||||
Income from operation activities | 758,619 | 181,865 | 940,484 | (849 | ) | 13,575 | - | 953,210 | ||||||||||||||||||||||||
Financial income | 53,253 | - | 53,253 | - | - | - | 53,253 | |||||||||||||||||||||||||
Financial costs | 27 | (356,269 | ) | (182,868 | ) | (539,137 | ) | - | - | - | (539,137 | ) | ||||||||||||||||||||
Foreign exchange gains (losses) | 29 | (157,709 | ) | 119,639 | (38,070 | ) | - | - | - | (38,070 | ) | |||||||||||||||||||||
Result of indexation units | (865 | ) | - | (865 | ) | - | - | - | (865 | ) | ||||||||||||||||||||||
Income (loss) before taxes | 297,029 | 118,636 | 415,665 | (849 | ) | 13,575 | - | 428,391 | ||||||||||||||||||||||||
Income (loss) tax expense / benefit | 18 | (83,782 | ) | 9,903 | (73,879 | ) | (23 | ) | (1,030 | ) | - | (74,932 | ) | |||||||||||||||||||
NET INCOME (LOSS) FOR THE YEAR | 213,247 | 128,539 | 341,786 | (872 | ) | 12,545 | - | 353,459 | ||||||||||||||||||||||||
Income (loss) attributable to owners of the parent | 181,935 | 127,876 | 309,811 | (872 | ) | 12,545 | - | 321,484 | ||||||||||||||||||||||||
Income (loss) attributable to non-controlling interest | 14 | 31,312 | 663 | 31,975 | - | - | - | 31,975 | ||||||||||||||||||||||||
Net income (loss) for the period | 213,247 | 128,539 | 341,786 | (872 | ) | 12,545 | - | 353,459 |
In the income statement, with the implementation of the IFRS16 standard, restated were made in the following lines:
Impact recognized as a result of the adoption of IFRS 16 for the year ended of December 31, 2017 and 2018 are presented in the consolidated statement of cash flows:
For the year ended | Adoption | For the year ended | ||||||||||
December 31, | impact | December 31, | ||||||||||
2017 | IFRS 16 | 2017 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | ||||||||||||
Payments to suppliers for goods and services | (6,722,713 | ) | 520,082 | (1) | (6,202,631 | ) | ||||||
Net cash flows from operating activities | (6,722,713 | ) | 520,082 | (6,202,631 | ) | |||||||
Loans repayments | (1,829,191 | ) | (344,901 | )(2) | (2,174,092 | ) | ||||||
Payments of finance lease liabilities | (344,901 | ) | 344,901 | (2) | - | |||||||
Payments of lease liabilities | - | (338,179 | )(1) | (338,179 | ) | |||||||
Interest paid | (389,724 | ) | (181,903 | )(1) | (571,627 | ) | ||||||
Net cash flows (used in) financing activities | (2,563,816 | ) | (520,082 | ) | (3,083,898 | ) |
For the year ended | Adoption | For the year ended | ||||||||||
December 31, | impact | December 31, | ||||||||||
2018 | IFRS 16 | 2018 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | ||||||||||||
Payments to suppliers for goods and services | (7,331,390 | ) | 556,387 | (1) | (6,775,003 | ) | ||||||
Net cash flows from operating activities | (7,331,390 | ) | 556,387 | (6,775,003 | ) | |||||||
Loans repayments | (1,045,662 | ) | (692,687 | )(2) | (1,738,349 | ) | ||||||
Payments of finance lease liabilities | (692,687 | ) | 692,687 | (2) | - | |||||||
Payments of lease liabilities | - | (373,439 | )(1) | (373,439 | ) | |||||||
Interest paid | (357,355 | ) | (182,948 | )(1) | (540,303 | ) | ||||||
Net cash flows (used in) financing activities | (2,095,704 | ) | (556,387 | ) | (2,652,091 | ) |
(b) Accounting pronouncements not yet in force for the financial yearsyear beginning on January 1, 2019 and which has not been early adopted.2022:
Date of issue | Effective Date: | |||
(i) Standards and amendments |
|
| ||
Amendment to IAS 12: Income taxes. | May 2021 | 01/01/2023 | ||
Amendment to IAS 8: Accounting policies, changes in accounting estimates and error. | February 2021 | 01/01/2023 | ||
Amendment to IAS 1: Presentation of financial statements. | January 2020 | 01/01/2024 | ||
IFRS 17: Insurance contracts, replaces IFRS 4. | May 2017 |
| 01/01/2023 | |
Amendment to IAS 1: Non-current liabilities with covenants | October 2022 | 01/01/2024 | ||
Amendment to IFRS 16: Leases | September 2022 | 01/01/2024 | ||
Initial Application of IFRS 17 and IFRS 9 — Comparative Information (Amendment to IFRS 17) | December 2021 | An entity that elects to apply the amendment applies it when it first applies IFRS 17 | ||
Amendment to IFRS 10: Consolidated financial statements and IAS | September 2014 | Not determined | ||
|
The Company’s management of the Company estimates that the adoption of the standards, amendments and Interpretationsinterpretations described above will not have a significant impact on the Company’s consolidated financial statements in the exercise of their first application.
(c) | Chapter 11 Filing and Going Concern |
i) | Going Concern |
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 ordinary course of business.
The Company previously disclosed that as of December 31, 2021, as a result of the Chapter 11 proceedings, the fulfillment of the Company’s obligations and the financing of ongoing operations were subject to material uncertainty due to the COVID-19 pandemic and the impossibility of knowing as of that date, their duration and, consequently, those events or conditions indicated that a material uncertainty existed that cast significant doubt (or raised a substantial doubt as contemplated by the Public Company Oversight Board (“PCAOB”) standards) about the Company’s ability to continue as a going concern as of the issuance of the Company’s 2021 Annual Report on Form 20-F.
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 new funds originated by the new financing and the capital restructuring. As a result, the Company expects that sufficient cash flows will be generated to finance the debts and the working capital requirements working capital for the next twelve months. Therefore, there is no longer a material uncertainty that may cast significant doubt (or raise substantial doubt as contemplated by the PCAOB standards) on the Company’s ability to continue as a going concern during the twelve months after the date of issuance of these financial statements.
ii) | Chapter 11 Filing |
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 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 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 objections to the Plan and related disputes, which proved successful. On May 11, 2022, the 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”).
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$1.1 billion. Specifically, the Plan provided that:
● | The Company conducted a US$ 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, hereinafter Class G Convertible notes (by the denomination with which they were registered in the Registro de Valores of the CMF), were delivered to certain general unsecured creditors of the Company in settlement of their allowed claims under the Plan. |
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 inwithin twelve months from the application of its first adoption. At the close consolidated financial statements, the Company is analyzing the possible effectsEffective Date of the amendment issued in September 2019Plan. As soon as 50% of the holders of New Class G Convertible Notes have opted to IFRS 9, IAS 39 and IFRS 7 forconvert, the reform of interest rates of reference.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:
(a) | ||
(b) | Second Convertible Notes Class H Conversion Period: Each holder of Convertible Notes Class H will have the subsequent ability to convert their Convertible Notes Class H into shares of the Company beginning on the fifth (5th) anniversary of the Effective Date. |
o | New Convertible Notes Class C, hereinafter Class I Convertible notes (by the denomination with which they were registered in the Registro de Valores of the CMF), were provided to certain general unsecured creditors in exchange for a combination of new money to the Company and the settlement of their allowed claims under the Plan, subject to certain limitations and holdbacks by the backstopping parties. |
The Issuance conditions:
Nominal Value: Approximately ThUS$6,863,427
Conversion Ratio: 56.143649821654. The Convertible Notes Class C Conversion Ratio shall step down by 50% on the day that is sixty (60) days after the Effective Date.
Backup Actions: 385,337,858,290
Maturity: 31 Dec. 2121
Interest rate: 0%
Conversion Conditions: They may be converted into shares within twelve months from the Effective Date of the Plan. As soon as 50% of the holders of Class I Convertible Notes have opted to convert, then the remaining Class I Convertible Notes will be automatically converted. The allocated amounts of the unused Class I Convertible Notes were distributed to the supporting parties of the Class I Convertible Notes in accordance with the respective Support Agreement.
● | The election period for the Convertible Notes Class G and Convertible Notes Class I by creditors ended on October 6, 2022. |
● | General unsecured creditors that elected to receive Convertible Notes Class G or Convertible Notes Class I were entitled to receive a one-time cash distribution in an aggregate amount of approximately US$ 175 million, distributed among the general unsecured creditors that opted to receive Convertible Notes Class G and I. (see Note 36). |
● | The Convertible Notes Classes H and I were issued, 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 Convertible Notes Class G or Convertible Notes Class I (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 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 flowscash are incorporated from the date of acquisition.
Balances, transactions and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary, in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.
To account for and identify the financial information revealedto be disclosed when carrying out a business combination, such as the acquisition of an entity by the Company, is apply the acquisition method provided for in IFRS 3: Business combination.combinations is used.
(b) Transactions with non-controlling interests
The Group applies the policy of considering transactions with non-controlling interests, when not related to the loss of control, as equity transactions without an effect on income.
(c) Sales of subsidiaries
When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes 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 inby function within Other gains (losses).
If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the solddisposed subsidiary andwhich does not represent control, this is recognized at fair value on the date that control is lost and the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts areto be reclassified to profit or loss. The percentage retained valued at fair value is subsequently accounted using the equity method.
(d) Investees or associates
Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost.
2.3. Foreign currency transactions
(a) Presentation and functional currencies
The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.
(b) Transactions and balances
Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.
(c) 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 incomesincome 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 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, ateconomy. 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 Consolidatedconsolidated 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 situation of the Group’s entities, whose functional currency is different from the presentation currency of the consolidated financial statements, of LATAM Airlines Group S.A., which does not correspond to the currency of a hyperinflationary economy, are converted 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 the consolidated statement of financial position date;
(i) | Assets and liabilities of each consolidated statement of financial position presented are translated at the closing exchange rate on the consolidated statement of financial position date; |
(ii) The revenues and expenses of each income statement account are translated at the exchange rates prevailing on the transaction dates, and
(ii) | The revenues and expenses of each income statement account are translated at the exchange 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.
(iii) | All the resultant exchange differences by conversion are shown as a separate component in other comprehensive income, within “Gain (losses) from exchange rate difference, 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.
Adjustments to the Goodwill2.4. Property, plant and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed, restated when the currency came from the functional entity of the foreign entity corresponds to that of a hyperinflationary economy, the adjustments for the restatement of goodwill are recognized in the consolidated equity.equipment
The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in their initial recognition and in their subsequent measurement, at their historical cost, restated for inflation when appropriate, less the corresponding depreciation and any loss due to deterioration.impairment.
The amounts of advances paid to the aircraft manufacturers are activatedcapitalized by the Company under Construction in progress until they are received.
Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or are recognized as a separate asset, only when it is probable that the future economic benefits associated with the elements of property, plant and equipment, they will flow to the Company and the cost of the item can be determined reliably. The value of the replaced component is written off. The rest of the repairs and maintenance are charged to the result of the year in whichincome when they are incurred.
The depreciation of the properties, plants and equipment is calculated using the linear method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown. This charge is recognized in the captions “Cost of sale” and “Administrative expenses”.
The residual value and the useful life of the assets are reviewed and adjusted, if necessary, once a year. Useful lives are detailed in Note 16 (d).
When the value of an asset exceeds its estimated recoverable amount, its value is immediately reduced to its recoverable amount (Note 2.8).amount.
Losses and gains from the sale of property, plant and equipment are calculated by comparing the consideration with the book value and are included in the consolidated statement of income.
2.5. Intangible assets other than goodwill
(a) Airport slots and Loyalty program
Airport slots and the Coalition and Loyalty program arecorrespond to intangible assets ofwith indefinite useful lifelives and are subject toannually tested for impairment tests annually as an integral part of eachthe CGU identified by the Company, in accordance with the premises that are applicable, included as follows:Air Transport.
Airport slots – Air transport CGU
Loyalty program – Air transport CGU
(See Note 16)
The airport slotsSlots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft, at a specific airport, within a specified period.certain period of time.
The Loyalty program corresponds to the system of accumulation and redemptionexchange of points that has developed Multiplus S.A., program that is part of TAM Linhas Aereas S.A. (See Note 1).
The Brands, airport Slotsslots and Loyalty program were recognized inat fair values determined in accordance withvalue under IFRS 3, as a consequence of the business combination with TAM S.A. and Subsidiaries.
(b) Computer software
Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 10 years.
Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others costother costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets othersother than Goodwill when they have met all the criteria for capitalization.
(c) Brands
The Brands were acquired in the business combination with TAM S.A. Andand Subsidiaries and, recognized at fair value under IFRS. During the year 2016, the estimatedIFRS 3. The Company has defined a useful life of the brands changes from an indefinite useful life to a five-year period, thefive years, period in which the value of the brands will be amortized (See Note(see note 15).
Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually or each time that there is evidence of impairment. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.2.6. Borrowing costs
Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated statement of income by function when accrued.
Intangible
2.7. Losses for impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful life and developing IT projects are not subject to amortization and are subject to annual teststested annually for impairment, losses or if there are indications of impairment. Management conducts an impairment assessment annually or more frequently if events or changes in circumstances indicate potential impairment.that they might be impaired. Assets subject to amortization are tested for impairment losses whenever any event or change in circumstances indicates that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by whichexcess of the carrying amount of the cash generating unit exceedsasset over its recoverable amount. The recoverable amount of the cash generating unit is the higherfair value of an asset less the costs of sale or the value in use, and fair value less costs to sell. The value in usewhichever is determined by management using a discounted cash flow model.greater. For the purpose of assessingevaluating impairment losses, assets are grouped at the lowest level for which there are separately identifiablelargely independent cash flowsinflows (cash generating units). Prior impairments of non-financialunit. Non-financial assets, other than goodwill, that would have suffered an impairment loss are reviewed for possibleif there are indicators of reversal at each reporting date.of losses. Impairment losses are recognized in the consolidated statement of income by function under “Other gains (losses)”.
2.8. Financial assets
As of January 1, 2018, theThe Company classifies its financial assets in the following categories: at fair value (either through other comprehensive income, or through gains or losses), and at amortized cost. The classification depends on the business model of the entity to manage the financial assets and the contractual terms of the cash flows.
The group reclassifies debt investments when, and only when, it changes its business model to manage those assets.
In the initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset classified at amortized cost, the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets accounted for at fair value through profit or loss are recorded as expenses in the consolidated statement of income statement.by function.
(a) Debt instruments
The subsequent measurement of debt instruments depends on the group’s business model to manage the asset and cash flow characteristics of the asset. The Company has two measurement categories in which the group classifies its debt instruments:
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 is included in financial income using the effective interest rate method.
Fair value through profit or loss: assets that do not meet the criteria of amortized cost or FVOCIfair value through other comprehensive income are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and is presented net in the consolidated statement of income statementby function within other gains / (losses) in the period or exercise in which it arises.
(b) Equity instruments
Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gains / (losses) in the consolidated statement of income by function as appropriate.
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 instruments and embedded derivatives
Derivatives are recognized, in accordance with IAS 39 for hedge accountingDerivative financial instruments and IFRS 9 for derivatives not qualify as hedge accounting, initiallyhedging activities
Initially at fair value on the date on which the derivative contract was made and are subsequently valued at their fair value. The method to recognize the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if so, the nature of the item being hedged.
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.
TheAt the beginning of the transaction, the Company documents at the inception of each transaction, theeconomic relationship between the hedged items existing between the hedging instrumentinstruments and the hedged item,items, as well as its objectives for managing risk management and the strategy for carryingto carry out various hedging transactions.operations. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged.
The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an otherOther current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities.
(a) Cash flow hedges |
Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.
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 other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods or exercise when the hedged item affects profit or loss. When these amounts correspond to hedging derivatives of highly probable items that give rise to non-financial assets or liabilities, in which case, they are recorded as part of the non-financial assets or liabilities.
In case of variable interest-rate hedges, the amounts recognized in the statement of other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest.
For fuel price hedges, the amounts shown in the statement of other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used.
For foreign currency hedges,
Gains or losses related to the amountseffective part of the change in the intrinsic value of the options are recognized in the statementcash flow hedge reserve within equity. Changes in the time value of other comprehensive income are reclassifiedthe options related to income as deferred revenue resulting from the use of points,part are recognized as Income.within Other Consolidated Comprehensive Income in the costs of the hedge reserve within equity.
When a hedging instrument mature, is sold or fails to meet the requirements to be accounted for as a hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment, remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized.
When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income 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, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.
2.11. Trade and other accounts receivable
Commercial accounts receivable are initially recognized at their fair value and subsequently at their amortized cost in accordance with the effective rate method, less the provision for impairment according to the model of the expected credit losses. The Company applies the simplified approach permitted by IFRS 9, which requires that expected lifetime losses be recognized upon initial recognition of accounts receivable.
In the event that the Company transfers its rights to any financial asset (generally accounts receivable) to a third party in exchange for a cash payment, the Company evaluates whether alall risks and rewards have been transferred, in which case the account receivable is derecognized.
The existence of significant financial difficulties on the part of the debtor, the probability that the debtor goes bankrupt or financial reorganization are considered indicators of a significant increase in credit risk.
The carrying amount of the asset is reduced as the provision account is used and the loss is recognized in the consolidated income statement under “Cost of sales”. When an account receivable is written off, it is regularized against the provision account for the account receivable.
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 investments.investments and a low risk of loss of value.
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 arrangement|arrangement costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.
Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.
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 for the period or exercise comprises income and deferred taxes.
The current income tax expense is calculated based on tax laws in enacted at the date of the statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income.
Deferred taxes are recognized on the temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an assetsasset or a liability in a transaction other than a business combination that at the time of the transaction does not affect the accounting or the taxable profit or loss. Deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the date of the consolidated statements of financial position and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.
Deferred tax assets are recognized only to the extent it is probable that the future taxable profit will be available against which the temporary differences can be utilized.
The tax (current and deferred) is recognized in the statement of income by function, unless it relates to an item recognized in other comprehensive income, directly in equity. In this case the tax is also recognized in other comprehensive income or, directly in the statement of income by function, respectively.
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 payments, forpayments. For equity settled plans based on the granting of options, the effect of fair value is recorded in equity with a charge to remuneration in a linear manner between the date of grant of said options and the date on which they become irrevocable, for the plans considered asvested. For cash settled awardawards the fair value, updated as of the closing date of each reporting period or exercise, is recorded as a liability with charge to remuneration.
(c) Post-employment and other long-term benefits
Provisions are made for these obligations by applying the method of the projected unit credit method, and considering estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income.
(d) Incentives
The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.
(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
(iii) A reliable estimate of the obligation amount can be made.
2.19. Revenue from contracts with customers
(a) Transportation of passengers and cargo
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 lentprovided 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
The Company estimates inon a monthly basis the probability of expiration of air tickets, with refund clauses, based on thetheir history of use of the same.use. Air tickets without a refund clause are expiredexpire on the date of the flight in case the passenger does not show up.
(c) Costs associated with the contract
The costs related to the sale of air tickets are activatedcapitalized and deferred until the moment of providing the corresponding service is provided.service. These assets are included under Otherthe heading “Other current non-financial assetsassets” in the Consolidated Classified Statement of Financial Position.
(d) Frequent passenger program
The Company maintains the following loyalty programs: LATAM Pass and LATAM Pass Brasil, whose objective is building customer loyalty through the delivery of miles or points.
MembersThese programs give their frequent passengers the possibility of earning LATAMPASS’s miles or points, which grant the right to a selection of both air and non-air awards. Additionally, the Company sells the LATAMPASS miles or points to financial and non-financial partners through commercial alliances to award miles or points to their customers.
To reflect the miles and points earned, the loyalty program mainly includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) Passenger Ticket Sales Earning miles or points (2) miles or points sold to financial and non-financial partner
(1) Passenger Ticket Sales Earning Miles or Points.
In this case, the miles or points are awarded to customers at the time that the company performs the flight.
To value the miles or points earned with travel, we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as Equivalent Ticket Value (“ETV”). Our estimate of ETV is adjusted for miles and points that are not likely to be redeemed (“breakage”).
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 programs accumulate miles when flyingcomponents is finally allocated in proportion to their relative prices. The performance obligations associated with LATAM Airlines Group or any other member airlinethe valuation of the oneworld® program,points or miles earned become part of the Deferred Revenue, and the remaining performance obligations are recorded as well purchasing of products and services from network of non airlines partners.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 immediately recognized. Whenrecognized immediately; when the miles are redeemed throughexchange is made for air tickets of anany airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the transportationair transport service are rendered or expiration for non-use.is provided.
In addition, the Company has contracts with certain non-airline companies for the sale of miles or points. These contracts include some performance obligations in addition to the sale of the mile or point, such as marketing, advertising and other benefits. The income associated with these concepts is recognized in the income statement to the extent that the miles are accredited.
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.
The miles and points that the Company estimates will not be exchanged are recognized atin the momentresults based on the consumption pattern of the earn. Managementmiles or points effectively exchanged by customers. The Company uses statistical models to estimate the breakageprobability of exchange, which is based on the latest available information regarding redemptionhistorical patterns and expiration patterns.projections.
(e) Dividend income
Dividend income is recognized when the right to receive payment is established.
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.
Assets for rightRight of use assets are measured at cost including the following:
- | The amount of the initial measurement of the lease liability; |
- | Lease payment made at or before commencement date; |
- | Initial direct costs, and |
- | Restoration costs. |
The assets by right of use assets are recognized in the statement of financial position in Properties, plantsProperty, plant and equipment (See Note 17).equipment.
Lease liabilities include the net present value of the following payments:
- | Fixed payments including in substance fixed payment. |
- | Variable lease payments that depend on an index or a rate; |
- | The exercise price of a purchase |
The Company determinesdiscount rate that LATAM uses is the interest rate implicit in the lease, if that rate can be readily determined. This is the rate of interest that causes the present value of the(a) lease payments usingand (b) the implicit rates forunguaranteed residual value to equal the aircraft leasing contracts and forsum of (i) the restfair value of the underlying assets,asset and (ii) any initial direct costs of the lessor.
LATAM uses theits incremental borrowing rate.rate if the interest rate implicit in the lease cannot be readily determined.
Lease liabilities are recognized in the statement of financial position under Other financial liabilities, current or non-current (See Note 19).non-current.
Interest accrued on financial liabilities is recognized in the consolidated statement of income in “Financial costs”.
Principal and interest are presentedpresent in the consolidated cash flow as “Payments of lease liability” and “Interest paid”, respectively, inwithin financing cash flows use in financing activities.flows.
Payments associated with short-term leases without purchase options and leases of low-value assets are recognized on a straight-line basis in profit or loss at the time of accrual. Those payments are presented inwithin operating cash flows use in operation activities.flows.
The Company analyzes the financing agreements of aircrafts,aircraft, mainly considering characteristics such as:
(a) thatThat 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 continuecontinues to be presented within the “other“Other financial liabilities” described in Note 19.18. On the other hand, the aircraft are presented in Property, plantsPlant and equipmentEquipment, as described in Note 17,16, as “own aircrafts”aircraft”.
The Group qualifies as sale and leasebacklease transactions, operations whichthat lead to a sale according to IFRS 15. More specifically, a sale is considered as such if there is no repurchase option onto purchase the goods at the end of the lease term.
If the sale ofby the seller-lessee is classified as a sale in accordance with IFRS 15, the underlying asset is derecognized, and ana right-of-use asset is recognized for the right to use equal to the portion retained partproportionally of the net carrying amount of the asset.asset is recognized.
If the sale by the seller-lessee is not qualifiedclassified as a sale in accordance with IFRS 15, the transferred assets transferred are maintainedkept in the financial statements and a financial liability is recognized 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) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.
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 aircraft include in property, plant and equipment, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft on right of use, a liability is accrued based on the use of the main components is recognized, since a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels exists. These are recognized as Cost of sales.
Additionally, some contracts that comply with the definition of lease establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, onceperformed. Once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.
The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.
2.23. Environmental costs
Disbursements related to environmental protection are charged to results when incurred.incurred or accrue.
NOTE 3 - FINANCIAL RISK MANAGEMENT
3.1. Financial risk factors
The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.
(a) Market risk
Due to the nature of its operations, the Company is exposedhas exposure to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk (FX), and (iii) interest -rate risk.
The Company has developed policies and procedures for managingto manage the market risk, which aimgoal is to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.
For this, the Administrationforegoing, Management monitors the evolution of fuel price levels, exchange rates and interest rates, and quantifies their risk exposures (Value at Risk),and their risk, and develops and implementsexecutes hedging strategies.
Exposition:
(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 coverhedge the fuel-price risk exposure, fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible usesuch as West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which may have a high correlation with Jet Fuel and greater liquidity.
Fuel Hedging Results:
During the period ended decemberDecember 31, 2019, the Company recognized losses of US$ 23.1 million for fuel coverage net of premium. During the same period of 2018,2022, the Company recognized gains of US$ 29.718.8 million for fuel hedging net of premiums in the same concept.costs of sales for the year. During the period ended December 31, 2021, the Company recognized gains of US$ 10.1 million for fuel hedging net of premiums in the costs of sales for the year.
As of decemberDecember 31, 2019,2022, the market value of the fuel positions amounted to US$ 48.512.6 million (positive). At the end of december 2018,December 2021, this market value was US$ 15.817.6 million (negative)(positive).
The following tables show the level of hedge for different periods:
Positions as of December 31, 2019 (*) | Maturities | |||||||||||||||||||
Q120 | Q220 | Q320 | Q420 | Total | ||||||||||||||||
Percentage of coverage over the expected volume of consumption | 65 | % | 61 | % | 20 | % | 19 | % | 41 | % |
Positions as of December 31, 2022 (*) | Maturities | |||||||||||||||||||
Q123 | Q223 | Q323 | Q423 | Total | ||||||||||||||||
Percentage of coverage over the expected volume of consumption | 24 | % | 24 | % | 15 | % | 5 | % | 17 | % |
(*) | The percentage shown in the table considers all the hedging instruments (swaps and options). |
Positions as of December 31, 2021 (*) | Maturities | |||||||||||||||||||
Q122 | Q222 | Q322 | Q422 | Total | ||||||||||||||||
Percentage of coverage over the expected volume of consumption | 25 | % | 30 | % | 17 | % | 14 | % | 21 | % |
(*) | The volume shown in the table considers all the hedging instruments (swaps and options). |
Positions as of December 31, 2018 (*) | Maturities | |||||||||||||||||||
Q119 | Q219 | Q319 | Q419 | Total | ||||||||||||||||
Percentage of coverage over the expected volume of consumption | 66 | % | 58 | % | 40 | % | 15 | % | 45 | % |
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. TheTherefore, the policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.
The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity.
The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the price of fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2020.
The calculations were made considering a parallel movement of US$ 5 per barrel in the underlying reference price curve of the JET crude futures benchmark price at the end of December 20192022 and the end of December 2018.2021. The projection period was defined until the end date of the last contract in force, corresponding to the last business day of the fourth quarter 2023.
Positions as of december 31, 2019 | Positions as of december 31, 2018 | |||
Benchmark price | effect on equity | effect on equity | ||
(US$ per barrel) | (millions of US$) | (millions of US$) | ||
+5 | + 15.4 | +7.4 | ||
-5 | - 34.5 | - 5.5 |
Positions as of December 31, 2022 | Positions as of December 31, 2021 | |||
Benchmark price | effect on Equity | effect on Equity | ||
(US$ per barrel) | (MUS$) | (MUS$) | ||
+5 | +2.2 | +2.7 | ||
-5 | -2.3 | -3.3 |
Given the structure of fuel coverage during 2019,structure for the year 2022, which considers a hedge-free portion free of hedges, a vertical drop of 5 dollars in the JET reference price (considered as the monthly daily average), would have meant an approximate impact of approximately US$ 121.8123 million of lower fuel costs.cost. For the same period, a vertical rise of US$ 5 dollars in the JET reference price (considered as the monthly daily average), would have meant an approximate impact of approximately US$ 114.2122.1 million ofin higher fuel costs.
(ii) | Foreign exchange rate risk: |
Exposure:
Exposition:
The functional and presentation currency of the financial statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company’s business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.
The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company’s Consolidated Income.
The largest operational exposure to LATAM’s exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.Company.
At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: Euro, Pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan Guarani,guarani, Mexican peso, Peruvian Sol and New Zealand dollar.
Mitigation:
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):
With the objective of reducing exposure to the exchange rate risk in the operational cash flows of 2019, and securing the operating margin, LATAM makes hedges using FX derivatives.
As of decemberDecember 31, 2019, the market value of FX derivative positions amounted to US $ 0.04 million (negative). At the end of December 2018, the Company did not maintain derivatives of current FX hedges.
During the period endeddecember 31, 2019, the Company recognized gains of US $ 1.9 million for FX coverage net of premiums. During the same period of 2018,2022, the Company recognized gains of US$ 18.3 million.
As of december 31, 2019, the Company has contracted FX derivatives for US $ 155,2 million for BRL.FX hedging derivatives net of premiums in sales revenue for the year. At the end of december 2018,December 2021, the Company did not recognize gains or losses for FX hedging derivatives.
As of December 31, 2022, the market value of hedging FX derivative positions is US$ 0,2 million (positive). As of December 31, 2022, the Company has current hedging FX derivatives for MUS$ 108. As of December 31, 2021, the Company has no current hedging FX derivatives.
During the period ended December 31, 2022, the Company recognized losses of US$ 1,8 million for FX non-hedging derivatives, net of premiums in the costs of sales for the year. As of December 31, 2022, the Company does not maintain current non-hedged FX derivatives. At the end of December 2021, the Company did not recognize gains or losses for FX non-hedging derivatives.
During 2018 the company contracted FX derivatives which were not registered under hedge accounting. As of december 31, 2019, the amount recognized in results amounts to US $ 6.2 million (negative) net of premiums.
Sensitivity analysis:
A depreciation of the R$/US$ exchange rate, negatively affects the Company’s operating cash flows, however, also positively affects the value of the positions of derivatives contracted.
FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate has an impact on the market value of the derivatives, the changes of which affect the Company’s net equity.
The following table shows the sensitizationsensitivity of current hedging FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection period was defined until the end of the last coverage contract in force, with the last business day of the first quarter of the year 2020:
Appreciation (depreciation)(*) | Effect at december 31, 2019 | Effect at december 31, 2018 | ||
of R$ | Millions of US$ | Millions of US$ | ||
-10% | -0.6 | - | ||
+10% | +1.1 | - |
Appreciation (depreciation) | Effect on equity as of December 31, 2022 | Effect on equity as of December 31, 2021 | ||
of R$/US$ | (MUS$) | (MUS$) | ||
-10% | -2.9 | - | ||
+10% | +3.0 | - |
During 2018 and 2019, the Company contracted swap currency derivatives for debt coverage issued the same year for a notional UF 8.7 million and UF 5.0 million, respectively. As of December 31, 2019,2022, the market value of theCompany does not have currency swaps derivative positions amounted to US $ 22.7 million (negative).Swap derivatives. At the end of December 2018, this market value was US $ 15.1 million (positive).2021, the Company did not have currency Swap derivatives.
Impact of Exchange rate variation in the Consolidated Income Statements (Foreign exchange gains/losses)
In the case of TAM S.A,S.A., whose functional currency is the Brazilian real, a large part of its liabilities is expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollar to real, they have an impact on the result of TAM S.A., which is consolidated in the Company’s Income Statement.
In order to reduce the impact on the Company’s result caused by appreciations or depreciations of R $ R$/ US $,US$, the Company has executedcarries out internal operations to reduce the net exposure in US $US$ for TAM S.A.
The following table shows the impact of the Exchange Rate variation of financial performance to appreciate or depreciate 10%on the Consolidated Income Statement when the R$/US$ exchange rate R$/US$appreciates or depreciates by 10%:
Appreciation (depreciation)(*) | Effect at december 31, 2019 | Effect at december 31, 2018 | ||
of R$/US$(*) | Millions of US$ | Millions of US$ | ||
-10% | +9.5 | +39.8 | ||
+10% | - 9.5 | -39.8 |
Effect on Income Statement | Effect on Income Statement | |||
Appreciation (depreciation) | for the period ended December 31, 2022 | for the period ended December 31, 2021 | ||
of R$/US$ | (MUS$) | (MUS$) | ||
-10% | +70.7 | +51.9 | ||
+10% | -70.7 | -51.9 |
EffectsImpact of the exchange rate derivativesvariation in the Financial StatementsEquity, from translate the subsidiaries financial statements into US Dollars (Cumulative Translate Adjustment)
The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).
Due toSince the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income (Cumulative Translation Adjustment) by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in other comprehensive income.
The following table shows the changeimpact on the Cumulative Translation Adjustment included in Other comprehensive income recognized in Total equity in the case of appreciatean appreciation or depreciatedepreciation 10% the exchange rate R$/US$:
Appreciation (depreciation) | Effect at december 31, 2019 | Effect at december 31, 2018 | ||
of R$/US$ | Millions of US$ | Millions of US$ | ||
-10% | +402.48 | +384.73 | ||
+10% | -329.29 | -314.78 |
Appreciation (depreciation) | Effect at December 31, 2022 | Effect at December 31, 2021 | ||
of R$/US$ | MUS$ | MUS$ | ||
-10% | +98.11 | +96.66 | ||
+10% | -80.28 | -79.09 |
(iii) | Interest -rate risk: |
Exposure:
Exposition:
The Company is exposedhas exposure to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.
The Company is mainly exposed in one portion to the variations ofSecured Overnight Financing Rate (“SOFR”), also to the London Inter-Bank OfferInterBank Offered Rate (“LIBOR”) and other less relevant interest rates of less relevance aresuch as Brazilian Interbank Certificates of Deposit Certificate (“IDC”CDI”). As the publication of LIBOR will cease by June 2023, the company has begun to migrate to the adoption of SOFR as an alternative rate, which will fully materialize with the cessation of LIBOR.
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.
Mitigation:
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 SOFR rate. All of these contracts will migrate to SOFR rate since mid 2023.
Mitigation:
In order to reduce the risk
Currently, 52% (40% as of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 62% (60% at December 31, 2018)2021) of the debt is fixed toagainst fluctuations in interest rate.rates. Of the variable debt, most of it is indexed to the reference rate based on SOFR.
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 Results:
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 decemberDecember 31,, 2019, 2022, the market value of theinterest rate derivative positions of interest rates amounted to MUS$ 8.8 (positive) corresponding to operating lease hedges in order to fix the rents upon delivery of the aircraft. As of December 31, 2021, the Company did not maintain interest rate derivative positions in force.
As of December 31, 2022, the Company recognized a decrease in the right-of-use asset upon settlement of a derivative of US$ 2.68.1 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). is recognized. At the end of December 2018,2021, the Company did not earn profits or losses for this market value was US$ 2.2 million (negative).same concept.
Sensitivity analysis:
The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible, based on current market conditions each date.
Increase (decrease) | Positions as of december 31, 2019 | Positions as of december 31, 2018 | ||
futures curve | effect on profit or loss before tax | effect on profit or loss before tax | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
+100 basis points | -27.60 | -29.62 | ||
-100 basis points | +27.60 | +29.62 |
Increase (decrease) | Positions as of December 31, 2022 | Positions as of December 31, 2021 | ||
futures curve | effect on profit or loss before tax | effect on profit or loss before tax | ||
in libor 3 months | (MUS$) | (MUS$) | ||
+ 100 basis points | -22.64 | -46.31 | ||
- 100 basis points | +22.64 | +46.31 |
MuchA large part of the derivatives of current rate derivativesrates are registered forrecorded as hedges of cash flow hedge contracts, therefore, a variation in the exchange rateinterest rates has an impact on the market value of the derivatives, whose changes impact onaffect the Company’s net equity.equity of the entity. Society.
The calculations were made by vertically increasing (decreasing) vertically 100 basisbase points of the three-month Libor futuresinterest rate curve, both scenarios being both reasonably possible scenarios according to historical market conditions.
Positions as of December 31, 2022 | Positions as of December 31, 2021 | |||
Increase (decrease) | effect on equity | effect on equity | ||
interest rate curve | (MUS$) | (MUS$) | ||
+100 basis points | +6.9 | - | ||
- 100 basis points | -8.2 | - |
Increase (decrease) | Positions as of december 31, 2019 | Positions as of december 31, 2018 | ||
futures curve | effect on equity | effect on equity | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
+100 basis points | +13.62 | +0.70 | ||
-100 basis points | -14.71 | -0.71 |
The assumptions of sensitivity calculation hypothesis must assume that the forward curves of interest rates dowill not necessarily reflect the real value of the compensation of the flows. Moreover,In addition, the structure of interest ratesrate structure is dynamic over time.
During the periods presented, the Company has no registerednot recorded amounts byfor ineffectiveness in the consolidated income statement of income for this kindtype of hedging.coverage.
(b) | Credit risk |
Credit risk occurs when the counterparty does not meet its obligations to the Company under a financial agreement or instrument fails to discharge an obligation duespecific contract or financial instrument, leading toresulting in a loss in the market value of a financial instrument (only financial assets, not liabilities). The client portfolio as of December 31, 2022 increased by 25% when compared to the balance as of December 31, 2021, mainly due to an increase in passenger transport operations (travel agencies and corporate) that increased by 53% in its sales, mainly affecting the forms of payment credit card 58%, and cash sales 54%. In relation to the cargo business, it presented an increase in its operations of 1% compared to December 2021. In the case of clients with debt that management considered risky, the corresponding measures were taken to consider their expected credit loss. The provision at the end of December 2022 had a decrease of 17 % compared to the end of December 2021, as a result of the decrease in the portfolio due to recoveries, application of write-offs and updates of the risk matrix factors.
The Company is exposed to credit risk due to its operativeoperational activities and its financial activities, including deposits with banks and financial institutions, investments in other kindstypes of instruments, exchange-rateexchange rate transactions and the contracting of derivative instruments or options.derivatives contracts.
To reduce the credit risk associated withrelated to operational activities, the Company has established creditimplemented limits to abridge the exposure of theirits debtors, which are permanently monitored permanently (mainly in case of operational activities in Brazil with travel agents).for the LATAM network, when deemed necessary, agencies have been blocked for cargo and passenger businesses.
As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally, the Company has established maximum limits for investments which are monitored regularly.
(i) | Financial activities |
Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and other current financial assets.
In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) theirits credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.
The Company has no guarantees to mitigate this exposure.
(ii) | Operational activities |
The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association international (“IATA”), international organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they areit is excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.
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). The bad-debt rate in the principal countries where the Company has a presence is insignificant.
(c) | Liquidity risk |
Liquidity risk represents the risk that the Company has nodoes not have sufficient funds to meetpay its obligations.
Because ofDue to the cyclical nature of theits business, the operation and its investment andneeds, along with the need for financing, needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs, the Company requires liquid funds, defined as cashCash and cash equivalents plus other short termshort-term financial assets, to meet its payment obligations.
The balance of liquid funds, the future cash generation and the capacityability to obtain additional funding, through bond issuance and banking loans, will allowfinancing, provide the Company to obtain sufficientwith alternatives to face itsmeet future investment and financing future commitments.
At december 31, 2019is US$ 1,459 million (US$ 1,404 million at decemberAs of December 31, 2018), invested in short term instruments through financial high credit rating levels entities.
In addition to2022, the balance of liquid funds the Company has access to short-term credit lines. As of december 31, 2019, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line ofis US$ 6001,216 million (US$ 600(US $ 1,047 million as of December 31, 2018)2021), which are invested in short-term instruments through financial entities with a high credit rating classification.
As of December 31, 2022, LATAM maintains two engaged Revolving Credit Facility for a total of US$ 1,100 million, one for an amount of US$600 million and another for an amount of US$500 million, which are fully available. These lines are secured by and subject to the availability of collateral.collateral (i.e. aircraft, engines and spare parts).
After voluntary petition for amparo of Chapter 11 Proceedings, the Company received authorization from the Bankruptcy Court for the “debtors in possession” (DIP) financing, in the form of a multi-draw term loan facility in an aggregate principal amount of up to US$ 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 the calendar that LATAM anticipated to emerge from the Chapter 11 Procedure.
In the context of the Company’s exit from Chapter 11, on October 12, 2022, the Amended and Restated DIP Financing Contract was repaid in full. The repayment was fully made with funds from (i) a Junior DIP Financing of approximately US$1,146Mn; (ii) a Revolving Credit Facility of US$500 million; (iii) a Term Loan B of US$ 750 million; (iv) a Bridge Loan of 5Y Notes of US$750 million; (v) a Bridge Loan of 7Y Notes of US$750million.
On October 18, 2022, the Bridge Loans were partially repaid by; (i) a Note issued from registration under U.S. Securities Act of 1933, as amended (“the “Securities Act”), pursuant to Rule 144A and Regulation S, both under the Securities Act, due in 2027 (the “5 Year Note”), with a total principal amount of US$ 450 million, and (ii) a Note issued from registration under the Securities Act pursuant to Rule 144A and Regulation A, both under the Securities Act, due in 2029 (the “7 Year Note”), with a total principal amount of US$ 700 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 (this is the original US$750 million, plus an incremental loan under it obtained on November 3, 2022 for an amount of US$350 million), US$450 million in senior secured notes due in 2027 and US$700 million in senior secured notes due in 2029.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 20192022
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||
Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | US$ | 24,387 | 76,256 | - | - | - | 100,643 | 99,000 | At Expiration | 3.29 | 3.29 | |||||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | US$ | 151,489 | 50,758 | - | - | - | 202,247 | 200,000 | At Expiration | 2.93 | 2.93 | |||||||||||||||||||||||||||||||||
76.100.458-1 | HSBC | Chile | US$ | 12,098 | - | - | - | - | 12,098 | 12,000 | At Expiration | 3.25 | 3.25 | |||||||||||||||||||||||||||||||||
76.100.458-1 | BLADEX | Chile | US$ | - | 29,277 | - | - | - | 29,277 | 29,000 | At Expiration | 2.82 | 2.82 | |||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 5,336 | 10,544 | - | - | - | 15,880 | 15,615 | Quarterly | 3.35 | 3.35 | |||||||||||||||||||||||||||||||||
76.362.099-9 | BTG PACTUAL CHILE | Chile | UF | 484 | 1,451 | 63,872 | - | - | 65,807 | 62,769 | At Expiration | 3.10 | 3.10 | |||||||||||||||||||||||||||||||||
0-E | SANTANDER | Spain | US$ | 1,514 | 4,809 | 141,719 | - | - | 148,042 | 137,860 | Quarterly | 3.62 | 4.61 | |||||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | BANCO ESTADO | Chile | UF | - | 24,702 | 208,681 | 32,228 | 410,774 | 676,385 | 518,032 | At Expiration | 4.81 | 4.81 | |||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | US$ | 28,000 | 76,125 | 208,250 | 884,188 | 884,000 | 2,080,563 | 1,500,000 | At Expiration | 7.16 | 6.94 | |||||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 11,657 | 50,428 | 124,106 | 124,167 | 302,092 | 612,450 | 513,941 | Quarterly / Semiannual | 3.81 | 3.81 | |||||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | 31,733 | 94,096 | 244,836 | 237,815 | 438,659 | 1,047,139 | 866,223 | Quarterly | 4.45 | 4.45 | |||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 5,765 | 17,296 | 46,120 | 46,117 | 42,175 | 157,473 | 143,475 | Quarterly | 3.76 | 2.68 | |||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 13,365 | 40,159 | 99,556 | 86,984 | 79,724 | 319,788 | 282,906 | Quarterly | 3.82 | 3.82 | |||||||||||||||||||||||||||||||||
0-E | MUFG | U.S.A. | US$ | 5,552 | 27,068 | 73,726 | 73,914 | 209,621 | 389,881 | 322,660 | Quarterly | 3.43 | 3.43 | |||||||||||||||||||||||||||||||||
0-E | INVESTEC | England | US$ | 1,980 | 11,164 | 26,153 | 11,071 | - | 50,368 | 44,087 | Semiannual | 6.35 | 6.35 | |||||||||||||||||||||||||||||||||
Other guaranteed obligation | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 2,326 | 6,740 | 260,259 | - | - | 269,325 | 253,692 | At Expiration | 3.74 | 3.74 | |||||||||||||||||||||||||||||||||
0-E | MUFG | U.S.A. | US$ | 26,607 | 78,955 | 198,783 | 46,131 | - | 350,476 | 328,023 | Quarterly | 3.54 | 3.54 | |||||||||||||||||||||||||||||||||
Financial lease | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | US$ | 4,025 | 8,108 | - | - | - | 12,133 | 11,806 | Quarterly | 5.71 | 5.01 | |||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 4,994 | 15,026 | 6,671 | - | - | 26,691 | 26,091 | Quarterly | 3.15 | 2.52 | |||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 19,412 | 56,148 | 117,881 | 16,653 | - | 210,094 | 200,907 | Quarterly | 3.39 | 2.80 | |||||||||||||||||||||||||||||||||
0-E | PEFCO | U.S.A. | US$ | 1,950 | 1,950 | - | - | - | 3,900 | 3,827 | Quarterly | 5.65 | 5.03 | |||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 9,353 | 25,211 | 28,663 | 22,502 | 10,354 | 96,083 | 87,729 | Quarterly | 3.85 | 3.72 | |||||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | US$ | 35,251 | 105,691 | 261,181 | 203,232 | 14,382 | 619,737 | 591,684 | Quarterly | 2.67 | 1.98 | |||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | US$ | 6,145 | 18,394 | 47,911 | 3,158 | - | 75,608 | 72,551 | Quarterly | 3.00 | 2.46 | |||||||||||||||||||||||||||||||||
0-E | RRPF ENGINE | England | US$ | 1,152 | 3,432 | 8,967 | 8,679 | 568 | 22,798 | 19,643 | Monthly | 4.01 | 4.01 | |||||||||||||||||||||||||||||||||
0-E | APPLE BANK | U.S.A. | US$ | 1,661 | 4,977 | 13,259 | 7,380 | - | 27,277 | 25,708 | Quarterly | 3.33 | 2.73 | |||||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | US$ | 3,367 | 10,081 | 26,827 | 14,153 | - | 54,428 | 51,340 | Quarterly | 3.33 | 2.73 | |||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 759 | 2,299 | 2,330 | - | - | 5,388 | 5,154 | Quarterly | 4.41 | 4.41 | |||||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | US$ | 1,804 | 3,607 | - | - | - | 5,411 | 5,328 | Quarterly | 3.55 | 3.55 | |||||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | US$ | 2,038 | 5,746 | - | - | - | 7,784 | 7,664 | Monthly | 3.31 | 3.31 | |||||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | US$ | 18,328 | 54,864 | 145,364 | 140,555 | 17,681 | 376,792 | 349,127 | Quarterly | 4.01 | 2.82 | |||||||||||||||||||||||||||||||||
0-E | PK AIRFINANCE | U.S.A. | US$ | 2,652 | 8,136 | 18,194 | - | - | 28,982 | 28,087 | Monthly | 3.45 | 3.45 | |||||||||||||||||||||||||||||||||
Other loans | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | US$ | 26,111 | 78,742 | - | - | - | 104,853 | 101,026 | Quarterly | 6.00 | 6.00 | |||||||||||||||||||||||||||||||||
Hedge derivative | ||||||||||||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||
- | OTHERS | - | US$ | - | 11,582 | 18,641 | 13,530 | - | 43,753 | 16,972 | - | - | - | |||||||||||||||||||||||||||||||||
Total | 461,295 | 1,013,822 | 2,391,950 | 1,972,457 | 2,410,030 | 8,249,554 | 6,933,927 |
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | Annual | |||||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||
0-E | GOLDMAN SACHS | U.S.A. | US$ | 32,071 | 122,278 | 323,125 | 1,361,595 | - | 1,839,069 | 1,100,000 | Quarterly | 18.46 | 13.38 | |||||||||||||||||||||||||||||||||||
0-E | SANTANDER | Spain | US$ | 19,164 | 55,288 | - | - | - | 74,452 | 70,951 | Quarterly | 7.26 | 7.26 | |||||||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | UF | - | 3,136 | 6,271 | 6,271 | 178,736 | 194,414 | 156,783 | To the expiration | 2.00 | 2.00 | |||||||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | - | 152,531 | 307,625 | 757,625 | 887,250 | 2,105,031 | 1,150,000 | To the expiration | 15.00 | 13.38 | |||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | US$ | - | - | - | - | 6 | 6 | 3 | To the expiration | 1.00 | 1.00 | |||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 6,692 | 14,705 | 39,215 | 39,215 | 138,345 | 238,172 | 184,198 | Quarterly | 5.76 | 5.76 | |||||||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | 3,839 | 13,465 | 45,564 | 43,444 | 75,505 | 181,817 | 141,605 | Quartely/Monthly | 8.20 | 8.20 | |||||||||||||||||||||||||||||||||||
Other guaranteed obligation | ||||||||||||||||||||||||||||||||||||||||||||||||
0-E | EXIM BANK | U.S.A. | US$ | 394 | 1,171 | 12,119 | 21,111 | 60,857 | 95,652 | 86,612 | Quarterly | 2.01 | 1.78 | |||||||||||||||||||||||||||||||||||
0-E | MUFG | U.S.A. | US$ | 13,091 | 38,914 | 69,916 | - | - | 121,921 | 112,388 | Quarterly | 6.23 | 6.23 | |||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 5,769 | 31,478 | 70,890 | 267,615 | - | 375,752 | 275,000 | To the expiration | 8.24 | 8.24 | |||||||||||||||||||||||||||||||||||
Financial lease | ||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 6,995 | 5,844 | - | - | - | 12,839 | 12,514 | Quarterly | 6.19 | 5.47 | |||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 6,978 | 20,662 | 1,543 | - | - | 29,183 | 28,165 | Quarterly | 5.99 | 5.39 | |||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 9,864 | 29,468 | 75,525 | 70,787 | 129,582 | 315,226 | 239,138 | Quarterly | 6.44 | 6.44 | |||||||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | US$ | 18,072 | 54,088 | 86,076 | - | - | 158,236 | 152,693 | Quarterly | 4.06 | 2.85 | |||||||||||||||||||||||||||||||||||
0-E | PK AIRFINANCE | U.S.A. | US$ | 1,749 | 5,165 | 6,665 | - | - | 13,579 | 12,590 | Quarterly | 5.97 | 5.97 | |||||||||||||||||||||||||||||||||||
0-E | EXIM BANK | U.S.A. | US$ | 3,176 | 9,681 | 137,930 | 193,551 | 157,978 | 502,316 | 446,509 | Quarterly | 3.58 | 2.79 | |||||||||||||||||||||||||||||||||||
0-E | BANK OF UTAH | U.S.A. | US$ | 5,878 | 17,651 | 47,306 | 50,649 | 145,184 | 266,668 | 182,237 | Monthly | 10.45 | 10.45 | |||||||||||||||||||||||||||||||||||
Others loans | ||||||||||||||||||||||||||||||||||||||||||||||||
0-E | OTHERS (*) | US$ | 2,028 | - | - | - | - | 2,028 | 2,028 | To the expiration | - | - | ||||||||||||||||||||||||||||||||||||
TOTAL | 135,760 | 575,525 | 1,229,770 | 2,811,863 | 1,773,443 | 6,526,361 | 4,353,414 |
(*) | Obligation with creditors for executed letters of credit. |
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
1 | Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2022 |
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil. |
More than | More than | More than | |||||||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | Annual | ||||||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | |||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | ||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||
Financial leases | |||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 510 | 1,530 | 4,080 | 4,080 | 7,846 | 18,046 | 18,046 | Semiannual/Quarterly | 7.23 | 7.23 | ||||||||||||||||||||||||||||||||||||
Bank loans | |||||||||||||||||||||||||||||||||||||||||||||||||
0-E | MERRIL LYNCH CREDIT PRODUCTS LLC | Brazil | BRL | 304,549 | - | - | - | - | 304,549 | 304,549 | Monthly | 3.95 | 3.95 | ||||||||||||||||||||||||||||||||||||
TOTAL | 305,059 | 1,530 | 4,080 | 4,080 | 7,846 | 322,595 | 322,595 |
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 20192022
Debtor: TAMLATAM Airlines Group S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.89.862.200-2, Chile.
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | NCM | Holland | US$ | 173 | 499 | 722 | - | - | 1,394 | 1,289 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 4,140 | 7,965 | 77,028 | - | - | 89,133 | 86,256 | Quarterly / Semiannual | 6.29 | 6.29 | |||||||||||||||||||||||||||||||||
0-E | WACAPOU LEASING S.A. | Luxembourg | US$ | 835 | 2,450 | 3,277 | - | - | 6,562 | 6,280 | Quarterly | 4.32 | 4.32 | |||||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | US$ | 11,286 | 151,047 | - | - | - | 162,333 | 169,931 | Quarterly | 5.39 | 5.39 | |||||||||||||||||||||||||||||||||
0-E | GA Telesis LLC | U.S.A. | US$ | 677 | 1,753 | 4,675 | 4,675 | 10,480 | 22,260 | 13,495 | Monthly | 14.72 | 14.72 | |||||||||||||||||||||||||||||||||
Total | 17,111 | 163,714 | 85,702 | 4,675 | 10,480 | 281,682 | 277,251 |
More than | More than | More than | More | ||||||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | than | Annual | ||||||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | |||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | ||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||
Lease Liability | |||||||||||||||||||||||||||||||||||||||||||||||||
AIRCRAFT | OTHERS | US$ | 80,602 | 250,297 | 845,215 | 776,431 | 1,094,935 | 3,047,480 | 2,134,968 | - | - | - | |||||||||||||||||||||||||||||||||||||
OTHER ASSETS | OTHERS | US$ | 1,727 | 8,080 | 20,641 | 6,251 | 1,763 | 38,462 | 35,157 | - | - | - | |||||||||||||||||||||||||||||||||||||
CLP | 20 | 34 | 69 | - | - | 123 | 111 | - | - | - | |||||||||||||||||||||||||||||||||||||||
UF | 574 | 1,568 | 3,007 | 2,515 | 6,273 | 13,937 | 11,703 | - | - | - | |||||||||||||||||||||||||||||||||||||||
COP | 76 | 227 | 301 | - | - | 604 | 518 | - | - | - | |||||||||||||||||||||||||||||||||||||||
EUR | 84 | 253 | 246 | 24 | - | 607 | 571 | - | - | - | |||||||||||||||||||||||||||||||||||||||
BRL | 2,064 | 6,192 | 14,851 | 12,491 | 28,625 | 64,223 | 33,425 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other accounts payables | |||||||||||||||||||||||||||||||||||||||||||||||||
- | OTHERS | OTHERS | US$ | 80,557 | 35,542 | - | - | - | 116,099 | 116,099 | - | - | - | ||||||||||||||||||||||||||||||||||||
CLP | 168,393 | 1,231 | - | - | - | 169,624 | 169,624 | - | - | - | |||||||||||||||||||||||||||||||||||||||
BRL | 370,772 | 5,242 | - | - | - | 376,014 | 376,014 | - | - | - | |||||||||||||||||||||||||||||||||||||||
Other currency | 583,118 | 3,935 | - | - | - | 587,053 | 587,053 | - | - | - | |||||||||||||||||||||||||||||||||||||||
Accounts payable to related parties currents | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Argentina | US$ | 5 | - | - | - | - | 5 | 5 | - | - | - | ||||||||||||||||||||||||||||||||||||
Foreign | Patagonia Seafarms INC | U.S.A | CLP | 7 | - | - | - | - | 7 | 7 | - | - | - | ||||||||||||||||||||||||||||||||||||
Total | 1,287,999 | 312,601 | 884,330 | 797,712 | 1,131,596 | 4,414,238 | 3,465,255 | ||||||||||||||||||||||||||||||||||||||||||
Total consolidated | 1,728,818 | 889,656 | 2,118,180 | 3,613,655 | 2,912,885 | 11,263,194 | 8,141,264 |
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 20192021
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
More than | More than | More than | ||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | ||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
Lease Liability | ||||||||||||||||||||||||||||||||||
- | AIRCRAFT | OTHERS | US$ | 146,036 | 417,929 | 1,002,564 | 877,353 | 1,357,910 | 3,801,792 | 3,042,231 | ||||||||||||||||||||||||
- | OTHER ASSETS | OTHERS | US$ | 3,017 | 8,649 | 21,381 | 19,815 | 16,314 | 69,176 | 53,931 | ||||||||||||||||||||||||
CLP | 160 | 478 | 531 | - | - | 1,169 | 1,195 | |||||||||||||||||||||||||||
UF | 2,713 | 4,736 | 5,789 | 1,373 | 2,956 | 17,567 | 17,145 | |||||||||||||||||||||||||||
COP | 71 | 161 | 37 | 2 | - | 271 | 259 | |||||||||||||||||||||||||||
EUR | 163 | 387 | 592 | 122 | - | 1,264 | 1,175 | |||||||||||||||||||||||||||
GBP | 16 | 10 | - | - | - | 26 | 24 | |||||||||||||||||||||||||||
MXN | 37 | 93 | 245 | 10 | - | 385 | 359 | |||||||||||||||||||||||||||
PEN | 95 | 129 | 83 | 16 | - | 323 | 306 | |||||||||||||||||||||||||||
Other currencies | 2,770 | 8,370 | 8,508 | 43,104 | - | 62,752 | 55,532 | |||||||||||||||||||||||||||
Trade and other accounts payables | ||||||||||||||||||||||||||||||||||
- | OTHERS | OTHERS | US$ | 371,527 | 13,993 | - | - | - | 385,520 | 385,520 | ||||||||||||||||||||||||
CLP | 220,383 | 905 | - | - | - | 221,288 | 221,288 | |||||||||||||||||||||||||||
BRL | 486,082 | 320 | - | - | - | 486,402 | 486,402 | |||||||||||||||||||||||||||
Other currencies | 576,378 | 1,716 | - | - | - | 578,094 | 578,094 | |||||||||||||||||||||||||||
Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 53 | - | - | - | - | 53 | 53 | ||||||||||||||||||||||||
Foreing | Patagonia Seafarms INC | U.S.A. | CLP | 3 | - | - | - | - | 3 | 3 | ||||||||||||||||||||||||
Total | 1,809,504 | 457,876 | 1,039,730 | 941,795 | 1,377,180 | 5,626,085 | 4,843,517 | |||||||||||||||||||||||||||
Total consolidated | 2,287,910 | 1,635,412 | 3,517,382 | 2,918,927 | 3,797,690 | 14,157,321 | 12,054,695 |
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | Annual | |||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||
97.018.000-1 | CITIBANK | Chile | US$ | 115,350 | - | - | - | - | 115,350 | 114,000 | At Expiration | 2.96 | 2.96 | |||||||||||||||||||||||||||||||
97.030.000-7 | ITAU | Chile | US$ | 20,140 | - | - | - | - | 20,140 | 20,000 | At Expiration | 4.20 | 4.20 | |||||||||||||||||||||||||||||||
0-E | HSBC | Chile | US$ | 12,123 | - | - | - | - | 12,123 | 12,000 | At Expiration | 4.15 | 4.15 | |||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 10,236 | - | - | - | - | 10,236 | 10,106 | Quarterly | 3.35 | 3.35 | |||||||||||||||||||||||||||||||
0-E | SANTANDER | Spain | US$ | 751 | 2,604 | 106,939 | - | - | 110,294 | 106,427 | Quarterly | 2.80 | 2.80 | |||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | UF | 60,935 | - | - | - | - | 60,935 | 60,935 | At Expiration | 3.10 | 3.10 | |||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | BANCO ESTADO | Chile | UF | 36,171 | 179,601 | 31,461 | 31,461 | 369,537 | 648,231 | 502,897 | At Expiration | 4.81 | 4.81 | |||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | US$ | 184,188 | 104,125 | 884,188 | 856,000 | - | 2,028,501 | 1,500,000 | At Expiration | 7.16 | 6.94 | |||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 17,182 | 19,425 | 40,087 | 41,862 | 95,475 | 214,031 | 198,475 | Quarterly | 1.48 | 1.48 | |||||||||||||||||||||||||||||||
0-E | MUFG | U.S.A. | US$ | 29,652 | 17,921 | 36,660 | 37,829 | 55,297 | 177,359 | 166,712 | Quarterly | 1.64 | 1.64 | |||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | 933 | 4,990 | 29,851 | 36,337 | 89,263 | 161,374 | 144,358 | Quarterly / Monthly | 3.17 | 1.60 | |||||||||||||||||||||||||||||||
Other guaranteed obligation | ||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 273,199 | - | - | - | - | 273,199 | 273,199 | At Expiration | 1.82 | 1.82 | |||||||||||||||||||||||||||||||
0-E | MUFG | U.S.A. | US$ | 8,150 | 46,746 | 94,062 | 14,757 | - | 163,715 | 156,933 | Quarterly | 1.72 | 1.72 | |||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 613,419 | - | - | - | - | 613,419 | 600,000 | At Expiration | 2.00 | 2.00 | |||||||||||||||||||||||||||||||
0-E | BANK OF UTAH | U.S.A. | US$ | - | 1,858,051 | - | - | - | 1,858,051 | 1,644,876 | At Expiration | 22.71 | 12.97 | |||||||||||||||||||||||||||||||
0-E | EXIM BANK | U.S.A. | US$ | 271 | 1,173 | 3,375 | 10,546 | 55,957 | 71,322 | 62,890 | Quarterly | 1.84 | 1.84 | |||||||||||||||||||||||||||||||
Financial lease | ||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 699 | 1,387 | - | - | - | 2,086 | 2,052 | Quarterly | 3.68 | 3.23 | |||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 19,268 | 59,522 | 5,721 | - | - | 84,511 | 83,985 | Quarterly | 1.37 | 0.79 | |||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 7,351 | 26,519 | 21,685 | - | - | 55,555 | 54,918 | Quarterly | 1.56 | 0.96 | |||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 5,929 | 34,328 | 59,574 | 59,930 | 130,131 | 289,892 | 261,458 | Quarterly | 2.09 | 2.09 | |||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | US$ | 18,158 | 72,424 | 133,592 | 6,573 | - | 230,747 | 219,667 | Quarterly | 4.03 | 2.84 | |||||||||||||||||||||||||||||||
0-E | PK AIRFINANCE | U.S.A. | US$ | 853 | 5,763 | 10,913 | - | - | 17,529 | 16,851 | Quarterly | 1.88 | 1.88 | |||||||||||||||||||||||||||||||
0-E | EXIM BANK | U.S.A. | US$ | 2,758 | 11,040 | 61,167 | 249,466 | 269,087 | 593,518 | 533,127 | Quarterly | 2.88 | 2.03 | |||||||||||||||||||||||||||||||
Others loans | ||||||||||||||||||||||||||||||||||||||||||||
0-E | OTHERS (*) | US$ | 55,819 | - | - | - | - | 55,819 | 55,819 | At Expiration | - | - | ||||||||||||||||||||||||||||||||
TOTAL | 1,493,535 | 2,445,619 | 1,519,275 | 1,344,761 | 1,064,747 | 7,867,937 | 6,801,685 |
(*) | Obligation with creditors for executed letters of credit. |
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated2021
Debtor: LATAM Airlines GroupTAM S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.02.012.862/0001-60, Brazil.
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | US$ | 38,625 | 76,275 | - | - | - | 114,900 | 113,000 | At Expiration | 3.36 | 3.36 | |||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | UF | - | 52,490 | - | - | - | 52,490 | 50,785 | At Expiration | 3.31 | 3.31 | |||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | US$ | 23,070 | - | - | - | - | 23,070 | 23,000 | At Expiration | 3.90 | 3.90 | |||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | US$ | 201,884 | - | - | - | - | 201,884 | 200,000 | At Expiration | 3.64 | 3.64 | |||||||||||||||||||||||||||||||
97.951.000-4 | HSBC | Chile | US$ | 12,094 | - | - | - | - | 12,094 | 12,000 | At Expiration | 3.14 | 3.14 | |||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 5,778 | 17,086 | 16,662 | - | - | 39,526 | 38,231 | Quarterly | 3.35 | 3.35 | |||||||||||||||||||||||||||||||
0-E | BLADEX | U.S.A. | US$ | - | 15,766 | - | - | - | 15,766 | 15,000 | Semiannual | 6.74 | 6.74 | |||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | US$ | 1,347 | 587 | 102,521 | - | - | 104,455 | 102,521 | Quarterly | 5.60 | 5.60 | |||||||||||||||||||||||||||||||
76.362.099-9 | BTG | Chile | UF | 510 | 1,531 | 69,435 | - | - | 71,476 | 65,862 | At Expiration | 3.10 | 3.10 | |||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | US$ | - | 84,375 | 614,375 | 96,250 | 724,063 | 1,519,063 | 1,200,000 | At Expiration | 7.44 | 7.03 | |||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | UF | - | 18,985 | 37,970 | 196,970 | 213,114 | 467,039 | 345,182 | At Expiration | 5.50 | 5.50 | |||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 743 | 2,201 | 5,718 | 2,086 | - | 10,748 | 10,080 | Quarterly | 3.23 | 3.23 | |||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 14,741 | 61,973 | 152,826 | 145,252 | 250,387 | 625,179 | 511,698 | Quarterly | 4.55 | 4.55 | |||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | US$ | 31,336 | 96,304 | 248,720 | 289,251 | 509,168 | 1,174,779 | 952,758 | Quarterly | 4.47 | 4.47 | |||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 12,757 | 38,398 | 102,062 | 77,710 | 65,232 | 296,159 | 269,365 | Quarterly | 3.82 | 2.93 | |||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | US$ | 18,406 | 55,112 | 146,045 | 144,670 | 86,076 | 450,309 | 411,684 | Quarterly | 4.00 | 2.82 | |||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 14,027 | 42,132 | 111,528 | 92,228 | 124,910 | 384,825 | 324,524 | Quarterly | 4.69 | 4.69 | |||||||||||||||||||||||||||||||
0-E | PK AirFinance | U.S.A. | US$ | 2,490 | 7,663 | 25,610 | 3,153 | - | 38,916 | 37,615 | Monthly | 4.15 | 4.14 | |||||||||||||||||||||||||||||||
0-E | INVESTEC | England | US$ | 2,004 | 11,579 | 26,874 | 24,367 | - | 64,824 | 54,014 | Semiannual | 7.17 | 7.17 | |||||||||||||||||||||||||||||||
Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 2,576 | 8,380 | 273,122 | - | - | 284,078 | 253,692 | At Expiration | 4.11 | 4.11 | |||||||||||||||||||||||||||||||
0-E | DVB BANK SE | Germany | US$ | 28,087 | 83,260 | 213,177 | 122,674 | 20,274 | 467,472 | 422,065 | Quarterly | 4.42 | 4.42 | |||||||||||||||||||||||||||||||
Financial lease | ||||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | US$ | 4,025 | 12,075 | 12,134 | - | - | 28,234 | 26,831 | Quarterly | 5.70 | 5.01 | |||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | US$ | 7,618 | 21,994 | 27,811 | 1,684 | - | 59,107 | 56,403 | Quarterly | 3.66 | 3.31 | |||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | US$ | 14,870 | 44,570 | 83,389 | 42,178 | - | 185,007 | 172,158 | Quarterly | 4.40 | 3.80 | |||||||||||||||||||||||||||||||
0-E | PEFCO | U.S.A. | US$ | 5,771 | 13,541 | 3,899 | - | - | 23,211 | 22,407 | Quarterly | 5.64 | 5.02 | |||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | US$ | 8,467 | 25,214 | 26,933 | 1,641 | - | 62,255 | 59,567 | Quarterly | 3.90 | 3.58 | |||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | US$ | 35,458 | 106,397 | 282,923 | 239,168 | 99,232 | 763,178 | 719,338 | Quarterly | 2.77 | 2.09 | |||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | US$ | 6,340 | 19,025 | 49,945 | 26,779 | - | 102,089 | 95,022 | Quarterly | 3.68 | 3.14 | |||||||||||||||||||||||||||||||
0-E | RRPF ENGINE | England | US$ | 1,167 | 3,480 | 9,103 | 8,826 | 4,870 | 27,446 | 23,012 | Monthly | 4.01 | 4.01 | |||||||||||||||||||||||||||||||
0-E | APPLE BANK | U.S.A. | US$ | 1,711 | 5,175 | 13,640 | 13,394 | 760 | 34,680 | 31,544 | Quarterly | 3.93 | 3.33 | |||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | US$ | 3,489 | 10,485 | 27,605 | 27,062 | 775 | 69,416 | 63,189 | Quarterly | 4.06 | 3.46 | |||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 4,242 | 9,870 | 9,815 | 563 | - | 24,490 | 23,161 | Quarterly | 4.28 | 4.12 | |||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | US$ | 1,764 | 5,328 | 5,378 | - | - | 12,470 | 12,215 | Quarterly | 4.20 | 4.19 | |||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | US$ | 2,074 | 6,197 | 7,840 | - | - | 16,111 | 15,417 | Monthly | 4.19 | 4.19 | |||||||||||||||||||||||||||||||
Other loans | ||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | US$ | 25,705 | 77,703 | 103,341 | - | - | 206,749 | 196,211 | Quarterly | 6.00 | 6.00 | |||||||||||||||||||||||||||||||
0-E | Boeing | U.S.A. | US$ | 559 | 1,425 | 55,728 | - | - | 57,712 | 55,727 | At Expiration | 4.01 | 4.01 | |||||||||||||||||||||||||||||||
Hedge derivative | ||||||||||||||||||||||||||||||||||||||||||||
- | OTHERS | - | US$ | 1,224 | 2,484 | 681 | - | - | 4,389 | 4,021 | - | - | - | |||||||||||||||||||||||||||||||
Total | 534,959 | 1,039,060 | 2,866,810 | 1,555,906 | 2,098,861 | 8,095,596 | 6,989,299 |
More than | More than | More than | More | |||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | than | Annual | |||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
0-E | NCM | Netherlands | US$ | 990 | - | - | - | - | 990 | 943 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||
0-E | MERRIL LYNCH CREDIT PRODUCTS LLC | U.S.A. | BRL | 185,833 | - | - | - | - | 185,833 | 185,833 | Monthly | 3.95 | 3.95 | |||||||||||||||||||||||||||||||
0-E | BANCO BRADESCO | Brazil | BRL | 74,661 | - | - | - | - | 74,661 | 74,661 | Monthly | 4.33 | 4.33 | |||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 486 | 2,235 | 4,080 | 11,076 | - | 17,877 | 17,326 | Quarterly | 2.74 | 2.74 | |||||||||||||||||||||||||||||||
0-E | GA TELESIS LLC | U.S.A. | US$ | 762 | 2,706 | 4,675 | 4,646 | 5,077 | 17,866 | 10,999 | Monthly | 14.72 | 14.72 | |||||||||||||||||||||||||||||||
Others Loans | ||||||||||||||||||||||||||||||||||||||||||||
0-E | Deustche Bank (*) | Brazil | US$ | 20,689 | - | - | - | - | 20,689 | 20,689 | At Expiration | - | - | |||||||||||||||||||||||||||||||
TOTAL | 283,421 | 4,941 | 8,755 | 15,722 | 5,077 | 317,916 | 310,451 |
(*) | Obligation with creditors for executed letters of credit |
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated2021
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
More than | More than | More than | ||||||||||||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||
0-E | NEDERLANDSCHENCM | Holland | US$ | 175 | 499 | 1,332 | 55 | - | 2,061 | 1,851 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | US$ | 4,195 | 7,935 | 46,780 | 41,872 | - | 100,782 | 95,789 | Quarterly / Semiannual | 6.87 | 6.87 | |||||||||||||||||||||||||||||||
0-E | WACAPOU LEASING S.A. | Luxembourg | US$ | 839 | 2,433 | 6,542 | - | - | 9,814 | 9,226 | Quarterly | 4.81 | 4.81 | |||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | US$ | 11,536 | 32,312 | 161,778 | - | - | 205,626 | 208,224 | Quarterly | 5.88 | 5.82 | |||||||||||||||||||||||||||||||
0-E | GA Telesis LLC | U.S.A. | US$ | 680 | 1,753 | 4,675 | 4,675 | 11,318 | 23,101 | 13,202 | Monthly | 15.62 | 15.62 | |||||||||||||||||||||||||||||||
Total | 17,425 | 44,932 | 221,107 | 46,602 | 11,318 | 341,384 | 328,292 |
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2018 Restated
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
More than | More than | More than | ||||||||||||||||||||||||||||||||
Up to | 90 days | one to | three to | More than | ||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | ||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
Leases Liability | ||||||||||||||||||||||||||||||||||
- | AIRCRAFT | OTHERS | US$ | 140,780 | 420,561 | 1,015,495 | 785,417 | 1,298,585 | 3,660,838 | 2,721,352 | ||||||||||||||||||||||||
- | OTHER ASSETS | OTHERS | US$ | 4,968 | 14,536 | 25,689 | 20,029 | 21,138 | 86,360 | 86,360 | ||||||||||||||||||||||||
CLP | 57 | 170 | 1 | - | - | 228 | 228 | |||||||||||||||||||||||||||
UF | 1,683 | 2,565 | 667 | 34 | - | 4,949 | 4,949 | |||||||||||||||||||||||||||
COP | 304 | 731 | 366 | 21 | - | 1,422 | 1,422 | |||||||||||||||||||||||||||
EUR | 311 | 431 | 215 | - | - | 957 | 957 | |||||||||||||||||||||||||||
GBP | 45 | 128 | 36 | - | - | 209 | 209 | |||||||||||||||||||||||||||
MXN | 33 | 92 | 235 | 115 | - | 475 | 475 | |||||||||||||||||||||||||||
PEN | 183 | 409 | 114 | - | - | 706 | 706 | |||||||||||||||||||||||||||
Trade and other accounts payables | ||||||||||||||||||||||||||||||||||
- | OTHERS | OTHERS | US$ | 720,718 | 9,979 | - | - | - | 730,697 | 730,697 | ||||||||||||||||||||||||
CLP | 74,566 | 16,493 | - | - | - | 91,059 | 91,059 | |||||||||||||||||||||||||||
BRL | 309,552 | 66 | - | - | - | 309,618 | 309,618 | |||||||||||||||||||||||||||
Other currencies | 252,116 | 3,406 | - | - | - | 255,522 | 255,522 | |||||||||||||||||||||||||||
Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Argentina | ARS | 15 | - | - | - | - | 15 | 15 | ||||||||||||||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 365 | - | - | - | - | 365 | 365 | ||||||||||||||||||||||||
Foreign | TAM Aviação Executiva e Taxi Aéreo S.A. | Brazil | BRL | 2 | - | - | - | - | 2 | 2 | ||||||||||||||||||||||||
Total | 1,505,698 | 469,567 | 1,042,818 | 805,616 | 1,319,723 | 5,143,422 | 4,203,936 | |||||||||||||||||||||||||||
Total consolidated | 2,058,082 | 1,553,559 | 4,130,735 | 2,408,124 | 3,429,902 | 13,580,402 | 11,521,527 |
Up to | More than 90 days | More than one to | More than three to | More than | Annual | |||||||||||||||||||||||||||||||||||||||||
Creditor | 90 | to one | three | five | five | Nominal | Effective | Nominal | ||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | country | Currency | days | year | years | years | years | Total | value | Amortization | rate | rate | |||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||||||
Lease Liability | ||||||||||||||||||||||||||||||||||||||||||||||
AIRCRAFT | OTHERS | US$ | 694,568 | 469,568 | 767,629 | 811,843 | 778,613 | 3,522,221 | 2,883,657 | - | - | - | ||||||||||||||||||||||||||||||||||
OTHER ASSETS | OTHERS | US$ | 9,859 | 11,820 | 22,433 | 23,365 | 8,651 | 76,128 | 73,615 | - | - | - | ||||||||||||||||||||||||||||||||||
UF | 1,759 | 982 | 245 | 76 | 231 | 3,293 | 2,621 | - | - | - | ||||||||||||||||||||||||||||||||||||
COP | 2 | 7 | 35 | - | - | 44 | 42 | - | - | - | ||||||||||||||||||||||||||||||||||||
EUR | 198 | 112 | 293 | - | - | 603 | 599 | - | - | - | ||||||||||||||||||||||||||||||||||||
PEN | 4 | 7 | 97 | - | - | 108 | 103 | - | - | - | ||||||||||||||||||||||||||||||||||||
Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||||||
OTHERS | OTHERS | US$ | 644,743 | 165,085 | - | - | - | 809,828 | 809,828 | - | - | - | ||||||||||||||||||||||||||||||||||
CLP | 214,224 | 4,912 | - | - | - | 219,136 | 219,136 | - | - | - | ||||||||||||||||||||||||||||||||||||
BRL | 365,486 | 5,258 | - | - | - | 370,744 | 370,744 | - | - | - | ||||||||||||||||||||||||||||||||||||
Other currency | 542,304 | 3,719 | - | - | - | 546,023 | 546,023 | - | - | - | ||||||||||||||||||||||||||||||||||||
Accounts payable to related parties currents (*) | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Argentina | US$ | - | 5 | - | - | - | 5 | 5 | - | - | - | |||||||||||||||||||||||||||||||||
Foreign | Delta Airlines | U.S.A | US$ | - | 2,268 | - | - | - | 2,268 | 2,268 | - | - | - | |||||||||||||||||||||||||||||||||
Foreign | Patagonia Seafarms INC | U.S.A | US$ | - | 7 | - | - | - | 7 | 7 | - | - | - | |||||||||||||||||||||||||||||||||
81.062.300-4 | Costa Verde Aeronautica S.A. | Chile | US$ | - | 175,819 | - | - | - | 175,819 | 175,819 | - | - | - | |||||||||||||||||||||||||||||||||
Foreign | QA Investments Ltd | Jersey Channel Islands | US$ | - | 219,774 | - | - | - | 219,774 | 219,774 | - | - | - | |||||||||||||||||||||||||||||||||
Foreign | QA Investments 2 Ltd | Jersey Channel Islands | US$ | - | 219,774 | - | - | - | 219,774 | 219,774 | - | - | - | |||||||||||||||||||||||||||||||||
Foreign | Lozuy S.A. | Uruguay | US$ | - | 43,955 | - | - | - | 43,955 | 43,955 | - | - | - | |||||||||||||||||||||||||||||||||
Total | 2,473,147 | 1,323,072 | 790,732 | 835,284 | 787,495 | 6,209,730 | 5,567,970 | |||||||||||||||||||||||||||||||||||||||
Total consolidated | 4,250,103 | 3,773,632 | 2,318,762 | 2,195,767 | 1,857,319 | 14,395,583 | 12,680,106 |
(*) | Trade and other accounts payables include claims resulting from Chapter 11 negotiation and are subject to settlement in accordance with the Reorganization plan. |
The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.
At the end of 2018, the Company had delivered US$ 5.0 million in guarantees for derivative margins, corresponding to cash and standby letters of credit. As of December 31, 2019,2022, the Company maintains guarantees for US$ 23.77.5 million were delivered in guarantees corresponding to cash and standby letters of credit.derivative transactions. The increase wasis due to: i) Increase in the expirationnumber of hedge contracts, ii) acquisition of new hedgehedging contracts and iii)ii) changes in fuel prices, changes in exchange rates and interest rates. At the end of 2021, the Company had guarantees for US$ 5.5 million corresponding to derivative transactions.
3.2. Capital risk management
The Company’s objectives with respectof the Company, in relation to thecapital management of capital, areare: (i) to comply withmeet the restrictions of minimum equity requirements and (ii) to maintain an optimal capital structure.
The Company monitors its contractual obligations and the regulatory limitationsrequirements in the different countries where the entities of the groupgroup’s companies are domiciled to assure they meetensure faithful compliance with the limit of minimum net equity whererequirement, the most restrictive limitationlimit of which is to maintain a positive netliquid equity.
Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Companyensure that it has adequate sources of fundingsufficient cash generation alternatives to generate the cash requirement to face itsmeet future investment and funding futurefinancing commitments.
The Company international credit rating is the consequence of the Company capacityis the result of the ability to face its long terms financingmeet long-term financial commitments. As of December 31, 2019 the2022, The Company has an international long term credita national rating of BB- with stable outlookBBB- by Fitch, a rating of B- by Standard & Poor’s, a BB- rating with stable outlook by Fitch Ratings and a Ba3preliminary rating at the exit of the Chapter 11 process of B2 with a stable outlook by Moody’s.
3.3. Estimates of fair value.
At decemberDecember 31, 2019,2022, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:
1. Derivative financial instruments:
This category includes the following instruments:
- | Interest rate derivative contracts, |
- | Fuel derivative contracts, |
- | Currency derivative contracts. |
2. Financial Investments:
This category includes the following instruments:
- | Investments in short-term Mutual Funds (cash equivalent) |
- | Private investment funds. |
The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.
The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information.
Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.
The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:
As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||||||||||||||||||
Fair value measurements using values considered as | Fair value measurements using values considered as | |||||||||||||||||||||||||||||||
Fair value | Level I | Level II | Level III | Fair value | Level I | Level II | Level III | |||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | 222,094 | 222,094 | - | - | 43,653 | 43,653 | - | - | ||||||||||||||||||||||||
Short-term mutual funds | 222,094 | 222,094 | - | - | 43,653 | 43,653 | - | - | ||||||||||||||||||||||||
Other financial assets, current | 471,797 | 386,688 | 85,109 | - | 366,573 | 343,218 | 23,355 | - | ||||||||||||||||||||||||
Fair value interest rate derivatives | 27,044 | - | 27,044 | - | 19,460 | - | 19,460 | - | ||||||||||||||||||||||||
Fair value of fuel derivatives | 48,542 | - | 48,542 | - | - | - | - | - | ||||||||||||||||||||||||
Fair value of foreign currency derivative | 586 | - | 586 | - | 3,895 | - | 3,895 | - | ||||||||||||||||||||||||
Accrued interest since the last payment date Swap of currencies | 3 | - | 3 | - | - | - | - | - | ||||||||||||||||||||||||
Derivative not recognized as a hedge | - | - | - | - | 19,396 | 19,396 | - | - | ||||||||||||||||||||||||
Private investment funds | 386,669 | 386,669 | - | - | 322,428 | 322,428 | - | - | ||||||||||||||||||||||||
Certificate of Deposit (CBD) | 8,934 | - | 8,934 | - | - | - | - | - | ||||||||||||||||||||||||
Domestic and foreign bonds | 19 | 19 | - | - | 1,394 | 1,394 | - | - | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Other financial liabilities, current | 50,372 | - | 50,372 | - | 33,633 | 7,712 | 25,921 | - | ||||||||||||||||||||||||
Fair value of interest rate derivatives | 302 | - | 302 | - | 335 | - | 335 | - | ||||||||||||||||||||||||
Fair value of fuel derivatives | - | - | - | - | 15,678 | - | 15,678 | - | ||||||||||||||||||||||||
Fair value of foreign currency derivatives | 48,347 | - | 48,347 | - | 7,587 | - | 7,587 | - | ||||||||||||||||||||||||
Interest accrued since the last payment date of Currency Swap | 1,723 | - | 1,723 | - | 2,321 | - | 2,321 | - | ||||||||||||||||||||||||
Other financial liabilities, non current | - | - | - | - | 7,712 | 7,712 | - | - | ||||||||||||||||||||||||
Fair value of interest rate derivatives | - | - | - | - | 340 | - | �� | 340 | - | |||||||||||||||||||||||
Interest accrued since the last date of Swap interest rates | - | - | - | - | 340 | - | 340 | - |
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||
Fair value measurements using values considered as | Fair value measurements using values considered as | |||||||||||||||||||||||||||||||
Fair value | Level I | Level II | Level III | Fair value | Level I | Level II | Level III | |||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | 95,452 | 95,452 | - | - | 26,025 | 26,025 | - | - | ||||||||||||||||||||||||
Short-term mutual funds | 95,452 | 95,452 | - | - | 26,025 | 26,025 | - | - | ||||||||||||||||||||||||
Other financial assets, current | 21,878 | 277 | 21,601 | - | 17,988 | 347 | 17,641 | - | ||||||||||||||||||||||||
Fair value interest rate derivatives | 8,816 | - | 8,816 | - | - | - | - | - | ||||||||||||||||||||||||
Fair value of fuel derivatives | 12,594 | - | 12,594 | - | 17,641 | - | 17,641 | - | ||||||||||||||||||||||||
Fair value of foreign currency derivative | 191 | - | 191 | - | - | - | - | - | ||||||||||||||||||||||||
Private investment funds | 277 | 277 | - | - | 347 | 347 | - | - | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Other financial liabilities, current | - | - | - | - | 5,671 | - | 5,671 | - | ||||||||||||||||||||||||
Fair value of interest rate derivatives | - | - | - | - | 2,734 | - | 2,734 | - | ||||||||||||||||||||||||
Currency derivative not registered as hedge accounting | - | - | - | - | 2,937 | - | 2,937 | - |
Additionally, at DecemberDecember 31 2019,, 2022, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:
As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||
Book value | Fair value | Book value | Fair value | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Restated | Restated | |||||||||||||||
Cash and cash equivalents | 850,486 | 850,486 | 1,037,989 | 1,037,989 | ||||||||||||
Cash on hand | 4,982 | 4,982 | 8,974 | 8,974 | ||||||||||||
Bank balance | 329,633 | 329,633 | 331,218 | 331,218 | ||||||||||||
Overnight | 350,080 | 350,080 | 282,164 | 282,164 | ||||||||||||
Time deposits | 165,791 | 165,791 | 415,633 | 415,633 | ||||||||||||
Other financial assets, current | - | - | 17,411 | 17,411 | ||||||||||||
Other financial assets | - | - | 17,411 | 17,411 | ||||||||||||
Trade debtors, other accounts receivable and Current accounts receivable | 1,244,348 | 1,244,348 | 1,162,582 | 1,162,582 | ||||||||||||
Accounts receivable from entities related, current | 19,645 | 19,645 | 2,931 | 2,931 | ||||||||||||
Other financial assets, not current | 46,907 | 46,907 | 58,700 | 58,700 | ||||||||||||
Accounts receivable, non-current | 4,725 | 4,725 | 5,381 | 5,381 | ||||||||||||
Other current financial liabilities | 1,835,288 | 2,019,068 | 1,397,156 | 1,942,332 | ||||||||||||
Accounts payable for trade and other accounts payable, current | 2,220,500 | 2,220,500 | 1,674,303 | 1,674,303 | ||||||||||||
Accounts payable to entities related, current | 56 | 56 | 382 | 382 | ||||||||||||
Other financial liabilities, not current | 8,530,418 | 8,846,418 | 5,864,570 | 8,387,939 | ||||||||||||
Accounts payable, not current | 619,110 | 619,110 | 483,656 | 483,656 |
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
Book value | Fair value | Book value | Fair value | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 1,121,223 | 1,121,223 | 1,020,810 | 1,020,810 | ||||||||||||
Cash on hand | 2,248 | 2,248 | 2,120 | 2,120 | ||||||||||||
Bank balance | 480,566 | 480,566 | 558,078 | 558,078 | ||||||||||||
Overnight | 259,129 | 259,129 | 386,034 | 386,034 | ||||||||||||
Time deposits | 379,280 | 379,280 | 74,578 | 74,578 | ||||||||||||
Other financial assets, current | 481,637 | 481,637 | 83,150 | 83,150 | ||||||||||||
Other financial assets | 481,637 | 481,637 | 83,150 | 83,150 | ||||||||||||
Trade debtors, other accounts receivable and Current accounts receivable | 1,008,109 | 1,008,109 | 881,770 | 881,770 | ||||||||||||
Accounts receivable from entities related, current | 19,523 | 19,523 | 724 | 724 | ||||||||||||
Other financial assets, not current | 15,517 | 15,517 | 15,622 | 15,622 | ||||||||||||
Accounts receivable, non-current | 12,743 | 12,743 | 12,201 | 12,201 | ||||||||||||
Other current financial liabilities | 802,841 | 824,167 | 4,447,780 | 4,339,370 | ||||||||||||
Accounts payable for trade and other accounts payable, current | 1,627,992 | 1,627,992 | 4,839,251 | 4,839,251 | ||||||||||||
Accounts payable to entities related, current | 12 | 12 | 661,602 | 662,345 | ||||||||||||
Other financial liabilities, not current | 5,979,039 | 5,533,131 | 5,948,702 | 5,467,594 | ||||||||||||
Accounts payable, not current | 326,284 | 326,284 | 472,426 | 472,426 |
The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.
The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end. The book value of Other financial liabilities, current or non-current, do not include lease liabilities.
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
The Company has used estimates to value and record some of the assets, liabilities, income, expenses and commitments. Basically, these estimates refer to:
(a) Evaluation of possible losses due to impairment of goodwill and intangible assets with indefinite useful life
As of december 31, 2019, goodwill amount to ThUS$ 2,209,576 (ThUS$ 2,294,072 as of december 31, 2018), while the intangible assets comprise the Airport Slots for ThUS$ 845,959 (ThUS$ 828,969 as of december 31, 2018) and Loyalty Program for ThUS$ 263,806 (ThUS$ 274,420 as of december 31, 2018).
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.
For this evaluation, the Company had identified two CGUs, “Air transport” and “Multiplus coalition and loyalty program”, until December 31, 2018. After the merger of Multiplus (see Note 1), administrator of the Multiplus coalition and loyalty program, the Company has determined air transport as a single CGU. The classification of intangible assets of indefinite useful life in the CGUs, before and after the merger of Multiplus S.A. are as follow:
Air Transport CGU | Coalition and loyalty Program Multiplus CGU | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Goodwill | 2,209,576 | 1,845,136 | - | 448,936 | ||||||||||||
Airport Slots | 845,959 | 828,969 | - | - | ||||||||||||
Loyalty program | 263,806 | - | - | 274,420 |
Management’s value-in-use calculations included significant judgments and assumptions relating to revenue growth rates, exchange rate,rates, discount rate,rates, inflation rates, fuel price. The estimation of these assumptions requires significant judgment by the management as these variables feature inherent uncertainty;are inherently uncertain; however, the assumptions used are consistent with the Company’s internal planning.forecasts approved by management. Therefore, management evaluates and updates the estimates on an annual basis,as necessary in light of conditions that affect these variables. The main assumptions used as well as the corresponding sensitivity analyses are showedshown in Note 16.15.
(b) Useful life, residual value, and impairment of property, plant, and equipment
The depreciation of assets is calculated based on the linear model,a straight-line basis, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according withto the Company’s future economic benefits associated with them.
Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may render theresult in a useful life different to the lifespanfrom what has been estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.
ResidualThe residual values are estimated in accordance withaccording to the market value that thesethe assets will have at the end of their useful life. The assets’ residual valuesvalue and useful liveslife of the assets are reviewed, and adjusted if appropriate,necessary, once a year. An asset’s carrying amount is written down immediately to its recoverable amount ifWhen the asset’s carrying amountvalue of an asset is greater than its estimated recoverable amount, (Note 2.8).its value is immediately reduced to its recoverable amount.
The Company has concluded that the Properties, Plant and Equipment cannot generate cash inflows to a large extent independent of other assets, therefore the impairment assessment is made as an integral part of the only Cash Generating Unit maintained by the Company, Air Transport. The Company checks when there are signs of impairment, whether the assets have suffered any impairment losses at the Cash Generated Unit level.
(c) Recoverability of deferred tax assets
Management records deferred taxes on the temporary differences arisingthat arise between the tax bases of assets and liabilities and their carrying amounts reported in the consolidated financial statements. Deferred tax assets on tax losses are recognized only to the extent that it is probable that the future taxable profittax benefits will be available against which theto offset temporary differences can be utilized.differences.
Management applied
The Company applies significant judgment in assessingevaluating the recoverability of deferred tax assets. In determining the amountamounts of the deferred tax assetsasset to be recognized,accounted for, management consideredconsiders tax planning strategies, historical profitability, projected future taxable profit (includingincome (considering assumptions related the revenuesuch as: growth rates,rate, exchange rates,rate, discount rate and fuel price which are in lineconsistent with those used in the impairment analysis of the group’s cash generatingcash-generating unit) and the expected timing of the reversals of existing temporary differences.
As of December 31, 2019, the Company has recognized deferred tax assets of ThUS$ 235,583 (ThUS$ 273,529 as of December 31, 2018) and has ceased to recognize deferred tax assets on tax losses of ThUS$ 110,933 (ThUS$ 137,761 December 31, 2018) (Note 18).(d) Air tickets sold that will not be finally used.
The Company records the anticipated sale of airairline tickets as deferred income. Ordinary incomerevenue from the sale of tickets is recognized in the income statement when the passenger transport service is provided or expired forexpires due to non-use. The Company evaluates on a monthly basis the probability of expiration of the air tickets, with return clauses, based on the history of use of the air tickets. A change in this probability could generatehave an impact on revenue in the year in which the change occurs and in future years.
As of December 31, 2019 the2022, deferred income associated with the air tickets sold amounts to ThUS$ 1,511,991. -1,574,145 (ThUS$ 1,299,3041,126,371 as of December 31, 2018)2021). A hypothetical change of one percentage point in the behavior of the passenger behavior with respect toregarding the use would result intranslate into an impact of up to ThUS$ 6,0007,453 per month.
(e) Valuation of miles and points awarded to holders of loyalty programs, pending use.
As of December 31, 2019,2022, the deferred income associated with the LATAM Pass loyalty program amounts to ThUS$ 1,332,1731,120,565 (ThUS$ 1,324,6351,285,732 as of December 31, 2018)2021). A hypothetical change of one percentage point in the exchange probability of exchange of miles would result in antranslate into a cumulative impact of ThUS$ 31,56529,571 in the results of 20192022 (ThUS$ 27,72627,151 in 2018)2021). Deferred income associated with the LATAM Pass Brasil loyalty program (See Note 22)21) amounts to ThUS$ 354,847140,486 as of December 31, 20192022 (ThUS$ 293,831192,381 as of December 31, 2018)2021). A hypothetical change of two percentage points in the probability of exchange of points would result in antranslate into a cumulative impact of ThUS$ 12,5017,453 in the results of 20192022 (ThUS$ 13,1405,100 in 2018)2021).
Management used statistical models to estimate the miles and pointpoints awarded that will not be redeemed by the programsprogram’s members (breakage) which involved significant judgments and assumptions relating to the historical redemption and expiration activity and forecasted redemption and expiration patterns.
For LATAM Pass Brazil, the expiration occurs after a fixed period from the time of the accumulation. Model is built by the management considering historical expiration rates, to costumers exchange behaviors and relevant segmentations.
For LATAM Pass there are rules that allow members to renew their miles, so theThe management in conjunction with an external specialist developdeveloped a predictive model of non-use miles or points, which allows to generate non-use rates on the basis of historical information, based on behavior of the accumulation, use and expiration of the miles.miles or points.
(f) The need to establish a provision and its valuation
KnownIn the case of known contingencies, are recognized when: Thethe Company records a provision when it has a present obligation, whether legal or constructive, obligation as a result of a past events;event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation amount has been reliably estimated.can be made. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events, the likelihood of loss being incurred and when determining whether a reliable estimate of the loss can be made. The Company appliesassesses its liabilities and contingencies based upon the best information available, uses the knowledge, experience and professional judgment experience, and knowledge to use available information to determine these values, in light of the specific characteristics of the known risks. This process facilitates the early assessment and valuationquantification of potential risks in individual cases or in the development of contingent eventualities.matters. If we are unable to reliably estimate the obligation or conclude no loss is probable but it is reasonably possible that a loss may be incurred, no provision is recorded but the contingency is disclosed in the notes to the consolidated financial statements.
The Company recognizes the present obligation under an onerous contract as a provision when a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from it.
(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, all new contracts entered into during 2022 and all contracts that were modified during 2022 used the incremental rate. Existing contracts that remained unchanged continued using the original implicit discount rate.
(i) Discount rate
The discount raterates used to calculate the aircraft lease debt corresponds, for eachcorrespond to: (i) For aircraft tothat did not have contractual changes associated with the implicit interestexit from Chapter 11, the rate induced byused was the contractual elements and residual market values. The impliedimplicit rate of the contract, this is the discount rate that givesresults from the aggregatedaggregate present value of the minimum lease payments and the unguaranteed residual value. This present value, should be equal toand (ii) For aircraft that had contractual changes associated with exit from Chapter 11, the sum ofrate used was the fair value of the leased asset and any initial direct costs of the lessor.incremental rate, this discount rate was calculated considering our recent aircraft debt negotiations, as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
For those leasesassets other than aircraft, we use ourthe estimated lessee’s incremental borrowing rate, which is derived from information available at the lease commencementinception date, in determiningwas used to determine the present value of the lease payments. We consider to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.ratios.
A 100 basisdecrease of one percentage point decrease in our estimate of the rate at January 1, 2019 (the daterates used to determine the adoptionlease liabilities of the standard)new and modified fleet contracts booked as of December 31, 2022 would increase ourthe lease liability by approximately US$ 10582 million.
(ii) Lease term
In determining the lease term, there are considers all facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option.are considered. Extension options (or periods after termination options) are only included in the lease term if the leaseit is reasonably certain tothat the lease will be extended (or not terminated). The assessmentThis is reviewed if a significant event or a significant change in circumstances occurs whichthat affects this assessment and that is within the control of the lessee.
The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.
The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus ensuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.
Since the integration of LAN and TAM operations, the most critical airline operations in Brazil have been managed by the CEO of TAM while global activities have been managed by the CEO of LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the LATAM Board.lessee’s control.
The CEO of LATAM also evaluates the performance of LATAM Group executives and, together with the LATAM Board, determines compensation. Although Brazilian law currently imposes restrictions on the percentages of voting rights that may be held by foreign investors, LATAM believes that the economic basis of these agreements meets the requirements of accounting standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.
These estimates wereare made based on the best information available relating toon the mattersevents analyzed.
In any case, it is possible that events that may take place in the future could leadmake it necessary to their modificationmodify them in future reporting periods, which would be made in a prospective manner.done prospectively.
NOTE 5 - SEGMENTALSEGMENT INFORMATION
As of December 31, 2019,2022, the Company considers that it has a single operating segment, that of Air Transport. This segment corresponds to the route network for air transport and is based on the way in which the business is managed, according to the centralized nature of its operations, the ability to open and close routes, as well as reassignment (airplanes, crew, personnel, etc.) within the network, which implies a functional interrelation between all of them, making them inseparable. This segment definition is one of the most common worldwide in the worldwide airline industry.
Until June 2019, the Company presented two operating segments, the one corresponding to Air transport and the Multiplus coalition and loyalty program segment, discussed in Note 1, the Company Multiplus S.A. Administrator of the Coalition and Loyalty Program Multiplus merged into TAM Linhas Aereas S.A., ceasing to be an entity with independent administration. The Multiplus coalition and Loyalty program, which was defined as an operating segment, due to this independent administration, became part of the Air Transport segment together with the LATAM Pass and LATAM fidelidades programs.
The company has restated the information corresponding to December 31, 2018 and 2017 for the presentation of a single segment of information.
For the year ended | ||||||||||||
Air | ||||||||||||
Transportation | ||||||||||||
At December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | Restated | |||||||||||
Income from ordinary activities from external customers (*) | 10,070,063 | 9,895,456 | 9,613,907 | |||||||||
Passenger | 9,005,629 | 8,708,988 | 8,494,477 | |||||||||
Freight | 1,064,434 | 1,186,468 | 1,119,430 | |||||||||
Income from ordinary activities from transactions with other operating segments | - | - | - | |||||||||
Other operating income | 360,864 | 472,758 | 549,889 | |||||||||
Interest income | 26,283 | 53,253 | 78,695 | |||||||||
Interest expense | (589,934 | ) | (539,137 | ) | (579,233 | ) | ||||||
Total net interest expense | (563,651 | ) | (485,884 | ) | (500,538 | ) | ||||||
Depreciation and amortization | (1,469,976 | ) | (1,372,628 | ) | (1,377,135 | ) | ||||||
Material non-cash items other than depreciation and amortization | (130,011 | ) | (104,123 | ) | (105,404 | ) | ||||||
Disposal of fixed assets and inventory losses | (60,893 | ) | (46,351 | ) | (39,238 | ) | ||||||
Doubtful accounts | (21,558 | ) | (18,837 | ) | (18,416 | ) | ||||||
Exchange differences | (32,571 | ) | (38,070 | ) | (48,498 | ) | ||||||
Result of indexation units | (14,989 | ) | (865 | ) | 748 | |||||||
Income (loss) attributable to owners of the parents | 190,430 | 309,811 | 108,896 | |||||||||
Expenses for income tax | 53,697 | (73,879 | ) | (158,998 | ) | |||||||
Segment profit / (loss) | 195,613 | 341,786 | 154,386 | |||||||||
Assets of segment | 21,087,806 | 20,078,722 | 21,673,713 | |||||||||
Segment liabilities | 17,958,629 | 16,638,121 | 17,717,420 | |||||||||
Amount of non-current asset additions | 2,658,541 | 1,090,177 | 412,846 | |||||||||
Property, plant and equipment | 2,519,305 | 995,085 | 325,513 | |||||||||
Intangibles other than goodwill | 139,236 | 95,092 | 87,333 | |||||||||
Purchase of non-monetary assets of segment | 1,416,794 | 756,913 | 499,872 |
For the year ended | ||||||||||||
Air | ||||||||||||
Transportation | ||||||||||||
At December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Restated | Restated | |||||||||||
(2) | (2) | |||||||||||
Net cash flows from | ||||||||||||
Purchases of property, plant and equipment | 1,276,621 | 660,707 | 403,666 | |||||||||
Additions associated with maintenance | 453,827 | 375,634 | 217,687 | |||||||||
Other additions | 822,794 | 285,073 | 185,979 | |||||||||
Purchases of intangible assets | 140,173 | 96,206 | 96,206 | |||||||||
Net cash flows from (used in) operating activities | 2,826,667 | 2,073,316 | 2,186,823 | |||||||||
Net cash flow from (used in) investing activities | (1,419,207 | ) | (358,368 | ) | (293,925 | ) | ||||||
Net cash flows from (used in) financing activities | (1,343,521 | ) | (1,608,597 | ) | (1,692,668 | ) |
The information by segments as of December 31, 2018 and 2017, which included the Multiplus Coalition and Loyalty Program segment has been restated to present its incorporation into the Air Transport segment. This restatement is presented in the following table:
For the year ended | ||||||||||||||||
Air | Segment | Air | ||||||||||||||
Transportation | Adjustment | Eliminations | Transportation | |||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | |||||||||||||
2018 | 2018 | 2018 | 2018 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Previously reported | Restated | |||||||||||||||
Income from ordinary activities from external customers (*) | 9,887,090 | 60,020 | (51,654 | ) | 9,895,456 | |||||||||||
Passenger | 8,700,622 | 60,020 | (51,654 | ) | 8,708,988 | |||||||||||
Freight | 1,186,468 | - | - | 1,186,468 | ||||||||||||
Other operating income | 346,315 | 126,443 | - | 472,758 | ||||||||||||
Interest income | 27,181 | 26,072 | - | 53,253 | ||||||||||||
Interest expense | (539,137 | ) | - | - | (539,137 | ) | ||||||||||
Total net interest expense | (511,956 | ) | 26,072 | - | (485,884 | ) | ||||||||||
Depreciation and amortization | (1,365,809 | ) | (6,819 | ) | - | (1,372,628 | ) | |||||||||
Material non-cash items other than depreciation and amortization | (104,038 | ) | (85 | ) | - | (104,123 | ) | |||||||||
Disposal of fixed assets and inventory losses | (46,351 | ) | - | - | (46,351 | ) | ||||||||||
Doubtful accounts | (18,741 | ) | (96 | ) | - | (18,837 | ) | |||||||||
Exchange differences | (38,081 | ) | 11 | - | (38,070 | ) | ||||||||||
Result of indexation units | (865 | ) | - | - | (865 | ) | ||||||||||
Income (loss) attributable to owners of the parents | 200,209 | 109,602 | - | 309,811 | ||||||||||||
Expenses for income tax | 121,155 | (47,276 | ) | - | 73,879 | |||||||||||
Segment profit / (loss) | 287,206 | 54,580 | - | 341,786 | ||||||||||||
Assets of segment | 18,943,127 | 1,145,942 | (10,347 | ) | 20,078,722 | |||||||||||
Segment liabilities | 16,212,905 | 449,347 | (24,131 | ) | 16,638,121 | |||||||||||
Amount of non-current asset additions | 1,090,177 | - | - | 1,090,177 | ||||||||||||
Property, plant and equipment | 995,085 | - | - | 995,085 | ||||||||||||
Intangibles other than goodwill | 95,092 | - | - | 95,092 | ||||||||||||
Purchase of non-monetary assets of segment | 756,913 | - | - | 756,913 |
(*) The Company does not have any interest income that should be recognized as income from ordinary activities by interest.
For the year ended | ||||||||||||||||
Air | Segment | Air | ||||||||||||||
Transportation | Adjustment | Eliminations | Transportation | |||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | |||||||||||||
2017 | 2017 | 2017 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Previously reported | Restated | |||||||||||||||
Income from ordinary activities from external customers (*) | 9,159,031 | 454,876 | - | 9,613,907 | ||||||||||||
Passenger | 8,039,601 | 454,876 | - | 8,494,477 | ||||||||||||
Freight | 1,119,430 | - | - | 1,119,430 | ||||||||||||
Income from ordinary activities from transactions with other operating segments | 454,876 | 67,554 | (522,430 | ) | - | |||||||||||
Other operating income | 308,937 | 240,952 | - | 549,889 | ||||||||||||
Interest income | 28,184 | 50,511 | - | 78,695 | ||||||||||||
Interest expense | (579,233 | ) | - | - | (579,233 | ) | ||||||||||
Total net interest expense | (551,049 | ) | 50,511 | - | (500,538 | ) | ||||||||||
Depreciation and amortization | (1,384,344 | ) | 7,209 | - | (1,377,135 | ) | ||||||||||
Material non-cash items other than depreciation and amortization | (105,259 | ) | (145 | ) | - | (105,404 | ) | |||||||||
Disposal of fixed assets and inventory losses | (39,238 | ) | - | - | (39,238 | ) | ||||||||||
Doubtful accounts | (18,272 | ) | (144 | ) | - | (18,416 | ) | |||||||||
Exchange differences | (48,497 | ) | (1 | ) | - | (48,498 | ) | |||||||||
Result of indexation units | 748 | - | - | 748 | ||||||||||||
Income (loss) attributable to owners of the parents (**) | (49,887 | ) | 158,783 | - | 108,896 | |||||||||||
Expenses for income tax | (89,870 | ) | (69,128 | ) | - | (158,998 | ) | |||||||||
Segment profit / (loss) | (4,397 | ) | 158,783 | - | 154,386 | |||||||||||
Assets of segment | 17,430,937 | 1,373,049 | (6,014 | ) | 18,797,972 | |||||||||||
Segment liabilities | 14,007,916 | 563,849 | (41,029 | ) | 14,530,736 | |||||||||||
Amount of non-current asset additions | 412,846 | - | - | 412,846 | ||||||||||||
Property, plant and equipment | 325,513 | - | - | 325,513 | ||||||||||||
Intangibles other than goodwill | 87,333 | - | - | 87,333 | ||||||||||||
Purchase of non-monetary assets of segment | 490,983 | - | - | 490,983 |
For the year ended | ||||||||||||||||
Air | Segment | Air | ||||||||||||||
Transportation | adjustment | Eliminations | Transportation | |||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | |||||||||||||
2018 | 2018 | 2018 | 2018 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Previously reported | Restated | |||||||||||||||
Net cash flows from | ||||||||||||||||
Purchases of property, plant and equipment | 660,631 | 76 | - | 660,707 | ||||||||||||
Additions associated with maintenance | 375,634 | - | - | 375,634 | ||||||||||||
Other additions | 284,997 | 76 | - | 285,073 | ||||||||||||
Purchases of intangible assets (***) | 85,628 | 10,578 | - | 96,206 | ||||||||||||
Net cash flows from (used in) operating activities | 1,950,532 | 111,161 | 11,623 | 2,073,316 | ||||||||||||
Net cash flow from (used in) investing activities | (348,346 | ) | (10,022 | ) | - | (358,368 | ) | |||||||||
Net cash flows from (used in) financing activities | (1,512,898 | ) | (95,699 | ) | - | (1,608,597 | ) |
For the year ended | ||||||||||||||||
Air | Segment | Air | ||||||||||||||
Transportation | adjustment | Eliminations | Transportation | |||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | |||||||||||||
2017 | 2017 | 2017 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Previously reported | Restated | |||||||||||||||
Net cash flows from | ||||||||||||||||
Purchases of property, plant and equipment | 403,282 | 384 | - | 403,666 | ||||||||||||
Additions associated with maintenance | 218,537 | - | - | 218,537 | ||||||||||||
Other additions | 184,745 | 384 | - | 185,129 | ||||||||||||
Purchases of intangible assets (***) | 79,102 | 8,216 | - | 87,318 | ||||||||||||
Net cash flows from (used in) operating activities | 1,489,797 | 186,367 | (9,424 | ) | 1,666,740 | |||||||||||
Net cash flow from (used in) investing activities | (278,790 | ) | (8,632 | ) | - | (287,422 | ) | |||||||||
Net cash flows from (used in) financing activities | (1,010,705 | ) | (168,383 | ) | - | (1,179,088 | ) |
The Company’s revenues by geographic area are as follows:
For the year ended At December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Peru | 801,965 | 705,133 | 626,316 | |||||||||
Argentina | 584,959 | 989,883 | 1,113,467 | |||||||||
U.S.A. | 1,004,238 | 985,919 | 900,413 | |||||||||
Europe | 726,165 | 782,197 | 676,282 | |||||||||
Colombia | 380,449 | 372,794 | 359,276 | |||||||||
Brazil | 3,949,797 | 3,433,877 | 3,436,402 | |||||||||
Ecuador | 203,334 | 203,842 | 190,268 | |||||||||
Chile | 1,546,960 | 1,591,313 | 1,527,158 | |||||||||
Asia Pacific and rest of Latin America | 872,196 | 830,498 | 784,325 | |||||||||
Income from ordinary activities | 10,070,063 | 9,895,456 | 9,613,907 | |||||||||
Other operating income | 360,864 | 472,758 | 549,889 |
For the year ended At December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Peru | 858,957 | 503,616 | 297,549 | |||||||||
Argentina | 206,856 | 75,513 | 172,229 | |||||||||
U.S.A. | 1,058,107 | 577,970 | 505,145 | |||||||||
Europe | 768,980 | 376,857 | 338,565 | |||||||||
Colombia | 540,231 | 368,474 | 177,007 | |||||||||
Brazil | 3,724,466 | 1,664,523 | 1,304,006 | |||||||||
Ecuador | 248,454 | 162,959 | 112,581 | |||||||||
Chile | 1,514,645 | 794,122 | 638,225 | |||||||||
Asia Pacific and rest of Latin America | 441,825 | 359,981 | 378,360 | |||||||||
Income from ordinary activities | 9,362,521 | 4,884,015 | 3,923,667 | |||||||||
Other operating income | 154,286 | 227,331 | 411,002 |
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
As of December 31, 2019 | As of December 31, 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Cash on hand | 4,982 | 8,974 | ||||||
Bank balances | 329,632 | 331,218 | ||||||
Overnight | 350,080 | 282,164 | ||||||
Total Cash | 684,694 | 622,356 | ||||||
Cash equivalents | ||||||||
Time deposits | 165,791 | 415,633 | ||||||
Mutual funds | 222,094 | 43,653 | ||||||
Total cash equivalents | 387,885 | 459,286 | ||||||
Total cash and cash equivalents | 1,072,579 | 1,081,642 |
As of December 31, 2022 | As of December 31, 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Cash on hand | 2,248 | 2,120 | ||||||
Bank balances | 480,566 | 558,078 | ||||||
Overnight | 259,129 | 386,034 | ||||||
Total Cash | 741,943 | 946,232 | ||||||
Cash equivalents | ||||||||
Time deposits | 379,280 | 74,578 | ||||||
Mutual funds | 95,452 | 26,025 | ||||||
Total cash equivalents | 474,732 | 100,603 | ||||||
Total cash and cash equivalents | 1,216,675 | 1,046,835 |
Cash and cash equivalents are denominated in the following currencies:
As of | As of | |||||||
December 31, | December 31, | |||||||
Currency | 2019 | 2018 | ||||||
ThUS$ | ThUS$ | |||||||
Argentine peso | 16,579 | 17,786 | ||||||
Brazilian real | 197,354 | 131,760 | ||||||
Chilean peso | 50,521 | 415,713 | ||||||
Colombian peso | 48,191 | 10,843 | ||||||
Euro | 21,927 | 20,339 | ||||||
US Dollar | 667,785 | 394,215 | ||||||
Other currencies | 70,222 | 90,986 | ||||||
Total | 1,072,579 | 1,081,642 |
Currency | As of December 31, 2022 | As of December 31, 2021 | ||||||
ThUS$ | ThUS$ | |||||||
Argentine peso | 10,711 | 7,148 | ||||||
Brazilian real | 193,289 | 89,083 | ||||||
Chilean peso | 17,643 | 9,800 | ||||||
Colombian peso | 22,607 | 13,535 | ||||||
Euro | 19,361 | 7,099 | ||||||
US Dollar | 906,666 | 886,627 | ||||||
Other currencies | 46,398 | 33,543 | ||||||
Total | 1,216,675 | 1,046,835 |
NOTE 7 - FINANCIAL INSTRUMENTS
Financial instruments by category
As of December 31, 20192022
Assets | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 850,485 | 222,094 | - | 1,072,579 | ||||||||||||
Other financial assets, current (*) | 36,660 | 386,669 | 76,175 | 499,504 | ||||||||||||
Trade and others accounts receivable, current | 1,244,348 | - | - | 1,244,348 | ||||||||||||
Accounts receivable from related entities, current | 19,645 | - | - | 19,645 | ||||||||||||
Other financial assets, non current | 46,907 | - | - | 46,907 | ||||||||||||
Accounts receivable, non current | 4,725 | - | - | 4,725 | ||||||||||||
Total | 2,202,770 | 608,763 | 76,175 | 2,887,708 |
Assets | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 1,121,223 | 95,452 | - | 1,216,675 | ||||||||||||
Other financial assets, current (*) | 481,637 | 277 | 21,601 | 503,515 | ||||||||||||
Trade and others accounts receivable, current | 1,008,109 | - | - | 1,008,109 | ||||||||||||
Accounts receivable from related entities, current | 19,523 | - | - | 19,523 | ||||||||||||
Other financial assets, non current | 15,517 | - | - | 15,517 | ||||||||||||
Accounts receivable, non current | 12,743 | - | - | 12,743 | ||||||||||||
Total | 2,658,752 | 95,729 | 21,601 | 2,776,082 |
Measured at amortized | Hedge | |||||||||||
Liabilities | cost | derivatives | Total | |||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Other financial liabilities, current | 1,835,288 | 50,372 | 1,885,660 | |||||||||
Trade and others accounts payable, current | 2,222,874 | - | 2,222,874 | |||||||||
Accounts payable to related entities, current | 56 | - | 56 | |||||||||
Other financial liabilities, non-current | 8,530,396 | 22 | 8,530,418 | |||||||||
Accounts payable, non-current | 619,110 | - | 619,110 | |||||||||
Total | 13,207,724 | 50,394 | 13,258,118 |
Liabilities | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Other financial liabilities, current | 802,841 | - | - | 802,841 | ||||||||||||
Trade and others accounts payable, current | 1,627,992 | - | - | 1,627,992 | ||||||||||||
Accounts payable to related entities, current | 12 | - | - | 12 | ||||||||||||
Other financial liabilities, non-current | 5,979,039 | - | - | 5,979,039 | ||||||||||||
Accounts payable, non-current | 326,284 | - | - | 326,284 | ||||||||||||
Total | 8,736,168 | - | - | 8,736,168 |
(*) | The |
As of December 31, 2018 (Restated)2021
Measured at | At fair value | |||||||||||||||
amortized | with changes | Hedge | ||||||||||||||
Assets | cost | in results | derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 1,037,989 | 43,653 | - | 1,081,642 | ||||||||||||
Other financial assets, current (*) | 16,203 | 344,426 | 23,355 | 383,984 | ||||||||||||
Trade and others accounts receivable, current | 1,162,582 | - | - | 1,162,582 | ||||||||||||
Accounts receivable from related entities, current | 2,931 | - | - | 2,931 | ||||||||||||
Other financial assets, non current | 58,700 | - | - | 58,700 | ||||||||||||
Accounts receivable, non current | 5,381 | - | - | 5,381 | ||||||||||||
Total | 2,283,786 | 388,079 | 23,355 | 2,695,220 |
Assets | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 1,020,810 | 26,025 | - | 1,046,835 | ||||||||||||
Other financial assets, current (*) | 83,150 | 347 | 17,641 | 101,138 | ||||||||||||
Trade and others accounts receivable, current | 881,770 | - | - | 881,770 | ||||||||||||
Accounts receivable from related entities, current | 724 | - | - | 724 | ||||||||||||
Other financial assets, non current | 15,622 | - | - | 15,622 | ||||||||||||
Accounts receivable, non current | 12,201 | - | - | 12,201 | ||||||||||||
Total | 2,014,277 | 26,372 | 17,641 | 2,058,290 |
Measured at | At fair value | |||||||||||||||
amortized | with changes | Hedge | ||||||||||||||
Liabilities | cost | in results | derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Restated | Restated | Restated | ||||||||||||||
Other financial liabilities, current (*) | 1,760,653 | 7,712 | 25,921 | 1,794,286 | ||||||||||||
Trade and others accounts payable, current accounts payables, current | 1,674,303 | - | - | 1,674,303 | ||||||||||||
Accounts payable to related entities, current | 382 | - | - | 382 | ||||||||||||
Other financial liabilities, non current | 8,359,122 | - | 340 | 8,359,462 | ||||||||||||
Accounts payable, non-current | 529,277 | - | - | 529,277 | ||||||||||||
Total | 12,323,737 | 7,712 | 26,261 | 12,357,710 |
Liabilities | Measured at amortized cost | At fair value with changes in results | Hedge derivatives | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Other financial liabilities, current | 4,447,780 | 2,937 | 2,734 | 4,453,451 | ||||||||||||
Trade and others accounts payable, current | 4,839,251 | - | - | 4,839,251 | ||||||||||||
Accounts payable to related entities, current | 661,602 | - | - | 661,602 | ||||||||||||
Other financial liabilities, non-current | 5,948,702 | - | - | 5,948,702 | ||||||||||||
Accounts payable, non-current | 472,426 | - | - | 472,426 | ||||||||||||
Total | 16,369,761 | 2,937 | 2,734 | 16,375,432 |
(*) | The |
As of | As of | |||||||
December 31, | December 31, | |||||||
a) Assets | 2019 | 2018 | ||||||
ThUS$ | ThUS$ | |||||||
Restated | ||||||||
Cash and cash equivalents | 1,072,579 | 1,081,642 | ||||||
Argentine peso | 16,579 | 17,786 | ||||||
Brazilian real | 197,354 | 131,760 | ||||||
Chilean peso | 50,521 | 415,713 | ||||||
Colombian peso | 48,191 | 10,843 | ||||||
Euro | 21,927 | 20,339 | ||||||
US Dollar | 667,785 | 394,215 | ||||||
Other currencies | 70,222 | 90,986 | ||||||
Other financial assets (current and non-current) | 546,411 | 442,684 | ||||||
Argentine peso | 94 | 152 | ||||||
Brazilian real | 417,477 | 327,110 | ||||||
Chilean peso | 26,073 | 25,972 | ||||||
Colombian peso | 522 | 1,748 | ||||||
Euro | 1,525 | 7,438 | ||||||
US Dollar | 97,988 | 78,121 | ||||||
Other currencies | 2,732 | 2,143 | ||||||
Trade and other accounts receivable, current | 1,244,348 | 1,162,582 | ||||||
Argentine peso | 47,079 | 82,893 | ||||||
Brazilian real | 537,221 | 511,171 | ||||||
Chilean peso | 126,821 | 113,168 | ||||||
Colombian peso | 2,288 | 7,259 | ||||||
Euro | 32,711 | 49,044 | ||||||
US Dollar | 436,774 | 110,312 | ||||||
Other currencies (*) | 61,454 | 288,735 | ||||||
Accounts receivable, non-current | 4,725 | 5,381 | ||||||
Brazilian real | 3 | 3 | ||||||
Chilean peso | 4,722 | 5,378 | ||||||
Accounts receivable from related entities, current | 19,645 | 2,931 | ||||||
Brazilian real | - | 293 | ||||||
Chilean peso | 42 | 200 | ||||||
US Dollar | 19,603 | 2,438 | ||||||
Total assets | 2,887,708 | 2,695,220 | ||||||
Argentine peso | 63,752 | 100,831 | ||||||
Brazilian real | 1,152,055 | 970,337 | ||||||
Chilean peso | 208,179 | 560,431 | ||||||
Colombian peso | 51,001 | 19,850 | ||||||
Euro | 56,163 | 76,821 | ||||||
US Dollar | 1,222,150 | 585,086 | ||||||
Other currencies | 134,408 | 381,864 |
Liabilities information is detailed in the table within Note 3 Financial risk management.
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON-CURRENTNON- CURRENT ACCOUNTS RECEIVABLE
As of | As of | |||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Restated | ||||||||
Trade accounts receivable | 1,073,599 | 1,077,561 | ||||||
Other accounts receivable | 275,876 | 188,393 | ||||||
Total trade and other accounts receivable | 1,349,475 | 1,265,954 | ||||||
Less: Expected credit loss | (100,402 | ) | (97,991 | ) | ||||
Total net trade and accounts receivable | 1,249,073 | 1,167,963 | ||||||
Less: non-current portion – accounts receivable | (4,725 | ) | (5,381 | ) | ||||
Trade and other accounts receivable, current | 1,244,348 | 1,162,582 |
As of December 31, 2022 | As of December 31, 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Trade accounts receivable | 952,625 | 765,050 | ||||||
Other accounts receivable | 135,459 | 209,925 | ||||||
Total trade and other accounts receivable | 1,088,084 | 974,975 | ||||||
Less: Expected credit loss | (67,232 | ) | (81,004 | ) | ||||
Total net trade and accounts receivable | 1,020,852 | 893,971 | ||||||
Less: non-current portion – accounts receivable | (12,743 | ) | (12,201 | ) | ||||
Trade and other accounts receivable, current | 1,008,109 | 881,770 |
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;transportation depending on the characteristics of shared credit risk and maturity.
As of December 31, 2019 | As December 31, 2018 | |||||||||||||||||||||||
Expected | Gross book | Impairment loss | Expected | Gross book | Impairment loss | |||||||||||||||||||
Portfolio maturity | loss rate (1) | value (2) | Provision | loss rate (1) | value (2) | Provision | ||||||||||||||||||
% | ThUS$ | ThUS$ | % | ThUS$ | ThUS$ | |||||||||||||||||||
Up to date | 2 | % | 875,889 | (16,433 | ) | 3 | % | 888,930 | (23,933 | ) | ||||||||||||||
From 1 to 90 days | 8 | % | 56,537 | (4,253 | ) | 5 | % | 91,387 | (5,014 | ) | ||||||||||||||
From 91 to 180 days | 28 | % | 16,922 | (4,747 | ) | 45 | % | 11,085 | (4,983 | ) | ||||||||||||||
From 181 to 360 days | 39 | % | 47,865 | (18,459 | ) | 65 | % | 15,078 | (9,864 | ) | ||||||||||||||
more of 360 days | 74 | % | 76,386 | (56,510 | ) | 76 | % | 71,081 | (54,197 | ) | ||||||||||||||
Total | 9 | % | 1,073,599 | (100,402 | ) | 9 | % | 1,077,561 | (97,991 | ) |
(1) Corresponds to the expected average rate.
(2) the gross book value represents the maximum growth risk value of trade accounts receivable.
As of December 31, 2022 | As December 31, 2021 | |||||||||||||||||||||||
Portfolio maturity | Expected loss rate (1) | Gross book value (2) | Impairment loss Provision | Expected loss rate (1) | Gross book value (2) | Impairment loss Provision | ||||||||||||||||||
% | ThUS$ | ThUS$ | % | ThUS$ | ThUS$ | |||||||||||||||||||
Up to date | 1 | % | 745,334 | (8,749 | ) | 2 | % | 570,307 | (8,806 | ) | ||||||||||||||
From 1 to 90 days | 3 | % | 142,780 | (3,758 | ) | 10 | % | 116,613 | (11,840 | ) | ||||||||||||||
From 91 to 180 days | 15 | % | 8,622 | (1,297 | ) | 31 | % | 11,376 | (3,567 | ) | ||||||||||||||
From 181 to 360 days | 79 | % | 8,269 | (6,565 | ) | 72 | % | 3,864 | (2,766 | ) | ||||||||||||||
more of 360 days | 98 | % | 47,620 | (46,863 | ) | 86 | % | 62,890 | (54,025 | ) | ||||||||||||||
Total | 952,625 | (67,232 | ) | 765,050 | (81,004 | ) |
(1) | Corresponds to the consolidated expected rate of accounts receivable. |
(2) | The gross book value represents the maximum credit risk value of trade accounts receivables. |
Currency balances that make up thecomposition of Trade and other accounts receivable and non-current accounts receivable are the following:as follow:
As of | As of | |||||||
December 31, | December 31, | |||||||
Currency | 2019 | 2018 | ||||||
ThUS$ | ThUS$ | |||||||
Argentine Peso | 47,079 | 82,893 | ||||||
Brazilian Real | 537,224 | 511,174 | ||||||
Chilean Peso | 131,543 | 118,546 | ||||||
Colombian peso | 2,288 | 7,259 | ||||||
Euro | 32,711 | 49,044 | ||||||
US Dollar | 436,774 | 110,312 | ||||||
Other currency (*) | 61,454 | 288,735 | ||||||
Total | 1,249,073 | 1,167,963 | ||||||
(*) Other currencies | ||||||||
Australian Dollar | 20,964 | 100,733 | ||||||
Chinese Yuan | 2,145 | 5,106 | ||||||
Danish Krone | 54 | 475 | ||||||
Pound Sterling | 7,428 | 18,129 | ||||||
Indian Rupee | 37 | 7,163 | ||||||
Japanese Yen | 1,222 | 56,589 | ||||||
Norwegian Kroner | 14 | 283 | ||||||
Swiss Franc | 535 | 5,046 | ||||||
Korean Won | 8,172 | 31,381 | ||||||
New Taiwanese Dollar | 1,117 | 6,180 | ||||||
Other currencies | 19,766 | 57,650 | ||||||
Total | 61,454 | 288,735 |
Currency | As of December 31, 2022 | As of December 31, 2021 | ||||||
ThUS$ | ThUS$ | |||||||
Argentine Peso | 25,559 | 7,282 | ||||||
Brazilian Real | 389,451 | 352,027 | ||||||
Chilean Peso | 36,626 | 53,488 | ||||||
Colombian Peso | 6,779 | 5,657 | ||||||
Euro | 12,506 | 24,548 | ||||||
US Dollar | 510,916 | 429,091 | ||||||
Korean Won | 6,337 | 844 | ||||||
Mexican Peso | 1,536 | 2,428 | ||||||
Australian Dollar | 9,808 | 62 | ||||||
Pound Sterling | 9,149 | 13,105 | ||||||
Uruguayan Peso (New) | 45 | 860 | ||||||
Swiss Franc | 2,621 | 361 | ||||||
Japanese Yen | 2,802 | 106 | ||||||
Swedish crown | 223 | 490 | ||||||
Other Currencies | 6,494 | 3,622 | ||||||
Total | 1,020,852 | 893,971 |
The movements of the provision for impairment losses of the Trade Debtors and other accounts receivable are as follows:
Adoption | ||||||||||||||||||||
Opening | adjustment | (Increase) | Closing | |||||||||||||||||
balance | IFRS 9 (*) | Write-offs | Decrease | balance | ||||||||||||||||
Periods | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||
From January 1 to December 31, 2017 | (77,054 | ) | - | 8,249 | (19,104 | ) | (87,909 | ) | ||||||||||||
From January 1 to December 31, 2018 | (87,909 | ) | (10,524 | ) | 8,620 | (8,178 | ) | (97,991 | ) | |||||||||||
From January 1 to December 31, 2019 | (97,991 | ) | - | 12,569 | (14,980 | ) | (100,402 | ) |
Opening balance | Write-offs | (Increase) Decrease | Closing balance | |||||||||||||
Periods | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||
From January 1 to December 31, 2020 | (100,402 | ) | 30,754 | (52,545 | ) | (122,193 | ) | |||||||||
From January 1 to December 31, 2021 | (122,193 | ) | 26,435 | 14,754 | (81,004 | ) | ||||||||||
From January 1 to December 31, 2022 | (81,004 | ) | 5,966 | 7,806 | (67,232 | ) |
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 renegotiations are not very relevant,significant, and the policy is to analyze case by case to classify them according to the existence of risk, determining if their reclassification correspondsthey need to be reclassified to pre-judicial collection accounts.
The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.
As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||||||||||
Gross exposure | Gross | Exposure net | Gross exposure | Gross | Exposure net | |||||||||||||||||||
according to | impaired | of risk | according to | Impaired | of risk | |||||||||||||||||||
balance | exposure | concentrations | balance | exposure | concentrations | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Trade accounts receivable | 1,073,599 | (100,402 | ) | 973,197 | 1,077,561 | (97,991 | ) | 979,570 | ||||||||||||||||
Other accounts receivable | 275,876 | - | 275,876 | 188,393 | - | 188,393 |
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||
Gross exposure according to balance | Gross impaired exposure | Exposure net of risk concentrations | Gross exposure according to balance | Gross Impaired exposure | Exposure net of risk concentrations | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Trade accounts receivable | 952,625 | (67,232 | ) | 885,393 | 765,050 | (81,004 | ) | 684,046 | ||||||||||||||||
Other accounts receivable | 135,459 | - | 135,459 | 209,925 | - | 209,925 |
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
Tax No. | Related party | Relationship | Country of origin | Currency | As of December 31, 2022 | As of December 31, 2021 | ||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||
Foreign | Qatar Airways | Indirect shareholder | Qatar | US$ | 257 | 703 | ||||||||||||
Foreign | TAM Aviação Executiva e Taxi Aéreo S.A. | Common shareholder | Brazil | BRL | - | 2 | ||||||||||||
Foreign | Delta Air Lines Inc. | Shareholder | U.S.A. | US$ | 19,228 | - | ||||||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Common shareholder | Chile | CLP | - | 6 | ||||||||||||
76.335.600-0 | Parque de Chile S.A. | Related director | Chile | CLP | 2 | 2 | ||||||||||||
96.989.370-3 | Rio Dulce S.A. | Related director | Chile | CLP | 1 | 4 | ||||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Related director | Chile | CLP | 35 | 7 | ||||||||||||
Total current assets | 19,523 | 724 |
(b) Current accounts payable
Current liabilities | ||||||||||||||||||
Tax No. | Related party | Relationship | Country of origin | Currency | As of December 31, 2022 | As of December 31, 2021 | ||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||
Foreign | Delta Airlines, Inc. | Shareholder | U.S.A. | US$ | - | 2,268 | ||||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | US$ | 5 | 5 | ||||||||||||
Foreign | Patagonia Seafarms INC | Related director | U.S.A. | US$ | 7 | 7 | ||||||||||||
81.062.300-4 | Costa Verde Aeronautica S.A. (*) | Shareholder | Chile | US$ | - | 175,819 | ||||||||||||
Foreign | QA Investments Ltd (*) | Common shareholder | U.K. | US$ | - | 219,774 | ||||||||||||
Foreign | QA Investments 2 Ltd (*) | Common shareholder | U.K. | US$ | - | 219,774 | ||||||||||||
Foreign | Lozuy S.A. (*) | Common shareholder | Uruguay | US$ | - | 43,955 | ||||||||||||
Total current and non current liabilities | 12 | 661,602 |
As of | As of | |||||||||||||||
Country | December 31, | December 31, | ||||||||||||||
Tax No. | Related party | Relationship | of origin | Currency | 2019 | 2018 | ||||||||||
ThUS$ | ThUS$ | |||||||||||||||
Foreign | Qatar Airways | Indirect shareholder | Qatar | US$ | 19,400 | 1,907 | ||||||||||
78.591.370-1 | Bethia S.A. and Subsidiaries | Related director | Chile | CLP | - | 988 | ||||||||||
Foreign | Delta Air Lines Inc. | Shareholder | U.S.A. | USD | 205 | - | ||||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Common shareholder | Chile | CLP | 36 | 31 | ||||||||||
96.782.530-1 | Inmobiliaria e Inversiones Asturias S.A. | Related director | Chile | CLP | 1 | - | ||||||||||
76.335.600-0 | Parque de Chile S.A. | Related director | Chile | CLP | 2 | - | ||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Related director | Chile | CLP | 1 | 5 | ||||||||||
Total current assets | 19,645 | 2,931 |
As of | As of | |||||||||||||||
Country | December 31, | December 31, | ||||||||||||||
Tax No. | Related party | Relationship | of origin | Currency | 2019 | 2018 | ||||||||||
ThUS$ | ThUS$ | |||||||||||||||
78.591.370-1 | Bethia S.A. and Subsidiaries | Related director | Chile | CLP | 53 | 365 | ||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | ARS | - | 15 | ||||||||||
Foreign | Patagonia Seafarms INC | Related director | U.S.A. | USD | 3 | - | ||||||||||
Foreign | TAM Aviação Executiva e Taxi Aéreo S.A. | Common shareholder | Brasil | BRL | - | 2 | ||||||||||
Total current liabilities | 56 | 382 |
Transactions between related parties have been carried out on free-tradearm’s length conditions between interested and duly-informed parties. The transaction times are betweenterms for the Liabilities of the period 2022 correspond from 30 and 45 days to 1 year of maturity, and the nature of the settlement of the transactions isare monetary.
NOTE 10 - INVENTORIES
The composition of Inventories is as follows:
As of | As of | |||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Technical stock | 315,286 | 233,276 | ||||||
Non-technical stock | 38,946 | 46,068 | ||||||
Total | 354,232 | 279,344 |
As of December 31, 2022 | As of December 31, 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Technical stock (*) | 438,717 | 250,327 | ||||||
Non-technical stock (**) | 39,072 | 37,010 | ||||||
Total | 477,789 | 287,337 |
(*) | Correspond to spare parts and materials that will be used in own maintenance services as well as those of third parties. |
The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which
(**) | Consumption of on-board services, uniforms and other indirect materials |
These are valued at their average acquisition cost net of their obsolescence provision for obsolescence, as peraccording to the following detail:
As of | As of | |||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Provision for obsolescence Technical stock | 21,193 | 20,500 | ||||||
Provision for obsolescenceNon-technical stock | 11,610 | 4,621 | ||||||
Total | 32,803 | 25,121 |
As of December 31, 2022 | As of December 31, 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Provision for obsolescence Technical stock | 49,981 | 64,455 | ||||||
Provision for obsolescence Non-technical stock | 5,823 | 5,785 | ||||||
Total | 55,804 | 70,240 |
The resulting amounts do not exceed the respective net realization values.
For the period endedAs of December 31, 2019,2022, the Company recordedregistered ThUS$ 133,286148,790 (ThUS$ 120,214 for the period ended47,362 as of December 31, 2018)2021) in results, mainly related to on-board consumption and maintenance, which is part of the Cost of sales.
NOTE 11 - OTHER FINANCIAL ASSETS
(a) The composition of other financial assets is as follows:
Current Assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(a) Other financial assets | ||||||||||||||||||||||||
Private investment funds | 386,669 | 322,428 | - | - | 386,669 | 322,428 | ||||||||||||||||||
Deposits in guarantee (aircraft) | 8,934 | 9,610 | 28,599 | 37,636 | 37,533 | 47,246 | ||||||||||||||||||
Guarantees for margins of derivatives | 21,200 | 661 | - | - | 21,200 | 661 | ||||||||||||||||||
Other investments | - | - | 494 | 494 | 494 | 494 | ||||||||||||||||||
Domestic and foreign bonds | 19 | 1,394 | - | - | 19 | 1,394 | ||||||||||||||||||
Other guarantees given | 6,507 | 7,140 | 15,138 | 20,570 | 21,645 | 27,710 | ||||||||||||||||||
Subtotal of other financial assets | 423,329 | 341,233 | 44,231 | 58,700 | 467,560 | 399,933 | ||||||||||||||||||
(b) Hedging derivate assets | ||||||||||||||||||||||||
Accrued Interest since the last payment date | ||||||||||||||||||||||||
Cross currency swap of currencies | 3 | - | - | - | 3 | - | ||||||||||||||||||
Fair value of interest rate derivatives | 27,044 | 19,460 | 2,676 | - | 29,720 | 19,460 | ||||||||||||||||||
Fair value of foreign currency derivatives | 586 | 3,895 | - | - | 586 | 3,895 | ||||||||||||||||||
Fair value of fuel price derivatives | 48,542 | - | - | - | 48,542 | - | ||||||||||||||||||
Subtotal of hedging derivate assets | 76,175 | 23,355 | 2,676 | - | 78,851 | 23,355 | ||||||||||||||||||
(c) Derivatives not recognized as a hedge | ||||||||||||||||||||||||
Foreign currency derivatives not recognized as a hedge | - | 19,396 | - | - | - | 19,396 | ||||||||||||||||||
Subtotal of derivatives not recognized as a hedge | - | 19,396 | - | - | - | 19,396 | ||||||||||||||||||
Total Other Financial Assets | 499,504 | 383,984 | 46,907 | 58,700 | 546,411 | 442,684 |
Current Assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(a) Other financial assets | ||||||||||||||||||||||||
Private investment funds | 277 | 347 | - | - | 277 | 347 | ||||||||||||||||||
Deposits in guarantee (aircraft) | 22,340 | 7,189 | 1,273 | 2,758 | 23,613 | 9,947 | ||||||||||||||||||
Guarantees for margins of derivatives | 7,460 | 5,451 | - | - | 7,460 | 5,451 | ||||||||||||||||||
Other investments | - | - | 493 | 493 | 493 | 493 | ||||||||||||||||||
Domestic and foreign bonds | - | 1,290 | - | - | - | 1,290 | ||||||||||||||||||
Guaranteed debt advances Chapter 11 (*) | 340,008 | - | - | - | 340,008 | - | ||||||||||||||||||
Other guarantees given | 111,829 | 69,220 | 13,751 | 12,371 | 125,580 | 81,591 | ||||||||||||||||||
Subtotal of other financial assets | 481,914 | 83,497 | 15,517 | 15,622 | 497,431 | 99,119 | ||||||||||||||||||
(b) Hedging derivative asset | ||||||||||||||||||||||||
Fair value of interest rate derivatives | 8,816 | - | - | - | 8,816 | - | ||||||||||||||||||
Fair value of foreign currency derivatives | 191 | - | - | - | 191 | - | ||||||||||||||||||
Fair value of fuel price derivatives | 12,594 | 17,641 | - | - | 12,594 | 17,641 | ||||||||||||||||||
Subtotal of derivative assets | 21,601 | 17,641 | - | - | 21,601 | 17,641 | ||||||||||||||||||
Total Other Financial Assets | 503,515 | 101,138 | 15,517 | 15,622 | 519,032 | 116,760 |
(*) | As of December 31, 2022, there are ThUS$340,008 of funds delivered to an agent as restricted advances, the purpose of which is to settle the claims pending resolution existing at the exit of the Chapter 11 process. See claims in force at the end of the period in Note 34b. |
The different derivative hedging contracts maintained by the Company at the end of each fiscal year are described in Note 19.18.
(b) The balances composition by currencies of the Other financial assets are as follows:
Type of currency | As of December 31, 2022 | As of December 31, 2021 | ||||||
ThUS$ | ThUS$ | |||||||
Argentine peso | 5 | 16 | ||||||
Brazilian real | 336,676 | 9,775 | ||||||
Chilean peso | 5,847 | 4,502 | ||||||
Colombian peso | 1,716 | 1,727 | ||||||
Euro | 6,791 | 4,104 | ||||||
U.S.A dollar | 165,457 | 93,247 | ||||||
Other currencies | 2,540 | 3,389 | ||||||
Total | 519,032 | 116,760 |
NOTE 12 - OTHER NON-FINANCIAL ASSETS
The composition of other non-financial assets is as follows:
Current assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Restated | Restated | Restated | ||||||||||||||||||||||
(a) Advance payments | ||||||||||||||||||||||||
Aircraft insurance and other | 11,179 | 16,483 | 523 | - | 11,702 | 16,483 | ||||||||||||||||||
Others | 15,167 | 20,105 | 1,832 | 4,460 | 16,999 | 24,565 | ||||||||||||||||||
Subtotal advance payments | 26,346 | 36,588 | 2,355 | 4,460 | 28,701 | 41,048 | ||||||||||||||||||
(b) Contract assets (1) | ||||||||||||||||||||||||
GDS costs | 16,593 | 14,708 | - | - | 16,593 | 14,708 | ||||||||||||||||||
Credit card commissions | 23,437 | 21,614 | - | - | 23,437 | 21,614 | ||||||||||||||||||
Travel agencies commissions | 16,546 | 12,635 | - | - | 16,546 | 12,635 | ||||||||||||||||||
Subtotal advance payments | 56,576 | 48,957 | - | - | 56,576 | 48,957 | ||||||||||||||||||
(c) Other assets | ||||||||||||||||||||||||
Aircraft maintenance reserve (2) | 27,987 | 831 | 17,844 | 51,836 | 45,831 | 52,667 | ||||||||||||||||||
Sales tax | 167,987 | 187,410 | 34,680 | 38,186 | 202,667 | 225,596 | ||||||||||||||||||
Other taxes | 34,295 | 15,255 | - | - | 34,295 | 15,255 | ||||||||||||||||||
Contributions to Société Internationale de | ||||||||||||||||||||||||
Télécommunications Aéronautiques (“SITA”) | 258 | 258 | 739 | 739 | 997 | 997 | ||||||||||||||||||
Judicial deposits | - | - | 149,310 | 132,267 | 149,310 | 132,267 | ||||||||||||||||||
Others | - | 1,177 | - | 53 | - | 1,230 | ||||||||||||||||||
Subtotal other assets | 230,527 | 204,931 | 202,573 | 223,081 | 433,100 | 428,012 | ||||||||||||||||||
Total Other Non - Financial Assets | 313,449 | 290,476 | 204,928 | 227,541 | 518,377 | 518,017 |
Current assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2022 | As of December 31, 2021 | As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(a) Advance payments | ||||||||||||||||||||||||
Aircraft insurance and other | 27,122 | 12,331 | - | - | 27,122 | 12,331 | ||||||||||||||||||
Others | 13,039 | 11,404 | 1,733 | 2,002 | 14,772 | 13,406 | ||||||||||||||||||
Subtotal advance payments | 40,161 | 23,735 | 1,733 | 2,002 | 41,894 | 25,737 | ||||||||||||||||||
(b) Contract assets (1) | ||||||||||||||||||||||||
GDS costs | 9,530 | 6,439 | - | - | 9,530 | 6,439 | ||||||||||||||||||
Credit card commissions | 26,124 | 10,550 | - | - | 26,124 | 10,550 | ||||||||||||||||||
Travel agencies commissions | 12,912 | 8,091 | - | - | 12,912 | 8,091 | ||||||||||||||||||
Subtotal advance payments | 48,566 | 25,080 | - | - | 48,566 | 25,080 | ||||||||||||||||||
(c) Other assets | ||||||||||||||||||||||||
Sales tax | 100,665 | 57,634 | 27,962 | 33,212 | 128,627 | 90,846 | ||||||||||||||||||
Other taxes | 1,688 | 1,661 | - | - | 1,688 | 1,661 | ||||||||||||||||||
Contributions to the International Aeronautical Telecommunications Society (“SITA”) | 258 | 258 | 739 | 739 | 997 | 997 | ||||||||||||||||||
Contributions to Universal Air Travel Plan “UATP” | - | - | 40 | 20 | 40 | 20 | ||||||||||||||||||
Judicial deposits | 26 | - | 117,904 | 89,459 | 117,930 | 89,459 | ||||||||||||||||||
Subtotal other assets | 102,637 | 59,553 | 146,645 | 123,430 | 249,282 | 182,983 | ||||||||||||||||||
Total Other Non - Financial Assets | 191,364 | 108,368 | 148,378 | 125,432 | 339,742 | 233,800 |
(1) Movement of Contracts assets:
Adjustments | Difference | |||||||||||||||||||||||
Initial | by the application | by | Final | |||||||||||||||||||||
balance | Activation | IFRS 15 | conversion | Amortization | balance | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
From January 1 to December 31, 2018 | - | 180,171 | 54,361 | (5,019 | ) | (180,556 | ) | 48,957 | ||||||||||||||||
From January 1 to December 31, 2019 | 48,957 | 166,300 | - | (4,950 | ) | (153,731 | ) | 56,576 |
Initial balance | Activation | Cumulative translation adjustment | Amortization | Final balance | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
From January 1 to December 31, 2021 | 15,476 | 67,647 | (6,680 | ) | (51,363 | ) | 25,080 | |||||||||||||
From January 1 to December 31, 2022 | 25,080 | 302,290 | (37,145 | ) | (241,658 | ) | 48,567 |
(2) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.
These amounts are calculated based on performance measures, such as flight hours or cycles, are paid periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.
In some cases, (five lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered and recognizes an expense if any such amounts are less than probable of being returned. The cost of aircraft maintenance in the last years has been higher than the related maintenance reserves for all aircraft.
As of December 31, 2019, maintenance reserves amount to ThUS$ 45,831 (ThUS$ 52,667 as of December 31, 2018), corresponding to 8 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.
Aircraft maintenance reserves are classified as current or non-current depending on the dates when the related maintenance is expected to be performed (Note 2.23).
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE
Non-current assets and disposal group classifiedsclassified as held for sale at December 31, 20192022 and December 31, 2018,2021, are detailed below:
As of | As of | |||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Current assets | ||||||||
Aircraft | 482,806 | 265 | ||||||
Engines and rotables | 1,943 | 5,299 | ||||||
Other | 401 | 204 | ||||||
Total | 485,150 | 5,768 |
As of | As of | |||||||
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Current assets | ||||||||
Aircraft | 64,483 | 99,694 | ||||||
Engines and rotables | 21,552 | 46,724 | ||||||
Other assets | 381 | 374 | ||||||
Total | 86,416 | 146,792 |
The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in Note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.
Assets reclassified from Property, plant |
During 2019, four Airbus A350, aircraft two Boeing 767, were reclassified from Property, plants and equipment to Non-current assets or groups of assets for disposal classified as held for sale.
Additionally, during 2019, the sale of one motor spare Boeing 767 and oneDuring 2020, eleven Boeing 767 aircraft were materialized. As a resulttransferred from the Property, plant and equipment, to Non-current assets item or groups of assets for disposal classified as held for sale. During 2021, the sale of five aircraft was completed. Additionally, during the year 2022 the sale of three aircraft was finalized.
During 2021, associated with the fleet restructuring plan, 3 engines of the above,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, of which during the same year the sale of 2019,an engine was finalized. Additionally, during the year 2022, the sale of an engine was finalized and some materials and spare parts of this same fleet were transferred 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 $ 2US$ 345 million of expenseexpenses 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 in disregard held for sale is as follows:
As of | As of | |||||||
December 31, | December 31, | |||||||
Aircraft | 2019 | 2018 | ||||||
Boeing 767 | 1 | - | ||||||
Airbus A350 | 4 | - | ||||||
ATR42-300 | - | 1 | ||||||
Total | 5 | 1 |
As of | As of | |||||||
December 31, | December 31, | |||||||
Aircraft | 2022 | 2021 | ||||||
Boeing 767 | 3 | 6 | ||||||
Airbus A320 | 3 | - | ||||||
Airbus A319 | 28 | - | ||||||
Total | 34 | 6 |
NOTE 14 - INVESTMENTS IN SUBSIDIARIES
(a) Investments in subsidiaries
The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.
Detail of significant subsidiaries:
Ownership | ||||||||||||
As of | As of | |||||||||||
Country of | Functional | December 31, | December 31, | |||||||||
Name of significant subsidiary | incorporation | currency | 2019 | 2018 | ||||||||
% | % | |||||||||||
Latam Airlines Perú S.A. | Peru | US$ | 70.00000 | 70.00000 | ||||||||
Lan Cargo S.A. | Chile | US$ | 99.89395 | 99.89803 | ||||||||
Lan Argentina S.A. | Argentina | ARS | 99.98370 | 99.86560 | ||||||||
Transporte Aéreo S.A. | Chile | US$ | 100.00000 | 100.00000 | ||||||||
Latam Airlines Ecuador S.A. | Ecuador | US$ | 100.00000 | 100.00000 | ||||||||
Aerovías de Integración Regional, AIRES S.A. | Colombia | COP | 99.19414 | 99.19061 | ||||||||
TAM S.A. | Brazil | BRL | 99.99938 | 99.99938 |
Ownership | ||||||||||||
As of | As of | |||||||||||
Country of | Functional | December 31, | December 31, | |||||||||
Name of significant subsidiary | incorporation | currency | 2022 | 2021 | ||||||||
% | % | |||||||||||
Latam Airlines Perú S.A. | Peru | US$ | 99.81000 | 99.81000 | ||||||||
Lan Cargo S.A. | Chile | US$ | 99.89810 | 99.89810 | ||||||||
Lan Argentina S.A. | Argentina | ARS | 100.00000 | 100.00000 | ||||||||
Transporte Aéreo S.A. | Chile | US$ | 100.00000 | 100.00000 | ||||||||
Latam Airlines Ecuador S.A. | Ecuador | US$ | 100.00000 | 100.00000 | ||||||||
Aerovías de Integración Regional, AIRES S.A. | Colombia | COP | 99.21764 | 99.20120 | ||||||||
TAM S.A. | Brazil | BRL | 100.00000 | 100.00000 |
The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.the parent company.
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
Statement of financial position as of December 31, 2019 | Income for the year ended December 31, 2019 | |||||||||||||||||||||||||||||||
Total | Current | Non-current | Total | Current | Non-current | Net | ||||||||||||||||||||||||||
Name of significant subsidiary | Assets | Assets | Assets | Liabilities | Liabilities | Liabilities | Revenue | Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Latam Airlines Perú S.A. | 519,363 | 481,592 | 37,771 | 510,672 | 508,541 | 2,131 | 1,186,668 | (1,739 | ) | |||||||||||||||||||||||
Lan Cargo S.A. | 634,852 | 334,725 | 300,127 | 462,666 | 398,872 | 63,794 | 274,774 | (4,157 | ) | |||||||||||||||||||||||
Lan Argentina S.A. | 262,049 | 255,641 | 6,408 | 89,070 | 86,912 | 2,158 | 218,989 | (133,408 | ) | |||||||||||||||||||||||
Transporte Aéreo S.A. | 359,335 | 101,128 | 258,207 | 142,423 | 46,383 | 96,040 | 315,105 | 14,610 | ||||||||||||||||||||||||
Latam Airlines Ecuador S.A. | 99,019 | 95,187 | 3,832 | 97,198 | 86,810 | 10,388 | 229,797 | (3,411 | ) | |||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 187,001 | 135,344 | 51,657 | 78,990 | 70,643 | 8,347 | 291,235 | (3,009 | ) | |||||||||||||||||||||||
TAM S.A. (*) | 5,036,864 | 2,580,665 | 2,456,199 | 3,497,559 | 2,556,280 | 941,279 | 5,013,293 | 185,720 |
Statement of financial position as of December 31, 2022 | Income for the period ended December 31, 2022 | |||||||||||||||||||||||||||||||
Total | Current | Non-current | Total | Current | Non-current | Net | ||||||||||||||||||||||||||
Name of significant subsidiary | Assets | Assets | Assets | Liabilities | Liabilities | Liabilities | Revenue | Income/(loss) | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Latam Airlines Perú S.A. | 335,773 | 305,288 | 30,485 | 281,178 | 276,875 | 4,303 | 1,257,865 | (12,726 | ) | |||||||||||||||||||||||
Lan Cargo S.A. | 394,378 | 144,854 | 249,524 | 212,094 | 165,297 | 46,797 | 333,054 | (1,230 | ) | |||||||||||||||||||||||
Lan Argentina S.A. | 178,881 | 175,130 | 3,751 | 176,707 | 111,306 | 65,401 | 3,108 | (450,755 | ) | |||||||||||||||||||||||
Transporte Aéreo S.A. | 283,166 | 47,238 | 235,928 | 177,109 | 145,446 | 31,663 | 320,187 | (36,190 | ) | |||||||||||||||||||||||
Latam Airlines Ecuador S.A. | 110,821 | 107,313 | 3,508 | 93,975 | 82,687 | 11,288 | 134,622 | 1,519 | ||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 112,501 | 109,076 | 3,425 | 213,941 | 211,679 | 2,262 | 394,430 | (122,199 | ) | |||||||||||||||||||||||
TAM S.A. (*) | 3,497,848 | 1,998,284 | 1,499,564 | 4,231,547 | 3,302,692 | 928,855 | 4,255,115 | (69,932 | ) |
Statement of financial position as of December 31, 2018 | Income for the year ended December 31, 2018 | |||||||||||||||||||||||||||||||
Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Restated | Restated | |||||||||||||||||||||||||||||||
Latam Airlines Perú S.A. | 419,325 | 379,490 | 39,835 | 409,221 | 406,159 | 3,062 | 871,860 | 2,732 | ||||||||||||||||||||||||
Lan Cargo S.A. | 513,367 | 243,499 | 269,868 | 336,715 | 292,399 | 44,316 | 190,997 | (34,322 | ) | |||||||||||||||||||||||
Lan Argentina S.A. | 243,230 | 235,919 | 7,311 | 239,234 | 236,786 | 2,448 | 154,878 | (132,538 | ) | |||||||||||||||||||||||
Transporte Aéreo S.A. | 331,496 | 72,597 | 258,899 | 129,233 | 28,277 | 100,956 | 231,221 | (17,609 | ) | |||||||||||||||||||||||
Latam Airlines Ecuador S.A. | 108,735 | 96,564 | 12,171 | 98,238 | 89,921 | 8,317 | 174,821 | 4,354 | ||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 116,352 | 55,865 | 60,487 | 77,984 | 69,150 | 8,834 | 215,366 | (6,396 | ) | |||||||||||||||||||||||
TAM S.A. (*) | 4,420,546 | 2,007,830 | 2,412,716 | 3,256,017 | 1,832,796 | 1,423,221 | 3,434,453 | 358,616 |
Statement of financial position as of December 31, 2021 | Income for the period ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statement of financial position as of December 31, 2017 | Income for the year ended December 31, 2017 | Total | Current | Non-current | Total | Current | Non-current | Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income | Assets | Assets | Assets | Liabilities | Liabilities | Liabilities | Revenue | Income/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restated | Restated | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latam Airlines Perú S.A. | 315,607 | 294,308 | 21,299 | 303,204 | 301,476 | 1,728 | 1,046,423 | 1,205 | 484,388 | 454,266 | 30,122 | 417,067 | 414,997 | 2,070 | 584,929 | (109,390 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Lan Cargo S.A. | 584,169 | 266,836 | 317,333 | 371,934 | 292,529 | 79,405 | 264,544 | (30,220 | ) | 721,484 | 452,981 | 268,503 | 537,180 | 488,535 | 48,645 | 215,811 | 1,590 | |||||||||||||||||||||||||||||||||||||||||||||||
Lan Argentina S.A. | 198,951 | 166,445 | 32,506 | 143,731 | 139,914 | 3,817 | 387,557 | (41,636 | ) | 162,995 | 158,008 | 4,987 | 119,700 | 98,316 | 21,384 | 242 | (200,315 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Transporte Aéreo S.A. | 324,498 | 30,909 | 293,589 | 104,357 | 36,901 | 67,456 | 317,436 | 2,172 | 471,094 | 184,235 | 286,859 | 327,955 | 275,246 | 52,709 | 203,411 | (56,135 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | 96,407 | 66,166 | 30,241 | 84,123 | 78,817 | 5,306 | 219,039 | 3,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latam Airlines Ecuador S.A. | 112,437 | 108,851 | 3,586 | 97,111 | 80,861 | 16,250 | 68,762 | (5,596 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 138,138 | 64,160 | 73,978 | 91,431 | 80,081 | 11,350 | 279,414 | 526 | 70,490 | 67,809 | 2,681 | 87,749 | 75,621 | 12,128 | 239,988 | (19,810 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
TAM S.A. (*) | 4,490,714 | 1,843,822 | 2,646,892 | 3,555,423 | 2,052,633 | 1,502,790 | 4,621,338 | 160,582 | 2,608,859 | 1,262,825 | 1,346,034 | 3,257,148 | 2,410,426 | 846,722 | 2,003,922 | (741,791 | ) |
(*) | Corresponds to consolidated information of TAM S.A. and |
F-79
Equity
As of | As of | As of | As of | |||||||||||||||||
Country | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||
Tax No. | of origin | 2019 | 2018 | 2019 | 2018 | |||||||||||||||
% | % | ThUS$ | ThUS$ | |||||||||||||||||
Restated | ||||||||||||||||||||
Latam Airlines Perú S.A | 0-E | Peru | 30.00000 | 30.00000 | 2,609 | 3,032 | ||||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | 0.10196 | 0.10196 | 369 | (101 | ) | |||||||||||||
Inversora Cordillera S.A. and Subsidiaries | 0-E | Argentina | 0.01630 | 0.13940 | (6,276 | ) | 8,684 | |||||||||||||
Lan Argentina S.A. | 0-E | Argentina | 0.02890 | 0.02890 | 50 | (472 | ) | |||||||||||||
Americonsult de Guatemala S.A. | 0-E | Guatemala | 0.87000 | 1.00000 | 1 | 1 | ||||||||||||||
Americonsult S.A. and Subsidiaries | 0-E | Mexico | 0.20000 | 0.20000 | (7 | ) | 1 | |||||||||||||
Americonsult Costa Rica S.A. | 0-E | Costa Rica | 0.20000 | 1.00000 | 2 | 11 | ||||||||||||||
Linea Aérea Carguera de Colombiana S.A. | 0-E | Colombia | 10.00000 | 10.00000 | (755 | ) | (462 | ) | ||||||||||||
Aerolíneas Regionales de Integración Aires S.A. | 0-E | Colombia | 0.79880 | 0.79880 | 899 | 378 | ||||||||||||||
Transportes Aereos del Mercosur S.A. | 0-E | Paraguay | 5.02000 | 5.02000 | 1,503 | 1,740 | ||||||||||||||
Multiplus S.A.(*) | 0-E | Brazil | - | 27.26000 | - | 67,096 | ||||||||||||||
Total | (1,605 | ) | 79,908 |
Incomes
For the year ended | For the year ended | |||||||||||||||||||||||||||
Country | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
Tax No. | of origin | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||
% | % | % | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
Latam Airlines Perú S.A | 0-E | Peru | 30.00000 | 30.00000 | 30.00000 | (1,065 | ) | 1,673 | 360 | |||||||||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | 0.10196 | 0.10196 | 0.10196 | 19 | (406 | ) | (4 | ) | ||||||||||||||||||
Promotora Aerea Latinoamericana S.A. and Subsidiaries | 0-E | Mexico | - | - | 51.00000 | - | - | 1,416 | ||||||||||||||||||||
Inversora Cordillera S.A. and Subsidiaries | 0-E | Argentina | 0.01630 | 0.13940 | 0.13940 | 359 | 66 | 117 | ||||||||||||||||||||
Lan Argentina S.A. | 0-E | Argentina | 0.02890 | 0.02890 | 0.02842 | 48 | 39 | 24 | ||||||||||||||||||||
Americonsult S.A. and Subsidiaries | 0-E | Mexico | 0.20000 | 0.20000 | 0.20000 | (7 | ) | 2 | - | |||||||||||||||||||
Linea Aérea Carguera de Colombiana S.A. | 0-E | Colombia | 10.00000 | 10.00000 | 10.00000 | (293 | ) | 58 | 398 | |||||||||||||||||||
Aerolíneas Regionales de Integración Aires S.A. | 0-E | Colombia | 0.79880 | 0.79880 | 0.80944 | (24 | ) | 87 | 4 | |||||||||||||||||||
Transportes Aereos del Mercosur S.A. | 0-E | Paraguay | 5.02000 | 5.02000 | 5.02000 | 420 | 717 | 299 | ||||||||||||||||||||
Multiplus S.A.(*) | 0-E | Brazil | - | 27.26000 | 27.26000 | 5,726 | 29,739 | 42,796 | ||||||||||||||||||||
Total | 5,183 | 31,975 | 45,410 |
(b) Non-controlling interests
As of | As of | As of | As of | |||||||||||||||||
Country | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||
Equity | Tax No. | of origin | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
% | % | ThUS$ | ThUS$ | |||||||||||||||||
Latam Airlines Perú S.A | Foreign | Peru | 0.19000 | 0.19000 | (12,392 | ) | (13,035 | ) | ||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | 0.10196 | 0.10196 | (1,638 | ) | 2,481 | |||||||||||||
Lan Pax Airlines Group S.A. y Filiales | 96.969.680-0 | Chile | 0.00000 | 0.00000 | 1,691 | (149 | ) | |||||||||||||
Linea Aérea Carguera de Colombiana S.A. | Foreign | Colombia | 9.54000 | 9.54000 | 129 | (422 | ) | |||||||||||||
Transportes Aereos del Mercosur S.A. | Foreign | Paraguay | 5.02000 | 5.02000 | 653 | 769 | ||||||||||||||
Total | (11,557 | ) | (10,356 | ) |
For the year ended | For the year ended | |||||||||||||||||||||||||||
Country | December 31, | December 31, | ||||||||||||||||||||||||||
Incomes | Tax No. | of origin | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||||
% | % | % | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||
Latam Airlines Perú S.A | Foreign | Peru | 0.19000 | 0.19000 | 0.19000 | 643 | (5,553 | ) | (8,102 | ) | ||||||||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000-4 | Chile | 0.10196 | 0.10196 | 0.10196 | (4,118 | ) | (1,771 | ) | (121 | ) | |||||||||||||||||
Lan Pax Airlines Group S.A. y Filiales | 96.969.680-0 | Chile | - | - | 0.10196 | 967 | (182 | ) | 431 | |||||||||||||||||||
Linea Aérea Carguera de Colombiana S.A. | Foreign | Colombia | 9.54000 | 9.54000 | 9.54000 | 551 | 1,788 | (943 | ) | |||||||||||||||||||
Transportes Aereos del Mercosur S.A. | Foreign | Paraguay | 5.02000 | 0.79880 | 5.02000 | (116 | ) | 67 | (913 | ) | ||||||||||||||||||
Total | (2,073 | ) | (5,651 | ) | (9,648 | ) |
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
Classes of intangible assets | Classes of intangible assets | |||||||||||||||
(net) | (gross) | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Airport slots | 845,959 | 828,969 | 845,959 | 828,969 | ||||||||||||
Loyalty program | 263,806 | 274,420 | 263,806 | 274,420 | ||||||||||||
Computer software | 220,993 | 156,038 | 656,699 | 529,009 | ||||||||||||
Developing software | 99,193 | 151,853 | 99,193 | 151,853 | ||||||||||||
Trademarks (1) | 17,959 | 29,361 | 51,326 | 53,391 | ||||||||||||
Other assets | 331 | 431 | 1,315 | 1,325 | ||||||||||||
Total | 1,448,241 | 1,441,072 | 1,918,298 | 1,838,967 |
Classes of intangible assets | Classes of intangible assets | |||||||||||||||
(net) | (gross) | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Airport slots | 625,368 | 587,214 | 625,368 | 587,214 | ||||||||||||
Loyalty program | 203,791 | 190,542 | 203,791 | 190,542 | ||||||||||||
Computer software | 143,550 | 136,135 | 518,971 | 463,478 | ||||||||||||
Developing software | 107,652 | 104,874 | 107,651 | 105,673 | ||||||||||||
Trademarks (1) | - | - | 37,904 | 36,723 | ||||||||||||
Other assets | 25 | 127 | 1,315 | 1,315 | ||||||||||||
Total | 1,080,386 | 1,018,892 | 1,495,000 | 1,384,945 |
Movement in Intangible assets other than goodwill:
Computer software Net | Developing software | Airport slots (2) | Trademarks and loyalty program (1) ( 2) | Total | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Opening balance as of January 1, 2017 | 157,016 | 91,053 | 978,849 | 383,395 | 1,610,313 | |||||||||||||||
Additions | 8,453 | 78,880 | - | - | 87,333 | |||||||||||||||
Withdrawals | (244 | ) | (684 | ) | - | - | (928 | ) | ||||||||||||
Transfer software | 45,783 | (45,580 | ) | - | - | 203 | ||||||||||||||
Foreign exchange | (1,215 | ) | (254 | ) | (14,336 | ) | (5,459 | ) | (21,264 | ) | ||||||||||
Amortization | (48,823 | ) | - | - | (9,587 | ) | (58,410 | ) | ||||||||||||
Closing balance as of December 31, 2017 | 160,970 | 123,415 | 964,513 | 368,349 | 1,617,247 | |||||||||||||||
Opening balance as of January 1, 2018 | 160,970 | 123,415 | 964,513 | 368,349 | 1,617,247 | |||||||||||||||
Additions | 791 | 94,301 | - | - | 95,092 | |||||||||||||||
Withdrawals | (403 | ) | (125 | ) | - | - | (528 | ) | ||||||||||||
Transfer software | 59,771 | (61,087 | ) | - | - | (1,316 | ) | |||||||||||||
Foreign exchange | (10,231 | ) | (4,651 | ) | (135,544 | ) | (53,522 | ) | (203,948 | ) | ||||||||||
Amortization | (54,549 | ) | - | - | (11,046 | ) | (65,595 | ) | ||||||||||||
Adjustment application IAS 29 by hyperinflation Argentina | 120 | - | - | - | 120 | |||||||||||||||
Closing balance as of December 31, 2018 | 156,469 | 151,853 | 828,969 | 303,781 | 1,441,072 | |||||||||||||||
Opening balance as of January 1, 2019 | 156,469 | 151,853 | 828,969 | 303,781 | 1,441,072 | |||||||||||||||
Additions | 278 | 91,371 | 47,587 | - | 139,236 | |||||||||||||||
Withdrawals | (270 | ) | (1,123 | ) | - | - | (1,393 | ) | ||||||||||||
Transfer software | 136,935 | (140,102 | ) | - | - | (3,167 | ) | |||||||||||||
Foreign exchange | (1,981 | ) | (2,806 | ) | (30,597 | ) | (11,612 | ) | (46,996 | ) | ||||||||||
Amortization | (70,107 | ) | - | - | (10,404 | ) | (80,511 | ) | ||||||||||||
Closing balance as of December 31, 2019 | 221,324 | 99,193 | 845,959 | 281,765 | 1,448,241 |
Movement in Intangible assets other than goodwill: |
Computer | Trademarks | |||||||||||||||||||
software and others | Developing | Airport | and loyalty | |||||||||||||||||
Net | software | slots | program (1) | Total | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Opening balance as of January 1, 2020 | 221,324 | 99,193 | 845,959 | 281,765 | 1,448,241 | |||||||||||||||
Additions | 45 | 76,331 | - | - | 76,376 | |||||||||||||||
Withdrawals | (333 | ) | (454 | ) | (36,896 | ) | - | (37,683 | ) | |||||||||||
Transfer software and others | 101,015 | (99,890 | ) | - | - | 1,125 | ||||||||||||||
Foreign exchange | (20,242 | ) | (6,659 | ) | (181,321 | ) | (63,478 | ) | (271,700 | ) | ||||||||||
Amortization | (162,468 | ) | - | - | (7,332 | ) | (169,800 | ) | ||||||||||||
Closing balance as of December 31, 2020 | 139,341 | 68,521 | 627,742 | 210,955 | 1,046,559 | |||||||||||||||
Opening balance as of January 1, 2021 | 139,341 | 68,521 | 627,742 | 210,955 | 1,046,559 | |||||||||||||||
Additions | - | 82,798 | - | - | 82,798 | |||||||||||||||
Withdrawals | (275 | ) | (429 | ) | - | - | (704 | ) | ||||||||||||
Transfer software and others | 46,144 | (45,657 | ) | - | (352 | ) | 135 | |||||||||||||
Foreign exchange | (3,571 | ) | (359 | ) | (40,528 | ) | (14,276 | ) | (58,734 | ) | ||||||||||
Amortization | (45,377 | ) | - | - | (5,785 | ) | (51,162 | ) | ||||||||||||
Closing balance as of December 31, 2021 | 136,262 | 104,874 | 587,214 | 190,542 | 1,018,892 | |||||||||||||||
Opening balance as of January 1, 2022 | 136,262 | 104,874 | 587,214 | 190,542 | 1,018,892 | |||||||||||||||
Additions | 47 | 66,820 | - | - | 66,867 | |||||||||||||||
Withdrawals | (2,947 | ) | (245 | ) | - | - | (3,192 | ) | ||||||||||||
Transfer software and others | 61,212 | (63,658 | ) | - | - | (2,446 | ) | |||||||||||||
Foreign exchange | 3,359 | (139 | ) | 38,154 | 13,249 | 54,623 | ||||||||||||||
Amortization | (54,358 | ) | - | - | - | (54,358 | ) | |||||||||||||
Closing balance as of December 31, 2022 | 143,575 | 107,652 | 625,368 | 203,791 | 1,080,386 |
(1) | In 2016, the Company |
The estimate of the new useful life is 5 years, equivalent to the period necessary to complete the change of image.
As of December, 31, 2022, the TAM brand is fully amortized.
See Note 2.5
The amortization of each period is recognized in the consolidated income statement in thewithin administrative expenses.
The cumulative amortization of computer programs, brands and brandsother assets as of December 31, 2019,2022 amounts to ThUS $ 470,057414,614 (ThUS $ 397,895366,053 as of December 31, 2018)2021).
NOTE 16 – GOODWILLb) Impairment Test Intangible Assets with an indefinite useful life
Goodwill as of December 31, 2019, amounts to ThUS $ 2,209,576 (ThUS $ 2,294,072 as of December 31, 2018). The goodwill movement, separated by CGU, includes the following:
Movement of Goodwill, separated by CGU:
Air Transport | Coalition and loyalty program Multiplus | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2017 | 2,176,634 | 533,748 | 2,710,382 | |||||||||
Increase (decrease) due to exchange rate differences | (29,942 | ) | (7,890 | ) | (37,832 | ) | ||||||
Others | - | - | - | |||||||||
Closing balance as of December 31, 2017 | 2,146,692 | 525,858 | 2,672,550 | |||||||||
Opening balance as of January 1, 2018 | 2,146,692 | 525,858 | 2,672,550 | |||||||||
Increase (decrease) due to exchange rate differences | (300,203 | ) | (76,922 | ) | (377,125 | ) | ||||||
Adjustment IAS 29, hyperinflation Argentina | 335 | - | 335 | |||||||||
Others | (1,688 | ) | - | (1,688 | ) | |||||||
Closing balance as of December 31, 2018 | 1,845,136 | 448,936 | 2,294,072 | |||||||||
Opening balance as of January 1, 2019 | 1,845,136 | 448,936 | 2,294,072 | |||||||||
Increase (decrease) due to exchange rate differences | (67,133 | ) | (17,363 | ) | (84,496 | ) | ||||||
Transfer from Multiplus S.A. (see nota 1) | 431,573 | (431,573 | ) | - | ||||||||
Closing balance as of December 31, 2019 | 2,209,576 | - | 2,209,576 |
As of December 31, 2019,2022, the Company maintains only the CGU “Air Transport”, due to the merger of Multiplus S.A. in TAM Linhas Aereas (see Note 1), and changes in the management structure..
The CGU “Air transport” considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe, Africa and Oceania.
As of December 31, 2022, in accordance with the accounting policy, the Company performed the annual impairment test.
The recoverable amount of the CGU has beenwas determined based on calculations of the value in use calculations which require the use of assumptions.use. These calculations use projections of 5 years of cash flow projections covering a 5 year period which is based onflows after taxes from the financial budgets approved by management. Cash flows beyond the 5 yearbudgeted period are extrapolated using the estimated revenue growth rates and estimated average volumes, which do not exceed thelong-term average long-term revenue growth rates.
Management’s cash flow projections included significant judgements and assumptions related to annual revenue growth rates, discount rate, inflation rates, the exchange rate and the price of fuel. The annual revenue growth rate is based on past performance and management’s expectations of market development in each of the countries in which it operates. The discount rates used for the CGU “Air transport”, are in determined in US dollars, after taxes, and reflect specific risks related to the relevant countries of each of the operations. Inflation rates and exchange rates are based on the data available from the countries and the information provided by the Central BankBanks of the various countries where it operates, and the price of fuel is determined based on estimated levels of production, the competitive environment of the market in which they operate and their commercial strategy.
As of December 31, 2019 theThe recoverable values were determined using the following assumptions presented below:assumptions:
CGU | ||||
Air transport | ||||
Annual growth rate (Terminal) | % | 0.0 – 3.5 | ||
Exchange rate (1) | R$/US$ | 5.40 – 5.63 | ||
Discount rate based | ||||
Cost of | % | 8.40 – 12.40 | ||
Fuel Price from | ||||
Commodities markets | US$/barrel | 100 – 130 |
(1) In line with the expectations of the Central Bank of Brazil
(1) | In line with expectations of the Central Bank of Brazil. |
The result of the impairment test, which includes a sensitivity analysis of its main variables, showed that the estimated recoverable amount exceeded the carrying amountbook value of the cash generatingcash-generating unit, and therefore no impairment was detected.identified.
The calculation of the recoverable value of the CGU is most sensitive to annual revenue growth rates, discountdiscounts and exchange rates.rates and fuel price. The sensitivity analysis included the individual impact of the variations of thechanges in critical estimates whenin determining the recoverable amounts, namely:
Increase | ||||||||||||
Increase | Decrease rate | fuel price | ||||||||||
WACC Maximum | Terminal growth Minimal | Maximum US$/barrel | ||||||||||
% | % | |||||||||||
Air Transportation CGU | 12.4 | 0 | 130 |
Decrease | ||||
Increase | Minimum | |||
Maximum | terminal | |||
WACC | growth rate | |||
% | % | |||
Air transportation CGU | 8.5 | 1.0 |
In none of the previous cases there wasabove scenarios an impairment of the cash generating unit.cash-generating unit was identified.
NOTE 1716 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and equipment is as follows:
Gross Book Value | Accumulated depreciation | Net Book Value | ||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
a) Property, plant and equipment | ||||||||||||||||||||||||
Construction in progress (1) | 388,810 | 473,797 | - | - | 388,810 | 473,797 | ||||||||||||||||||
Land | 44,349 | 43,276 | - | - | 44,349 | 43,276 | ||||||||||||||||||
Buildings | 124,507 | 121,972 | (55,511 | ) | (61,521 | ) | 68,996 | 60,451 | ||||||||||||||||
Plant and equipment | 11,135,425 | 11,024,722 | (4,836,926 | ) | (4,462,706 | ) | 6,298,499 | 6,562,016 | ||||||||||||||||
Own aircraft (3) (4) | 10,427,950 | 10,377,850 | (4,619,279 | ) | (4,237,585 | ) | 5,808,671 | 6,140,265 | ||||||||||||||||
Other (2) | 707,475 | 646,872 | (217,647 | ) | (225,121 | ) | 489,828 | 421,751 | ||||||||||||||||
Machinery | 27,090 | 25,764 | (25,479 | ) | (23,501 | ) | 1,611 | 2,263 | ||||||||||||||||
Information technology equipment | 153,355 | 146,986 | (136,746 | ) | (130,150 | ) | 16,609 | 16,836 | ||||||||||||||||
Fixed installations and accessories | 155,351 | 147,402 | (118,279 | ) | (108,661 | ) | 37,072 | 38,741 | ||||||||||||||||
Motor vehicles | 51,504 | 49,186 | (46,343 | ) | (44,423 | ) | 5,161 | 4,763 | ||||||||||||||||
Leasehold improvements | 202,753 | 248,733 | (42,726 | ) | (115,758 | ) | 160,027 | 132,975 | ||||||||||||||||
Subtotal Properties, plant and equipment | 12,283,144 | 12,281,838 | (5,262,010 | ) | (4,946,720 | ) | 7,021,134 | 7,335,118 | ||||||||||||||||
b) Right of use | ||||||||||||||||||||||||
Aircraft (3) | 4,391,690 | 5,211,153 | (3,064,869 | ) | (3,109,411 | ) | 1,326,821 | 2,101,742 | ||||||||||||||||
Other assets | 246,078 | 243,014 | (182,372 | ) | (190,007 | ) | 63,706 | 53,007 | ||||||||||||||||
Subtotal Right of use | 4,637,768 | 5,454,167 | (3,247,241 | ) | (3,299,418 | ) | 1,390,527 | 2,154,749 | ||||||||||||||||
Total | 16,920,912 | 17,736,005 | (8,509,251 | ) | (8,246,138 | ) | 8,411,661 | 9,489,867 |
Gross Book Value | Accumulated depreciation | Net Book Value | ||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Restated | Restated | Restated | ||||||||||||||||||||||
Construction in progress (1) | 372,589 | 630,320 | - | - | 372,589 | 630,320 | ||||||||||||||||||
Land | 48,406 | 45,424 | - | - | 48,406 | 45,424 | ||||||||||||||||||
Buildings | 133,488 | 179,907 | (58,626 | ) | (67,342 | ) | 74,862 | 112,565 | ||||||||||||||||
Plant and equipment | 13,993,044 | 13,333,837 | (4,630,001 | ) | (4,361,337 | ) | 9,363,043 | 8,972,500 | ||||||||||||||||
Own aircraft | 13,268,562 | 12,595,223 | (4,421,211 | ) | (4,096,975 | ) | 8,847,351 | 8,498,248 | ||||||||||||||||
Other (2) | 724,482 | 738,614 | (208,790 | ) | (264,362 | ) | 515,692 | 474,252 | ||||||||||||||||
Machinery | 33,658 | 34,253 | (28,441 | ) | (27,659 | ) | 5,217 | 6,594 | ||||||||||||||||
Information technology equipment | 161,992 | 160,936 | (141,216 | ) | (138,372 | ) | 20,776 | 22,564 | ||||||||||||||||
Fixed installations and accessories | 171,469 | 182,629 | (111,635 | ) | (111,620 | ) | 59,834 | 71,009 | ||||||||||||||||
Motor vehicles | 67,060 | 69,653 | (60,327 | ) | (60,531 | ) | 6,733 | 9,122 | ||||||||||||||||
Leasehold improvements | 234,249 | 211,322 | (135,789 | ) | (128,055 | ) | 98,460 | 83,267 | ||||||||||||||||
Right of use | 5,693,553 | 4,987,953 | (2,823,855 | ) | (2,439,509 | ) | 2,869,698 | 2,548,444 | ||||||||||||||||
Aircraft | 5,438,404 | 4,761,529 | (2,669,864 | ) | (2,305,195 | ) | 2,768,540 | 2,456,334 | ||||||||||||||||
Other assets | 255,149 | 226,424 | (153,991 | ) | (134,314 | ) | 101,158 | 92,110 | ||||||||||||||||
Total | 20,909,508 | 19,836,234 | (7,989,890 | ) | (7,334,425 | ) | 12,919,618 | 12,501,809 |
(1) | As of December 31, |
(2) | Consider mainly rotables and tools. |
(4) | During 2022, six A320 and twenty-eight A319 aircraft were reclassified to Non-current assets or groups of assets for disposal as held for sale. |
Information | Fixed | Property, | ||||||||||||||||||||||||||||||||||||||
Plant and | technology | installations | Motor | Leasehold | Rights | Plant and | ||||||||||||||||||||||||||||||||||
Construction | Buildings | equipment | equipment | & accessories | Vehicles | improvements | of use | equipment | ||||||||||||||||||||||||||||||||
in progress | Land | net | net | net | net | net | net | net | net | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||
Opening balance as of January 1, 2017 Restated | 470,065 | 50,148 | 130,219 | 9,618,505 | 39,714 | 83,912 | 1,045 | 104,541 | 2,931,101 | 13,429,250 | ||||||||||||||||||||||||||||||
Additions | 11,145 | - | - | 300,098 | 5,708 | 329 | 77 | 8,156 | 288,142 | 613,655 | ||||||||||||||||||||||||||||||
Disposals | - | - | - | (16,031 | ) | (6 | ) | (10 | ) | (43 | ) | - | - | (16,090 | ) | |||||||||||||||||||||||||
Retirements | (127 | ) | - | (6 | ) | (25,951 | ) | (473 | ) | (497 | ) | - | - | - | (27,054 | ) | ||||||||||||||||||||||||
Depreciation expenses | - | - | (7,946 | ) | (701,094 | ) | (14,587 | ) | (14,124 | ) | (187 | ) | (27,266 | ) | (375,510 | ) | (1,140,714 | ) | ||||||||||||||||||||||
Foreign exchange | 107 | (368 | ) | (275 | ) | (9,716 | ) | (183 | ) | (820 | ) | (8 | ) | (243 | ) | - | (11,506 | ) | ||||||||||||||||||||||
Other increases (decreases) | 75,632 | - | 2,556 | (27,220 | ) | (17 | ) | 11,987 | (448 | ) | (963 | ) | 21,584 | 83,111 | ||||||||||||||||||||||||||
Changes, total | 86,757 | (368 | ) | (5,671 | ) | (479,914 | ) | (9,558 | ) | (3,135 | ) | (609 | ) | (20,316 | ) | (65,784 | ) | (498,598 | ) | |||||||||||||||||||||
Closing balance as of December 31, 2017 | 556,822 | 49,780 | 124,548 | 9,138,591 | 30,156 | 80,777 | 436 | 84,225 | 2,865,317 | 12,930,652 | ||||||||||||||||||||||||||||||
Opening balance as of January 1, 2018 Restated | 556,822 | 49,780 | 124,548 | 9,138,591 | 30,156 | 80,777 | 436 | 84,225 | 2,865,317 | 12,930,652 | ||||||||||||||||||||||||||||||
Additions | 7,927 | - | - | 635,367 | 4,995 | 64 | 24 | 20,410 | 326,298 | 995,085 | ||||||||||||||||||||||||||||||
Disposals | - | (8 | ) | (1,412 | ) | (4,747 | ) | (30 | ) | (74 | ) | (14 | ) | - | - | (6,285 | ) | |||||||||||||||||||||||
Retirements | (80 | ) | - | (19 | ) | (63,774 | ) | (92 | ) | (27 | ) | - | (4 | ) | - | (63,996 | ) | |||||||||||||||||||||||
Depreciation expenses | - | - | (6,219 | ) | (705,577 | ) | (11,677 | ) | (12,538 | ) | (146 | ) | (27,766 | ) | (391,138 | ) | (1,155,061 | ) | ||||||||||||||||||||||
Foreign exchange | (714 | ) | (4,348 | ) | (4,244 | ) | (94,488 | ) | (1,819 | ) | (8,499 | ) | (28 | ) | (2,351 | ) | (13,751 | ) | (130,242 | ) | ||||||||||||||||||||
Other increases (decreases) | 65,992 | - | (89 | ) | 78,341 | 732 | 10,195 | 273 | 8,753 | (238,282 | ) | (74,085 | ) | |||||||||||||||||||||||||||
Adjustment application IAS 29 | 373 | - | - | 3,869 | 299 | 1,111 | 89 | - | - | 5,741 | ||||||||||||||||||||||||||||||
Changes, total | 73,498 | (4,356 | ) | (11,983 | ) | (151,009 | ) | (7,592 | ) | (9,768 | ) | 198 | (958 | ) | (316,873 | ) | (428,843 | ) | ||||||||||||||||||||||
Closing balance as of December 31, 2018 Restated | 630,320 | 45,424 | 112,565 | 8,987,582 | 22,564 | 71,009 | 634 | 83,267 | 2,548,444 | 12,501,809 | ||||||||||||||||||||||||||||||
Opening balance as of January 1, 2019 (Restated ) | 630,320 | 45,424 | 112,565 | 8,987,582 | 22,564 | 71,009 | 634 | 83,267 | 2,548,444 | 12,501,809 | ||||||||||||||||||||||||||||||
Additions | 21,884 | 7,950 | - | 1,694,640 | 6,580 | 26 | 73 | 34,988 | 753,164 | 2,519,305 | ||||||||||||||||||||||||||||||
Disposals | - | (28 | ) | (47 | ) | (23,945 | ) | (13 | ) | (75 | ) | (11 | ) | - | - | (24,119 | ) | |||||||||||||||||||||||
Retirements | (20 | ) | - | - | (64,838 | ) | (85 | ) | (77 | ) | - | (362 | ) | - | (65,382 | ) | ||||||||||||||||||||||||
Depreciation expenses | - | - | (5,768 | ) | (776,225 | ) | (8,574 | ) | (11,945 | ) | (94 | ) | (19,001 | ) | (400,384 | ) | (1,221,991 | ) | ||||||||||||||||||||||
Foreign exchange | (1,340 | ) | (1,103 | ) | (914 | ) | (24,615 | ) | (234 | ) | (2,007 | ) | (125 | ) | (432 | ) | (4,561 | ) | (35,331 | ) | ||||||||||||||||||||
Other increases (decreases) | (278,255 | ) | (3,837 | ) | (30,974 | ) | (418,083 | ) | 538 | 2,903 | - | - | (26,965 | ) | (754,673 | ) | ||||||||||||||||||||||||
Changes, total | (257,731 | ) | 2,982 | (37,703 | ) | 386,934 | (1,788 | ) | (11,175 | ) | (157 | ) | 15,193 | 321,254 | 417,809 | |||||||||||||||||||||||||
Closing balance as of December 31, 2019 | 372,589 | 48,406 | 74,862 | 9,374,516 | 20,776 | 59,834 | 477 | 98,460 | 2,869,698 | 12,919,618 |
Movement in the different categories of Property, plant and equipment:
Information | Fixed | Property, | ||||||||||||||||||||||||||||||||||
Plant and | technology | installations | Motor | Leasehold | Plant and | |||||||||||||||||||||||||||||||
Construction | Buildings | equipment | equipment | & accessories | vehicles | improvements | equipment | |||||||||||||||||||||||||||||
in progress | Land | net | net | net | net | net | net | net | ||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
Opening balance as of January 1, 2020 | 372,589 | 48,406 | 74,862 | 9,374,516 | 20,776 | 59,834 | 477 | 98,460 | 10,049,920 | |||||||||||||||||||||||||||
Additions | 6,535 | - | - | 485,800 | 1,295 | 9 | - | - | 493,639 | |||||||||||||||||||||||||||
Disposals | - | - | - | (1,439 | ) | (112 | ) | (31 | ) | (4 | ) | - | (1,586 | ) | ||||||||||||||||||||||
Rejection fleet | - | - | - | (1,081,496 | ) | - | - | - | (82 | ) | (1,081,578 | ) | ||||||||||||||||||||||||
Retirements | (39 | ) | - | - | (107,912 | ) | (55 | ) | (3,250 | ) | - | - | (111,256 | ) | ||||||||||||||||||||||
Depreciation expenses | - | - | (4,819 | ) | (682,102 | ) | (6,186 | ) | (9,037 | ) | (81 | ) | (16,542 | ) | (718,767 | ) | ||||||||||||||||||||
Foreign exchange | (2,601 | ) | (5,428 | ) | (4,836 | ) | (146,219 | ) | (1,543 | ) | (7,195 | ) | 4 | (2,587 | ) | (170,405 | ) | |||||||||||||||||||
Other increases (decreases) | 1,477 | - | - | (142,179 | ) | 656 | 8,869 | - | (4,841 | ) | (136,018 | ) | ||||||||||||||||||||||||
Changes, total | 5,372 | (5,428 | ) | (9,655 | ) | (1,675,547 | ) | (5,945 | ) | (10,635 | ) | (81 | ) | (24,052 | ) | (1,725,971 | ) | |||||||||||||||||||
Closing balance as of December 31, 2020 | 377,961 | 42,978 | 65,207 | 7,698,969 | 14,831 | 49,199 | 396 | 74,408 | 8,323,949 | |||||||||||||||||||||||||||
Opening balance as of January 1, 2021 | 377,961 | 42,978 | 65,207 | 7,698,969 | 14,831 | 49,199 | 396 | 74,408 | 8,323,949 | |||||||||||||||||||||||||||
Additions | 84,392 | 1,550 | 92 | 563,023 | 6,455 | 6 | 17 | 6,543 | 662,078 | |||||||||||||||||||||||||||
Disposals | - | - | - | (169 | ) | (26 | ) | (309 | ) | (17 | ) | - | (521 | ) | ||||||||||||||||||||||
Rejection fleet (*) | - | - | - | (469,878 | ) | - | - | - | (46,816 | ) | (516,694 | ) | ||||||||||||||||||||||||
Retirements | (279 | ) | - | - | (44,684 | ) | (212 | ) | (1,885 | ) | - | (26 | ) | (47,086 | ) | |||||||||||||||||||||
Depreciation expenses | - | - | (4,074 | ) | (620,349 | ) | (4,345 | ) | (8,304 | ) | (61 | ) | (11,649 | ) | (648,782 | ) | ||||||||||||||||||||
Foreign exchange | (1,720 | ) | (1,252 | ) | (833 | ) | (19,199 | ) | (404 | ) | (1,752 | ) | (11 | ) | (13,074 | ) | (38,245 | ) | ||||||||||||||||||
Other increases (decreases) (**) | 13,443 | - | 59 | (538,996 | ) | 537 | 1,786 | 1 | 123,589 | (399,581 | ) | |||||||||||||||||||||||||
Changes, total | 95,836 | 298 | (4,756 | ) | (1,130,252 | ) | 2,005 | (10,458 | ) | (71 | ) | 58,567 | (988,831 | ) | ||||||||||||||||||||||
Closing balance as of December 31, 2021 | 473,797 | 43,276 | 60,451 | 6,568,717 | 16,836 | 38,741 | 325 | 132,975 | 7,335,118 | |||||||||||||||||||||||||||
Opening balance as of January 1, 2022 | 473,797 | 43,276 | 60,451 | 6,568,717 | 16,836 | 38,741 | 325 | 132,975 | 7,335,118 | |||||||||||||||||||||||||||
Additions | 16,332 | - | - | 843,808 | 6,426 | 113 | 258 | 27,160 | 894,097 | |||||||||||||||||||||||||||
Disposals | - | - | - | (4,140 | ) | - | (264 | ) | (3 | ) | - | (4,407 | ) | |||||||||||||||||||||||
Withdrawals | (75 | ) | - | (2 | ) | (42,055 | ) | (24 | ) | (836 | ) | - | (313 | ) | (43,305 | ) | ||||||||||||||||||||
Retirements | - | - | (3,285 | ) | (669,059 | ) | (5,662 | ) | (7,914 | ) | (55 | ) | (13,071 | ) | (699,046 | ) | ||||||||||||||||||||
Depreciation expenses | (1,282 | ) | 1,073 | 918 | 11,527 | (84 | ) | 2,365 | (28 | ) | 7,593 | 22,082 | ||||||||||||||||||||||||
Foreing exchange | (99,962 | ) | - | 10,914 | (403,950 | ) | (883 | ) | 4,867 | (74 | ) | 5,683 | (483,405 | ) | ||||||||||||||||||||||
Other increases (decreases) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Changes, total | (84,987 | ) | 1,073 | 8,545 | (263,869 | ) | (227 | ) | (1,669 | ) | 98 | 27,052 | (313,984 | ) | ||||||||||||||||||||||
Closing balance as of December 31, 2022 | 388,810 | 44,349 | 68,996 | 6,304,848 | 16,609 | 37,072 | 423 | 160,027 | 7,021,134 |
(*) | Include aircraft lease rejection due to Chapter 11. |
(**) | As of December 31, 2022, six A320 ThUS$ (29,328) and twenty-eight A319 ThUS$ (373,410) aircraft were reclassified to Non-current assets or groups of assets for disposal as held for sale. As of December 31, 2021, it includes the lease contract amendment of two B787 aircraft ThUS$ (397,569) and six A320N aircraft ThUS$ (284,952) (see note 13). |
(a) Right of use assets:
Net right | ||||||||||||
of use | ||||||||||||
Aircraft | Others | assets | ||||||||||
ThUS $ | ThUS $ | ThUS $ | ||||||||||
Opening balances as of January 1, 2020 | 2,768,540 | 101,158 | 2,869,698 | |||||||||
Additions | - | 399 | 399 | |||||||||
Fleet rejection (*) | (9,090 | ) | - | (9,090 | ) | |||||||
Depreciation expense | (395,936 | ) | (22,492 | ) | (418,428 | ) | ||||||
Cumulative translate adjustment | (6,578 | ) | (11,173 | ) | (17,751 | ) | ||||||
Other increases (decreases) | (18,894 | ) | 385 | (18,509 | ) | |||||||
Total changes | (430,498 | ) | (32,881 | ) | (463,379 | ) | ||||||
Final balances as of December 31, 2020 | 2,338,042 | 68,277 | 2,406,319 | |||||||||
Opening balances as of January 1, 2021 | 2,338,042 | 68,277 | 2,406,319 | |||||||||
Additions | 537,995 | 1,406 | 539,401 | |||||||||
Fleet rejection (*) | (573,047 | ) | (4,577 | ) | (577,624 | ) | ||||||
Depreciation expense | (317,616 | ) | (16,597 | ) | (334,213 | ) | ||||||
Cumulative translate adjustment | (574 | ) | (1,933 | ) | (2,507 | ) | ||||||
Other increases (decreases) (**) | 116,942 | 6,431 | 123,373 | |||||||||
Total changes | (236,300 | ) | (15,270 | ) | (251,570 | ) | ||||||
Final balances as of December 31, 2021 | 2,101,742 | 53,007 | 2,154,749 | |||||||||
Opening balances as of January 1, 2022 | 2,101,742 | 53,007 | 2,154,749 | |||||||||
Additions | 372,571 | 13,087 | 385,658 | |||||||||
Depreciation expense | (249,802 | ) | (16,368 | ) | (266,170 | ) | ||||||
Cumulative translate adjustment | 919 | 1,392 | 2,311 | |||||||||
Other increases (decreases) (***) | (898,609 | ) | 12,588 | (886,021 | ) | |||||||
Total changes | (774,921 | ) | 10,699 | (764,222 | ) | |||||||
Final balances as of December 31, 2022 | 1,326,821 | 63,706 | 1,390,527 |
(**) | Includes the renegotiations of 92 aircraft (1 A319, 37 A320, 12 A320N, 19 A321, 1 B767, 6 B777 and 16 B787). |
(***) | Include the |
Aircraft included | Aircraft included | |||||||||||||||||||||||||
in Property, | as Rights | Total | ||||||||||||||||||||||||
plant and equipment | of use assets | fleet | ||||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||
Aircraft | Model | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Boeing 767 | 300ER | 28 | 33 | 2 | 2 | 30 | 35 | |||||||||||||||||||
Boeing 767 | 300F | 11 | (1) | 9 | (1) | 1 | 1 | 12 | (1) | 10 | (1) | |||||||||||||||
Boeing 777 | 300ER | 4 | 4 | 6 | 6 | 10 | 10 | |||||||||||||||||||
Boeing 777 | 200ER | - | - | - | 2 | - | 2 | |||||||||||||||||||
Boeing 787 | 800 | 6 | 6 | 4 | 4 | 10 | 10 | |||||||||||||||||||
Boeing 787 | 900 | 6 | 4 | 10 | 10 | 16 | 14 | |||||||||||||||||||
Airbus A319 | 100 | 37 | 37 | 9 | 9 | 46 | 46 | |||||||||||||||||||
Airbus A320 | 200 | 96 | (2) | 97 | (2) | 46 | 34 | 142 | (2) | 131 | (2) | |||||||||||||||
Airbus A320 | NEO | 7 | 1 | 6 | 3 | 13 | 4 | |||||||||||||||||||
Airbus A321 | 200 | 30 | 30 | 19 | 19 | 49 | 49 | |||||||||||||||||||
Airbus A350 | 900 | 2 | 5 | 7 | (3) | 4 | (3) | 9 | (3) | 9 | ||||||||||||||||
Total | 227 | 226 | 110 | 94 | 337 | 320 |
(1) One aircraft leased to Aerotransportes Mas de Carga S.A. de C.V.
(2) Three aircraft leased to Salam Air and two to Sundair
(3) Four aircraft leased to Qatar Airways, which are in assets by right of use.
Aircraft included in Property, plant and equipment | Aircraft included as Rights of use assets | Total fleet | ||||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||
Aircraft | Model | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Boeing 767 | 300ER | 15 | 16 | - | - | 15 | 16 | |||||||||||||||||||
Boeing 767 | 300F | 13 | 12 | (1) | 1 | 1 | 14 | 13 | (1) | |||||||||||||||||
Boeing 777 | 300ER | 4 | 4 | 6 | 6 | 10 | 10 | |||||||||||||||||||
Boeing 787 | 800 | 4 | 4 | 6 | 6 | 10 | 10 | |||||||||||||||||||
Boeing 787 | 900 | 2 | 2 | 19 | 15 | 21 | 17 | |||||||||||||||||||
Airbus A319 | 100 | 12 | (3) | 37 | 1 | 7 | 13 | 44 | ||||||||||||||||||
Airbus A320 | 200 | 88 | 94 | 40 | (2) | 39 | 128 | (2) | 133 | |||||||||||||||||
Airbus A320 | NEO | 1 | - | 15 | 12 | 16 | 12 | |||||||||||||||||||
Airbus A321 | 200 | 19 | 18 | 30 | 31 | 49 | 49 | |||||||||||||||||||
Total | 158 | 187 | 118 | 117 | 276 | 304 |
(1) | |
(2) | |
(3) | Twenty-eight A319 aircraft were classified under non-current assets or groups of assets for disposal as held for sale, (see Note 13) |
(d) Method used for the depreciation of Property, plant and equipment:
Useful life (years) | ||||||||||
Method | minimum | maximum | ||||||||
Buildings | Straight line without residual value | 20 | 50 | |||||||
Plant and equipment | Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*) | 5 | 30 | |||||||
Information technology equipment | Straight line without residual value | 5 | 10 | |||||||
Fixed installations and accessories | Straight line without residual value | 10 | 10 | |||||||
Motor vehicle | Straight line without residual value | 10 | 10 | |||||||
Leasehold improvements | Straight line without residual value | 5 | 8 | |||||||
Assets for rights of use | Straight line without residual value | 1 | 25 |
(*) | Except in the case of the Boeing 767 300ER, Airbus 320 Family and Boeing 767 300F fleets that consider a lower residual value, due to the extension of their useful life to 22, 25 and 30 years respectively. Additionally, certain technical components are depreciated based on cycles and hours flown. |
The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12
(e) Additional information regarding Property, plant and 18 years. Its residual values are estimated according to market value at the end of such contracts.equipment:
(i) Property, plant and equipment pledged as guarantee:
In the year 2019, the charge to income for the depreciation of the year, which is included in the consolidated statement of income, amounts to ThUS$ 1,221,991, ThUS$ 1,155,061 and ThUS$ 1,462,562 for the same period of the year 2018 and 2017; those amounts include depreciation of assets for right of use, for ThUS$ 400,384, ThUS$ 391,138 and ThUS$ 375,510, respectively. This expense is recognized in the cost of sales and administrative expenses of the consolidated statement of income.
Description of Property, plant and equipment pledged as guarantee:
As of | As of | |||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||
2019 | 2018 | |||||||||||||||||||
Guarantee | Creditor | Existing | Book | Existing | Book | |||||||||||||||
agent (1) | company | Fleet | Debt | Value | Debt | Value | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||
Wilmington | MUFG | Airbus A319 | 74,713 | 256,937 | 96,057 | 234,329 | ||||||||||||||
Trust Company | Airbus A320 | 70,644 | 256,651 | 98,903 | 220,390 | |||||||||||||||
Boeing 767 | 61,728 | 196,244 | 82,793 | 206,868 | ||||||||||||||||
Boeing 787 | 120,938 | 127,283 | 144,312 | 133,388 | ||||||||||||||||
Airbus A321 | 353,774 | 452,107 | 389,080 | 477,778 | ||||||||||||||||
Boeing 787 | 332,131 | 374,998 | 365,375 | 398,510 | ||||||||||||||||
Aircraft and engines | Airbus A350 | 180,320 | 192,620 | 198,301 | 204,860 | |||||||||||||||
Boeing 787 | 143,475 | 191,804 | 162,378 | 204,961 | ||||||||||||||||
Banco Santander S.A. | Aircraft and engines | Airbus A320 | - | - | 172,474 | 275,511 | ||||||||||||||
Airbus A321 | - | - | 25,661 | 41,957 | ||||||||||||||||
BNP Paribas | Aircraft and engines | Airbus A319 | - | - | 9,693 | 19,113 | ||||||||||||||
BNP Paribas | Airbus A319 | - | - | 17,009 | 26,407 | |||||||||||||||
Credit Agricole | Airbus A319 | - | - | 11,154 | 31,865 | |||||||||||||||
Airbus A320 | 85,986 | 95,148 | 134,328 | 132,301 | ||||||||||||||||
Airbus A321 / A350 | 83,281 | 67,882 | 22,439 | 24,939 | ||||||||||||||||
Boeing 767 | 10,404 | 35,226 | 21,830 | 43,568 | ||||||||||||||||
Aircraft and engines | Boeing 787 | 74,023 | 36,594 | 74,023 | 42,228 | |||||||||||||||
Wells Fargo | Aircraft and engines | Airbus A320 | - | - | 196,540 | 285,877 | ||||||||||||||
Bank Of Utah | Aircraft and engines (2) | Airbus A320 / A350 | 296,441 | 378,462 | 502,006 | 630,065 | ||||||||||||||
Boeing 787 | 217,500 | 259,934 | - | - | ||||||||||||||||
Aircraft and engines (2) | Airbus A320 / A350 | 44,088 | - | 54,014 | - | |||||||||||||||
Aircraft and engines | ||||||||||||||||||||
Natixis | Airbus A321 | 282,927 | 384,224 | 324,524 | 410,771 | |||||||||||||||
Citibank N.A. | Aircraft and engines | Airbus A320 | - | - | 78,049 | 132,296 | ||||||||||||||
Airbus A321 | - | - | 28,938 | 70,333 | ||||||||||||||||
UMB Bank | Aircraft and engines | Airbus A320 | 106,250 | 149,607 | - | - | ||||||||||||||
MUFG Bank | Aircraft and engines | Airbus A320 | 216,411 | 310,311 | - | - | ||||||||||||||
PK AirFinance US, Inc. | Aircraft and engines | Airbus A320 | - | - | 37,615 | 52,435 | ||||||||||||||
Banco BBVA | Land and buildings (3) | - | - | 50,785 | 64,500 | |||||||||||||||
Total direct guarantee | 2,755,034 | 3,766,032 | 3,298,281 | 4,365,250 |
As of | As of | ||||||||||||||||||||||
Deceember 31, | December 31, | ||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Guarantee agent (1) | Creditor company | Committed Assets | Fleet | Existing Debt | Book Value | Existing Debt | Book Value | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
Wilmington | MUFG | Aircraft and engines | Airbus A319 | 4,554 | 13,205 | 58,611 | 259,036 | ||||||||||||||||
Trust Company | Airbus A320 | 33,154 | 203,788 | 51,543 | 227,604 | ||||||||||||||||||
Boeing 767 | 35,043 | 164,448 | 46,779 | 168,315 | |||||||||||||||||||
Boeing 777 | 141,605 | 144,065 | 144,358 | 141,620 | |||||||||||||||||||
Credit Agricole | Credit Agricole | Aircraft and engines | Airbus A319 | 3,518 | 5,311 | 1,073 | 6,419 | ||||||||||||||||
Airbus A320 | 195,864 | 161,397 | 139,192 | 117,130 | |||||||||||||||||||
Airbus A321 / A350 | 6,192 | 4,827 | 30,733 | 27,427 | |||||||||||||||||||
Boeing 767 | 9,121 | 23,323 | 10,404 | 30,958 | |||||||||||||||||||
Boeing 787 | 60,305 | 34,077 | 91,797 | 38,551 | |||||||||||||||||||
Bank Of Utah | BNP Paribas | Aircraft and engines | Boeing 787 | 184,199 | 221,311 | 198,475 | 233,501 | ||||||||||||||||
Citibank N.A. | Citibank N.A. | Aircraft and engines | Airbus A319 | - | - | 27,936 | 45,849 | ||||||||||||||||
Airbus A320 | - | - | 128,030 | 181,224 | |||||||||||||||||||
Airbus A321 | - | - | 41,599 | 75,092 | |||||||||||||||||||
Airbus A350 | - | - | 15,960 | 26,507 | |||||||||||||||||||
Airbus B767 | - | - | 90,846 | 181,246 | |||||||||||||||||||
Airbus B787 | - | - | 23,156 | 17,036 | |||||||||||||||||||
Rotables | - | - | 162,477 | 134,846 | |||||||||||||||||||
UMB Bank | MUFG | Aircraft and engines | Airbus A320 | - | - | 166,712 | 258,875 | ||||||||||||||||
Total direct guarantee | 673,555 | 975,752 | 1,429,681 | 2,171,236 |
(1) | For the syndicated loans, |
The amounts of the current debt are presented at their nominal value. The net book value corresponds to the goodsassets granted as collateral.
Additionally, there are indirect guarantees associated with assets registered in properties, plantsbooked within Property, Plant and equipmentEquipment whose total debt as of December 31, 2019,2022, amounts to ThUS$ 1,762,6111,037,122 (ThUS$ 1,633,5041,200,382 as of December 31, 2018)2021). The book value of the assets with indirect guarantees as of December 31, 2019,2022, amounts to ThUS$ 3,866,2372,306,233 (ThUS$ 3,258,9502,884,563 as of December 31, 2018)2021).
As of December 31, 2019,2021, 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 assets by right of use assets according to the following detail:
Creditor Guarantee | Debtor | Type | Value ThUS$ | Release date | ||||||||
GE Capital Aviation Services Ltd. | LATAM Airlines Group S.A. | Three letters of credit | 12,198 | Dec 6, 2023 | ||||||||
Merlin Aviation Leasing (Ireland) 18 Limited RB Comercial Properties 49 | Tam Linhas Aéreas S.A. | Two letters of credit | 3,852 | Mar 15, 2023 | ||||||||
Empreendimentos Imobiliarios LTDA | Tam Linhas Aéreas S.A. | One letter of credit | 27,091 | Apr 20, 2023 | ||||||||
(ii) Commitments and others
Fully depreciated assets and commitments for future purchases are as follows:
As of | As of | |||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
ThUS$ | ThUS$ | |||||||
Gross book value of fully depreciated property, plant and equipment still in use | 261,792 | 192,606 | ||||||
Commitments for the acquisition of aircraft (*)(**) | 7,390,000 | 14,400,000 |
As of December 31, 2022 | As of December 31, 2021 | |||||||
ThUS$ | ThUS$ | |||||||
Gross book value of fully depreciated property, plant and equipment still in use | 266,896 | 223,608 | ||||||
Commitments for the acquisition of aircraft (*) | 13,186,000 | 10,800,000 |
(*) | According to the manufacturer’s price list. |
Purchase commitment of aircraft
Year of delivery | ||||||||||||||||||||||||
Manufacturer | 2020 | 2021 | 2022 | 2023 | 2024-2026 | Total | ||||||||||||||||||
Airbus S.A.S. (*) | 3 | 10 | 11 | 9 | 11 | 44 | ||||||||||||||||||
A320-NEO Family | 3 | 10 | 11 | 9 | 9 | 42 | ||||||||||||||||||
A350 Family | - | - | - | - | 2 | 2 | ||||||||||||||||||
The Boeing Company | 2 | 2 | - | 2 | - | 6 | ||||||||||||||||||
Boeing 787-9 | 2 | 2 | - | 2 | - | 6 | ||||||||||||||||||
Total | 5 | 12 | 11 | 11 | 11 | 50 |
Year of delivery | ||||||||||||||||||||
Manufacturer | 2023 | 2024 | 2025 | 2026-2029 | Total | |||||||||||||||
Airbus S.A.S. | 8 | 8 | 11 | 56 | 83 | |||||||||||||||
A320-NEO Family | 8 | 8 | 11 | 56 | 83 | |||||||||||||||
The Boeing Company | 2 | - | - | - | 2 | |||||||||||||||
Boeing 787-9 | 2 | - | - | - | 2 | |||||||||||||||
Total | 10 | 8 | 11 | 56 | 85 |
As of December 31, 2019,2022, as a result of the different aircraft purchase contracts and agreements signed with Airbus SAS, there are remaining to receive 42S.A.S., 83 Airbus aircraft of the A320 family remain to be received with deliveries between 20202023 and 2024, and 2 Airbus aircraft of the A350 family with dates delivery for 2026.2029. The approximate amount, according to manufacturer’smanufacturer list prices, is ThUS$ 5,640,000.12,586,000.
As of December 31, 2019,2022, as a result of the different aircraft purchase contracts signed with The Boeing Company, there are remaining 62 Boeing 787 Dreamliner aircraft remain to be received with delivery dates between 2020 andduring 2023. The approximate amount, according to manufacturer’s list prices from the manufacturer, is ThUS$ 1,750,000.600,000.