LATAM Airlines (LTM) 20-F 2017 FY Annual report (foreign)

-As filed with the Securities and Exchange Commission onApril 4, 2018-

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

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

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, 20^th Floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

Andrés del Valle

Tel.: 56-2-2565-8765·E-mail: InvestorRelations@latam.com 

Presidente Riesco 5711, 20^th 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:

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	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

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.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    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  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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  x

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  x	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 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  x	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  x

TABLE OF CONTENTS

PRESENTATION OF INFORMATION		2
FORWARD-LOOKING STATEMENTS		3
GLOSSARY OF TERMS		3
PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	6
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	6
ITEM 3.	KEY INFORMATION	6
ITEM 4.	INFORMATION ON THE COMPANY	22
ITEM 4A	UNRESOLVED STAFF COMMENTS	51
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	52
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	70
ITEM 7.	CONTROLLING SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	77
ITEM 8.	FINANCIAL INFORMATION	83
ITEM 9.	THE OFFER AND LISTING	86
ITEM 10.	ADDITIONAL INFORMATION	88
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	117
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	121
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	123
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	123
ITEM 15.	CONTROLS AND PROCEDURES	123
ITEM 16.	RESERVED	124
PART III
ITEM 17.	FINANCIAL STATEMENTS	126
ITEM 18.	FINANCIAL STATEMENTS	126
ITEM 19.	EXHIBITS	127

1

PRESENTATION OF INFORMATION

Throughout this annual report on Form 20-F we make numerous references to “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” or the “Company” are to LATAM Airlines Group S.A. and its consolidated affiliates: Transporte Aéreo S.A. (“LATAM Airlines Chile”), LAN Perú S.A. (“LATAM Airlines Peru”), Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. (“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 Airlines Brazil”), LAN Cargo S.A. (“LATAM Cargo”) and its three regional affiliates: Aero Transportes Mas de Carga S.A. de C.V. (“MasAir”) in Mexico, Linea Aerea Carguera de Colombia S.A. (“LANCO”) in Colombia and Aerolinhas Brasileiras S.A. (“ABSA”) 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, LATAM Airlines Ecuador and LATAM Airlines Brazil.

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. 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”, Multiplus S.A. (“Multiplus”), Fidelidade Viagens e Turismo Limited (“TAM Viagens”) and Transportes Aéreos Del Mercosur S.A. (“TAM Mercosur”).

LATAM Airlines Group and the majority of our affiliates maintain their accounting records and prepare their financial statements in U.S. dollars. Some of our 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. 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 Bank of Chile) on December 31, 2017, which was Ch$615.22 = US$1.00. The observed exchange rate on, April 3, 2018, was Ch$604.06 = 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 Bank of Brazil) on December 31, 2017, which was R$3.31 = US$1.00. The observed exchange rate on April 3, 2018, was R$3.32 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos or Brazilian real.

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, 2013, 2014, 2015, 2016 and 2017 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 3 of this annual report.  

2

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” 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 factors described in “Item 3. Key Information—Risk Factors”;

• our ability to service our debt and fund our working capital requirements;

• future demand for passenger and cargo air services in Chile, Brazil, other countries in Latin America and the rest of the world;

• the determination of relationships with customers;

• the state of the Chilean, Brazilian, other Latin American and world economies and their impact on the airline industry;

• the effects of competition;

• future terrorist incidents, cyberattacks or related activities affecting the airline industry;

• future outbreak of diseases, or the spread of already existing diseases, affecting traveling behavior and/or exports;

• natural disasters affecting traveling 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 we operate and environmental regulations.  

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—Risk Factors.”

GLOSSARY OF TERMS

The following terms, as used in this annual report, have the meanings set forth below.

Consolidated Affiliates of LATAM:
“ABSA”	Aerolinhas Brasileiras S.A., incorporated in Brazil.
“LANCO”	Línea Aérea Carguera de Colombia S.A., incorporated in Colombia.
“LATAM Airlines Argentina”	LAN Argentina S.A., incorporated in Argentina.
“LATAM Airlines Chile”	Transporte Aéreo S.A., incorporated in Chile.

3

“LATAM Airlines Colombia”	Aerovías de Integración Regional, Aires S.A., incorporated in Colombia.
“LATAM Airlines Ecuador”	Aerolane, Líneas Aéreas Nacionales del Ecuador S.A., incorporated in Ecuador.
“LATAM Airlines Peru”	LAN Perú S.A., incorporated in Peru.
“LATAM Cargo”	LAN Cargo S.A., incorporated in Chile.
“MasAir”	Aero Transportes Mas de Carga S.A. de C.V., incorporated in Mexico.
“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.
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, Airbus A320 neo and Airbus A321 models of aircraft.
“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.

4

“operating expenses”	Operating expenses, which are calculated in accordance with IFRS, comprise the sum of the line items “cost of sales” plus “distribution costs” plus “administrative expenses” plus “other operating expenses,” as shown on our consolidated statement of comprehensive income. These operating expenses include: wages and benefits, fuel, depreciation and amortization, commissions to agents, aircraft rentals, other rental and landing fees, passenger services, aircraft maintenance and other operating expenses.
“MiSchDynamicDT”	Market Intelligence Schedule Dynamic Table.
“Diio Mi”	Data In Intelligence Out Market Intelligence.
“CO2”	Carbon Dioxide Gas

5

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

A. Selected Financial Data

LATAM’s Historical Financial Information

The summary consolidated annual financial information of LATAM as of December 31, 2017, 2016, 2015, 2014 and 2013 has been prepared in accordance with IFRS(*).

LATAM’s Annual Financial Information

	Year ended December 31,
	2017			2016			2015			2014			2013
	(in US$ millions, except per share and capital stock data)
The Company(1)(2)
Statement of Income Data:
Operating revenues
Passenger		8,494.5			7,877.7			8,410.6			10,380.1			11,061.5
Cargo		1,119.4			1,110.6			1,329.4			1,713.4			1,863.0
Total operating revenues		9,613.9			8,988.3			9,740.0			12,093.5			12,924.5
Cost of sales		(7,441.8	)		(6,967.0	)		(7,636.7	)		(9,624.5	)		(10,054.2	)
Gross margin		2,172.1			2,021.3			2,103.3			2,469.0			2,870.3
Other operating income(3)		549.9			538.7			385.8			377.6			341.6
Distribution costs		(699.6	)		(747.4	)		(783.3	)		(957.1	)		(1,025.9	)
Administrative expenses		(938.9	)		(873.0	)		(878.0	)		(980.7	)		(1,136.1	)
Other expenses		(368.9	)		(373.7	)		(324.0	)		(401.0	)		(408.7	)
Other gains/(losses)		(7.8	)		(72.6	)		(55.3	)		33.5			(55.4	)
Financial income		78.7			74.9			75.1			90.5			72.8
Financial costs		(393.3	)		(416.3	)		(413.4	)		(430.0	)		(462.5	)
Equity accounted earnings		0.0			0.0			0.0			(6.5	)		2.0
Exchange rate differences		(18.7	)		121.7			(467.9	)		(130.2	)		(482.2	)
Result of indexation units		0.7			0.3			0.6			0.1			0.3
Income (loss) before income taxes		374.2			273.9			(357.1	)		65.2			(283.8	)
Income (loss) tax expense/benefit		(173.5	)		(163.2	)		178.4			(292.4	)		20.0
Net (loss) income for the period		200.7			110.7			(178.7	)		(227.2	)		(263.8	)
Income (loss) attributable to the parent company’s equity holders		155.3			69.2			(219.3	)		(260.0	)		(281.1	)
Income (loss) attributable to non-controlling interests		45.4			41.5			40.5			32.8			17.3
Net income (loss) for the year		200.7			110.7			(178.7	)		(227.2	)		(263.8	)
Earnings per share
Average number of Shares		606,407,693			546,559,599			545,547,819			545,547,819			487,930,977
Basic earnings (loss) per share (US$)		0.25610			0.12665			(0.40193	)		(0.47656	)		(0.57613	)
Diluted earnings (loss) per share (US$)		0.25610			0.12665			(0.40193	)		(0.47656	)		(0.57613	)

6

	Year ended December 31,
	2017		2016		2015		2014		2013
	(in US$ millions, except per share and capital stock data)
Balance Sheet Data:
Cash, and cash equivalents		1,142.0		949.3		753.5		989.4		1,984.9
Other current assets in operation		2,312.4		2,340.3		2,067.4		2,644.1		2,992.2
Non-current assets and disposal groups held for sale		291.1		337.2		2.0		1.1		2.4
Total current assets		3,745.5		3,626.8		2,822.9		3,634.6		4,979.5
Property and equipment		10,065.3		10,498.1		10,938.7		10,773.1		10,982.8
Other non-current assets		4,987.2		5,073.3		4,339.8		6,076.7		6,668.8
Total non-current assets		15,052.5		15,571.4		15,278.5		16,849.8		17,651.6
Total assets		18,798.0		19,198.2		18,101.4		20,484.4		22,631.1
Total current liabilities		5,842.7		6,222.2		5,641.0		5,829.7		6,509.1
Total non-current liabilities		8,688.0		8,790.7		9,522.9		10,151.0		10,795.6
Total liabilities		14,530.7		15,012.9		15,163.9		15,980.7		17,304.7
Issued capital		3,146.3		3,149.6		2,545.7		2,545.7		2,389.4
Net equity attributable to the parent company’s equity holders		4,176.1		4,096.7		2,856.5		4,401.9		5,238.8
Non-controlling interest		91.1		88.6		81.0		101.8		87.7
Total net equity		4,267.2		4,185.3		2,937.5		4,503.7		5,326.5
Shares Outstanding		606,407,693		606,407,693		545,547,819		545,547,819		535,243,229

(1) For more information on the affiliates included in this consolidated information, see Note 1 to our audited consolidated financial statements.

(2) The addition of the items may differ from the total amount due to rounding.

(3) Other operating income included in this Statement of Income Data is equivalent to the sum of income derived from Coalition and Loyalty Program, Tours, Duty free, aircraft leasing, Maintenance, customs and warehousing operations, and other miscellaneous income. For more information, see Note 28 to our audited consolidated financial statements.

(*)Law No. 20,780 issued on September 29, 2014, introduced modifications to the income tax system in Chile and other tax matters. On October 17, 2014 the Chilean Comission for the Finance Market (the “CMF”) (previously, the Superintendency of Securities) issued Circular No. 856, which established that the effects of the change in the income tax rates on deferred tax assets and liabilities must be recognized directly on the Balance Sheet within “Retained earnings” instead of on the Income Statement as required by IAS 12. In order to comply with IAS 12, the financial statements in this document for the period ended December 31, 2014 are different from those presented to the CMF as the modifications introduced by Law No. 20,780 have been recognized within the income statement. For more information on the reconciliation of such differencessee Note 18 to our audited consolidated financial statements.

The table below presents LATAM’s unaudited operating data as of and for the year ended December 31, 2013, December 31, 2014, December 31, 2015, December 31, 2016 and December 31, 2017. 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.

7

	For the year ended and as of December 31,
Operating Data:	2017		2016		2015		2014		2013
ASKs (million)		136,398.4		134,967.7		134,167.1		130,200.9		131,690.9
RPKs (million)		115,692.7		113,626.9		111,509.9		108,534.0		106,466.5
ATKs (million)		6,230.1		6,704.1		7,082.8		7,219.7		7,651.9
RTKs (million)		3,421.2		3,465.9		3,797.0		4,317.2		4,466.7

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 2014, 2015 or 2016. On May 18, 2017, LATAM paid US$20,766,119 in dividends in respect of the year ended December 31, 2016. In addition, dividend reserves of US$46,591,193 were set aside for 2017, to be paid in 2018.

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

Chilean Peso Exchange Rates

The following table sets forth, for the periods indicated, the high, low, average and period-end observed exchange rate for the purchase of U.S. dollars, expressed in Chilean pesos per U.S. dollar. The rates have not been restated in constant currency units. On April 3, 2018 the observed exchange rate was Ch$604.06 = US$1.00.

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	Daily Observed Exchange Rate
Year Ended December 31,	High		Low		Average(1)		Period-End
	Ch$ per US$
2013		533.95		466.50		495.00		523.76
2014		621.41		524.61		570.01		607.38
2015		715.66		597.10		654.25		707.34
2016		730.31		645.22		676.83		667.29
2017		679.05		615.22		649.33		615.22
2017
October		640.52		619.68		629.55		636.49
November		642.41		629.21		633.77		642.41
December		655.74		615.22		636.92		615.22
2018
January		614.75		599.33		605.53		604.42
February		603.25		588.28		596.84		589.15
March		609.58		593.61		603.45		605.26

 Source: Central Bank of Chile

(1) For each year, the average daily exchange rates for the relevant year. For each month, the average daily exchange rate for the relevant month.

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 Factors Relating to our Company

LATAM does not control the voting shares or board of directors of TAM

Due to Brazilian law restrictions on foreign ownership of Brazilian airlines, LATAM does not control the voting shares or board of directors of TAM. As of February 28, 2018, the ownership structure of TAM is as follows:

• Holdco I owns 100% of the TAM common shares previously outstanding;

• the Amaro family (the “Amaro Group”) own approximately 51% of the outstanding Holdco I voting shares through TEP Chile S.A. (“TEP Chile”, a Chilean entity wholly owned by the TAM Controlling Shareholders) and LATAM owns the remainder of the voting shares;

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• LATAM owns 100% of the outstanding Holdco I non-voting shares, entitling it to substantially all of the economic rights in respect of the TAM common shares held by Holdco I as well as approximately 49% of the outstanding Holdco I voting shares; and

• LATAM owns 100% of the TAM preferred shares previously outstanding.

As a result of this ownership structure:

• The Amaro Group retains voting and board control of TAM and each subsidiary of TAM; and

• LATAM is entitled to substantially all of the economic rights in TAM.

LATAM Airlines Group and TEP Chile and other parties have entered into shareholders’ agreements that establish agreements and restrictions relating to corporate governance with respect to TAM. Certain specified actions require supermajority approval, which in turn means they require the prior approval of both LATAM and TEP Chile. Examples of actions requiring supermajority approval by the board of directors of Holdco I or TAM include, among others, entering into acquisitions or business collaborations, amending or approving budgets, business plans, financial statements and accounting policies, incurring indebtedness, encumbering assets, entering into certain agreements, making certain investments, modifying rights or claims, entering into settlements, appointing executives, creating security interests, issuing, redeeming or repurchasing securities and voting on matters as a shareholder of affiliates of TAM. Actions requiring supermajority shareholder approval of Holdco I or TAM include, among others, certain changes to the by-laws of Holdco I, TAM or TAM’s affiliates or any dissolution/liquidation, corporate reorganization, payment of dividends, issuance of securities, disposal or encumbrance of certain assets, creation of security interests or entering into guarantees and agreements with related parties. For more information on the shareholders’ agreements, see “Item 7. Controlling Shareholders and Related Party Transactions—Shareholders’ Agreements”.

Our assets include a significant amount of goodwill.

Our assets included US$2,672.6 million of goodwill as of December 31, 2017. Under IFRS, goodwill is subject to an annual impairment test and may be required to be tested more frequently if events or circumstances indicate a potential impairment. In 2017, mainly as a result of the depreciation of the Brazilian real against the U.S. dollar during 2017, the value of our goodwill decreased by 1.4% as compared with 2016. Any impairment could result in the recognition of a significant charge to earnings in our statement of income, which could materially and adversely impact our consolidated results for the period in which the impairment occurs.

A failure to successfully implement our strategy or a failure adjusting the strategy to the current economic situation would harm our business and the market value of our ADSs and common shares.

We have developed a strategic plan with the goal of becoming one of the most admired airlines in the world and renewing our commitment to sustained profitability and superior returns to shareholders. Our strategy requires us to identify value propositions that are attractive to our clients, to find efficiencies in our daily operations, and to transform ourselves into a stronger and more risk-resilient company. A tenet of our strategic plan is the adoption of a new travel model for domestic services (in the six countries where we have domestic operations) to address the changing dynamics of customers and the industry, and to increase our competitiveness. The new travel model is based on a continued reduction in air fares that makes air travel accessible to a wider audience, and in particular to those wish to fly more frequently. This model requires continued cost reduction efforts and increasing revenues from ancillary activities. In connection with these efforts, the Company is implementing a series of initiatives to reduce cost per ASK in all its domestic operations as well as developing new ancillary revenue initiatives.

Difficulties in implementing our strategy may adversely affect our business, results of operation and the market value of our ADSs and common shares.

A failure to successfully transfer the value proposition of the LAN and TAM brands to a new single brand, may adversely affect our business and the market value of our ADSs and common shares.

Following the combination in 2012, LAN and TAM continued to operate with their original brands. During 2016, we began the transition of LAN and TAM into a single brand. LAN and TAM had different value propositions, and there can be no assurances that we will be able to fully transfer the value of the original LAN and TAM brands to our new single brand “LATAM”. Difficulties in implementing our single brand may prevent us from consolidating as a customer preferred carrier and may adversely affect our business and results of operations and the market value of our ADSs and common shares.

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It may take time to combine the frequent flyer programs of LAN and TAM.

We have integrated the separate frequent flyer programs of LAN and TAM so that passengers can use frequent flyer miles or points earned with either LAN or TAM interchangeably. During 2016, LAN and TAM announced their revamped frequent flyer programs, which have new names: LATAM Pass and LATAM Fidelidade, respectively. The change is part of the process of consolidating the airline group’s new brand identity (LATAM) and the evolution of the programs, which enhances existing benefits and introduces new benefits for program members. However, there is no guarantee that full integration of the two plans will be completed in the near term or at all. Even if the integration occurs, the successful integration of these programs will involve some time and expense. Moreover, during 2016, LATAM Pass and LATAM Fidelidade approved changes in their mileage earning policy which may impact the attractiveness of the programs to passengers. Until we effectively combine these programs, passengers may prefer frequent flyer programs offered by other airlines, which may adversely affect our business.

Our financial results are exposed to foreign currency fluctuations.

We prepare and present our consolidated financial statements in U.S. dollars. LATAM and its affiliates operate in numerous countries and face the risk of variation in foreign currency exchange rates against the U.S. dollar or between the currencies of these various countries. Changes in the exchange rate between the U.S. dollar and the currencies in the countries in which we operate could adversely affect our business, financial condition and results of operations. If the value of the Brazilian real, Chilean peso or other currencies in which revenues are denominated declines against the U.S. dollar, our results of operations and financial condition will be affected. The exchange rate of the Chilean peso, Brazilian real and other currencies against the U.S. dollar may fluctuate significantly in the future.

Changes in Chilean, Brazilian and other governmental economic policies affecting foreign exchange rates could also adversely affect our business, financial condition, results of operations and the return to our shareholders on their common shares or ADSs. For further information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—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:

• limitations on our ability to process more passengers;  

• the imposition of flight capacity restrictions;

• the inability to secure or maintain route rights in local markets or under bilateral agreements; or

• the inability to maintain our existing slots and obtain additional slots.

We operate numerous international routes subject to bilateral agreements, as well as domestic flights within Chile, Peru, Brazil, Argentina, Ecuador and Colombia, subject to local route and airport access approvals. 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.

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Moreover, our operations and growth strategy are dependent on the facilities and infrastructure of key airports, including Santiago’s International Airport, São Paulo’s Guarulhos and Congonhas International Airports, Brasilia’s International Airport and Lima’s Jorge Chavez International Airport.

Santiago’s Comodoro Arturo Merino Benítez International Airport is currently facing an important expansion, which is expected to be completed by 2020. If the expansion is not carried out timely, this will likely reduce significantly our operations and adversely affect our ability to remain competitive.

One of the major operational risks we face on a daily basis at Lima’s Jorge Chavez International Airport is the limited number of parking positions. Additionally, the indoor infrastructure of the airport limits our ability to manage connections and launch new flights due to the lack of gates and increasing security and immigration controls. We expect that for the next few years, Lima’s airport’s capacity will remain as it is today, limiting our ability to grow and affecting our competitiveness in the country and in the region.

Brazilian airports, such as the Brasília, and São Paulo (Guarulhos) international airports, have limited the number of slots per day due to infrastructural limitations. Any condition that would prevent or delay our access to airports or routes that are vital to our strategy, or our inability to maintain our existing slots and obtain additional slots, could materially adversely affect our operations.

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 24.5% of our operating expenses in 2017. For additional information, see “Item 4. Information on the Company – B. Business Overview – Fuel Supplies”. 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, the continued unrest in the Middle East or other events could result in higher fuel prices or further reductions in scheduled airline services. We cannot ensure that we would be able to offset any increases in the price of fuel by increasing our fares. In addition, lower fuel prices may result in lower fares through the reduction or elimination of fuel surcharges. We have entered into fuel hedging arrangements, but there can be no assurance that such arrangements will be adequate to protect us from an increase in fuel prices in the near future or in the long term. Also, while these hedging arrangements are designed to limit the effect of an increase in fuel prices, our hedging methods may also limit our ability to take advantage of any decrease in fuel prices, as was the case in 2015 and, to a lesser extent, in 2016. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Risk of Variation in Fuel Prices.”

We rely on maintaining a high aircraft utilization rate to increase our revenues and absorb our fixed costs, which makes us especially vulnerable to delays.

A key element of our strategy is to maintain a high daily aircraft utilization rate, which measures the number of hours we use our aircraft per day. High daily aircraft utilization allows us to maximize the amount of revenue we generate from our aircraft and absorb the fixed costs associated with our fleet and is achieved, in part, by reducing turnaround times at airports and developing schedules that enable us to increase the average hours flown per day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including air traffic and airport congestion, adverse weather conditions, unanticipated maintenance and delays by third-party service providers relating to matters such as fueling and ground handling. If an aircraft falls behind schedule, the resulting delays could cause a disruption in our operating performance and have a financial impact on our results.

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We fly and depend upon Airbus and Boeing aircraft, and our business could suffer if we do not receive timely deliveries of aircraft, if aircraft from these companies become unavailable or if the public negatively perceives our aircraft.

As our fleet has grown, our reliance on Airbus and Boeing has also grown. As of December 31, 2017, LATAM Airlines Group has a fleet of 235 Airbus and 80 Boeing aircraft. Risks relating to Airbus and Boeing include:

• our failure or inability to obtain Airbus or Boeing aircraft, parts or related support services on a timely basis because of high demand or other factors;

• the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft;

• the issuance by the Chilean or other aviation authorities of directives restricting or prohibiting the use of our Airbus or Boeing aircraft, or requiring time-consuming inspections and maintenance;

• adverse public perception of a manufacturer as a result of safety concerns, negative publicity or other problems, whether real or perceived, in the event of an accident; or

• delays between the time we realize the need for new aircraft and the time it takes us to arrange for Airbus and Boeing or for a third-party provider to deliver this aircraft.

The occurrence of any one or more of these factors could restrict our ability to use aircraft to generate profits, respond to increased demands, or could otherwise limit our operations and adversely affect our business. For further information related to current contractual obligations, see “Item 5. Operating and Financial Review and Prospects—F. Long term Indebtedness- Tabular Disclosure of Contractual Obligations.”

If we are unable to incorporate leased aircraft into our fleet at acceptable rates and terms in the future, our business could be adversely affected.

A large portion of our aircraft fleet is subject to long-term operating leases. Our operating leases typically run from three to 12 years from the date of delivery. We may face more competition for, or a limited supply of, leased aircraft, making it difficult for us to negotiate on competitive terms upon expiration of our current operating leases or to lease additional capacity required for our targeted level of operations. If we are forced to pay higher lease rates in the future to maintain our capacity and the number of aircraft in our fleet, our profitability could be adversely affected.

Our business may be adversely affected if we are unable to service our debt or meet our future financing requirements.

We have a high degree of debt and payment obligations under our aircraft operating leases and financial debt arrangements. We require significant amounts of financing to meet our aircraft capital requirements and may require additional financing to fund our other business needs. We cannot guarantee that we will have access to or be able to arrange for financing in the future on favorable terms. Higher financing costs could affect our ability to expand or renew our fleet, which in turn could adversely affect our business.

In addition, the majority of our property and equipment is subject to liens securing our indebtedness. In the event that we fail to make payments on secured indebtedness, creditors’ enforcement of liens could limit or end our ability to use the affected property and equipment to fulfill our operational needs and thus generate revenue. For further information related to current contractual obligations, see “Item 5. Operating and Financial Review and Prospects—F. Long term Indebtedness- Tabular Disclosure of Contractual Obligations.”

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, reduction of our credit rating, and other potential market disruptions.

We have significant exposure to LIBOR and other floating interest rates; increases in interest rates will increase our financing costs and may have adverse effects on our financial condition and results of operations.

We are exposed to the risk of interest rate variations, principally in relation to the U.S. dollar London Interbank Offer Rate (“LIBOR”). Many of our financial leases are denominated in U.S. dollars and bear interest at a floating rate. 36.9% of our outstanding consolidated debt as of December 31, 2017 bears interest at a floating rate after giving effect to interest rate hedging agreements. Volatility in LIBOR or other reference rates could increase our periodic interest and lease payments and have an adverse effect on our total financing costs. We may be unable to adequately adjust our prices to offset any increased financing costs, which would have an adverse effect on our revenues and our results of operations.

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Increases in insurance costs and/or significant reductions in coverage could harm our financial condition and results of operations.

Major events affecting the aviation insurance industry (such as terrorist attacks, hijackings or airline crashes) may result in significant increases of airlines’ insurance premiums or in significant decreases of insurance coverage, as occurred after the September 11, 2001 terrorist attacks. As a result, further increases in insurance costs or reductions in available insurance coverage could have an adverse impact on our financial results and results of operations and increases the risk that we experience uncovered losses.

Problems with air traffic control systems or other technical failures could interrupt our operations and have a material adverse effect on our business.

Our operations, including our ability to deliver customer service, are dependent on the effective operation of our equipment, including our aircraft, maintenance systems and reservation systems. Our operations are also dependent on the effective operation of domestic and international air traffic control systems and the air traffic control infrastructure by the corresponding authorities in the markets in which we operate. Equipment failures, personnel shortages, air traffic control problems and other factors that could interrupt operations could adversely affect our operations and financial results as well as our reputation.  

We depend on a limited number of suppliers for certain aircraft and engine parts.

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. As a result, we are vulnerable to any problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result unscheduled maintenance requirements, in customer avoidance or in actions by the aviation authorities resulting in an inability to operate our aircraft. During the year 2017, LATAM Airlines’s main suppliers were aircraft manufacturers Airbus and Boeing.

In addition to Airbus and Boeing, LATAM Airlines has a number of other suppliers, primarily related to aircraft accessories, spare parts, and components, including Pratt & Whitney, MTU Maintenance, Rolls-Royce, and Pratt and Whitney Canada.

As of February 9, 2018, Airbus has been experiencing difficulties in the delivery of A320neo aircraft worldwide which we understand is stated to be due to problems with the aircraft’s Pratt & Whitney engines. We are currently expecting delivery of seven A320neo and 2 A321neo aircraft during 2018, and any delays in the delivery of theses could adversely affect our operations. In addition, we currently have four A320neo aircraft in our fleet, and problems associated with the lack of availability of these engines could potentially prevent these aircrafts from remaining operational.

We understand that Rolls Royce is experiencing problems with the availability of Rolls Royce Trent 1000 engines in connection with engine maintenance programs, affecting our Boeing 787 aircraft and potentially our A350 aircraft. Any prolonged problems, could adversely affect our operations.

Our business relies extensively on third-party service providers. Failure of these parties to perform as expected, or interruptions in our relationships with these providers or their provision of services to us, could have an adverse effect on our financial position and results of operations.

We have engaged a significant number of third-party service providers to perform a large number of functions that are integral to our business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, provision of aircraft maintenance and repairs, catering, ground services, and provision of various utilities and performance of aircraft fueling operations, among other vital functions and services. We do not directly control these third-party service providers, although we do enter into agreements with many of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their 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. 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.

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Disruptions or security breaches of our information technology infrastructure or systems could interfere with our operations, compromise passenger or employee information, and expose us to liability, possibly causing our business and reputation to suffer.

A serious internal technology error, failure, or cybersecurity incident impacting systems hosted internally at our data centers or externally at third-party locations, or large-scale interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network with potential impact on our operations. 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 attacks and other security issues. These systems include our computerized airline reservation system, flight operations system, telecommunications systems, website, maintenance systems, check-in kiosks, in-flight entertainment systems and data centers.

In addition, as a part of our ordinary business operations, we collect and store sensitive data, including personal information of our passengers and employees and information of our business partners. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Unauthorized parties may attempt to gain access to our systems or information through fraud, deception, or cybersecurity incident. Hardware or software we develop or acquire may contain defects that could unexpectedly compromise information security. The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business.

Increases in our labor costs, which constitute a substantial portion of our total operating expenses, could directly impact our earnings.

Labor costs constitute a significant percentage of our total operating expenses (21.4% in 2017) and at times in our operating history we have experienced pressure to increase wages and benefits for our employees. A significant increase in our labor costs could result in a material reduction in our earnings.

Our business may experience adverse consequences if we are unable to reach satisfactory collective bargaining agreements with our unionized employees.

As of December 31, 2017, approximately 86% of our employees, including administrative personnel, cabin crew, flight attendants, pilots and maintenance technicians are members of unions and have contracts and collective bargaining agreements which expire on a regular basis. Our business, financial condition and results of operations could be materially adversely affected by a failure to reach agreement with any labor union representing such employees or by an agreement with a labor union that contains terms that are not in line with our expectations or that prevent us from competing effectively with other airlines. For further information regarding the unions representing our employees in each country in which we operate and with which we have established collective bargaining agreements, see “Item 6. Directors, Senior Management and Employees—D. Employees – Labor Relations.”

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.

We may experience difficulty finding, training and retaining employees.

Our business is labor intensive. We employ a large number of pilots, flight attendants, maintenance technicians and other operating and administrative personnel. The airline industry has, from time to time, experienced a shortage of qualified personnel, especially pilots and maintenance technicians. In addition, as is common with most of our competitors, we may, from time to time, face considerable turnover of our employees. Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, our training costs will be significantly higher. We cannot assure you that we will be able to recruit, train and retain the managers, pilots, technicians and other qualified employees that we need to continue our current operations or replace departing employees. An increase in turnover or failure to recruit, train and retain qualified employees at a reasonable cost could materially adversely affect our business, financial condition, and results of operations.  

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Risks Related to the Airline Industry and the Countries in Which We Operate

Our performance is heavily dependent on economic conditions in the countries in which we do business. Negative economic conditions in those countries could adversely impact our business and results of operations and cause the market price of our common shares and ADSs to decrease.

Passenger and cargo demand is heavily cyclical and highly dependent on global and local economic growth, economic expectations and foreign exchange rate variations, among other things. In the past, our business has been adversely affected by global economic recessionary conditions, weak economic growth in Chile, recession in Brazil and Argentina and poor economic performance in certain emerging market countries in which we operate. The occurrence of similar events in the future could adversely affect our business. We plan to continue to expand our operations based in Latin America and our performance will, therefore, continue to depend heavily on economic conditions in the region.

Any of the following factors could adversely affect our business, financial condition and results of operations in the countries in which we operate:

· changes in economic or other governmental policies;

· changes in regulatory, legal or administrative practices;

· weak economic performance, including, but not limited to, a slowdown in the Brazilian economy and political instability low economic growth, low consumption and/or investment rates, and increased inflation rates; or

· other political or economic developments over which we have no control.

No assurance can be given that capacity reductions or other steps we may take in response to weakened demand will be adequate to offset any future reduction in our cargo and/or air travel demand in markets in which we operate. Sustained weak demand may adversely impact our revenues, results of operations or financial condition.

An adverse economic environment, whether global, regional or in a particular country, could result in a reduction in passenger traffic, as well as a reduction in our cargo business, and could also impact our ability to raise fares, which in turn would materially and negatively affect our financial condition and results of operations.

We are exposed to increases in landing fees and other airport service charges that could adversely affect our margin and competitive position. Also, it cannot be assured that in the future we will have access to adequate facilities and landing rights necessary to achieve our expansion plans

We must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges, including at Guarulhos International Airport in São Paulo, Jorge Chavez International Airport in Lima or Comodoro Arturo Merino Benitez International Airport in Santiago, could have a material adverse impact on our results of operations. Passenger taxes and airport charges have increased substantially in recent years. We cannot assure you that the airports in which we operate will not increase or maintain high passenger taxes and service charges in the future. Any such increases could have an adverse effect on our financial condition and results of operations.

Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose various restrictions, including slot restrictions during certain periods of the day and limits on aircraft noise levels. We cannot be certain that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to expand our services in line with our growth strategy. It is also possible that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having those slots re-allocated to others. Where slots or other airport resources are not available or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization. Any of these alternatives could have an adverse financial impact on our operations. We cannot ensure that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports.

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Our business is highly regulated and changes in the regulatory environment in the countries in which we operate may adversely affect our business and results of operations.

Our business is highly regulated and depends substantially upon the regulatory environment in the countries in which we operate or intend to operate. For example, price controls on fares may limit our ability to effectively apply customer segmentation profit maximization techniques (“passenger revenue management”) and adjust prices to reflect cost pressures. High levels of government regulation may limit the scope of our operations and our growth plans. The possible failure of aviation authorities to maintain the required governmental authorizations or our failure to comply with applicable regulations, may adversely affect our business and results of operations.

Our business, financial condition, results of operations and the price of preferred shares and ADSs may be adversely affected by changes in policy or regulations at the federal, state or municipal level in the countries in which we operate, involving or affecting factors such as:

• interest rates;

• currency fluctuations;

• monetary policies;

• inflation;

• liquidity of capital and lending markets;

• tax and social security policies;

• labor regulations;

• energy and water shortages and rationing; and

• other political, social and economic developments in or affecting Brazil, Chile, Peru, and the United States, among others.

For example, the Brazilian federal government has frequently intervened in the domestic economy and made drastic changes in policy and regulations to control inflation and affect other policies and regulations. This required the federal government to increase interest rates, change taxes and social security policies, implement price controls, currency exchange and remittance controls, devaluations, capital controls and limits on imports.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies. These and other developments in the Brazilian economy and governmental policies may adversely affect us and our business and results of operations and may adversely affect the trading price of our preferred shares and ADSs.

We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights between the countries where we operate, and we must obtain permission from the applicable foreign governments to provide service to foreign destinations. There can be no assurance that such existing bilateral agreements will continue, or that we will be able to obtain more route rights under those agreements to accommodate our future expansion plans. Any modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permits to operate to certain airports or destinations, the inability for us to obtain favorable take-off and landing authorizations at certain high-density airports or the imposition of other sanctions could also have a negative impact on our business. We cannot be certain that a change in a foreign government’s administration of current laws and regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and results of operations.

Losses and liabilities in the event of an accident involving one or more of our aircraft could materially affect our business.

We are exposed to potential catastrophic losses in the event of an aircraft accident, terrorist incident or any other similar event. There can be no assurance that, as a result of an aircraft accident or significant incident:

• we will not need to increase our insurance coverage;

• our insurance premiums will not increase significantly;

• our insurance coverage will fully cover all of our liability; or

• we will not be forced to bear substantial losses.

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Substantial claims resulting from an accident or significant incident in excess of our related insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Moreover, any aircraft accident, even if fully insured, could cause the negative public perception that our aircraft are less safe or reliable than those operated by other airlines, or by other flight operators, which could have a material adverse effect on our business, financial condition and results of operations.

Insurance premiums may also increase due to an accident or incident affecting one of our alliance partners or other airlines, or due to a perception of increased risk in the industry related to concerns about war or terrorist attacks.

High levels of competition in the airline industry, such as the presence of low-cost carriers in the domestic markets in which we operate, may adversely affect our level of operations.

Our business, financial condition and results of operations could be adversely affected by high levels of competition within the industry, particularly the entrance of new competitors into the markets in which we operate. Airlines compete primarily over fare levels, frequency and dependability of service, brand recognition, passenger amenities (such as frequent flyer programs) and the availability and convenience of other passenger or cargo services. New and existing airlines (and companies providing ground cargo or passenger transportation) could enter our markets and compete with us on any of these bases, including by offering lower prices, more attractive services or increasing their route offerings in an effort to gain greater market share. For more information regarding our main competitors, see “Item 4. Information of the Company—B. Business Overview – Passenger Operations – International Passenger Operations” and “Item 4. Information of the Company��B. Business Overview – Passenger Operations - Business Model for Domestic Operations.”

Low-cost carriers have an important impact in 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 domestic market, Sky Airlines, our main competitor, has been migrating to a low-cost model since 2015, while in July 2017, JetSmart, a new low-cost airline, started operations. In the Peruvian domestic market, VivaAir Peru, a new low-cost airline, started operations in May 2017. In Colombia, low-cost competitor VivaColombia has been operating in the domestic market since May 2012. Low-cost competitor Flybondi began operations in the Argentinian domestic market during 2018, while Norwegian began international operations between London and Buenos Aires in 2018. A number of low-cost carriers have announced growth strategies including commitments to acquire significant numbers of aircraft for delivery in the next few years. The entry of the low-cost carriers local into markets in which we compete, including those described above, could have a material adverse effect on our operations and financial performance.

Our international strategic growth plans rely, in part, upon receipt of regulatory approvals of the countries in which we plan to expand our operations of certain Joint Business Agreements (JBAs). We may not be able to obtain those approvals, while other competitors might be approved. Accordingly, we might not be able to compete for the same routes as our competitors, which could diminish our market share and adversely impact our financial results. No assurances can be given as to any benefits, if any, that we may derive from such agreements.

Some of our competitors may receive external support, which could adversely impact our competitive position.

Some of our competitors may receive support from external sources, such as their national governments, which may be unavailable to us. Support may include, among others, subsidies, financial aid or tax waivers. This support could place us at a competitive disadvantage and adversely affect our operations and financial performance. For example, Aerolineas Argentinas has historically been government subsidized.

Moreover, as a result of the competitive environment, there may be further consolidation in the Latin American and global airline industry, whether by means of acquisitions, joint ventures, partnerships or strategic alliances. We cannot predict the effects of further consolidation on the industry. Furthermore, consolidation in the airline industry and changes in international alliances will continue to affect the competitive landscape in the industry and may result in the development of airlines and alliances with increased financial resources, more extensive global networks and reduced cost structures.

Our operations are subject to local, national and international environmental regulations; costs of compliance with applicable regulations, or the consequences of noncompliance, could adversely affect our results, our business or our reputation.

Our operations are affected by environmental regulations at local, national and international levels. These regulations cover, among other things, emissions to the atmosphere, disposal of solid waste and aqueous effluents, aircraft noise and other activities incident to our business. Future operations and financial results may vary as a result of such regulations. Compliance with these regulations and new or existing regulations that may be applicable to us in the future could increase our cost base and adversely affect our operations and financial results. In addition, failure to comply with these regulations could adversely affect us in a variety of ways, including adverse effects on our reputation.

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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. To the extent most of the countries in which we operate continue to be ICAO member states, in the future we may be affected by regulations adopted pursuant to the CORSIA framework.

The proliferation of national regulations and taxes on CO2 emissions in the countries that we have domestic operations, including environmental regulations that the airline industry is facing in Colombia, may also affect our costs of operations and our margins.

Our business may be adversely affected by a downturn in the airline industry caused by exogenous events that affect travel behavior or increase costs, such as outbreak of disease, weather conditions and natural disasters, war or terrorist attacks.

Demand for air transportation may be adversely impacted by exogenous events, such as adverse weather conditions and natural disasters, epidemics (such as Ebola and Zika), terrorist attacks, war or political and social instability. Situations such as these in one or more of the markets in which we operate could have a material impact on our business, financial condition and results of operations. Furthermore, these types of situations could have a prolonged effect on air transportation demand and on certain cost items.

After the terrorist attacks in the United States on September 11, 2001, the Company made the decision to reduce its flights to the United States. In connection with the reduction in service, the Company reduced its workforce resulting in additional expenses due to severance payments to terminated employees during 2001. Therefore, any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations or otherwise and any related economic impact could result in decreased passenger traffic and materially and negatively affect our business, financial condition and results of operations.

After the 2001 terrorist attacks, airlines have experienced increased costs resulting from additional security measures that may be made even more rigorous in the future. In addition to measures imposed by the U.S. Department of Homeland Security and the TSA, IATA and certain foreign governments have also begun to institute additional security measures at foreign airports we serve.

Revenues for airlines depend on the number of passengers carried, the fare paid by each passenger and service factors, such as the timeliness of flight departures and arrivals. During periods of fog, ice, low temperatures, storms or other adverse weather conditions, some or all of our flights may be cancelled or significantly delayed, reducing our profitability. In addition, fuel prices and supplies, which constitute a significant cost for us, may increase as a result of any future terrorist attacks, a general increase in hostilities or a reduction in output of fuel, voluntary or otherwise, by oil-producing countries. Such increases may result in both higher airline ticket prices and decreased demand for air travel generally, which could have an adverse effect on our revenues and results of operations.

We are subject to risks related to litigation and administrative proceedings that could adversely affect our business and financial performance in the event of an unfavorable ruling.

The nature of our business exposes us to litigation relating to labor, insurance and safety matters, regulatory, tax and administrative proceedings, governmental investigations, tort claims and contract disputes. Litigation is inherently costly and unpredictable, making it difficult to accurately estimate the outcome among other matters. Currently, as in the past, we are subject to proceedings or investigations of actual or potential litigation. Although we establish provisions as we deem necessary, the amounts that we reserve could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process. We cannot assure you that these or other legal proceedings will not materially affect our business. For further information,see “Item 8. Financial Information—Legal and Arbitration Proceedings.”and Note 31 of our audited consolidated financial statements included in this report.

We are subject to anti-corruption, anti-bribery, anti-money laundering and antitrust laws and regulations in Chile, the United States and in the various countries we operate. Violations of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial condition.

We are subject to anti-corruption, anti-bribery, anti-money laundering, antitrust and other international laws and regulations and are required to comply with the applicable laws and regulations of all jurisdictions where we operate. In addition, we are subject to economic sanctions regulations that restrict our dealings with certain sanctioned countries, individuals and entities. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our affiliates, employees, directors, officers, partners, agents and service providers or that any such persons will not take actions in violation of our policies and procedures. Any violations by us of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. 

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The Brazilian government has exercised, and may continue to exercise, significant influence over the Brazilian economy, which may have an adverse impact on our business, financial condition and results of operations.

The Brazilian economy has been characterized by the significant involvement of the Brazilian government, which often changes monetary, credit, fiscal and other policies to influence Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have involved wage and price controls, depreciation of the real, controls over remittance of funds abroad, intervention by the Central Bank to affect base interest rates and other measures. We have no control over, and cannot predict what measures or policies the Brazilian government may take in the future.

The Peruvian government has exercised, and may continue to exercise, significant influence over the Peruvian economy, which may have an adverse impact on our business, financial condition and results of operations.

In the past, Peru has experienced periods of severe economic recession, currency devaluation, high inflation, and political instability, which have led to adverse economic consequences. We cannot assure you that Peru will not experience similar adverse developments in the future even though for some years now, several democratic procedures have been completed without any violence. We cannot assure you that the current or any future administration will maintain business-friendly and open-market economic policies or policies that stimulate economic growth and social stability. Any changes in the Peruvian economy or the Peruvian government’s economic policies may have a negative effect on our business, financial condition and results of operations.

Instability and political unrest in Latin America may adversely affect our business.

We operate primarily within Latin America and are thus subject to a full range of risks associated with our operations in this region. These risks may include unstable political or economic conditions, lack of well-established or reliable legal systems, exchange controls and other limits on our ability to repatriate earnings and changeable legal and regulatory requirements. In Venezuela, for example, foreign companies may only repatriate cash through specific governmental programs, which may effectively preclude us from repatriating cash for periods of time.

Although conditions throughout Latin America vary from country to country, our customers’ reactions to developments in Latin America generally may result in a reduction in passenger traffic, which could materially and negatively affect our financial condition and results of operations

Risks Related to our Common Shares and ADSs

Our major shareholders may have interests that differ from those of our other shareholders.

One of our major shareholder groups, the Cueto Group (the “LATAM Controlling Shareholders”),which as of February 28, 2018, beneficially owned 27.91% of our common shares, is entitled to elect three of the nine members of our board of directors and is in a position to direct our management. In addition, the LATAM Controlling Shareholders have entered into a shareholders agreement with the Amaro Group, which as of February 28, 2018, held 2.58% of LATAM shares through TEP Chile, in addition to the indirect stake it has through the 21.88% interest it holds in Costa Verde Aeronáutica S.A., the main legal vehicle through which the Cueto Group holds LATAM shares, pursuant to which these two major shareholder groups have agreed to vote together to elect individuals to our board of directors in accordance with their direct and indirect shareholder interest in LATAM. Pursuant to a shareholders’ agreement, the LATAM Controlling Shareholders and the Amaro Group have also agreed to use their good faith efforts to reach an agreement and act jointly on all actions to be taken by our board of directors or shareholders meeting, and if unable to reach to such agreement, to follow the proposals made by our board of directors. Decisions by the Company that require supermajority votes under Chilean law are also subject to voting arrangements by the LATAM Controlling Shareholders and the Amaro Group. In addition, another major shareholder, Qatar Airways Investments (UK) Ltd., which as of February 28, 2018, held 10.03%¹of our common shares, is entitled to appoint one individual to our board of directors. The interests of our major shareholders may differ from those of our other shareholders. See “Item 7. Controlling Shareholders and Related Party Transactions—A. Major Shareholders.”

(1) Qatar owns 9.999999918% of total issued shares of LATAM.

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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 controlling shareholders, which may differ from those of our other shareholders. Historically, our board of directors has designated its chairman. The members of the new board of Directors elected by the shareholders in 2017 designated Ignacio Cueto, to serve in this role.

Trading of our ADSs and common shares in the securities markets is limited and could experience further illiquidity and price volatility.

Our common shares are listed on the various Chilean stock exchanges. Chilean securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. In addition, Chilean securities markets may be materially affected by developments in other emerging markets, particularly other countries in Latin America. Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying ADSs in the amount and at the price and time of your choice may be substantially limited. This limited trading market may also increase the price volatility of the ADSs or the common shares underlying the ADSs.

Holders of ADRs may be adversely affected by currency devaluations and foreign exchange fluctuations.

If the Chilean peso exchange rate falls relative to the U.S. dollar, the value of the ADSs and any distributions made thereon from the depositary could be adversely affected. Cash distributions made in respect of the ADSs are received by the depositary (represented by the custodian bank in Chile) in pesos, converted by the custodian bank into U.S. dollars at the then-prevailing exchange rate and distributed by the depositary to the holders of the ADRs evidencing those ADSs. In addition, the depositary will incur foreign currency conversion costs (to be borne by the holders of the ADRs) in connection with the foreign currency conversion and subsequent distribution of dividends or other payments with respect to the ADSs.

Future changes in Chilean foreign investment controls and withholding taxes could negatively affect non-Chilean residents that invest in our shares.

Equity investments in Chile by non-Chilean residents have been subject in the past to various exchange control regulations that govern investment repatriation and earnings thereon. Although not currently in effect, regulations of the Central Bank of Chile have in the past required, and could again require, foreign investors acquiring securities in the secondary market in Chile to maintain a cash reserve or to pay a fee upon conversion of foreign currency to purchase such securities. Furthermore, future changes in withholding taxes could negatively affect non-Chilean residents that invest in our shares.

We cannot assure you that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the common shares underlying ADSs or the repatriation of the proceeds from an acquisition, a disposition or a dividend payment, will not be imposed or required in the future, nor could we make an assessment as to the duration or impact, were any such restrictions to be imposed or required. For further information, see “Item 10. Additional Information—D. Exchange Controls—Foreign Investment and Exchange Controls in Chile.”  

Our ADS holders may not be able to exercise preemptive rights in certain circumstances.

The Chilean Corporation Law provides that preemptive rights shall be granted to all shareholders whenever a company issues new shares for cash, giving such holders the right to purchase a sufficient number of shares to maintain their existing ownership percentage. We will not be able to offer shares to holders of ADSs and shareholders located in the United States pursuant to the preemptive rights granted to shareholders in connection with any future issuance of shares unless a registration statement under the U.S. Securities Act of 1933, as amended, (the “Securities Act”), is effective with respect to such rights and shares, or an exemption from the registration requirements of the Securities Act is available. At the time of any rights offering, we will evaluate the potential costs and liabilities associated with any such registration statement in light of any indirect benefit to us of enabling U.S. holders of ADRs evidencing ADSs and shareholders located in the United States to exercise preemptive rights, as well as any other factors that may be considered appropriate at that time, and we will then make a decision as to whether we will file a registration statement. We cannot assure you that we will decide to file a registration statement or that such rights will be available to ADS holders and shareholders located in the United States.

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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 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 COMPANY

General

LATAM Airlines Group is a Chilean-based airline holding company formed through the combination of LAN of Chile and TAM of Brazil in 2012. Following the combination, LAN Airlines S.A. became “LATAM Airlines Group S.A.” and TAM continues to exist as a subsidiary of LATAM. The Company is primarily involved in the transportation of passengers and cargo and operates as one unified business enterprise. During 2016, we began the transition of LAN and TAM into a single brand: LATAM.

LATAM’s airline holdings include LATAM and its affiliates in Chile, Peru, Argentina, Colombia and Ecuador, and LATAM Cargo and its affiliates MasAir (in Mexico) and LANCO (in Colombia), as well as TAM S.A. and its affiliates TAM Linhas Aereas S.A (LATAM Airlines Brazil), TAM Transportes Aereos del Mercosur S.A., (LATAM Airlines Paraguay), LATAM Cargo and Multiplus. LATAM is a publicly traded corporation listed on the Santiago Stock Exchange (“SSE”), the Valparaiso Stock Exchange, the Chilean Electronic Exchange and the New York Stock Exchange (“NYSE”).

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 the Scandinavian Airlines System. In 1994, 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, LATAM has significantly expanded its operations in Latin America, initiating services in Peru in 1999, Argentina in 2005, Ecuador in 2009, and Colombia in 2010 through the acquisition of Aerovias de Integracion Regional, Aires S.A. (“LAN Colombia”). The business combination of LAN and TAM in June 2012 further expanded the Company’s operations in Brazil, where TAM Linhas Aéreas S.A. (“TLA” or “LATAM Airlines Brazil”), the TAM operating entity, is 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 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 TAM S.A. and its shares were listed on the Brazilian Stock Exchange (“Bovespa”) in June 2005. From 2006 until the combination with LAN in 2012, TAM ADSs were also listed on the NYSE.

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) 2565-8765. We have designated LATAM Airlines Group as our agent in the United States, located at 970 South Dixie Highway, Miami, Florida 33156. Our 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.  

Capital Expenditures

For a description of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures.”

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B. BUSINESS OVERVIEW

General

LATAM Airlines Group is the largest passenger and cargo airline in South America. We are also one of the largest airline groups in the world in terms of network connections, providing passenger transport services to approximately 137 destinations in 24 countries and cargo services to approximately 144 destinations in 29 countries, with a fleet of 307 aircraft and a set of bilateral alliances. In total, LATAM Airlines Group has approximately 43,000 employees. For the year 2017, LATAM transported 67 million passengers. LATAM Airlines Group and its affiliates currently provide domestic services in Brazil, Chile, Perú, Argentina, Colombia and Ecuador; we also provide intra-regional and long-haul operations. The cargo affiliate carriers of LATAM in Chile, Brazil, Colombia and Mexico carry out cargo operations through the use of belly spaces on the passenger flights and dedicated cargo operations using freight aircraft. We also offer other services, such as ground handling, courier, logistics and maintenance.

As of December 31, 2017, we provided scheduled passenger service to 17 destinations in Chile, 18 destinations in Peru, five destinations in Ecuador, 15 destinations in Argentina, 14 destinations in Colombia, 41 destinations in Brazil, 11 destinations in other Latin American countries and the Caribbean, five destinations in North America, six destinations in Europe, four destinations in the South Pacific and one destination in Africa. In addition, as of December 31, 2017, through our various code-sharing and interline agreements, we offer service to 70 destinations in North America, 44 destinations in Europe, 17 destinations in Australasia, 13 destinations in Asia and four destinations in Africa.

Competitive Strengths

Our strategy is to maintain LATAM Airlines Group’s position as the leading airline 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 six markets, as well as intra-regional and long-haul operations. As a result, the Company 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 position 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. We believe our most important competitive strengths are:

Leader in the South America Airlines Space, with a Unique Leadership Position among Global Airlines

Through a successful regional expansion strategy, LATAM Airlines Group has become the leading international and domestic passenger airline group in South America, as well as the largest cargo operator in Latin America. LATAM and its affiliates have domestic passenger operations in Chile, Brazil, Peru, Argentina, Colombia and Ecuador. We are also the largest operator of intra-regional routes, connecting the main cities and also some secondary cities in South America. Furthermore, through our significant presence in the largest hubs in South America—Lima and São Paulo—we are able to offer the best connectivity options between South America and the rest of the world. In addition, our cargo companies are the largest air cargo operators within, to and from Latin America, and particularly in Brazil.

Geographically Diversified Revenue Base, including both Passenger and Cargo Operations

Our operations are highly geographically diversified, including domestic operations in six different countries, as well as operations within South America and connecting South America with various international destinations. 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 our 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, we are able to increase the productivity of our assets and maximize revenue, reducing our break-even load factors and enhancing our per flight profitability. Additionally, this revenue diversification helps offset seasonal revenue fluctuations and reduces the volatility of our business over time. For the year ended December 31, 2017, passenger, cargo and other revenues accounted for 83.6%, 11.0% and 5.4% of total revenues respectively.

Modern Fleet and Optimized Fleet Strategy

The average age of our fleet is approximately eight years, making it one of the most modern in Latin America and in the world. A younger 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.

We select our aircraft based on their ability to effectively and efficiently serve our short- and long-haul flight needs, while still striving to minimize the number of different aircraft types we operate.

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The Company’s current fleet plan envisage a short-haul fleet formed exclusively by aircraft from the A320 family, with a focus on the A321 and A320neo, a re-engined A320 that the Company received for the first time in 2016, becoming the first airline in Latin America to fly this model. During 2017, LATAM incorporated two additional A320neos into its fleet.

For long-haul passenger flights, we operate the Boeing 767-300ER, the Boeing 787-8, the Boeing 787-9, the Boeing 777-300ER and the Airbus A350-900 which started operations in 2016. The Boeing 787 and Airbus A350 models allow us to achieve important savings in fuel consumption, while incorporating modern technology to deliver the best travel experience for our passengers. In 2017, we incorporated two Boeing 787-9 into our fleet.

LATAM continues to take a flexible approach to its fleet plan in order to better align it to market conditions. During 2017, the Company received four aircraft, the lowest number in the history of LATAM, and subleased some aircraft to third parties to adjust to demand during the year.

Strong Brand Teamed with Key Global Strategic Alliances

In May 2016 our new brand, LATAM, was officially launched. We believe that our new brand is associated with superior service and technologically advanced operations, and is well recognized and respected in the markets in which we operate. In 2017, LATAM Airlines was named Best Airline to South America in the 14th annual Global Traveler GT Tested Reader Survey Awards, and South America’s Leading Airline in the World Travel Awards 2017, recognizing customers’ preference for LATAM’s brand over other South American Airlines.

LAN joined theoneworld^®alliance, one of the world’s leading airline alliances, in 2000. TAM (now LATAM Airlines Brazil) joinedoneworld^®in 2014, marking a significant milestone and completing the entry of all LATAM Airlines into oneworld^®. To our passengers, this means greater convenience when traveling, since they will have the same standard of high-quality customer service, regardless of their international destination. Our strategic global alliances and existing commercial agreements provide our customers with access to more than 1,000 destinations worldwide, a combined reservations system, itinerary flexibility and various other benefits, which substantially enhance our competitive position within the Latin American market.

In 2016 LATAM entered into two joint business agreements: an agreement with American Airlines and an agreement with British Airways and Iberia. These agreements further strengthen our relationship with otheroneworld® partners. Both agreements will allow LATAM to expand its network to more than 420 destinations worldwide, operating routes from South America to the United States and Canada with American Airlines and routes from South America to Europe with British Airways and Iberia. Some approvals have already been granted during 2017. The administrative court of economic defense of the CADE (Administrative Council for Economic Defense) in Brazil and the Civil Aviation Authority in Colombia approved the agreements with American Airlines and British Airways and Iberia. During the review, the authorities evaluated the scope of the agreement in terms of free competition and the benefits that it will bring to passengers, including improved connectivity, expansion of the destination network and reduced prices. Both agreements were approved in Uruguay in 2016. The agreements remain subject to the sign off by the Executive branch in Brazil and to regulatory approval in Chile and in the United States (LATAM – American Airlines).

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.

Recognized Loyalty Programs

Our frequent flyer programs, LATAM Fidelidade and LATAM Pass together represent the leading frequent flyer programs in South America, with strong participation rates and brand recognition by our customers. Customers in each program earn points or miles 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. In addition, in 2009 TAM launched its affiliate Multiplus, a coalition of loyalty programs, which allows members to accumulate points not just by flying with LATAM, but also by making purchases through credit cards or using services and products at partner establishments, and allows members to redeem points for LATAM Airlines flights and other products at partner establishments.

We believe these flexible programs are attractive to customers because they do not impose restrictions on those flights for which points can be redeemed, or limit the number of seats available on any particular flight to members using the loyalty program. LATAM Pass and LATAM Fidelidade members can also accrue and redeem points for flights on otheroneworld^® member airlines.

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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

We intend to continue to strengthen our route network in South America, offering the best connectivity within the region at competitive prices and ensuring that we are the most convenient option for our passengers. We are the only airline group in the world with a local presence in six home markets and an international and intra-regional operation. This position is bolstered by our enhanced infrastructure in several of our key hubs, allowing us to further strengthen our network. We intend to leverage our position to create a leading portfolio of services and destinations, providing more options to our passengers and building a platform to support continued growth.

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 defining LATAM’s digital 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

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. Cost savings include reductions in fuel and fees, procurement, operations, overhead and distribution costs, among others, as well as the implementation of a customized service in domestic markets. We are currently working at an accelerated pace on cost initiatives in all these areas.

Organizational Strength

We aspire to be a group of passionate people, working in a simple and aligned manner, with inspiring leaders making agile decisions. This will allow us to deliver a distinctive value proposition to our customers and operate sustainably over the long term.

Proactive Risk Management

We strive to have a holistic and responsible view of risk in decision-making. We put special focus on risks that have high potential impact and low probability of occurrence, which could significantly affect LATAM’s strategic objectives.

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,
	2017		2016		2015
	(in US$ millions)
Total passenger revenues		8,494.5		7,877.7		8,410.6
Total cargo revenues		1,119.4		1,110.6		1,329.4
Total traffic revenues		9,613.9		8,988.3		9,740.0

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	Year ended December 31,
	2017		2016		2015
	(in US$ millions)
Peru		626.3		627.2		681.3
Argentina		1,113.5		1,031.0		979.3
United States		900.4		933.1		1,025.5
Europe		676.3		714.4		723.1
Colombia		359.3		343.0		353.0
Brazil		3,436.4		2,974.2		3,464.3
Ecuador		190.3		198.2		238.5
Chile		1,527.2		1,512.6		1,575.5
Asia Pacific and rest of Latin America		784.3		654.6		699.5
Total Operating Revenues		9,613.9		8,988.3		9,740.0

Passenger Operations

General

As of December 31, 2017, our passenger operations were performed through airlines in Chile, Brazil, Peru, Argentina, Colombia and Ecuador, where we operate both domestic and international services. We collect and report operating data for our passenger operations in three categories: international (connecting more than one country), Domestic operations in Spanish speaking countries or “SSC” (including Chile, Peru, Argentina, Colombia, and Ecuador), and Domestic Brazil (wholly within Brazil).

The following table sets forth certain of our passenger operating data for international and domestic routes for the periods indicated:

	Year ended and as at December 31
	2017		2016		2015
ASKs (million) (at period end)
International		76,366.1		73,541.9		69,615.9
SSC		23,821.0		23,847.1		22,072.8
Domestic Brazil		36,211.3		37,578.7		42,478.5
Total		136,398.4		134,967.7		134,167.1
RPKs (million)
International		66,344.2		63,392.6		59,003.4
SSC		19,407.9		19,293.7		17,858.4
Domestic Brazil		29,940.6		30,940.5		34,648.1
Total		115,692.7		113,626.9		111,509.9
Passengers (thousands)
International		16,057		15,107		14,156
SSC		22,775		22,829		21,540
Domestic Brazil		28,314		29,024		32,139
Total		67,146		66,960		67,835

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	Year ended and as at December 31
	2017			2016			2015
Passenger RASK (passenger revenues/ASK, in US cents)
International(1)		US¢6.2			US¢5.8			US¢6.5
SSC(1)		US¢7.3			US¢6.9			US¢8.3
Domestic Brazil(1)		US¢6.6			US¢5.8			US¢5.9
Combined Passenger RASK(2)		US¢6.2			US¢5.8			US¢6.3
Passenger load factor (%)
International		86.9	%		86.2	%		84.8	%
SSC		81.5	%		80.9	%		80.9	%
Domestic Brazil		82.7	%		82.3	%		81.6	%
Combined load factor		84.8	%		84.2	%		83.1	%

(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 ASKs.

International Passenger Operations

Our international network combines the international operations of our Chilean, Peruvian, Ecuadorian, Argentinean, Colombian and Brazilian affiliates. We have operated international services out of Chile since 1946 and have greatly expanded our international services, offering flights out of Peru, Ecuador, Argentina, Colombia and Brazil. As of December 31, 2017, we offer 27 international destinations in 18 countries, in addition to our domestic destinations and international flights and connections between our domestic destinations.

Our general strategy to expand our international network is aimed at enhancing our value proposition by offering customers more destinations and routing alternatives, and promoting tourism to and within South America. Sustained development of our international network is a crucial factor in our long-term strategy. The group provides long-haul services out of Santiago, Lima, Guayaquil, Buenos Aires, Bogota, Sao Paulo and Rio de Janeiro. The group also provides regional services from Chile, Peru, Ecuador, Argentina, Colombia and Brazil.

During 2017, we received two Boeing 787-9 Dreamliners (we have orders for eight more), which will allow us to achieve important savings on fuel consumption, while incorporating modern technology, to deliver the best travel experience for our passengers and reduce our carbon footprint, as the Dreamliner produces up to 20% less CO2 than similar aircraft. We also took delivery of two Airbus A320neos, out of an order of 32 aircraft of this model, becoming the first airline in Latin America to fly this model.

During 2017, the group has continued to grow at Guarulhos Airport in Sao Paulo, Jorge Chavez Airport in Lima and Comodoro Arturo Merino Benítez Airport in Santiago, launching 11 new international routes (excluding new seasonal routes) during the year and announcing 11 new routes to be launched during 2018 (excluding new seasonal routes operated by LATAM Brazil and LATAM Chile), including additional destinations such as San José in Costa Rica, Boston in the U.S. and Rome in Europe.

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 Cusco, Easter Island, the Galapagos Islands, Iguazu Falls in Brazil, and Patagonia in Chile and Argentina, including the cities of Punta Arenas, Puerto Natales, Ushuaia, El Calafate and Bariloche.

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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:

Country	LATAM passenger figures		LATAM’s Market Share
	% variation 2017-2016		2017			2016			% variation
Brazil(1)		+6.3%		74.9	%		78.9	%	-4.0 p.p.
Chile(2)		+10.3%		58.4	%		61.3	%	-2.9 p.p.
Argentina(3)		+9.5%		12.7	%		11.7	%	+1.0 p.p.
Peru(4)		+9.8%		44.8	%		43.1	%	+1.7 p.p
Colombia(5)		+8.7%		8.7	%		8.0	%	+0.7 p.p
Ecuador(3)		+14.0%		15.6	%		18.4	%	-2.8 p.p.

(1) Source: ANAC Brazil’s website. Variation and market share considering RPK. Figures are considering only Brazilian airlines

(2) Source: JAC Chile’s website. Variation and market share considering number of passengers carried.

(3) Source: Diio.net. Variation and market share considering ASKs.

(4) Source: Ministry of Transportation Peru’s website. Variation and market share considering number of passengers carried.

(5) Source: DGAC Colombia’s website. Variation and market share considering RPK.

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Competitors in international routes

The following table shows LATAM’s main competitors in each geographic market in which we operate:

Country	Route	Competitors
Brazil	North America	American Airlines, United Airlines, Delta Air Lines, Azul Linhas Aereas and Avianca Brazil.
	Latin America	Copa, Gol, Avianca, Aerolineas Argentinas, Aeromexico, Azul Linhas Aereas and Avianca Brazil.
	Europe	TAP Portugal, Air France-KLM, Lufthansa, Alitalia, British Airways, Iberia and Air Europa.
	Africa	South African Airways, Royal Air Maroc, Ethiopian Airlines and TAAG Angola Airlines.
Chile	North America	American Airlines, United Airlines and Delta Air Lines.
	Latin America	Copa, Avianca, Sky Airline, JetSmart, Aeromexico, Gol and Aerolineas Argentinas..
	Europe	Air France-KLM, Iberia, Alitalia, British Airways and Air Europa.
	Pacific	Qantas Airways.
Argentina	North America	American Airlines, Aerolíneas Argentinas, Copa, United Airlines and Delta Air Lines.
	Latin America	Aerolineas Argentinas, Gol, Copa, Avianca and Aeromexico.
Peru	North America	American Airlines, United Airlines, Delta Air Lines, Avianca and JetBlue Airways.
	Latin America	Avianca, Copa, Aeromexico.
	Europe	Air France-KLM, Iberia, Air Europa and British Airways.
Colombia	North America	Avianca, American Airlines, United Airlines, JetBlue Airways. Spirit Airlines and Delta Air Lines.
	Latin America	Avianca, Copa, Aeromexico, ABC Aerolineas S.A. de C.V. and Aerolineas Argentinas.
Ecuador	North America	American Airlines, TAME Linea Aerea del Ecuador, Delta Air Lines, United Airlines and JetBlue Airways.
	Latin America	Avianca, Copa, Aeromexico, TAME Linea Aerea del Ecuador and Avior Airlines
	Europe	Air France-KLM, Iberia and Air Europa.

Source: Diio.net considering ASKs.

Domestic Passenger Operations

As of December 31, 2017, 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.

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Business Model for Domestic Operations

In November 2016, the group announced an important project to revamp the business model of our domestic services offerings in the six domestic markets where the group operates in South America. The purpose of this change is to increase our competitiveness and ensure the long-term sustainability of our domestic business model. As of December 2017, LATAM implemented this new travel model in its domestic operations in Brazil, Chile, Colombia, Ecuador and Peru. This project seeks to increase our operational efficiency, allowing us to provide more competitive fares, and contributing to the development of tourism and the growth of air travel per capita in the region. The new domestic service model requires continuous cost reduction efforts, and we are implementing 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 us to expand our operations while controlling fixed costs.

Another key element of this business model is initiatives to increase our ancillary revenues, while allowing passengers to customize their journey. Customers on domestic flights now are 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.

We continue to develop digital initiatives to empower passengers providing them an enhanced digital experience with end-to-end control of their reservation. LATAM customers will be able to buy, check-in and manage the after sale service in a simpler and faster manner through their smartphones.

The new domestic strategy was implemented by the affiliate airlines in five out of six countries during 2017.

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(6)	Peru	Colombia	Ecuador
Destinations	41	16	15	18	14	5
Passengers Transported (million)Change (YoY)	28.3 (2.4%)	7.7  (2.2%)	2.5 (2.5%)	6.7 1.8%	4.8 0.4%	1.0 4.6%
Market share	33%(1)	71%(2)	18%(3)	58%(4)	23%(5)	36%(3)
Main competitors	Gol, Azul,  Avianca Brazil	Sky Airlines, JetSmart	Aerolíneas Argentinas, Andes	Peruvian Airlines, Avianca, LC Peru, Star Perú, Viva Air Peru	Avianca, Viva Colombia, Satena, Copa Airlines Colombia (“Wingo”)	Tame, Avianca

(1) Source: ANAC Brazil’s website. Market share considers RPKs.

(2) Source: JAC Chile’s website. Market share considers RPKs.

(3) Source: Diio.net. Market share considers ASKs.

(4) Source: Ministry of Transportation Peru’s website. Market share considers number of passengers carried as of December 2017.

(5) Source: DGAC Colombia’s website. Market share considers RPKs

(6) Business model not yet implemented

Passenger Alliances and Commercial Agreements

LATAM is currently a member of the global marketing allianceoneworld, which includes American Airlines, British Airways, Cathay Pacific Airways, Finnair, Iberia, Japan Airlines, Malaysia Airlines, Qantas, Qatar Airways, Royal Jordanian, Sri Lankan and S7 Airlines. In the aggregate,oneworld® members serve more than 1,000 destinations in 150 countries, operating approximately 13,000 daily departures.

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LATAM and its affiliates have ongoing passenger commercial agreements with several airlines, including American Airlines, Iberia, Quantas, British Airways, Lufthansa, Swiss, Interjet, All Nippon Airways, Cathay Pacific, Japan Airlines and Jetstar Airways, among others. These commercial agreements allow us to provide additional benefits to our passengers, including access to a wider network, more flight options with better connection times, more competitive fares to destinations not served by LATAM, and increased potential for developing new routes and adding direct flights to new destinations and to destinations already served by LATAM.

Moreover, on January 14, 2016, we entered into two joint business agreements: an agreement with American Airlines and an agreement with British Airways and Iberia. These agreements further strengthen our relationship with theseoneworld® partners. The agreements remain subject to regulatory approval in different countries. Both agreements have been approved in Uruguay on 2016. During 2017, joint business agreement with American Airlines was approved without mitigation measures by the competition authorities of Colombia and Brazil in May and September, respectively. The agreement with airlines of the IAG group (Iberia and British Airways) was authorized by the antitrust authorities of Brazil and Colombia in March and July, respectively. In Chile, the agreements are in a consultation process with TDLC (“Tribunal de la Libre Competencia”). Finally, the Department of Transportation of the United States (US - DOT) requires the ratification by Brazil of open skies with the United States to review the JBA with American Airlines notified in May 2016. In this regard, in December 2017 and in March 2018, the Chamber of Deputies and the Senate of Brazil, respectively, approved the ratification of the open skies agreement between both countries, which remains subject to approval by the Executive branch.

Passenger Marketing and Sales

Our long-haul marketing strategy emphasizes attributes valued by our international customers: reliable, high-quality service centered on comfort and entertainment for long-haul travel. We also highlight our extensive network, which covers the most important destinations in South America and the Caribbean and provides frequent service to major overseas gateways such as New York, Los Angeles, Miami, Orlando, London, Madrid, Paris, Frankfurt, Milan, Barcelona, Johannesburg and Sydney. In a continuing effort to strengthen our network, during 2017 we launched a new direct route between Santiago and Melbourne (our longest flight).

Our short-haul operations are designed to fit our customers’ needs: punctuality, reliability, frequency, modern aircraft and efficient operations. To deliver this value proposition, we have been increasing our fleet and frequencies with more point-to-point flights, and streamlined processes including Internet sales, web and mobile check-in and airport self-check-in and self-bag-tag. We also launched Mercado LATAM, a new buy on board service for food and beverages in our domestic flights in Brazil, Chile, Peru, Colombia and Ecuador.

We strive to deliver on our promise to our customers. Therefore, we constantly monitor customer satisfaction with in-flight surveys and research, and measure our performance against the highest standards. This commitment to excellence is reflected in the numerous prizes and recognitions earned by the Company. For the fourth consecutive year, LATAM Airlines was named the ‘Best Airline to South​ America’ at the Global Traveler GT Tested Reader Survey Awards​.​ LATAM was also recognized as ‘South America’s Leading Airline’ in the World Travel​ Awards 2017 for the second year in a row.

Branding

Our brand, “LATAM”, was officially launched in May 2016. The new brand brings together all the passenger and cargo airline operations of the LATAM Airlines Group carriers. We seek to continue the legacy of leadership started decades ago by LAN, TAM and their respective affiliate carriers.  

We are committed to the future of South America and to connecting it to the world. Our new brand allows us to offer a better, more consistent service throughout our network, which in turn strengthens our position in the region.

Using a single brand enables LATAM’s customers to better understand the common service and operating standards among its airlines. LATAM’s unified image has improved its visibility, thereby increasing the efficiency of its marketing efforts.

Since the launch of our new brand, we have made significant progress on its implementation, making our brand visible to our passengers. The new brand has been adopted at most of our airports, and we now offer a new single website for all of our different points of sale. The LATAM brand has also been applied to 63 aircraft. We also launched new uniforms for our crew, adopting the Company’s colors of indigo and coral while providing elegance and comfort for our crew.

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 55% of total passengers in 2017 (including award passenger). These direct channels support sales and service, both before and after the flight.

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The e-Business channel is an integral part of our commercial, marketing and service efforts, and during 2017 our Internet-related sales increased by 8.5% compared to 2016. The Company will continue to improve its e-Business platforms to support expected future growth and simplify our customer’s purchasing 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.

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 six languages (Spanish, English, Portuguese, French, German and Italian).

Indirect channels currently include travel agencies, general sales agencies, direct channels from other airlines and online agencies, and accounted for a 45% of total passengers in 2017.

Frequent Flyer Programs

Our frequent flyer programs are a key element of our marketing and loyalty strategy. These programs reward customer loyalty, and, as a result, generate incremental revenue and customer retention.

In 2016, we announced our revamped frequent flyer programs named LATAM Pass and LATAM Fidelidade. This change is part of the process of consolidating our new brand identity (LATAM) and the evolution of the programs, which enhances existing benefits and introduces new benefits for program members.

During 2017 LATAM Pass and LATAM Fidelidade improved the way members earn points and kilometers from the prior system (based on the distance flown) to a new method based on the price paid for the ticket. In addition, during 2017, LATAM Pass announced the change of the currency of the program from kilometers to miles, effective January 3, 2018, in line with industry standards

As of December 31, 2017, LATAM Pass and LATAM Fidelidade had 29.7 million members, which represents an increase of 13.7% compared to 2016. Members of LATAM’s loyalty programs receive benefits and increased points for ticket purchases in accordance with their elite level status, as well as by purchasing the services of other partners in the LATAM Pass and LATAM Fidelidade programs. Customers of the program can redeem miles or points for free tickets as well as for other products. LATAM Pass and LATAM Fidelidade members are classified in four elite levels: Gold, 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.

Multiplus

In 2009, TAM launched Multiplus, a company designed to create a broader network in which LATAM Airlines Brazil’s customers can earn points through the LATAM Fidelidade program. Multiplus is a coalition of loyalty programs that permits the accrual of points that can be redeemed for products and services offered by many different partner companies, in addition to LATAM Airlines. We believe this expanded network acts as a sales channel for LATAM Airlines, helping to capture and retain customers and increase sales. Multiplus is attractive to our frequent flyers because it allows them to accrue loyalty points in other ways besides flying, including, day-to-day purchases such as: credit card points, gas station, sporting goods, toys, insurance and the purchase of mobile and fixed-line telephone services.

In 2017, non-air redemption reached 18% of the total points. At the end of 2017, Multiplus had more than 300 partners and approximately 19.6 million participants that can accrue Multiplus points directly (through LATAM Fidelidade, co-branded cards, apps, retail partners, etc.) and indirectly (by transferring points from a partner program).

Multiplus became a publicly traded company in Brazil following its initial public offering in February 2010. TAM S.A continues to own 72.74% of the ordinary shares of Multiplus.

On December 10, 2009, Multiplus entered into an Operating Agreement with LATAM Airlines Brazil, effective as of January 1, 2010, which established the terms and conditions governing the relationship with TLA (the “Operating Agreement”). Under the Operating Agreement, Multiplus became responsible for, among other tasks, processing information on accumulating and redeeming points under the LATAM Airlines Brazil Loyalty Program, and delivering awards to the members of said program, in accordance with the rules of the TAM Loyalty Program and the Multiplus network. The Operating Agreement is valid for 15 years and is automatically renewed every five years thereafter.

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On January 24, 2017, Multiplus S.A. and Banco Itaucard S/A (“Itaucard”) launched their first co-branded credit card, a result of the partnership announced in July 2016 by both companies. The new Multiplus Itaucard card comes to the market with the best point accumulation per dollar spent by means of conversion and differentiated bonuses. Carrying the MasterCard banner, the card is available in the International, Gold, Platinum and Black versions.

On February 14, 2017, aiming to increase the value created to Multiplus and LATAM shareholders, and to improve the alignment of interests between Multiplus and TLA, we announced the annual revision of the cost per seat (transfer price) and the approval of the point redemption tables pursuant to the Operating Agreement. The revision was a result of a detailed evaluation, considering the weighted average for each market, region of origin/flight destination, fare class, demand, distance and season, generating approximately 11,000 different combinations. We do not believe that the revision will result in any increase to the Company's unit cost.

On February 24, 2017, Multiplus S.A. and Banco Citibank S/A (“Citi”) enhanced their partnership by offering holders of Citi credit cards the ability to accumulate points directly within the loyalty network. Citi and Multiplus previously shared a benefits program available on Diners card, the points from which can be transferred to Multiplus.

In 2017, Multiplus S.A. and Telefônica Brasil S.A - Vivo (“Vivo Valoriza”) launched a partnership with the aim of bringing together two leaders in their respective segments, in a quest to offer the best benefits to their Multiplus members and Vivo Valoriza’s customers, including credit for the use of fixed-line telephones, broadband and TV services.

On August, 28, 2017 Multiplus S.A. announced unrestricted access to flights of the LATAM Group, LATAM Airlines Brasil, LATAM Airlines Chile and other airlines that will be joining the Group in the future, thus increasing ticket redemption options for airline tickets by members of the Company's coalition network, with particular emphasis on destinations such as: Sydney, Melbourne, Miami, New York, Los Angeles, Barcelona, Madrid, Lima, Cusco, Cartagena, Buenos Aires, Bariloche, and Easter Island. Multiplus will also have the right to operate exclusively as a coalition in the following regions: Brazil, Paraguay, Mexico, the United States and all European countries, while LATAM will have the right to exploit the business of the coalition exclusively in Central and South America (except for Mexico, Paraguay and Brazil). These changes will be implemented during 2018.

The remaining provisions established in the original Operating Agreement, including, without limitation, those relating to reciprocal exclusivity, term of effectiveness and situations for termination with or without cause, remain, in their essence, unchanged.

One of Multiplus’ advantages is the expansion of the airline network available for point redemption by passengers. In October, Multiplus also introduced a new version of our hotel reservation platform in partnership with Hotéis.com, expanding the portfolio to more than 300,000 hotels and hostels around the world and offering the option of paying in up to 12 installments, including facilitating payment prior to trip, upon arrival at the travel destination, or at the time of check-out. Members can also accrue points on purchases.

All of the gains and achievements mentioned above serve to demonstrate Multiplus’ focus and investment in delivering the best experience to our more than 19.6 million members, in order to be the best loyalty network.

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 business generally operates on the same route network used by the passenger airline business. It includes approximately 144 destinations; of which around 137 are served by passenger and/or freighter aircraft and 7 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:

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	Year ended and as at December 31,
	2017			2016			2015
ATKs (millions)		6,230.3			6,704.1			7,082.8
RTKs (millions)		3,421.3			3,465.9			3,797.0
Weight of cargo carried (thousands of tons)		895.9			944.3			1,008.7
Total cargo yield (cargo revenues/RTKs, in U.S. cents)		32.7			32.0			35.0
Total cargo load factor (%)		54.9	%		51.7	%		53.6	%

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 our 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 our competitiveness by enhancing our belly offering.

2)Dedicated freighter fleet. As of December 31, 2017, our dedicated freighter fleet under operation consisted of nine Boeing 767-300 freighters, each with a capacity for 58 structural tons of freight each. In 2017 we continued our freighter fleet optimization efforts, subleasing part of our Boeing 767-300F and Boeing 777-200F aircraft to a third party. As of December 31, 2017, one Boeing 767-300F and one Boeing 777-200F were subleased to a third party. 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 provide our customers flexibility in scheduling and destinations. With these two objectives in mind, we are complementing and enhancing our network. In Latin America, the principal origins of our cargo are Chile, Colombia, Peru, Ecuador, Brazil and Argentina, which represent a large part of our 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 from Peru, and exports of fresh flowers from Ecuador and Colombia.

For the southbound flights, Brazil is the main import market. Southbound demand is mainly concentrated on a small number of product categories including high-tech equipment, electronics, auto parts and pharmaceuticals.

The largest domestic cargo operations are in Brazil, where ABSA remains the market leader there, carrying cargo for a variety of customers, including other international air carriers, freight-forwarding companies, export-oriented companies and individual consumers.

The United States accounts for the majority of cargo traffic to and from Latin America. Besides being the main market for Latin American exports by air, the United States is also the main supplier of goods transported by air to Latin American countries. We have thus headquartered our international cargo operations in Miami. This geographical location is a natural gateway between Latin America and the United States. We also transport cargo to and from eight destinations in Europe: London, Madrid, Milan, Paris, Barcelona, Frankfurt, Amsterdam and Basel. The first six are served via passenger aircraft, and we serve Amsterdam, Frankfurt and Basel through freighter operations.

During 2017, cargo traffic decreased 1.3%, mainly due to a reduction in cargo capacity of 7.1% as a result of capacity adjustments in the passenger network during 2016, primarily in the routes between Brazil to the United States, and a reduction in the capacity of the dedicated freighter operations during 2017. As a result, cargo load factors increased by 3.2%, reaching 54.9%. Cargo yields improved 2.1% during 2017, mainly due to an improvement in imports from North America and Europe to Brazil driven by major imports of electronics and spare parts, as a result of more stable market conditions in the country as well as the appreciation of the Brazilian Real.

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 have been able to maintain solid market shares through efficient utilization of our fleet and network. Today, on Latin America-United States routes, our main competitors are Centurion, Avianca Cargo, Atlas Air and American Airlines. On the Latin America-Europe routes, our main competitors are Cargolux, Lufthansa Cargo, Martinair and Emirates Airlines.

Cargo-Related Investigations

See “Item 8. Financial Information—A. Consolidated Financial Statements and Other Financial Information—Legal and Arbitration Proceedings.”

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Fleet

General

As of December 31, 2017, the Group operated a fleet of 307 aircraft, comprised of 298 passenger aircraft and nine cargo aircraft. Along with that, we subleased nine aircraft, comprised of seven passenger aircraft and two cargo aircraft to third parties (one of them not included in the table below as it was reclassified from property plant and equipment to held for sale).

	Number of aircraft
	Total		Owned(1)		Operating Lease		Average term of lease remaining (years)		Average age (years)
Passenger aircraft(2)
Airbus A320-Family Aircraft
Airbus A319-100		46		37		9		4.6		10,1
Airbus A320-200(3)		131		93		38		3.1		9.4
Airbus A321-200		47		30		17		8.3		3.7
Airbus A320-200neo		4		1		3		10.8		0.7
Airbus A350-Family Aircraft
Airbus A350-900(4)		7		5		2		10.8		1.5
Boeing Aircraft
Boeing 767-300ER		36		34		2		2.8		9.2
Boeing 787-8		10		6		4		8.2		4.1
Boeing 787-9		14		4		10		10.1		2.0
Boeing 777-300ER		10		4		6		6.9		6.7
Total passenger aircraft		305		214		91		5.9		7.7
Cargo aircraft
Boeing 767-300 Freighter(5)		10		8		2		2.0		14.4
Boeing 777-200 Freighter(6)		0		0		0		0		0
Total cargo aircraft		10		8		2		2.0		14.4
Total fleet		315		222		93		5.8		7.9

(1) Aircraft included within property, plant and equipment.

(2) All passenger aircraft bellies are available for cargo.

(3) Five aircraft A320-200 leased to a third part. Does not include one A320-200 that was reclassified from property, plant and equipment to held for sale

(4) Two aircraft A350-900 leased to a third part.

(5) One aircraft B767-300F leased to a third part.

(6) Does not include two B777-200F (one currently lease to a third party), that were reclassified from property, plant and equipment to held for sale.

The airline group operates various different aircraft types that are best suited for our different services, which include short-haul domestic and continental trips as well as long-haul transcontinental flights. We have selected our aircraft based on their ability to effectively and efficiently serve these missions while trying to minimize the number of aircraft families we operate.

For short-haul domestic and continental flights, the group operates Airbus A320-Family aircraft. The Airbus A320-Family has been incorporated into our fleet pursuant to operating leases or has been acquired directly from Airbus pursuant to various purchase agreements since 1999. In 2017, we redelivered 17 A319 and A320 aircraft under operating leases, and received two A320neo aircraft.

For long-haul passenger we operate the Boeing 767-300ER, the Boeing 787-8 and 787-9, the Boeing 777-300ER and the Airbus A350-900 aircraft.

For cargo flights, we operate the Boeing 767-300F aircraft.

The average utilization rates of LATAM’s aircraft for each of the periods indicated are set forth below, in hours per day.

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	2017		2016		2015
Passenger aircraft
Boeing 767-300ER		9.4		10.0		11.3
Boeing 787-8/9		11.2		11.0		11.7
Airbus A320-Family		9.2		8.9		9.5
Boeing 777-300ER		11.6		11.7		12.2
Airbus A330-200		-		4.4		6.2
Airbus A350-900		9.1		8.5		0.8
Total passenger aircraft		9.5		9.0		9.7
Cargo aircraft
Boeing 767-300 Freighter		11.5		12.0		10.9
Boeing 777-200 Freighter		12.6		13.6		13.0
Total cargo aircraft		11.7		12.5		11.5
Total passenger and cargo		9.6		9.1		9.8

Fleet Leasing and Financing Arrangements

LATAM’s fleet financing and leasing structures include borrowing from financial institutions and leasing under financial leases, tax leases, sale-leaseback transactions and pure operating leases. As of December 31, 2017, LATAM had 315 aircraft, of which eight were subleased to third parties resulting in 307 aircraft in operation. Of the aircraft in operation, 155 are operated by LATAM Airlines and 143 aircraft are operated by LATAM Airlines Brazil and 9 are operated by LATAM Airlines Cargo.

As of December 31, 2017, LATAM’s operating fleet was comprised of 174 financial leases, 12 tax leases, 83 operating leases, 10 aircraft as loan guarantees and 28 unencumbered aircraft. Most of LATAM’s financial and tax leases are structured with a 12-year initial term. LATAM has 40 financial aircraft leases supported by the U.S. Export-Import Bank (“EXIM Bank”) and 81 supported by the European Export Credit Agencies (the “ECAs”). LATAM’s operating lease maturities initially range from three to 12 years.

LATAM’s aircraft debt, which is comprised of financial and tax leases, is denominated in U.S. dollars and typically has quarterly amortization payments. Both the financial leases and tax leases have a bank (or a group of banks) as counterparty; however, the tax leases also include third parties. 63.3% of our aircraft debt has a fixed interest rate and the balance has a floating rate based on USD LIBOR.

In order to reduce LATAM Airlines Brazil’s balance sheet FX exposure to the Brazilian real, as part of the integration plan following the combination with TAM, we have sought to transfer the majority of the LATAM Airlines Brazil aircraft under financial leases to the LATAM level. As of December 31, 2017, we have transferred 51 aircraft to LATAM. This program has helped reduce the exposure to approximately US$0.8 billion equivalent. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of financing” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a description of expected sources of financing and expected expenditures on aircraft.

Maintenance

LATAM Maintenance

Our heavy maintenance, line maintenance and component shops are equipped and certified to service our entire fleet of Airbus and Boeing aircraft. Our maintenance capabilities allow us flexibility in scheduling airframe maintenance, offering us an alternative to third-party maintenance providers. More than 4,000 LATAM Maintenance professionals ensure our fleet operates safely and in compliance with all local and international regulations. We strive to provide the best experience to our passengers through the highest standards of safety, on-time performance and cabin image and functionality.

Our heavy maintenance and component repair shop facilities are located in São Carlos (Brazil) and Santiago (Chile), adding up to a total of up ten heavy maintenance production lines, including painting capabilities, and more than 30 component repair shops, including landing gear, hydraulics, pneumatics, avionics, electroplating, composites, wheels and brakes, emergency equipment, galleys and structures.

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LATAM Line Maintenance

The Line Maintenance Network serves over 150 locations and carried out over 2.2 million man hours of preventive and corrective maintenance tasks on the LATAM fleet during 2017. We also rely on certified third party services in a few destinations where it is economically convenient, such as in Frankfurt, (where we are served by Lufthansa Technik), Milan (served by Air France-KLM), and Johannesburg (served by South African Airways).

LATAM Maintenance continues to innovate through LEAN methodology, to achieve increased productivity and higher levels of reliability. In the past years, we implemented our mobile strategy, offering sustainable and scalable planning, productive and operational processes. We have deployed more than 700 tablets in order to:

1) Provide fast and simplified access to technical documents through a native app called Content Management System (CMS Mobile);

2) Provide access to our Maintenance System called Maintenix and in-house coordination apps;

3) Improve our internal communication through message and video call apps; and

4) Allow use of in-house developments systems like MaintCraft (allocates man hours resources and Gantt charts to each specific maintenance tasks) and MaintControl (manages the execution of the planned tasks of MaintCraft through a friendly interface, showing all the tasks that each technician has to perform throughout the shift). MaintControl also serves as a platform where the maintenance leaders can monitor their team’s progress and solve problems that arise

MaintCraft and MaintControl are currently being developed in a partnership with a world class leader in maintenance software development, IFS MXI. Through this joint venture, IFS MXI is releasing, to other airlines and operators, all these applications using a SAAS strategy

LATAM Line Maintenance Network has hangar facilities in Santiago, São Carlos, São Paulo (CGH), Lima, Miami, Buenos Aires (AEP) and Brasilia, among others. These multiple locations improve the flexibility of the Network by allowing the execution of tasks that previously might be restricted because of adverse weather conditions and environmental authority restrictions.

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 DGAC Chile, ANAC Brazil, the Federal Aviation Administration in the United States (“FAA”), the International Air Transport Association Operational Safety Audit (“IOSA”) (from 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, we seek to improve our technicians’ skills through extensive training programs at our LATAM Technical Training Center in Chile and Brasil, and through specific training programs designed and conducted by our partnerships.

LATAM MRO

Our two main MRO (“Maintenance, Repair and 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 78% of all heavy maintenance services that LATAM demands. The services not executed internally are contracted to our extensive network of MRO partners around the globe. Both MRO facilities are FAA Part-145 certified repair stations. We occasionally perform certain heavy maintenance and component services for other airlines or OEMs. LATAM MRO is also responsible for the planning and execution of aircraft redeliveries.

In MRO São Carlos (LATAM Airlines Brazil MRO), we are prepared to service up to eight aircraft (narrow and wide body) simultaneously with a dedicated hangar for stripping and painting. In this facility we also have 22 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”), 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 (A318, A319, A320 and A321), Airbus A330, Boeing 767, ATR-42/72 and the Embraer E-Jet 170/190 families. 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.

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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, among others, for Heavy Maintenance for the Airbus A320-Family (A318, A319, A320 and A321) and Boeing 767. MRO Santiago has 10 shops prepared to support hangar activities such as cabin shops, galleys, structures and composite materials. We also have the capability to retrofit aircraft interiors, including the installation of IFE (in-flight entertainment) equipment and blended winglets in the Boeing 767 fleet.

During 2017, LATAM MRO effectively executed 1.2 million man-hours in more than 340 services, including C checks (107) and Special Checks (233) for the LATAM fleet, maintaining our 2016 labor production. Our shops delivered more than 55,000 components and performed 18 landing gear overhauls.

LATAM Safety and Security

Our most important priority is the safety and security of our passengers and employees. We have been working to standardize our operational indicators regarding safety, audits and emergency response throughout our operations.

The divisions that currently support these functions are Safety Management, Emergency Response Management, and Security Management. These divisions function on the basis of uniform policies and procedures issued from the Corporate Safety and Security Vice presidency located in Santiago, Chile, and are represented in each affiliated company.

Organization of the LATAM Safety and Security Vice presidency

Safety Management Corporate

We give the highest priority to providing safe and reliable air service. Our Safety Management is under a single organization (Corporate) that is responsible for the definition of processes and procedures for LATAM Safety Management and for the oversight of the affiliates that apply and implement those processes and procedures.

All LATAM affiliates have safety management system (“SMS”) documentation that provides clear definitions of the functions and responsibilities regarding operational safety for all persons involved, from the top to the bottom of the operational structure in the airline.

All systems are IOSA certified and have an executive who is responsible for each system implementation and for setting standardized procedures for measuring the quality and safety of services provided by companies or professional contractors that affect the operational safety of LATAM.

Emergency Response Management Corporate

The emergency response management team is responsible for the administration of the Emergency Response Plan (“ERP”). It has been developed for the effective management of different kinds of emergencies (aircraft accidents, natural disasters, strikes and pandemics) with the purpose of mitigating the impacts of emergencies on passengers and their relatives, as well as on our operations. The ERP includes, among others, Emergency Process and Procedures, Emergency Control Centers, a Relatives & Passengers Assistance Team, a Notification Team, Aircraft Recovery, and a “Go Team” which is a special team that can be dispatched in the case of an emergency and assume responsibility for emergency management.

Security Management Corporate

The Company ensures the highest levels of security for all of its passengers, employees, aircraft, equipment and facilities against any threats or unlawful action.

Corporate Security policies and a Security Management System (“SeMS”) have been implemented to detect any vulnerabilities in our security operations and to prevent acts of unlawful interference. Through the use of audits, inspections and risk analysis, we are able to establish the different security protocols required in our international and domestic operations. The results of the SeMS are evaluated, analyzed and assigned a risk level (high, medium or low) by LATAM Corporate Security Managers, who are in turn responsible for determining security protocols. In addition, Corporate Security Management oversees all of the security processes and procedures through the execution of annual audits.

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Furthermore, every LATAM affiliate has to abide by a Security Program approved by the relevant local authority. These Security Programs provide clear definitions of the security functions required for every operation.

Fuel Supplies

Fuel costs comprise one of the single largest categories of our operating expenses. In 2016, mainly due to the significant drop in the international price of crude oil, LATAM saw a drop in its jet fuel costs, while in 2017, crude oil prices increased resulting in higher fuel costs for LATAM. In 2017, total fuel costs represented 24.5% of our total operating expenses. Our average into-wing price for 2017 (fuel price plus taxes and transportation costs, including hedge) was US$2.00 per gallon, representing an increase of 17.5% from the 2016 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, in place in both our passenger and cargo business. For more information, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—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) during the last three years.

	Year ended December 31,(1)
	2017			2016			2015
Fuel consumption (thousands of gallons)		1,156,062.3			1,185,508.8			1,221,096.9
ASK (millions)		136,398.4			134,967.7			134,167.1
Fuel gallons consumed per 1,000 ASK		8.48			8,78			9,10
Total fuel costs (US$ thousands)		2,318,816			2,056,643			2,651,067
Cost per gallon (US$)		2.00			1.70			2.19
Total fuel costs as a percentage of total operating expenses		24.5	%		23.0	%		27.6	%

⁽¹⁾ See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—LATAM Airlines Group Financial Results Discussion: Year ended December 31, 2017 compared to year ended December 31, 2016.” Total fuel costs (US$ thousands) include Hedging gains/losses.

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 in a weekly, bi-weekly and monthly basis. Brazil, being our biggest market, bases its price in a refinery posting updated every month, and reported in Brazilian real per liter, plus fees and taxes.

Our fuel supply agreements vary by airport and are distributed among 30 suppliers. The fuel consumption volume is mainly concentrated in Brazil (39%), Chile (16%), the United States (11%) and Peru (12%). During 2017, we re-negotiated our fuel supply contracts in Chile, Peru, Colombia, major European, and certain Australian airports.

In Chile and Peru, we use a fuel import model in addition to the traditional local refinery supply, creating a more competitive market and ensuring our supply with different supplying methods.

As part of a comprehensive energy efficiency initiative, LATAM Airlines Group 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, the Airbus A350 and the Airbus A320neo.

· 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).

· Standardized operational procedures on every stage of the flight (taxiing, climb, cruise, approach and landing), as well as for minimizing the use of the auxiliary power unit when aircraft is on the ground.

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· Monitoring maintenance and performance of the fleet including frequent engine washes, which allow more efficient combustion of fuel and reduce emissions in airport areas.

· 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.

As a direct result of this program, LATAM Airlines Group has been recognized since 2014 by the Dow Jones Sustainability Index as one of the world’s leading companies in eco-efficiency. The magnitude of this program has allowed the Company to reduce their operational costs along with the improvement of its environmental performance, and to enhance environmental awareness both within the Company and externally.

Ground Facilities and Services

Our main operations are based at the Guarulhos Airport in São Paulo, Brazil. We also operate significant ground facilities and services at LATAM Airlines Brazil’s headquarters located at Congonhas International Airport in São Paulo, Brazil. In 2013, LATAM Airlines Brazil inaugurated two new facilities for ground handling equipment maintenance and repair (at São Paulo’s Guarulhos Airport with 17,416 m² and at Rio de Janeiro’s Galeão Airport with 4,109 m²).

We also have 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 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 flexibility to change tickets on the same day of their flight, 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, duty-free in-flight sales, maintenance services for third parties, handling, storage and customs services, handling and activities and revenues of Multiplus and the sale of certain LATAM Pass miles to third parties. In 2017, LATAM generated other revenues of US$549.9 million from these activities.

Insurance

We maintain aviation insurance policies as required by law, relevant regulations and aircraft financing and leasing agreements for aircraft that LATAM and its affiliates own, operate or are responsible for. These policies provides all risk coverage for aircraft hulls (including war risks and spares) and third-party legal liability for passengers, cargo, baggage and injuries to third parties. These policies are in force through April 1, 2019 and are renewed annually in concert with IAG Group (British Airways, Iberia and their affiliates and franchises), which allows us to obtain better premiums and improved coverage at the best level of the aviation industry.

We also maintain insurance to cover the risk of theft, fire, flood, electrical damage and similar events for equipment and buildings we own or we are responsible for. Similarly, we maintain vehicle insurance against the risk of robbery, theft, fire and civil liability against third parties for all vehicles we own or we are responsible for.

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Information Technology

Passenger Service Systems

As part of our agenda of transformation of the customer experience at LATAM, we have redefined our travel experience model and will continue to redesign our passenger service systems with the aim of providing a unified experience to our customers. Since the 2012 combination of LAN and TAM, a series of projects have been implemented to communicate the union of the companies to our customers. Intense efforts have been made to standardize processes such as passenger recognition, attention at contact centers, sales offices and airports, in-flight services, e-commerce, loyalty programs and IT backbone such as communications and data centers. However, many of these efforts are in progress as we finalize the integration of LAN’s and TAM’s processes and systems.

In 2014, we redefined our travel experience model based on the needs of our target customer, reinforcing six key elements: transparency of information, early solutions, passenger choice, digital simplicity, end-to-end rapidity and care for our customer. In order to implement this model, during 2017 we continued our work of previous years, adopting several measures to unify our processes and systems:

· We incorporated innovative products with functional features into our mobile platform for passenger service crews. Our new self-service platform allows the cabin crew to be connected and updated with all relevant human resources and flight information.

· Airports: we implemented a unique solution for self service in kiosks, with self-service bag tag functionality.

· Contingency: we continue improving our mobile platform for agents to manage contingency processes, adding features to manage basic services to our passengers in contingencies and compensation in case of disruption. We also implemented a passenger notification tool to manage both commercial and operational schedule changes.

· Contact Center: we developed new front-ends to simplify the interaction of our agents with passengers, with more intelligent recognition and more functionality to provide faster, more uniform and personalized attention. We implemented a world class solution to manage all customer service cases in a unified manner, solving problems faster and with fewer interactions. We also implemented an automatic tool to automate the calculation of refunds and reduced the time required to process refunds.

· Loyalty and customers: we continued to unify our systems to support our loyalty program with a world-class solution. We continued the implementation of a campaign management tool to centralize and control all the interactions with marketing campaigns with our customers.

· Digital Channels: We continue increasing the functionality available to digital channels.

From the integration perspective, we continue working to reach a simplified and consistent technological platform. For example, we implemented a unified Revenue Accounting System for the passenger business, and we have improved our airport management, loyalty program, contact center, customer database, and marketing tools applications. We continue to work with SABRE to unify the Passenger Service Platform in an effort to obtain operational and financial synergies, as set forth below.

During 2018, we expect to continue developing solutions aimed at improving our customers’ experience.

LATAM PSS Migration and Digital Platform

Prior to the 2012 combination, LAN and TAM used different passenger service platform (“PSP”) solutions, TAM used Amadeus and LAN used SABRE. LATAM has since decided to unify the Passenger Service Platform in an effort to obtain operational and financial synergies. As a result, the PSS Migration Program began in 2014.

After running a Request for Proposal (“RFP”) process with both providers (SABRE and Amadeus) in May 2015, LATAM signed a 10-year contract with SABRE. Since June 2015, LATAM and SABRE have jointly started the execution of PSS Migration, which should be fully implemented by 2018.

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Maintenance

In 2013, LATAM Airlines Brazil began a Maintenix implementation project which was completed in the first quarter of 2016. This project included standardization of all of our network’s maintenance processes, permitting optimization of stocks of components and seeking to take advantage of synergies in the maintenance process, while maintaining operational safety as the key pillar.

Disaster Recovery Plan

As of December 2017, LATAM has two data centers in Chile and one in Brazil. Design and configuration of two data centers and a Disaster Recovery Plan for LATAM was completed in 2015 and implementation was done during 2016. LATAM performs testings of critical systems every year.

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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 maintain 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. There are no material environmental regulations or controls 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. We believe our aircraft substantially comply with all such restrictions. Chilean authorities are planning to pass noise-related regulation governing aircraft that fly to and within Chile, observing a standard known as “Stage 3 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 be implemented in various phases by ICAO member states starting in 2020.

Safety and 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 roundtrip 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, Congress has mandated, and the TSA has implemented, numerous security procedures and requirements that have imposed and will continue to impose burdens on airlines, passengers and shippers.

Below are some specific aeronautical regulations related to route rights and pricing policy in the countries where we operate.

Chile

Aeronautical Regulation

Both the Dirección Nacional de Aeronáutica Civil (“DGAC”) 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.

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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.Chilean airlines are not required to obtain permits in order to carry passengers or cargo on any domestic routes, but must 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 on November 2013, and has been in force since that date.

International 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 operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, the JAC may terminate its rights to that route. International route frequencies are freely transferable. In the past, we have generally paid only nominal amounts for international route frequencies obtained in uncontested auctions.

Airfare Pricing Policy.Chilean airlines are permitted to establish their own domestic and international fares without government regulation. For more information, see “—Antitrust Regulation” below. In 1997, the Antitrust Commission approved and imposed a specific self-regulatory fare plan for our domestic operations in Chile consistent with the Antitrust Commission’s directive to maintain a competitive environment. According to this plan, we must file notice with the JAC of any increase or decrease in standard fares on routes deemed “non-competitive” by the JAC and any decrease in fares on “competitive” routes at least 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

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. 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. However, there are government-fixed minimum prices for domestic flights. Government-fixed maximum prices were in place until February 3, 2016, when the government eliminated the controls that limited maximum prices, while retaining the minimum prices.

Peru

Aeronautical Regulation

The Peruvian DGAC (“PDGAC”) 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.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.As an airline providing services on international routes, LATAM 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 operate 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, although that has never happened in practice.

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Ecuador

Aeronautical Regulation

There are two institutions that control commercial aviation on behalf of the State: (i) The National Civil Aviation Board (“CNAC”), which directs aviation policy; and (ii) the General Civil Aviation Bureau (“EDGAC”), 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 EDGAC 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 EDGAC 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.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.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.

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, 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”),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).

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We have obtained and maintain 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. Brazilian airlines are not required to obtain permits in connection with domestic passenger or cargo transportation, but only to comply with the technical requirements established by ANAC. Based on the Brazilian Aeronautical Code (“CBA”) established by Law No. 7.565/86, non-Brazilian airlines are not permitted to provide domestic air service between destinations in Brazil. The same law prevents a foreign airline from creating a Brazilian subsidiary and entering the Brazilian domestic market using that subsidiary.  

International 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 operate them on a permanent basis. If an airline fails to operate a route for a period of six months or more, ANAC may terminate its rights to that route. ANAC may also terminate its right if the recipient airline does not operate at least 80% of the frequency given for that specific route.

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”), 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, 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. 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

The Chilean antitrust authority, which we refer to as the Antitrust Court (previously the Antitrust Commission), oversees antitrust matters, which are governed by Decree Law No. 211 of 1973, as amended, or the Antitrust Law. The Antitrust Law prohibits any entity from preventing, restricting or distorting competition in any market or any part of any market. The Antitrust Law also prohibits any business or businesses that have a dominant position in any market or a substantial part of any market from abusing that dominant position. An aggrieved person may sue for damages arising from a breach of Antitrust Law and/or file a complaint with the Antitrust Court requesting an order to enjoin the violation of the Antitrust Law. The Antitrust Court has the authority to impose a variety of sanctions for violations of the Antitrust Law, including termination of contracts contrary to the Antitrust Law, dissolution of a company and imposition of fines and daily penalties on businesses. Courts may award damages and other remedies (such as an injunction) in appropriate circumstances. As described above under “—Route Rights—Airfare Pricing Policy,” in October 1997, the Antitrust Court approved a specific self-regulatory fare plan for us consistent with the Antitrust Court’s directive to maintain a competitive environment within the domestic market.

Since October 1997, LATAM and LATAM Chile follow a self-regulatory plan, which was modified and approved by the Tribunal de la Libre Competencia (the Antitrust Court) in July 2005, and further in September 2011. In February 2010, the Fiscalía Nacional Economica (the National Economic Prosecutor’s Office) finalized the investigation initiated in 2007 regarding our compliance with this self-regulatory plan and no further observations were made.

As a condition to the combination between LAN and TAM in June 2012, the antitrust authorities in Chile and in Brazil each imposed certain mitigation measures as part of their approval of the combination . Furthermore, the association was submitted to the antitrust authorities in Germany, Italy and Spain. All these jurisdictions granted unconditional clearances for this transaction. The association was filed with the Argentinean antitrust authorities, which approval is still pending. For more information regarding these mitigation measures please see below:

Chile

On September 21, 2011, the TDLC issued a decision (the “Decision”) with respect to the consultation procedure initiated on January 28, 2011 in connection with the proposed combination between LAN and TAM. The TDLC, in the Decision, approved the proposed combination between LAN and TAM, subject to 14 conditions, as generally described below:

1. exchange of certain slots in the Guarulhos Airport at Sao Paulo, Brazil;

2. extension of the frequent flyer program to airlines operating or willing to operate the Santiago-Sao 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-Sao 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;

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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 Perú 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-Sao Paulo and Santiago-Río de Janeiro routes for the passenger business and for the Chile-Brazil routes for the cargo business; and

14. engaging an independent consultant, expert in airline operations, which for 36 months, and in coordination with the FNE, will monitor and audit compliance with the conditions imposed by the Decision.

On or about 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 the claim accordingly, a settlement agreement was reached between the FNE and LATAM. 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 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 Agreement.

Brazil

The Brazilian Council for Economic Defense – CADE approved the LAN/TAM merger by unanimous decision during the hearing session of 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); 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 STRUCTURE

The LATAM Group is composed of eight main airlines: LATAM Airlines Group S.A., incorporated in Chile; Transporte Aéreo S.A. (“LATAM Airlines Chile”), a Chilean subsidiary; LAN Peru S.A. (“LATAM Airlines Peru”), a Peruvian subsidiary, Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. (“LATAM Airlines Ecuador”), and Ecuadorian subsidiary, LAN Argentina S.A. (“LATAM Airlines Argentina,” previously Aero 2000 S.A.), an Argentinian subsidiary, Aerovías de Integración Regional, Aires S.A. (“LATAM Airlines Colombia”), a Colombian subsidiary; TAM Linhas Aereas S.A. (“LATAM Airlines Brazil”) incorporated in Brazil; and Transportes Aéreos del Mercosur S.A. (“LATAM Airlines Paraguay”), a Paraguayan subsidiary.

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As of February 28, 2018 we held a 100% stake in Transporte Aéreo S.A. through direct and indirect interests, a 70% stake in LAN Peru through direct and indirect interests, a 55.00% stake of the voting shares of LAN Ecuador and a 100% of the non-voting shares of Holdco Ecuador S.A., who has 45.00% of the voting shares of LAN Ecuador, a 99.87% indirect stake in LAN Argentina, a 99.19% indirect stake in LAN Colombia and a 100.00% stake of the non-voting shares of TAM, and 48.99% of the voting shares and 100% of the non-voting shares of Holdco I S.A., which has 100.00% of the voting shares of TAM. Following changes in Brazilian law, which now permit foreign persons to own up to 49% of the voting capital of Brazilian airlines, on April 20, 2016, we increased our ownership of the voting shares of Holdco I S.A. to 48.99%.

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 as MasAir in Mexico, ABSA and TAM Cargo in Brazil and LANCO in Colombia. As of February 28, 2018, we indirectly held 100% of the non-voting shares and 24.99% of the voting shares of MasAir, 100% of the non-voting shares and 20% of the voting shares of ABSA, and a 90% stake in LANCO through direct and indirect participations. TAM S.A. has 100% of the non-voting shares and 100% of the voting shares of ABSA.. In the cargo business, we market ourselves primarily under the LATAM Cargo brand internationally.

D. PROPERTY, PLANT AND EQUIPMENT

Chile

Headquarters

Our main facilities are located on approximately five acres of land that we own near the Comodoro Arturo Merino Benítez International Airport. The complex includes approximately 150,695 square feet of office space, 32,292 square feet of conference space and training facilities, 9,688 square feet of dining facilities and mock-up cabins used for crew instruction.

In addition, we occupy 139,400 square feet for our executive offices in a central location of Santiago, Chile. This space includes five floors owned by LATAM in one building and ten leased floors in an adjacent building. We also occupy 49,400 square feet, in twelve floors in downtown (of which LATAM owns ten floors) in Santiago, Chile.

Maintenance Base

Our 877,258 square feet maintenance base is located on a site that we own inside Comodoro Arturo Merino Benítez International Airport. This facility contains our aircraft hangar, warehouses, workshops and offices, as well as a 559,720 square feet aircraft parking area capable of accommodating up to seventeen short-haul aircraft. We have a 53,820 square feet office building plus a 10,000 square feet office and workshop space. We also lease from the Sociedad Concesionaria Nuevo Pudahuel S.A. approximately 124,000 square feet of 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) for Boeing 767, Airbus A320 and Boeing 737 aircraft.

Fast Air Almacenes de Carga S.A. (“Fast Air”), one of our affiliates that operates import customs warehouses, utilizes a 5,600 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 60,380 m².

The LATAM Service Academy is located at Rua Atica, about 2.5 km from Congonhas Airport. This property, which LATAM Airlines Brazil owns, is used for human resources selection, medical services, training, mock-ups and offices- The Service Academy comprises 15,342 m² of land area and 9,032 m² of building area.

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We also lease office space for corporate purposes in the city of São Paulo, where we operate 1,500 workstations distributed in 11 floors.

Maintenance Base

At Hangars II and V in Congonhas Airport, which LATAM Airlines Brazil leases from INFRAERO, LATAM Airlines Brazil has 21,727 m² of offices and hangars with about 1,300 workstations. This site also houses the aircraft maintenance, procurement, aeronautical materials logistics and retrofitting departments.

Headquarters of the Presidency

The Headquarters of the Presidency are located at Rua Verbo Divino 2001 Floor 17^th, Chácara Santo Antonio, São Paulo, since March 2017.

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 12,894 m² distributed within the Passenger Terminal, including areas such as Check-in, Ticket Sales, Check Out, Operations Areas, VIP Lounges, Aircraft Maintenance, GSE, Cargo Terminal, Distribution Centers, etc. The Cargo Terminal has 164 m² of office and 8,534 m² of open area. Our Distribution Centre Supplies area occupies 3,030 m².

New Facilities

LATAM Airlines Brazil completed several infrastructure projects in Brazil during 2017, including:

1. New cargo logistic terminal in Curitiba: 700m2

2. New cargo logistic terminal in Imperatriz: 304m2

3. Improvements to Hangar 2 and 5 at Congonhas: 4,000m2

4. Improvement to training facilities in São Paulo: 9,000m2

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 44,650 square-feet corporate building, a 380,000 square-feet cargo warehouse (including 116,670 square-feet refrigerated area) and a 783,000 square-feet aircraft-parking platform. These facilities were constructed and are now leased to us under a long-term contract by Aero Term, a division of Real Term Global. For the year ended 2017, we paid US$9.6 million in rent under the foregoing leases.

In February 2014, the Company entered into a lease agreement with Miami- Dade County covering approximately 1.81 acres of land located on the grounds of the Miami International Airport. The lease has a term of 30 years with a total annual rent of $125,745. Under the lease, we retained the right to construct a hangar facility on the leased premises. The Company completed the construction in November 2015 and it has been operational since June 2016. The property has a 50,785 square-feet aircraft maintenance space, sufficient to house a Boeing B777 aircraft, in addition to a 32,440 square-feet area designated for office space. Total investment of this hangar in construction and related expenditures by LATAM was US$16.5 million.

In addition, LATAM holds leases to airport concessions, administrative and sale offices, hangars and maintenance areas in Argentina, Colombia, Ecuador, and Peru.

ITEM 4A UNRESOLVED STAFF COMMENTS

None.

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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, 2017, 2016 and 2015 and for the years ended December 31, 2017, 2016 and 2015, has been prepared in accordance with IFRS and has been derived from our audited consolidated annual financial statements included in this annual report.

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 2017, 83.6% of our total revenues (including for this purpose other income from operating activities) came from passenger revenues and 11.0% came from our cargo business. The remaining 5.4% was classified as other operating income, which consists primarily of revenues generated from our coalition and loyalty program Multiplus, tour operator services, aircraft leasing, customs and warehousing services, third-party maintenance, duty free sales and other miscellaneous income.

Our operating environment in 2017 was marked by a recovery in the macroeconomic environment in Latin America mainly resulted from the GDP growth in Brazil and Argentina. In Brazil specifically, GDP increased by 1.1% in 2017, the first year of growth after two consecutive years of GDP contraction, while GDP in Argentina increased by 2.5% in 2017, after a decline of 2.2% in 2016. On the other hand, other relevant markets for the Company such as Chile, Peru and Colombia, showed a decline in their GDP growth rates during 2017 as compared to 2016. In addition, during 2017 LATAM faced additional competition from new low-cost airlines with the start of operations of Viva Air in Peru in May 2017 and JetSmart in Chile in July 2017.

Passenger Operations

In general, our passenger revenues are driven by international and country-specific political and economic conditions, competitive activity, and the attractiveness of the destinations that we serve. Passenger revenues are also affected by our capacity, traffic, load factors, yield and unit revenue. Our capacity is measured in terms of available seat kilometers, or ASKs, which represents the sum, across our network, of the number of seats we make available for sale on each flight, multiplied by the kilometers flown by the respective flight. We measure traffic in RPKs, as 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. 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, revenue from passenger operations divided by RPKs, 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.”

Passenger demand during 2017 showed a recovery as compared to the previous year, mainly as a result of the improvement in the economic environment in Brazil, as well as the appreciation of the Brazilian real, while in other Latin American countries we faced slower GDP growth (with the exception of Argentina and Ecuador) and increased competition from operators to South America and within the region.

During 2017, domestic operations of our affiliate carriers based in SSC, which accounts for 17.5% of total passenger capacity, showed an increase of 0.6% in passenger traffic while capacity decreased 0.1% as compared to 2016. As a result, the passenger load factor increased 0.6 percentage points to 81.5%. This capacity discipline helped to increase the yields in the SSC domestic markets and resulted in a 4.5% increase in revenue per ASK in US dollars as compared to 2016.

In our domestic operations in Brazil, LATAM Airlines Brazil reduced capacity by 3.6% in 2017 as a result of the capacity adjustments made in 2016, in response to a weak demand environment. Passenger traffic decreased by 3.2%, allowing for an improvement of 0.3 percentage points in passenger load factors, which reached 82.7%. LATAM Airlines Brazil ended the year with an increase of 12.4% in revenues per ASK in US dollars as compared to 2016, driven by a 2.8% increase in RASK in BRL as well as by the 8.4% average appreciation of the Brazilian Real.

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In our international operations, we increased our passenger capacity by adding new destinations and strengthening the use of our regional hubs, mainly from Santiago and Lima, consistent with the Company’s focus on network improvements. Capacity increases were mainly driven by growth in SSC, while during early 2017 LATAM Airlines Brazil reduced its international capacity mainly driven by adjustments made in 2016, in which the Company reduced its capacity for routes with weaker demand, specifically between Brazil and the US. During the second half of 2017, the Company started to grow again in the routes between Brazil and the US mainly driven by improved demand and the appreciation of the Brazilian Real. As a result, capacity in international operations increased by 3.8%, while traffic increased 4.7%, resulting in an improvement of 0.7 percentage points in passenger load factors, which reached 86.9%, while the revenue per ASK increased 6.6% in US dollars.

Cargo Operations

The 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 our capacity, traffic, cargo load factors and yield. Our capacity is measured in terms of available ton kilometers, or ATKs, which represents the number of tons available across our network for the transportation of cargo on each flight, multiplied by the kilometers flown by the respective flights. We measure traffic in revenue ton kilometers, or RTKs, 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 our cargo capacity that is actually used to transport cargo for our customers. Finally, we use cargo yield, or revenue from cargo operations divided by RTKs, to measure the average amount that our customers pay to transport one ton of cargo one kilometer.

During 2017, cargo traffic decreased 1.3%, mainly as a result of the reduction in cargo capacity of 7.1% as compared to 2016, which led to an improvement of 3.2 percentile points in cargo load factors to 54.9%. In 2017, we started to see an improvement in imports from North America and Europe to Brazil, which was the result of better economic conditions in the country and the appreciation of the Brazilian Real. As a result, revenues per ATK increased by 8.5% as compared to last year, the first increase in recent history. The Company continued its rational and disciplined approach toward freighter capacity utilization, while we focused on maximizing the belly utilization of our passenger fleet. Consistent with this approach, we are currently sub-leasing one of our 767-300Fs to a third party operating in a different market and during 2017 we removed two Boeing 777-200Fs from service.

Cost Structure

LATAM Airlines Group’s costs are largely driven by the size of our operations, fuel prices, fleet costs and exchange rates. Our operating 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 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. The following is a discussion of the drivers of the most important costs.

As an airline, we are subject to fluctuations in costs that are outside of our control, particularly fuel prices. During 2017, fuel prices increased 22.4%, principally due to the agreement among oil exporter countries (mainly OPEC members) to cut oil production until 2018, natural disasters in North America (specifically hurricanes Harvey and Irma) and geopolitical factors in oil exporter countries such as Lybia, Iraq and Nigeria. 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. 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 compete with other airlines over the amount of commission we pay 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 and depreciation, are another significant cost, and mainly depend on the number and type of aircraft that are owned and that are under operating leases. These costs are largely fixed and can be reduced on a per unit basis by achieving higher aircraft utilization rates.

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Results of Operations

LATAM Airlines Group Financial Results Discussion: Year ended December 31, 2017 compared to year ended December 31, 2016.

The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2017, and December 31, 2016. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”

	Year Ended December 31,
	2017			2016			2017			2016
	(in US$ millions, except per share and capital stock data)						As a percentage of total operating revenues						2017/2016 % change
Consolidated Results of Income by Function
Operating revenues
Passenger		8,494.5			7,877.7			88.4	%		87.6	%		7.8	%
Cargo		1,119.4			1,110.6			11.6	%		12.4	%		0.8	%
Total operating revenues		9,613.9			8,988.3			100.0	%		100.0	%		7.0	%
Cost of sales		(7,441.8	)		(6,967.0	)		(77.4)	%		(77.5)	%		6.8	%
Gross margin		2,172.1			2,021.3			22.6	%		22.5	%		7.5	%
Other operating income		549.9			538.7			5.7	%		6.0	%		2.1	%
Distribution costs		(699.6	)		(747.4	)		(7.3)	%		(8.3)	%		(6.4	)%
Administrative expenses		(938.9	)		(873.0	)		(9.8)	%		(9.7)	%		7.5	%
Other operating expenses		(368.9	)		(373.7	)		(3.8)	%		(4.2)	%		(1.3	)%
Financial income		78.7			74.9			0.8	%		0.8	%		5.1	%
Financial costs		(393.3	)		(416.3	)		(4.1)	%		(4.6)	%		(5.5	)%
Share of profit of investments accounted for using the equity method		0.0			0.0			0.0	%		0.0	%		0.0	%
Foreign exchange gains/(losses)		(18.7	)		121.7			(0.2)	%		1.4	%		(115.4	)%
Result of indexation units		0.7			0.3			0.0	%		0.0	%		133.3	%
Other gains/(losses)		(7.8	)		(72.6	)		(0.1)	%		(0.8)	%		(89.3	)%
Income (loss) before income taxes		374.2			273.9			3.9	%		3.1	%		36.6	%
Income (loss) tax expense		(173.5	)		(163.2	)		(1.8)	%		(1.8)	%		6.3	%
Net income (loss) for the period		200.7			110.7			2.1	%		1.3	%		81.3	%
Income (loss) for the period attributable to the parent company’s equity holders		155.3			69.2			1.6	%		0.8	%		124.4	%
Income (loss) for the period attributable to non-controlling interests		45.4			41.5			0.5	%		0.5	%		9.4	%
Net income (loss) for the period		200.7			110.7			2.1	%		1.3	%		81.3	%
Earnings per share
Basic earnings per share (US$)		0.25610			0.12665			n.a.			n.a.			102.2	%
Diluted earnings per share (US$)		0.25610			0.12665			n.a.			n.a.			102.2	%

* The abbreviation “n.a.” means not available.

Net Income

Net income for the year ended December 31, 2017 equaled US$200.7 million, representing an increase of US$90.0 million from a net income of US$110.7 million in 2016. Net income attributable to the parent company’s shareholders was US$155.3 million in 2017, representing an increase of US$86.1 million compared with a net income of US$69.2 million in 2016.

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Operating Revenues

Our total operating revenues increased by 7.0% to US$9,613.9 million in the year ended December 31, 2017 compared to revenues of US$8,988.3 million in 2016. The 2017 increase in operating revenues was attributable to a 7.8% increase in passenger revenues, and a 0.8% increase in cargo revenues in 2017. Passenger and cargo revenues accounted for 88.4% and 11.6% of total operating revenues in 2017, respectively.

Our consolidated passenger revenues increased by 7.8% to US$8,494.5 million in 2017 from US$7,877.7 million in 2016, as a result of an increase of 6.7% in our unit revenues (“RASK”) and a capacity increase of 1.1% compared to 2016. Increases in RASK reflect an increase of 5.9% in consolidated yields, resulting mainly from the recovery in yields in the domestic and international operations in Brazil as a result of capacity adjustments made in 2016 and the appreciation of the Brazilian real. The increase in capacity was a result of a 3.8% increase in our international operations, partially offset by a decrease of 3.6% in capacity in our domestic Brazil operations. Capacity in domestic SSC operations decreased slightly by 0.1%.

Cargo revenues increased by 0.8%, to US$1,119.4 million in 2017 from US$1,110.6 million in 2016, as a result of an increase of 8.5% in unit revenues (“RATK”), partially offset by a decrease of 7.1% in cargo capacity (“ATK”). The decrease in our cargo capacity resulted from reduced freighter operations, while the Company focused cargo operations using the belly of the passenger aircrafts. Increases in RATK reflected a more stable market conditions in Brazil, as well as the appreciation of the Brazilian real. During 2017, imports into the region showed an improvement as compared to 2016, especially to Brazil from North America and Europe, which resulted in higher cargo yields, which increased by 2.1% in 2017 as compared to 2016.

Cost of Sales

Cost of sales increased by 6.8% to US$7,441.8 million for the year ended December 31, 2017 (from US$6,967.0 million in 2016), mainly due to higher aircraft fuel expenses during the year, the impact of the appreciation of local currencies on certain costs denominated on those currencies and additional expenses mainly associated with fleet redeliveries. As a percentage of total operating revenues, cost of sales decreased from 77.5% in 2016 to 77.4% in 2017.

The table below presents cost of sales information for the fiscal year ended December 31, 2017 and 2016.

	Year Ended December 31,
	2017			2016			2017			2016			2017/2016 % change
	(in US$ millions, except as otherwise stated)						As a percentage of total operating revenues
Revenues		9,613.9			8,988.3			100.0	%		100.0	%		7.0	%
Cost of sales		(7,441.8	)		(6,967.0	)		(77.4	)%		(77.5	)%		6.8	%
Aircraft Fuel		(2,318.8	)		(2,056.6	)		(24.1	)%		(22.9)	%		12.7	%
Wages and Benefits		(1,545.6	)		(1,479.5	)		(16.1	)%		(16.5	)%		4.5	%
Other Rental and Landing Fees		(1,172.1	)		(1,077.4	)		(12.2	)%		(12.0	)%		8.8	%
Depreciation and Amortization		(1,001.6	)		(960.3	)		(10.4	)%		(10.7	)%		4.3	%
Aircraft Rentals		(579.6	)		(569.0	)		(6.0	)%		(6.3	)%		1.9	%
Aircraft Maintenance		(430.8	)		(366.2	)		(4.5	)%		(4.1	)%		17.6	%
Passenger Services		(288.7	)		(286.6	)		(3.0	)%		(3.2	)%		0.7	%
Other Costs of Sales		(104.6	)		(171.4	)		(1.1	)%		(2.8	)%		(39.0	)%

The increase in our cost of sales was driven by higher aircraft fuel expenses, which increased by 12.7% to US$2,318.8 million in 2017 as a result of a 21.1% increase in the full year average fuel price (excluding hedge), partially offset by 2.5% decrease in the gallons of fuel consumed. In addition, LATAM recognized a net gain of US$15.1 million in fuel hedging in 2017, compared to a fuel hedge loss of US$48.0 million in 2016. In 2017, the Company also recognized a US$9.7 million hedge loss related to foreign currency contracts, which were recognized in the fuel cost line compared to a US$40.3 million loss in 2016.

Wages and benefits increased by 4.5% to US$1,545.6 million in 2017 from US$1,479.5 million in 2016, explained by the appreciation of local currencies during the year and the annual increase in unit salaries due to the inflation adjustment (which was based on 2016 inflation rates), especially in Brazil. This was partially offset by a 6.1% decline in headcount during the year.

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Other rental and landing fees increased by 8.8% to US$1,172.1 million in 2017 from U$1,077.4 million in 2016, mainly due to an increase in landing fees, particularly in Argentina, as well as higher handling costs.

Depreciation and amortization increased by US$41.3 million, amounting to US$1,001.6 million, which represents an increase of 4.3% due to the higher depreciation cost per aircraft due to the incorporation of larger and more expensive fleet on the balance sheet, partially offset by a four unit reduction in the average number of aircraft compared with 2016.

Aircraft rentals increased by 1.9% to US$579.6 million in 2017 from US$569.0 million in 2016 as a result of the incorporation of larger and more modern aircraft under operating leases (i.e. Boeing 787s and Airbus A320 neos), partially offset by fewer aircraft in the fleet under operating leases. Aircraft maintenance expenses increased by 17.7%, from US$366.2 million in 2016 to US$430.8 million in 2017, mainly due to redelivery costs, as the Company returned 21 aircraft during the year. Passenger service expenses increased by 0.7%, to US$288.7 million in 2017 compared to US$286.6 million in 2016, in line with the increase of 0.3% in the number of passengers transported.

As a result of the above, gross margin (defined as operating revenue minus cost of sales) increased by 7.5% from US$2,021.3 million in 2016 to US$2,172.1 million in 2017.

Other Consolidated Results

Other operating income increased in 2017 by 2.1%, from US$538.7 million in 2016 to US$549.9 million in 2017, mainly due to higher revenues from Multiplus and aircraft leases as compared to 2016.

Distribution costs decreased by 6.4% from US$747.4 million in 2016 to US$699.6 million in 2017, mainly as a result of lower commissions to agents (which decreased by 6.2%, from US$269.3 million to US$252.5 million) in the passenger businesses.

Administrative expenses increased by 7.6% from US$873.0 million in 2016 to US$938.9 million in 2017, mainly due to the impact of the appreciation of local currencies during the year on wages denominated in those currencies, and the annual increase in unit salaries due to the inflation adjustment (which was based on 2016 inflation rates), especially in Brazil,

Other operating expenses decreased by 1.3% from US$373.7 million in 2016 to US$368.9 million in 2017 as a result of the Company’s ongoing efficiency initiatives.

Financial income increased by 5.0% to US$78.7 million in the year ended December 31, 2017 compared with US$74.9 million in 2016, mainly due to an increase in cash.

Financial costs decreased by 5.5% to US$393.3 million in 2017 from US$416.3 million in 2016, mainly due to a reduction in our gross debt.

Income tax expense for 2017 amounted to US$173.5 million, as compared to an income tax expense of US$163.2 million in 2016. This increase is explained mainly by improved pre-tax results in 2017 (US$374.2 million gain) compared with 2016 (US$273.9 million gain) resulting in increased income tax charges.

LATAM Airlines Group Financial Results Discussion: Year ended December 31, 2016 compared to year ended December 31, 2015.

The following table sets forth certain income statement data for LATAM Airlines Group, for the year ended December 31, 2016, and December 31, 2015. For certain operating data for these periods, see “Item 3. Key Information—A. Selected Financial Data.”

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	Year Ended December 31,
	2016			2015			2016			2015
	(in US$ millions, except per share and capital stock data)						As a percentage of total operating revenues						2016/2015 % change
Consolidated Results of Income by Function
Operating revenues
Passenger		7,877.7			8,410.6			87.6	%		86.4	%		(6.3	)%
Cargo		1,110.6			1,329.4			12.4	%		13.6	%		(16.5	)%
Total operating revenues		8,988.3			9,740.0			100.0	%		100.0	%		(7.7	)%
Cost of sales		(6,967.0	)		(7,636.7	)		(77.5	)%		(78.4	)%		(8.8	)%
Gross margin		2,021.3			2,103.3			22.5	%		21.6	%		(3.9	)%
Other operating income		538.7			385.8			6.0	%		4.0	%		39.6	%
Distribution costs		(747.4	)		(783.3	)		(8.3	)%		(8.0	)%		(4.6	)%
Administrative expenses		(873.0	)		(878.0	)		(9.7	)%		(9.0	)%		(0.6	)%
Other operating expenses		(373.7	)		(324.0	)		(4.2	)%		(3.3	)%		15.4	%
Financial income		74.9			75.1			0.8	%		0.8	%		(0.3	)%
Financial costs		(416.3	)		(413.4	)		(4.6	)%		(4.2	)%		0.7	%
Share of profit of investments accounted for using the equity method		0.0			0.0			0.0	%		0.0	%		0.0	%
Foreign exchange gains/(losses)		121.7			(467.9	)		1.4	%		(4.8	)%		(126.0)	%
Result of indexation units		0.3			0.6			0.0	%		0.0	%		(50.0)	%
Other gains/(losses)		(72.6	)		(55.3	)		(0.8	)%		(0.6	)%		31.3	%
Income (loss) before income taxes		273.9			(357.1	)		3.1	%		(3.5	)%		(17.7	)%
Income (loss) tax expense		(163.2	)		178.4			(1.8	)%		1.8	%		(16.2	)%
Net income (loss) for the period		110.7			(178.7	)		1.3	%		(1.7	)%		(38.1	)%
Income (loss) for the period attributable to the parent company’s equity holders		69.2			(219.3	)		0.8	%		(2.3	)%		(131.6	)%
Income (loss) for the period attributable to non-controlling interests		41.5			40.5			0.5	%		0.4	%		2.2	%
Net income (loss) for the period		110.7			(178.7	)		1.3	%		(1.7	)%		(38.1	)%
Earnings per share
Basic earnings per share (US$)		0.12665			(0.40193	)		n.a.			n.a.			(131.5	)%
Diluted earnings per share (US$)		0.12665			(0.40193	)		n.a.			n.a.			(131.5	)%

* The abbreviation “n.a.” means not available.

Net Income

Net income for the year ended December 31, 2016 equaled US$110.7 million, representing an improvement of US$289.4 million from a net loss of US$178.7 million in 2015. Net income attributable to the parent company’s shareholders was US$69.2 million in 2016, compared with a net loss of US$219.3 million in 2015. Results were positively impacted by a foreign exchange gain of US$ 121.7 million, compared to a net foreign exchange loss of US$467.9 million in 2015.

Operating Revenues

Our total operating revenues decreased by 7.7% to US$8,988.3 million in the year ended December 31, 2016 compared to revenues of US$9,740.0 million in 2015. The 2016 decrease in operating revenues was attributable to a 6.3% decrease in passenger revenues, and a 16.5% decrease in cargo revenues. Passenger and cargo revenues accounted for 87.6% and 12.4% of total operating revenues in 2016, respectively.

Our consolidated passenger revenues decreased by 6.3% to US$7,877.7 million in 2016 from US$8,410.6 million in 2015, as a result of a decrease of 6.9% in our unit revenues (“RASK”). Our capacity increased by 0.6%. The increase in capacity was a result of an 8.0% increase in our domestic SSC operations and a 5.6% increase in our international operations, partially offset by a decrease of 11.5% in capacity in our domestic Brazil operations. Decreases in RASK reflect a decrease of 8.1% in consolidated yields, resulting from the slowdown in economic activity in the region, the depreciation of local currencies, a more competitive environment, and the pass-through of the savings in fuel costs to customers.

Cargo revenues decreased by 16.5%, to US$1,110.6 million in 2016 from US$1,329.4 million in 2015, as a result of a decrease of 5.3% in capacity (ATK) and a decrease of 11.7% in unit revenues (“RATK”). Capacity decreased in our cargo operations mainly as a result of a reduced freighter operation. Decreases in RATK reflect the still challenging cargo scenario in South America and in particular the weakness of the imports into the region, mainly to Brazil from North America and Europe, which has affected our cargo yields, which decreased by 8.5% in 2016 as compared to 2015.

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Cost of Sales

Cost of sales decreased by 8.8% to US$6,967.0 million for the year ended December 31, 2016 (from US$7,636.7 million in 2015), mainly due to lower fuel expenses during the year and the positive impact of the depreciation of local currencies as well as our ongoing cost reduction program. As a percentage of total operating revenues, cost of sales decreased from 78.4% in 2015 to 77.5% in 2016.

The table below presents cost of sales information for the fiscal year ended December 31, 2016 and 2015.

	Year Ended December 31,
	2016			2015			2016			2015			2016/2015 % change
	(in US$ millions, except as otherwise stated)						As a percentage of total operating revenues
Revenues		8,988.3			9,740.0			100.0	%		100.0	%		(7.8	)%
Cost of sales		(6,967.0	)		(7,636.7	)		(77.5	)%		(78.4	)%		(8.8	)%
Aircraft Fuel		(2,056.6	)		(2,651.1	)		(22.9	)%		(27.2	)%		(22.4	)%
Wages and Benefits		(1,479.5	)		(1,553.8	)		(16.5	)%		(16.0	)%		(4.8	)%
Other Rental and Landing Fees		(1,077.4	)		(1,109.8	)		(12.0	)%		(11.4	)%		(2.9	)%
Depreciation and Amortization		(960.3	)		(934.4	)		(10.7	)%		(9.6	)%		2.8	%
Aircraft Rentals		(569.0	)		(525.1	)		(6.3	)%		(5.4	)%		8.3	%
Aircraft Maintenance		(366.2	)		(437.2	)		(4.1	)%		(4.5	)%		(16.3	)%
Passenger Services		(286.6	)		(295.4	)		(3.2	)%		(3.0	)%		(3.0	)%
Other Costs of Sales		(171.4	)		(129.9	)		(2.8	)%		(1.3	)%		49.8	%

The decrease in our cost of sales was driven by lower aircraft fuel expenses, which decreased by 22.4% to US$2,056.6 million in 2016 as a result of a 16.6% decrease in the full year average fuel price (excluding hedge). LATAM recognized a net loss of US$48.0 million in fuel hedging in 2016, compared to a fuel hedge loss of US$239.4 million in 2015. In 2016, the Company also recognized a US$40.3 million hedge loss related to foreign currency contracts, which were recognized in the fuel cost line compared to a US$19.2 gain million in 2015.

Depreciation and amortization increased by US$25.9 million, amounting to US$960.3 million, which represents an increase of 2.8% due to the increase in the number of owned aircraft, partially offset by the positive impact of the 4.5% depreciation of the Brazilian real.

Other rental and landing fees decreased by 2.9% to US$1,077.4 million in 2016 from U$1,109.8 million in 2015, mainly due to a decline in the rental of passenger and cargo capacity from third parties as well as lower handling costs.

Aircraft maintenance expenses decreased by 16.3%, from US$437.2 million in 2015 to US$366.2 million in 2016, mainly due to cost efficiencies related with the renewal of our fleet and lower maintenance expenses related to the redelivery of aircraft.

Aircraft rentals increased by 8.3% to US$569.0 million in 2016 from US$525.1 million in 2015 as a result of the incorporation of larger and more modern aircraft under operating leases (i.e. Boeing 787s and Airbus A350s), whereas returned aircraft have mainly been older models (i.e. Airbus A319s and A330s).

Passenger service expenses decreased by 3.0%, to US$286.6 million in 2016 compared to US$295.4 million in 2015, due mainly to a decrease of 1.3% in the number of passengers transported, as well as the decrease in on board services expenses, offset in part by an increase in passenger compensation.

As a result of the above, gross margin (defined as operating revenue minus cost of sales) decreased by 3.9% from US$2,103.3 million in 2015 to US$2,021.3 million in 2016.

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Other Consolidated Results

Other operating income increased in 2016 by 39.6%, from US$385.8 million in 2015 to US$538.7 million in 2016, mainly due to a US$80.1 million gains derived from aircraft sales and leaseback transaction (resulting in an operating lease) as well as a US$41.8 million increase in revenues from freighter aircraft leases and sales of fixed assets.

Distribution costs decreased by 4.6% from US$783.3 million in 2015 to US$747.4 million in 2016, mainly as a result of lower commissions to agents (which decreased by 11.1%, from US$302.8 million to US$269.3 million), in both the passenger and cargo businesses, representing a greater percentage decline than the 7.7% decline in passenger and cargo revenues.

Administrative expenses decreased by 0.6% from US$878.0 million in 2015 to US$873.0 million in 2016, mainly due to a decrease of 4.8% in wages and benefits (as a result of a 6.2% decline in average headcount), as well as the positive impact of the depreciation of certain local currencies on wages denominated in those currencies.

Other operating expenses increased by 15.4% from US$324.0 million in 2015 to US$373.7 million in 2016, driven by higher costs associated with fleet sales and redeliveries, and due to a lower cost in 2015 as a result of negotiations with third parties relating to our passenger service system.

Financial income was essentially unchanged US$74.9 million in the year ended December 31, 2016 compared with US$75.1 million in 2015).

Financial costs increased by 0.7% to US$416.3 million in 2016 from US$413.4 million in 2015, mainly due to base interest rate increases on floating rate debt.  

Exchange rate differences increased to a gain of US$121.7 million in 2016 from a loss of US$467.9 million in 2015, mainly resulting from the 16.5% appreciation of the Brazilian real between December 31, 2015 and December 31, 2016.

Income tax expense for 2016 amounted to US$163.2 million, as compared to an income tax benefit of US$178.4 million in 2015. This variation is explained mainly by improved pre-tax results in 2016 (US$273.9 million gain) compared with 2015 (US$357.1 million loss) resulting in increased income tax charges of US$196 million; the non-recognition of deferred taxes related to tax losses in Brazil from the fourth quarter of 2015 (non-recognition of US$90.4 million in 2016 vs US$16.9 million in 2015); the reversal in 2016 of tax provisions in Brazil in the amount of US$61.2 million in 2015; and other items of US$10 million. For more information, see Note 18 to our audited consolidated financial statements.

Out of Period Adjustments

The Company recorded out of period adjustments resulting in an aggregate net decrease of US$18.2 million to “Net income (loss) for the period” for the year ended December 31, 2016. These adjustments include a loss of US$39.5 million resulting from an account reconciliation process initiated after TAM S.A. and its subsidiaries completed the implementation of the SAP system. A further US$11.0 million decrease reflects adjustments related to foreign exchange differences, also relating to the Company’s subsidiaries in Brazil. The balance of US$32.3 million includes mainly the adjustment of unclaimed fees for expired tickets for the Company and its affiliates outside Brazil. Management of TAM S.A. has concluded that the out of period adjustments that have been identified are material to the 2015 financial statements of TAM S.A., which should therefore require a restatement of TAM’s financial statements. However, LATAM has evaluated the impact of all out of period adjustments, both individually and in the aggregate, and concluded that due to their relative size and to qualitative factors they are not material to the annual consolidated financial statements of LATAM for the year ended December 31, 2016, or to any previously reported consolidated financial statements, therefore no restatement or revision is necessary.

U.S. Dollar Presentation and Price-Level Adjustments

General

Foreign currency transactions

(a) Presentation and functional currencies

The items included in the financial statements of LATAM are valued using the currency of the main economic environment in which each entity operates (the “functional currency”). The functional currency of LATAM is the U.S. dollar, which is also the currency of presentation of the audited consolidated financial statements of LATAM and its affiliates.

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(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.

(c) Group entities

The results and financial position of all the LATAM entities (none of which operated in a hyper-inflationary economy) that have a functional currency other than the currency of presentation are translated to the currency of presentation as follows:

(i) The assets and liabilities of each consolidated statement of financial position are translated at the closing exchange rate on the date of the consolidated statement of financial position;

(ii) The revenues and expenses of each results account are translated at monthly average rates; and

(iii) All the resulting exchange differences are shown as a separate component in net equity.

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.

Adjustments to the goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the period-end exchange rate.

Effects of Exchange Rate Fluctuations

Our functional currency is the U.S. dollar in terms of the pricing of our products, composition of our balance sheet and effects on our results of operations. Most of our revenues (58% in 2017) are in U.S. dollars or in prices pegged to the U.S. dollar and a substantial portion of our expenses (58% in 2017) is 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 (71.1% as of December 31, 2017), including bank loans, certain air traffic liabilities, and certain amounts payable to our suppliers. As ofDecember 31, 2017, 60.5%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 net foreign exchange losses of US$121.7 million in 2016 and net foreign exchange gains US$18.7 million gain in 2017, which are set forth in our consolidated statement of income under “Foreign Exchange gains/(losses).” For more information, see Notes 2.3 and 29 to our audited consolidated financial statements.

Critical Accounting Policies

The Company has used estimates to value and record certain assets, liabilities, revenue, expenditure, and commitments. These estimates principally relate to:

(a) Evaluation of possible losses through impairment of goodwill and intangible assets with an indefinite useful life.

(b) Useful life, residual value, and impairment of property, plant, and equipment

(c) Recoverability of deferred tax assets

(d) Air tickets sold that are not actually used.

(e) Valuation of loyalty points and kilometers granted to loyalty program members, pending usage.

(f) Required provisions and their valuation when required

(g) Investment in subsidiary (TAM)

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Please see Note 4 – Accounting estimates and 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, 2016:		Date of issue	Mandatory Application: Annual periods beginning on or after
(i)  Standards and amendments
Amendment IAS 7: Statement of Cash Flows.	Disclosure Initiative	January 2016	January 1, 2017
Amendment to IFRS 12: Disclosure of interests in other entities.	Investment Entities: Applying the consolidation exception	January 2016	January 1, 2017
(ii) Improvements
Improvements to International Financial Reporting Standards (2014-2016 cycle):		December 2016	January 1, 2017
IFRS 12 Disclosure of interests in other entities	Clarification of the scope of the Standard.

The application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company.

(b) Accounting pronouncements not yet in force for financial years beginning on January 1, 2016 and for which early adoption has not been effected :		Date of issue	Mandatory Application: Annual periods beginning on  or after
(i)  Standards and amendments
Amendment to IAS 7: Statement of Cash Flows.	Disclosure initiative	January 2016	January 1, 2017
Amendment to IAS 12: Income Taxes.	Recognition of Deferred Tax Assets for Unrealized Losses	January 2016	January 1, 2017
IFRS 9: Financial instruments.	Disclosure initiative	December 2009	January 1, 2018
Amendment to IFRS 9: Financial instruments.	Novation of derivatives and continuation of hedge accounting	November 2013	January 1, 2018
IFRS 15: Revenue from contracts with customers(1).	Implementation	May 2014	January 1, 2018
Amendment to IFRS 15: Revenue from contracts with customers.	Clarifications	April 2016	January 1, 2018
Amendment to IFRS 2: Share-based payments	Classification and measurement of share based payment transactions	June 2016	January 1, 2018
Amendment to IFRS 4: Insurance contracts.	Pendiente Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts	September 2016	January 1, 2018
Amendment to IFRS 40: Investment property	Transfers of investment property	December 2016	January 1, 2018
IFRS 16: Leases(2).	Disclosure initiative	January 2016	January 1, 2019
Amendment to IFRS 9: Financial Instruments	Prepayment Features with Negative Compensation	October 2017	January 1, 2019
Amendment to IAS 28: Investments in associates and joint ventures	Long-term interests in associates and joint ventures	October 2017	January 1, 2019
IFRS 17: Insurance contracts	Disclosure initiative	May 2017	January 1, 2021
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	Sale or contribution of assets between an Investor  and its associate or joint venture	September 2014	To be determined

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(b) Accounting pronouncements not yet in force for financial years beginning on January 1, 2016 and for which early adoption has not been effected :		Date of issue	Mandatory  Application: Annual  periods beginning on or after
(ii)     Improvements
Improvements to International Financial Reporting Standards (2012-2014 cycle):		December 2016
IFRS 1: First-time adoption of international financial reporting standards.	Deletion of short-term exemptions for first-time adopters		January 1, 2018
IAS 28 investments in associates and joint ventures.	Measuring an associate or joint venture at fair value		January 1, 2018
Improvements to International Financial Reporting Standards (2015-2017 cycle):		December 2017	January 1, 2019
IFRS 3: Business combinations	Previously held interest in a joint operation.
IAS 12: Income tax	Income tax consequences of payments on financial instruments classified as equity
IFRS 11: Joint arrangements	Previously held interest in a joint operation.
IAS 23: Borrowing costs	Borrowing costs eligible for capitalisation
(iii)  Interpretations
IFRIC 22: Foreign currency transactions and advance consideration	Disclosure initiative	December 2016	January 1, 2018
IFRIC 23: Uncertain tax positions	Uncertainty over Income Tax Treatments	June 2017	January 1, 2019

The Company’s management believes that the adoption of the standards, amendments and interpretations described above but not yet effective would not have had a significant impact on the Company’s consolidated financial statements in the year of their first application, except for IFRS 15 and IFRS 16.

(1) IFRS 15 – “Revenue from Contracts with Customers” supersedes the standard for revenue recognition currently used by the Company, i.e. IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 supersedes the following standards and interpretations: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers; and SIC-31 Revenue - Barter Transactions Involving Advertising Services.

The Company evaluated the possible adoption impacts that this new standard will have on our consolidated financial statements and has identified changes in: i) the recognition of the income associated with the fines for changes, which were previously recognized at the time of the sale and now will be considered as a modification of the initial transport contract and therefore the recognition must be deferred until the rendering of the service; ii) the moment of recognition of the income from the sale of some services or products, where the Company concluded that it acted as principal, and therefore the revenues must be deferred until the service is rendered; and iii) the presentation of the income associated with the sale of products, where the Company concluded that it acted as agent and therefore the income must be presented net of the associated costs.

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(2) IFRS 16 – “Leases” adds important changes in the accounting for lessees by introducing a similar treatment to financial leases for all operating leases with a term of more than 12 months. This means, in general terms, that an asset should be recognized for the right to use the underlying leased assets and a liability representing its present value of payments associated with the agreement. Monthly lease payments will be replaced by asset depreciation and a financial cost on the income statement.

We are currently evaluating the impact of the adoption of the leases recognition standard on our Consolidated Financial Statements. Currently, we believe that the adoption of this new standard will have a significant impact on the consolidated statement of financial position due to the recording of an asset for right of use and a liability, corresponding to the recording of the leases that are currently registered as operating leases.

LATAM Airlines Group S.A. and affiliates are still assessing these standards to determine the effect on their Financial Statements, covenants and other financial indicators.

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. 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.

	2017		2016		2015
Cost per ASK
Operating expenses (US$ thousands)		9,449,262		8,959,185		9,611,907
Divided by ASK (million)		136,398.4		134,967.7		134,167.1
= Cost per ASK (US$ cents)		6.93		6.64		7.16
Cost per ASK excluding fuel price variations
Operating expenses (US$ thousands)		9,449,262		8.959,185		9,611,907
– Aircraft fuel (US$ thousands)		2,318,816		2,056,643		2,651,067
Divided by ASK (million)		136,398.4		134,967.7		134,301.8
= Cost per ASK excluding fuel price variations (US$ cents)		5.23		5.11		5.19

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.

	2017		2016		2015
Passenger Revenues (US$ thousands)		8,494.477		7,877,715		8,410,614
ASK (million)		136,398.4		134,967.7		134,167.1
Passenger Revenues/ASK (US$ cents)		6.23		5.84		6.27
Cargo Revenues (US$ thousands)		1,119,430		1,110,625		1,329,431
ATK (million)		6,230.3		6,704.1		7,082.8
Cargo Revenues/ATK (US$ cents)		17.97		16.57		18.77

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Seasonality

Our operating revenues are substantially dependent on overall passenger and cargo traffic volume, which is subject to seasonal and other changes in traffic patterns. Our passenger 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 higher-than-market average concentration of business travel (which is less sensitive to seasonality). Additionally, the expansion of the Company into other countries with different seasonal patterns has also moderated the overall seasonality of the passenger business.

B. Liquidity and Capital Resources

LATAM’s cash and cash equivalents totaled US$1,142.0 million as of December 31, 2017, US$949.3 million as of December 31, 2016 and US$753.5 million as of December 31, 2015. Additionally, the Company had short term marketable securities totaling US$472.2 million as of December 31, 2017, US$537.0 million as of December 31, 2016 and US$606.4 million as of December 31, 2015. LATAM’s cash and cash equivalents and marketable securities totaled US$1,614.2 million as of December 31, 2017, US$1,486.3 million as of December 31, 2016 and US$1,359.9 million as of December 31, 2015.

The US$127.9 million increase in cash and cash equivalents and marketable securities from 2016 to 2017 is the result of an increase in the cash flow from operations, which reached US$1,666.7 million, offset mainly by the repayment of the Company’s financial obligations.

The US$126.4 million increase in cash and cash equivalents and in marketable securities from 2015 to 2016 is the result of a reduction in the cash flow from operations that was compensated by a US$556.9 million inflow from pre-delivery payments during 2016 and the subscription by Qatar Airways of a capital increase of US$608.5 million in LATAM.

We believe that our working capital will be sufficient during the next 12 months to meet our liquidity requirements.

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, 2017, 2016 and 2015 and our total cash position as of December 31, 2017, 2016 and 2015.

	2017			2016			2015
	(in US$ million)
Net cash flows from operating activities		1,666.7			980.9			1,672.1
Net cash flow from (used in) investing activities		(287.4	)		(431.8	)		(1,695.7	)
Net cash flows from (used in) financing activities		(1,179.1	)		(396.3	)		(128.4	)
Effects of variation in the exchange rate on cash and cash equivalents		(7.6	)		43.0			(83.9	)
Cash and cash equivalents at the beginning of the year		949.3			753.5			989.4
Cash and cash equivalents at the end of the year		1,142.0			949.3			753.5

In addition to cash and marketable securities, LATAM has access to short term credit lines. As of December 31, 2017, LATAM had working capital uncommitted credit facilities for a total amount of US$1,230 million, of which US$561 million was drawn as of December 31, 2017, and committed credit lines in the form of a fully undrawn revolving credit facility (“RCF”) of US$450 million². The RCF is secured by spare parts, engines, and aircrafts.

Net cash flows from operating activities

Cash 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 2017 increased by US$685.9 million, or 69.9%, up from US$980.9 million, mainly thanks to an increase in operating margin, which was driven by the economic recovery of the region, better operating performance in Brazil and LATAM’s ongoing cost efficiency initiatives.

²Subject to borrowing base availability

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Net cash inflows from operating activities in 2016 decreased US$691.2 million, or 41.3%, from US$1,672.1 million, mainly due to changes in working capital. The main impacts on working capital were the reduction in prepayments of credit card receivables in Brazil in the amount of US$255.4 and the US$ 108.0 million related to the non-payment in 2015 of the performance bonuses of 2014.

Net cash flow used in investing activities

Net cash used in investing activities in 2017 decreased to US$287.4 million from US$431.8 million in 2016, due to a reduction in purchases of property, plant and equipment. This reduction resulted mainly from not having any capital expenditures in aircraft, in contrast with a US$861.1 million outflow for year 2016; which was offset by net predelivery payments outflows of US$126.5 million for year 2017, in contrast with the net predelivery payments inflow of US$556.9 million for year 2016. For further details, please refer to Note 35 to our audited consolidated financial statements.

Net cash used in investing activities in 2016 decreased US$1,263.9 million, from US$1,695.7 million in 2015 to US$431.8 million in 2016, due to a reduction in purchases of property, plant and equipment, primarily driven by a US$556.9 million inflow from pre-delivery payments during 2016 in contrast with an outflow of US$128.0 million during 2015. In addition, during 2016 there was a net inflow of US$263.0 million from the sale and purchase of debt instruments of other entities in contrast with an outflow of US$184.7 million during 2015.

Net cash flows used in financing activities

In 2017, net cash used in financing activities totaled US$1,179.1 million, an increase of US$782.8 million from the US$396.3 million in cash generated by financing activities in 2016. In 2017, the company paid US$1,829.2 million in loan repayments – including TAM notes due in 2017 and 2021 which amounted to US$300.0 million and US$500.0 million respectively – which were offset by US$1,305,4 million in debt issuances. Total debt issuances in year 2017 amounted to US$1,305.4 million, a decrease of US$514.6 million compared to US$1,820.0 million issued in 2016.

In 2016, net cash used in financing activities totaled US$396.3 million, an increase of US$267.9 million from the US$128.4 million in cash generated by financing activities in 2015. The variation resulted primarily from a significant increase in loan repayments from US$1,263.8 million in 2015 to US$2,121.1 million in 2016, which was compensated by the capital increase of US$608.5 million subscribed and paid during 2016.

Sources of financing

Long term

We typically finance our fleet with long-term loans covering between 80% and 100% of the net purchase price. We also finance our aircraft under sale and leaseback arrangements in order to add flexibility to our fleet. For more information regarding fleet financing, please refer to the information below and to “—F. Long Term Indebtedness—Tabular Disclosure of Contractual Obligations.”

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 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. As of December 31, 2017, we maintained US$ 1,680 million in short-term credit lines with both local and international banks, including US$450 million of committed credit lines³ which was fully undrawn as of December 31, 2017.

³Subject to borrowing base availability

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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; credit card discounting in Brazil, a financing alternative where a bank provides in advance to the Company a percentage of the cash inflows related to the credit card installment sales and margin loans.

Capital expenditures

Our capital expenditures are related to the acquisition of aircraft, aircraft-related equipment, IT equipment, support infrastructure and the funding of pre-delivery deposits. LATAM’s capital expenditures totaled US$403.7 million in 2017, US$694.4 million in 2016 and US$1,569.7 million in 2015, and purchases of intangible assets totaled US$87.3 million in 2016, US$88.6 million in 2016 and US$52.5 million in 2015. See “—Sources of financing” above.

The following chart sets forth the Company’s estimated capital expenditures for 2018, 2019 and 2020 calendar years:

	Estimated capital expenditures by year, as of December 31, 2017
	2018		2019		2020
	(in US$ millions)
Fleet Commitments(1)		714		1,213		1,344
PDPs(2)		219		123		0
Other expenditures(3)		650		794		661

(1) The amount of Fleet Commitments presented includes all the committed deliveries with estimates regarding (i) changes in scheduled delivery dates; (ii) conversion of certain aircraft types and (iii) aircraft of which we do not expect to take delivery, regardless of the financing of the aircraft will have upon arrival, thus representing the sum of aircraft capex and future sale and leasebacks.

(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 on balance fleet, projects and others, plus purchases of intangible assets.

C. Research and Development, Patents and Licenses, etc.

LATAM has filed for trademark registration, registered or renewed trademarks “LAN” with the trademark office in Paraguay, México, Taiwan and South Korea, “LAN AIRLINES” and “LAN CARGO” with the trademark office in Taiwan and South Korea, “LATAM CORPORATE” with the trademark office in Chile, Colombia, Peru, México, Argentina, Bolivia, Ecuador, Paraguay, Uruguay and the European Union, and “LATAM TRAVEL” with the trademark office in Chile, Argentina, Bolivia, Colombia, Ecuador, Mexico, Paraguay, Peru and Uruguay. We license certain brands, logos and trade dress under the alliance agreement with oneworld® related to LATAM’s alliance. As long as LATAM is a member of oneworld®, it will have the right to continue to use current logos on its aircraft.

TAM has filed for trademark registration trademarks, “PONTOS MY LATAM”, “LATAM TRAVEL” and “LATAM CORPORATE” before the Instituto Nacional da Propriedade Industrial (“INPI”), the body with jurisdiction for registering trademarks and patents in Brazil and renewed 2 trademarks “TAM”, before the bodies with jurisdiction for registering trademarks in Macao where TAM operates.

D. Trend Information

For 2018, LATAM expects total passenger ASK growth to be between 5% and 7%. International passenger ASK growth for full year 2018 is expected to be between 6% and 8%. LATAM Airlines Brazil’s domestic passenger ASKs in the Brazilian market are expected to increase between 2% and 4%. ASKs in SSC are expected to increase by approximately 6% to 8%.

Regarding cargo operations, LATAM expects cargo ATKs to increase between 1% and 3% for full year 2018, driven by the increases in the capacity of LATAM’s international passenger operations which result in additional capacity related to the space in the belly of those aircrafts. As a result, 2018 will be the first year that LATAM is increasing capacity across all its business units since the business combination between LAN and TAM.

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During 2017, LATAM operated in a context of increasing competitive pressures from different players across the region, including low cost operators, and the Company expects this trend to continue during 2018. LATAM’s goal is to continue to increase the efficiency of its operations, allowing the Company to provide the best and most convenient options for its customers with the distinctive customer experience LATAM passengers expect. In this context, the group has implemented significant changes with the objective of transforming LATAM into a simpler, leaner and more efficient organization. During 2017 LATAM introduced a new travel model for domestic operations in the five of its six domestic markets where it operates in South America (Brazil, Chile, Colombia, Ecuador and Peru), in order to address the changing dynamics of customers and the industry. During 2018, LATAM will continue with the transformation process in the different markets with the objective of increasing LATAM’s competitiveness to ensure the sustainability of its domestic operations business model in the long term. For more information on this new travel model, see “Item 4. Information on the Company—B. Business Overview—Passenger Operations—Business Model for Domestic Operations”.

Over the last year, the Company has continued to strengthen its network, taking advantage of specific opportunities for profitable growth in LATAM’s South American Spanish-speaking markets (SSC, which include Chile, Peru, Argentina, Colombia and Ecuador). During 2017, LATAM inaugurated new routes connecting its Lima hub with Argentina, Brazil and Colombia, its Santiago hub with secondary cities in Argentina, and launched a new flight from Santiago to Melbourne, the longest non-stop flight operated by LATAM. For 2018, the Company announced the launch of new destinations departing from its Sao Paulo hub, including Boston, Las Vegas and Rome.

LATAM will continue to use fuel hedging programs and fuel surcharge mechanisms in both our passenger and cargo businesses to help minimize the impact of short-term movements in crude oil prices. As of April 3, 2018, LATAM has hedged approximately 20%, 40%, 44% and 23% of its estimated fuel consumption for the first, second, third and fourth quarters of 2018 respectively.

E. Off-Balance Sheet Arrangements

As of December 31, 2017, the Company had entered into operating leases for 84 aircraft (of which 6 are obligations of LATAM Airlines Brazil and 78 are obligations of LATAM) and 8 aircraft engines. These operating leases provide us with flexibility to adjust our fleet to any demand volatility and therefore we consider such arrangements to be of great value to our strategy and financial performance. The total future lease payments related to our operating leases as of December 31, 2017 was US$ 3,580.5 million, for all remaining periods through maturity (the latest of which expires in 2029). See “—F. Long Term Indebtedness—Tabular Disclosure of Contractual Obligations.”

Under the aforementioned operating 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.

LATAM operates 12 aircraft under tax leasing structures. These methods involve the creation of special purpose entities that acquire aircraft with bank and third-party financing. Under IFRS, these aircraft are shown in the consolidated statement of financial position as part of “Property, plant and equipment” and the corresponding debt is shown as a liability. Of LATAM’s total tax leases, nine are classified as operating leases for accounting purposes as of December 31, 2017.

As of December 31, 2017, we are not aware of any event, lawsuit, commitment, trend or uncertainty that may result in, or is reasonably likely to result in, the termination of the operating leases. See Note 32 to our audited consolidated financial statements for a more detailed discussion of these commitments.

F. Long Term Indebtedness

Long Term Indebtedness

Secured Debt

Aircraft Debt

1. ECA/EX-IM: Bank 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, 2017, the total outstanding amount under these facilties was US$2,739 million. In general, ECA and EX –IM financing have a 12-year repayment profiles.

2. Enhanced Equipment Trust Certificates (“EETC”): In June 2015, LATAM issued the first EETC in Latin America for an aggregate face amount of approximately US$1,021 million to finance 17 new aircraft deliveries comprising 11 Airbus A321-200, 2 Airbus A350-900 and 4 Boeing 787-9, with delivery dates from July 2015 through March 2016. The offering is comprised of Class A Certificates maturing in November 2027 and Class B Certificates maturing in November 2023. The annual interest rate for Class A and B Certificates are 4.20% and 4.50%, respectively. In April 2017, LATAM issued and privately placed Class C Certificates for an amount of US$140 million under the current EETC structure. The Class C Certificates have a six year term, maturing in May 2023. As of December 31, 2017, the EETC debt was US$1,029 million.

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3. Bank Commercial Loans: As of December 31, 2017, bank commercial loans debt was US$1,520 million.

4. Tax Leases: LATAM has secured debt through Japanese Leases with a call option (“JOLCO”). As of December 31, 2017, the outstanding obligations under these tax leases were US$100 million.

Non Aircraft Debt

1. 2013-1 Series Note: LATAM issued a securitized bond in the amount of US$450 million in November 2013 with a seven year term and a two year interest-only period (the “2013-1 Series Note”). This bond is secured by future flows of credit card sales of LATAM Airlines in the United States and Canada. The coupon is 6.0% fixed with quarterly payments. As of December 31, 2017, the principal outstanding amount of the 2013-1 Series Note was US$285 million.

2. Bank Commercial Loans: As of December 31, 2017, bank commercial loans debt was US$56 million.

Others

1. Pre-Delivery Payments (“PDP”) financing: As of December 31, 2017, outstanding amount under PDP financings was US$203 million.

Unsecured Debt

1. LATAM 2020 Notes: On June 9, 2015, LATAM Airlines Group S.A. issued long-term bonds in the international markets in the amount of US$500 million, maturing in 2020 with an interest rate of 7.25% per year. As of December 31, 2017, outstanding amounts under the LATAM 2020 Notes was US$495 million.

2. LATAM 2024 Notes: On April 11, 2017, LATAM Finance Limited, an affiliate of LATAM Airlines Group S.A., issued long-term bonds in the international markets in the amount of US$700 million, maturing in 2024 with an annual interest rate of 6.875%. As of December 31, 2017, outstanding amount under the LATAM 2024 Notes was US$708 million.

3. Local Bonds: On August 17, 2017, LATAM Airlines Group S.A. issued local bonds on the Santiago Stock Exchange in the aggregate amount of UF 9,000,000 comprised of the Series A Bonds (BLATM-A), Series B Bonds (BLATM-B), Series C Bonds (BLATM-C) and Series D Bonds (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in the Securities Registry of the CMF under number 862. The total amount of Series A Bonds issued was UF 2,500,000 with a maturity date of June 1, 2022 bearing interest at 5.25% annually. The total amount of Series B Bonds issued was UF 2,500,000 with a maturity date of January 1, 2028 bearing interest at 5.75% annually. The total amount of Series C Bonds issued was UF 1,850,000 with a maturity date of June 1, 2022 bearing interest at 5.25% annually. The total amount of Series D Bonds issued was UF 1,850,000, with a maturity date of January 1, 2028 bearing interest at 5.75% annually. As of December 31, 2017, the outstanding amount of Local Bonds was US$381 million.

4. Commercial Bank Loans: As of December 31, 2017, unsecured Bank Commercial loans debt was US$376 million.

As of December 31, 2017, the average interest rate of our debt was 4.13%. Out of the total debt, 63.3% 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, 2017, LATAM had US$1,289 million in current debt liabilities. Of this amount, US$259 million consisted of short-term debt, which represents 20% of our total current debt liabilities.

LATAM entered into various EX-IM Bank loans for the financing of Boeing 767, 767 freighter, 777 freighter and 787 aircraft that contain financial covenants and other restrictions, including restrictions in shareholder composition and disposal of assets. As of December 31, 2017, we also had purchase obligations totaling US$ 7.3 billion, with deliveries between 2017 and 2022, as set forth below:

· Airbus A320-Family, passenger aircraft deliveries: 52

· Wide-body passenger aircraft deliveries (which include the Airbus A350 900XWB, the Airbus A350 1000XWB, the Boeing 777, and the Boeing 787-9): 30

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Tabular Disclosure of Contractual Obligations

The following table sets forth our material expected obligations and commitments as of December 31, 2017:

	Payments due by period, as of December 31, 2017
(US$ in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Financial debt obligations(1)	US$	7,892	US$	1,289	US$	2,720	US$	1,393	US$	2,491
Operating lease obligations	US$	3,580	US$	462	US$	866	US$	754	US$	1,498
Fleet Commitments	US$	7,259	US$	948	US$	3,112	US$	3,199	US$	0
TOTAL	US$	18,731	US$	2,699	US$	6,698	US$	5,346	US$	3,989

(1) Financial debt obligations reflect principal payments on outstanding debt obligations, including aircraft debt, senior notes, long-term and short-term bank loans and PDP financing.

2017 Fleet Acquisitions

During 2017, LATAM completed the acquisition of the following wide body aircraft:

· One Boeing 787-9 passenger aircraft, financed through an operating lease with a 12 year term.

· One Boeing 787-9 passenger aircraft, financed through a sale and leaseback transaction with a 12 year term.

During 2017, LATAM completed the acquisition of the following narrow body aircraft:

· Two Airbus 320neo passenger aircraft, financed through sale and leaseback transactions with 12 year terms.

2016 Fleet Acquisitions

During 2016, LATAM completed the acquisition of the following wide body aircraft:

· One Boeing 787-9 passenger aircraft, financed through an operating lease.

· Three Boeing 787-9 and two Airbus 350-900 passenger aircraft, financed through sale and leaseback transactions.

· One Boeing 787-9 and one Airbus 350-900 passenger aircraft, financed through the EETC issuance.

· Three Airbus A350-900 passenger aircraft, financed through commercial loans.

The Boeing 787-9 aircraft financed through an operating lease has a 12 year term and monthly payments. The four Boeing 787-9 and two Airbus 350-900 aircraft financed through sale and leaseback transactions have lease terms of 12 years. These leases are denominated in U.S. dollars and have monthly payments. Aircraft financed through EETC are under the terms described above. The three Airbus 350-900 financed through commercial loans have a Senior and Junior tranche, which have terms of 12 and 7 years, respectively.

During 2016, LATAM completed the acquisition of the following narrow body aircraft:

· Seven Airbus 321-211 and one A320neo passenger aircraft, financed through sale and leaseback transactions.

· Four Airbus 321-211 passenger aircraft, financed through the EETC facility.

· One Airbus A320neo passenger aircraft, financed through commercial loans.

Narrow body aircraft financed through sale and leaseback transactions have lease terms of 12 years. These leases are denominated in U.S. dollars and have monthly payments. Aircraft financed through EETC are under the terms described under “Item 5. Operating and Financial Review and Prospects — F. Long Term Indebtedness — Secured Debt. The A320neo passenger aircraft financed through commercial loans has a Senior and Junior tranche, which have terms of 12 and 7 years, respectively.

The ECA-guaranteed loans have an advance rate equal to 80% of the net purchase price of the aircraft for a 12-year period, with the remaining 20% of the aircraft being financed by the Company’s available cash flows.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The LATAM Airlines Group 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. 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, in which case the meeting must be held without the previous approval of the chairman.

The current board of directors was elected at the ordinary shareholders�� meeting held on April 27, 2017 and will hold office for two years.

The following are LATAM Airlines Group’s directors:

Directors	Position
Ignacio Cueto(1)	Director / Chairman
Carlos Heller(2)	Director
Juan José Cueto(1)	Director
Nicolás Eblen(3)	Director
Henri Philippe Reichstul	Director
Georges de Bourguignon	Director
Giles Agutter	Director
Eduardo Novoa	Director
Antonio Luiz Pizarro	Director

Senior Management	Position
Enrique Cueto(1)	CEO LATAM
Ramiro Alfonsín	CFO LATAM
Roberto Alvo	Senior VP Commercial LATAM
Claudia Sender	Senior VP Customers LATAM
Hernán Pasman	Senior VP Operations, Maitenance and Fleet LATAM
Emilio del Real	Senior VP Human Resources
Juan Carlos Menció	Senior VP Legal

⁽¹⁾ Messrs. Ignacio, Enrique and Juan José Cueto are brothers. All three are members of the Cueto Group, which is defined in “Item 7” as a “Major Shareholder,” and are the LATAM Controlling Shareholders.

⁽²⁾ Mr. Carlos Heller is a member of the Bethia Group, which is defined in “Item 7” as a “Major Shareholder.”

⁽³⁾ Mr. Nicolás Eblen is a member of the Eblen Group, which is defined in “Item 7” as a “Major Shareholder.”

Biographical Information

Set forth below are brief biographical descriptions of LATAM Airlines Group’s directors and senior management. All of LATAM’s directors were elected or reelected, as the case may be, on April 27, 2017 for a two-year term, which expires in April 2019.

Directors

Mr. Ignacio Cueto,has served as a member of LATAM Airlines Group’s board of directors and as Chairman since April 2017. 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 (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2018, Mr. Cueto shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information see “Item 7. Controlling Shareholders and Related Party Transactions.”

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Mr. Carlos Heller, joined the board of LAN in May 2010 and was re-elected to the Board of Directors of LATAM in April 2017. Mr. Heller has 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., Blue Express S.A. and “Azul S.A.” concessionaire of the Corporación de Fútbol Profesional de la Universidad de Chile. On February 28, 2018, Mr. Heller indirectly held 33,367,357 ordinary shares of LATAM Airlines Group through Axxion S.A. and Inversiones HS Spa (5.50% of the shares of LATAM Airlines Group).

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. Mr. Cueto currently serves as Executive Vice President of Inversiones Costa Verde S.A., a position he has held since 1990, and serves on the boards of directors of Consorcio Maderero S.A., Inversiones del Buen Retiro S.A., Costa Verde Aeronáutica S.A., Sinergia Inmobiliaria S.A., Valle Escondido S.A. and Fundación Colunga. Mr. Cueto is the brother of Messrs. Enrique and Ignacio Cueto Plaza, LATAM Airlines Group Executive Vice-President and LAN CEO, respectively. Mr. Cueto is a member of the Cueto Group (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2018, Mr. Cueto shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Nicolás Eblen, has served on LATAM’s board of directors since April 2017. Mr. Eblen currently serves as CEO of Inversiones Andes SpA, a position he has held since 2010. In addition, he serves on the board of directors of Granja Marina Tornagaleones S.A., Río Dulce S.A., Patagonia SeaFarms Inc., 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 28, 2018, the Eblen Group had the beneficial ownership of 35,945,199 common shares of LATAM Airlines Group (5.93% of LATAM Airlines Group’s outstanding shares). For more information see “Item 7. Controlling Shareholders and Related Party Transactions.”

Mr. Henri Philippe Reichstul, joined LATAM’s board of directors in April 2014 and was reelected to the board of directors of LATAM in April 2017. Mr. Reichstul has served as President of Petrobras and the IPEA-Institute for Economic and Social Planning and Executive Vice President of Banco Inter American Express S.A. Currently, in addition to his roles as Administrative Board member of TAM and LATAM Group, he is also a member of the Board of Directors of Peugeot Citroen and chairman of the board of Fives, among others. Mr. Reichstul is an economist with an undergraduate degree from the Faculty of Economics and Administration, University of São Paulo, and postgraduate work degrees in the same discipline—Hertford College—Oxford University.

Mr. Georges de Bourguignon, has served on LATAM Airlines Group’s board of directors since September 2012 and was reelected to the board of directors of LATAM in April 2017. He is co-founder of Asset Chile S.A., a Chilean investment bank, where he was appointed chairman in January 2018. Currently, he also has a board seat in K+S Chile S.A.; Embotelladora Andina S.A.; and Asset AGF, as chairman. In the past, he has participated in various directories at public and private companies, and non-profit organizations as well. Between 1990 and 1993 he worked as Manager of Financial Institutions at Citibank N.A. in Chile and as a Professor of Economics at the Pontificia Universidad Católica de Chile where he earned a degree in Economics. Mr. de Bourguignon also has an MBA from the Harvard Business School.

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 2017. 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 Board of Directors of Air Italy. Mr. Agutter has had vast experience in advising airlines, including Qatar Airways, on significant Merger and Acquisition projects within the airline industry. Mr Agutter has a degree in Aerospace Engineering from Manchester University and he currently resides in England.

Mr. Eduardo Novoa has served on LATAM’s board of directors since April 2017. 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.

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Mr. Antonio Luiz Pizarro, has served on LATAM’s board of directors since April 2017. In addition, Mr. Pizarro serves on the board of directors of Banco Caixa Geral Brasil SA since 2009, TAM Aviação Executiva S.A. since 2012 and TAM S.A. since 2017. In 1995, Mr. Pizarro became CFO of Embraer, a position he held until 2008. He was also a member of the boards of directors of Solví Participacões S.A., Itapoá Terminais Portuários S.A, TAM S.A. and LM Wind Power do Brasil. Mr. Pizarro earned his mechanical engineering degree from Escuela Politécnica of Pontificia Universidad Católica de Rio de Janeiro and has a graduate degree in Finance from the Instituto Brasileiro de Mercado de Capitales.

Senior Management

Mr. Enrique Cueto Plaza, is LATAM Airlines Group’s Chief Executive Officer (“CEO”) and has been in this position since the combination between LAN and TAM in June 2012. From 1983 to 1993, Mr. Cueto was Chief Executive Officer of Fast Air, a Chilean Cargo airline. From 1993 to 1994, Mr Cueto was a member of the board of LAN Airlines. Thereafter, Mr. Cueto held the position of CEO of LAN until June 2012. Mr. Cueto is member of the oneworld® Alliance Governing Board, the IATA (International Air Transport Association) Board of Governors. He is also member of the Board of the Endeavor foundation, an organization dedicated to the promotion of entrepreneurship in Chile, and Executive Member of the Latin American and Caribbean Air Transport Association (ALTA). 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 (LATAM Airlines Group’s Controlling Shareholder). As of February 28, 2018, Mr. Cueto jointly shared in the beneficial ownership of 169,248,377 common shares of LATAM Airlines Group (27.91% of LATAM Airlines Group’s outstanding shares) held by the Cueto Group. For more information see “Item 7. Controlling 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, 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 Senior Commercial Vice President of LATAM since May 2017 being responsible of the Group’s passenger and cargo revenue management, with all the commercial units reporting to him. Previously, he was Senior Vice-President of International and Alliances at LATAM Airlines since 2015, and Vice-President of Strategic Planning and Development since 2008. Mr Alvo joined LAN Airlines in November 2001, where he served as Chief Financial Officer of LAN Argentina, as Manager of Development and Financial Planning at LAN Airlines, and as Deputy Chief Financial Officer of LAN Airlines. Before 2001, Mr. Alvo held various positions at 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.

Mrs. Claudia Sender, is the Senior Customers Vice-President of LATAM since May 2017. Previously, she served as TAM Airlines’ President since May 2013. Mrs. Sender joined the Company in December 2011, as Commercial and Marketing Vice-President. After June 2012, with the conclusion of TAM-LAN combination and the creation of LATAM Airlines Group, she became the head of Brazil’s Domestic Business Unit, and her functions were expanded to include TAM’s entire Customer Service structure. Prior to joining LATAM Airlines, she was Marketing Vice-President at Whirlpool Latin America for seven years. She also worked as a consultant at Bain & Company, developing projects for large companies in various industries, including TAM Airlines and other companies in the global aviation sector. She has a bachelor’s degree in Chemical Engineering from the Polytechnic School at the University of São Paulo (“USP”) and an MBA from Harvard Business School.

Mr. Hernán Pasman, has been the Senior Vice-President of Operations, Maintenance and Fleet of LATAM airlines group since October, 2015. He joined LAN Airlines in 2005 as a head of strategic planning and financial analysis of the technical areas. Between 2007 and 2010, Mr. Pasman was the Chief operating officer of LAN Argentina, then, in 2011 he served as Chief Executive Officer for LAN Colombia. Prior to joining the company, between 2001 and 2005, 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).

Mr. Juan Carlos Menció, is Senior Vice President of Legal Affairs and Compliance for LATAM Airlines Group since September 1, 2014. Mr. Mencio previously held the position of General Counsel for North America for LATAM Airlines Group and its related companies, as well as General Counsel for its worldwide Cargo Operations, both since 1998. Prior to joining LAN, he was in private practice in New York and Florida representing various international airlines. Mr. Mencio obtained his Bachelor’s Degree in International Finance and Marketing from the School of Business at the University of Miami and his Juris Doctor Degree from Loyola University.

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Mr. Emilio del Real, is LATAM’s Senior Vice-President of Human Resources, a position he assumed in August 2005. Between 2003 and 2005, Mr. del Real was the Human Resources Manager of D&S, a Chilean retail company. Between 1997 and 2003 Mr. del Real served in various positions 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 Universidad Gabriela Mistral.

B. Compensation

In 2017, 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) the total gross remuneration of US$69.2 million.

Under Chilean law, LATAM Airlines Group must disclose in its annual report details of all compensation paid to its directors 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 directors 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 directors and executive officers, such as free and discounted airline tickets and health insurance. We do not have contracts with any of our directors to provide benefits upon termination of employment.

As set forth in further detail in the following table, in 2017 the members of our board of directors, including directors who were members of the Board until April 27, 2017, received fees and salaries in the aggregate amount of US$385,147.  

Board Members	Fees (US$)(1)
Ignacio Cueto Plaza		48,650
Mauricio Rolim Amaro		6,290
Ramon Eblén Kadis		17,017
Juan Gerardo Jofré Miranda		17,017
Henri Philippe Reichstul		26,095
Juan José Cueto Plaza		36,236
Carlos Heller Solari		14,842
Georges de Bourguignon Arndt		71,662
Antonio Luiz Pizarro		22,146
Eduardo Novoa Castellón		56,645
Nicolás Eblén Hirmas		54,645
Giles Agutter		15,902
Total		385,147

⁽¹⁾ Includes fees paid to members of the board of directors’ committee, as described below.

The above-mentioned directors were elected to the LATAM board of directors in April 27, 2017, with the exception of Mauricio Rolim Amaro, Ramón Eblén Kadis and Juan Gerardo Jofré Miranda, who were members of the board of directors until April 27, 2017.

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 of nine members. The terms of each of our current directors will expire in April 2019. See “—Directors and Senior Management” above.

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Committees

Board of Directors’ Committee and Audit Committee

Pursuant to Chilean Corporation 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 Board of 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;

• 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 Corporation Law we are required, to the extent possible, to appoint a majority of independent directors to the Board of Directors Committee. A director is considered independent when he or she can be elected regardless of the voting of the controlling shareholders. See “Item 16. Reserved—G. Corporate Governance.”

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’ Committee and the audit committee, our Board of Directors’ Committee serves as our Audit Committee for purposes of Rule 10A-3 under the Exchange Act.

As of December 31, 2017, all of the members of our Board of Directors’ Committee, which also serves as our Audit Committee, were independent under Rule 10A-3 of the Exchange Act. As of December 31, 2017, the committee members were Mr. Eduardo Novoa Castellón, Mr. Nicolás Eblen Hirmas and Mr. Georges de Bourguignon. We pay each member of the committee 80 UFs per monthly assistance to meetings.

Other LATAM Board Committees

LATAM’s board of directors also has established four other committees to review, discuss and make recommendations to our board of directors. These include a Strategy Committee, a Leadership Committee, a Finance Committee and a Customers and Businesses Committee. The Strategy Committee focuses on the corporate strategy, current strategic issues and the three-year plans and budgets for the main business units and functional areas and high-level competitive strategy reviews. The Leadership Committee focuses on, among other things, group culture, high-level organizational structure, appointment of the LATAM CEO and his or her other reports, corporate compensation philosophy, compensation structures and levels for the LATAM CEO and other key executives, succession or contingency planning for the LATAM CEO and performance assessment of the LATAM CEO. The Finance Committee is responsible for financial policies and strategy, capital structure, monitoring policy compliance, taxation strategy and the quality and reliability of financial information. Finally, the Customers and Businesses Committee is responsible for setting the competitive strategies of the Customers and Commercial Vice Presidencies with a focus on sales, marketing, network and fleet initiatives, customer experience and revenue management.

On 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 March 30, 2018, LATAM Airlines Group filed the Company’s Corporate Practices Report prepared according to General Rule N° 385, previously N°341, of the Securities and Insurance Commission 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.

The report provided each year to the Commission must cover the following subjects:

· how the Board works;

· the relationship between the company, shareholders and the public in general;

· how senior officers are replaced and compensated; and

· the definition, implementation and supervision of internal control and risk management policies and procedures inside the company.

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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,
	2017(1)		2016		2015
Administrative		6,922		8,010		9,118
Sales		3,332		4,235		5,022
Maintenance		4,742		4,895		5,990
Operations		15,126		15,924		16,878
Cabin crew		9,016		8,970		9,383
Cockpit crew		3,957		3,882		4,022
Total		43,095		45,916		50,413

(1) At December 31, 2017, approximately 52% of our employees worked in Brazil, 27% in Chile, 19% in other Latin American countries and 3% in the rest of the world.

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 of 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, we have a global staff travel program, which grants free and discounted tickets to our permanent employees.

Long Term Incentive Compensation Program

1. Compensation plan 2013

At the Extraordinary Shareholders Meeting held on June 11, 2013, the Company’s shareholders approved a capital increase and the allocation of 1,500,000 shares to compensation plans for employees of the Company pursuant to Article 24 of the Chilean Corporations Law. The Company has not defined a date for implementation of this compensation plan yet.

2. Compensation plan 2016-2018

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.

3. Subsidiaries compensation plans

a. Multiplus S.A., a subsidiary of TAM S.A., has outstanding stock options at December 31, 2017, which amounted to 316,025 shares of Multiplus S.A. (at December 31, 2016, the distribution of outstanding stock options amounted to 394,698 shares of Multiplus S.A.).

b. In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 shares of Multiplus S.A.

For more information, please see note 34 Note to our consolidated financial statements.

Labor Relations

We believe we generally maintain good relations with our employees and the unions, 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.  

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Chile

As a general labor relations policy in Chile, we negotiate labor contracts with unions in anticipation of their scheduled expirations. As a non-negotiable clause, all collective bargaining agreements are signed for the maximum legal term, namely, four years. During 2017, LATAM did not have scheduled negotiations with its unions, but participated in anticipated collective bargaining negotiations with the following unions: LAN Express Cabin Crew Union and LAN Cabin Crew Union, with whom the Company has not yet reached an agreement but is expected to be concluded in 2018. In addition, during 2018 LATAM has a scheduled negotiations with LATAM Cargo pilots.

Ecuador

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 November 2015, the Company signed a voluntary agreement with the association of pilots, in force until July 2019. The Company expects to participate in an anticipated negotiation with its pilots during 2018.

Additionally, in 2011 a union previously exclusive to cabin crew employees was integrated into the general employees 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 50% of our employees eligible for membership are members of this union.

Argentina

In Argentina, 83% percent of LATAM employees are affiliated with at least one of eight unions.

In November 2017 we started to negotiate the annual adjustment for inflation with the eight unions, which we conluded in January 2018.

In 2017 we succeeded in implementing the Company’s planned changes to reduce operational labor and overhead costs, without significant protests or union intervention.During 2018 Argentina will continue working on different initiatives based on productivity and efficiency avoiding conflicts or strikes

Colombia

In Colombia we have five different unions. The company held negotiations with: (i) the Technicians Union (ACMA), in 2014, and reached an agreement that will be in force until June of 2018, (ii) the Cabin Crew Union (ACAV), in 2014, and reached an agreement that will be in force until December of 2018, (iii) the Industrial Union of Aviation Workers (SINTRATAC), in June 2016, and reached an agreement that will be in force until May of 2018, and (iv) the pilots’ union, ACDAC, in an arbitral hearing during the last quarter of 2017.

Peru

In Peru, there are six unions representing workers from different functional areas: pilots, cabin crew, aircraft technicians, flight dispatchers and airport workers. Our current collective agreements have a term of four years.

In 2017, LATAM Airlines Peru continued negotiations with the pilots union, and during 2017 negotiations began with the aeronautical technicians union (March) and the cabin crew union (August). These three negotiations are expected to conclude with a collective agreement in the first half of 2018.

During 2018, LATAM Airlines Peru will begin negotiations with the union of aircraft technicians and coordinators of ground operations (January), the airport workers union (March) and the flight dispatchers union (August). The negotiations are expected to conclude with a collective agreement in December 2018.

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 (in respect of the economic terms) and for two years (in respect of social terms). LATAM Airlines Brazil has historically negotiated collective bargaining agreements with ten unions in Brazil—one crew flight union, which represents pilots, copilots and flight attendants, and nine ground staff unions. In December 2017, LATAM Airlines Brazil renegotiated collective bargaining agreements with all the unions, which included a wage increase of 2.45%, in line with the inflation rate of the last 12 mounths plus 0.5 percentile points above inflation. For ground staff workers with salaries up to ten thousand dollars, the increase was R$ 245.00.

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E. Share Ownership

As of December 31, 2017, the members of our Board of Directors and our executive officers as a group owned 39.3% of our shares. See “Item 7. Controlling Shareholders and Related Party Transactions.”

For a description of stock options granted to our executive officers, see “—D.Employees—Long Term Incentive Compensation Program.”

ITEM 7. CONTROLLING SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Mr. Ignacio Cueto Plaza (Chairman of the Board of LATAM), Mr. Enrique Cueto Plaza (the CEO LATAM) and certain other Cueto family members and entities controlled by them, comprise the Cueto Group. As of February 28, 2018 the Cueto Group beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act) 27.91% of LATAM Airlines Group’s common shares. The Cueto Group is entitled to elect three 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 (which we also refer to collectively as the “LATAM Controlling Shareholders”) 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. See “—Shareholders’ Agreements.”

Following the combination with TAM, the Amaro Group became a major shareholder of LATAM Airlines Group. Through their 100% ownership of TEP Chile and majority ownership of the voting shares of Holdco I, which in turn owns 100% of the common shares of TAM, the Amaro Group, are controlling shareholders of TAM. This is the case even though LATAM is entitled to substantially all the economic rights arising from the operations of TAM by virtue of LATAM’s ownership of 100% of Holdco I and TAM non-voting shares. Please see Item 4. Information on the Company – History and Development of the Company. As of February 28, 2018, the Amaro Group owned 2.58%⁽²⁾ of LATAM Airlines Group’s common shares. The terms of the shareholders’ agreement among the Amaro Group, LATAM and the LATAM Controlling Shareholders require the LATAM Controlling Shareholders 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, three other groups or entities are major shareholders of LATAM. As of February 28, 2018, the Eblen Group, which includes our director Nicolás Eblen Hirmas, owned 5.93% of our common shares; the Bethia Group, which includes our vice-president of the Board of Directors Carlos Heller Solari, owned 5.50% of our common shares; and Qatar Airways Investments (UK) Ltd., whose nominee Giles Agutter, one of our directors, owned 10.03%⁽⁴⁾of our common shares.

The table below sets forth additional information regarding the beneficial ownership of our common shares, as of February 28, 2018, by our controlling shareholders, other major shareholders or shareholder groups, and minority shareholders.

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	Beneficial ownership (as of February 28, 2018)
	Number of shares of common stock beneficially owned		Percentage of common stock beneficially owned
Shareholder
Cueto Group(1)		169,248,377		27.91	%
Costa Verde Aeronautica S.A(2) (3)		88,259,650		14.55	%
Inversiones Costa Verde Aeronautica Tres SpA		35,300,000		5.82	%
Inversiones Nueva Costa Verde Aeronautica Ltda.		23,578,077		3.89	%
Costa Verde Aeronautica SpA		12,000,000		1.98	%
Others		10,110,650		1.67	%
Qatar Airways(4)		60,837,452		10.03	%
Qatar Airways Investments (UK) Ltda.		60,837,452		10.03	%
Eblen Group.		35,945,199		5.93	%
Inversiones Andes SpA.		17,146,529		2.83	%
Inversiones Andes II SpA		8,000,000		1.32	%
Inversiones PIA SpA.		5,403,804		0.89	%
Comercial las Vertientes SpA		5,394,866		0.89	%
Bethia Group.		33,367,357		5.50	%
Axxion S.A.		18,473,333		3.05	%
Inversiones HS SpA.		14,894,024		2.45	%
Amaro Group(2)(3)		15,615,113		2.58	%
TEP Chile S.A.		15,615,113		2.58	%
All other minority shareholders		291,394,195		48.05	%
Total		606,407,693		100.00	%

(1) The ownership figures for the Cueto Group in this table exclude shares held directly by TEP Chile S.A. which are subject to the shareholders’ agreements described below.

(2) Members of the Amaro Group also hold a 21.88% economic interest in Costa Verde Aeronáutica S.A.

(3) The ownership figures for the Amaro Group in this table exclude shares held by the Cueto Group which are subject to the shareholders’ agreements described below.

(4) Qatar owns 9.999999918% of total issued shares of LATAM.

As of February 28, 2018, 3.98% of our capital stock was held in the form of ADSs. Chilean pension funds held 21.75% of our capital stock and other minority investors held 22.33% 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 28, 2018, we had 1,476 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.

Shareholders’ Agreements

Following the combination of LAN and TAM in June 2012, TAM S.A. continues to exist as a subsidiary of Holdco I and a subsidiary of LATAM, and LAN Airlines S.A. has been redesignated as “LATAM Airlines Group S.A.”

Prior to the consummation of the business combination, LATAM Airlines Group and the LATAM Controlling Shareholders entered into several shareholders’ agreements with TAM, 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, as the continuing controlling shareholders of TAM under Brazilian law, 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 management of the LATAM Airlines Group following the consummation of the combination of LAN and TAM.

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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 operation of the LATAM Airlines Group, and voting and transfer of their respective LATAM Airlines Group common shares and TEP Chile’s voting shares of Holdco I, as the “control group shareholders’ agreement.” We refer to the shareholders’ agreement between LATAM Airlines Group S.A. and TEP Chile, which sets forth agreements concerning the governance, management and operation of the LATAM Airlines Group, as the “LATAM Airlines Group-TEP shareholders’ agreement.” The control group shareholders’ agreement and the LATAM Airlines Group-TEP shareholders’ agreement set forth the parties’ agreement on the governance and management of the LATAM Airlines Group following the effective time.

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, Mr. Ignacio Cueto Plaza was elected as President of the Board.

Also, on April, 2017, Mr. Maurício Rolim Amaro resigned to the LATAM Airline’s Group’s Board of Directors. Also in April 2017, Mr. Reichstul was re-elected to the Board of Directors with the favorable vote of TEP Chile S.A. pursuant to applicable regulations.

Management of the LATAM Airlines Group

Mr. Enrique Cueto Plaza has served as CEO of LATAM (“CEO LATAM”) since June 2012. The CEO LATAM is the highest ranked officer of LATAM Airlines Group and reports directly to the LATAM board of directors. The CEO LATAM is charged with the general supervision, direction and control of the business of the LATAM Airlines Group and certain other responsibilities set forth in the LATAM Airlines Group-TEP shareholders’ agreement. After any departure of the current CEO LATAM, our board of directors will select his or her 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.

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.

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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:

• to approve the annual budget and business plan and the multi-year business (which we refer to collectively as the “approved plans”), as well as any amendments to these plans;

• to take or agree to take any action which causes, or will reasonably cause, individually, or in the aggregate, any capital, operating or other expense of any TAM Company and its subsidiaries to be greater than (i) the lesser of 1% of revenue or 10% of profit under the approved plans, with respect to actions affecting the profit and loss statement, or (ii) the lesser of 2% of assets or 10% of cash and cash equivalents (as defined by IFRS) as set forth in the approved plan then in effect, with respect to actions affecting the cash flow statement;

• to create, dispose of or admit new shareholders to any subsidiary of the relevant company, except to the extent expressly contemplated in the approved plans;

• to approve the acquisition, disposal, modification or encumbrance by any TAM company of any asset greater than $15 million or of any equity securities or securities convertible into equity securities of any TAM Company or other company, except to the extent expressly contemplated in the approved plans;

• to approve any investment in assets not related to the corporate purpose of any TAM company, except to the extent expressly contemplated in the approved plans;

• to enter into any agreement in an amount greater than $15 million, except to the extent expressly contemplated in the approved plans;

• to enter into any agreement related to profit sharing, joint ventures, business collaborations, alliance memberships, code sharing arrangements, except as approved by the business plans and budget then in effect, except to the extent expressly contemplated in the approved plans;

• to terminate, modify or waive any rights or claims of a relevant company or its subsidiaries under any arrangement in any amount greater than $15 million, except to the extent expressly contemplated in the approved plans;

• to commence, participate in, compromise or settle any material action with respect to any litigation or proceeding in an amount greater than $15 million, relating to the relevant company, except to the extent expressly permitted in the approved plans;

• to approve the execution, amendment, termination or ratification of agreements with related parties, except to the extent expressly contemplated in the approved plans;

• to approve any financial statements, amendments, or any accounting, dividend or tax policy of the relevant company;

• to approve the grant of any security interest or guarantee to secure obligations of third parties;

• to appoint executives other than the Holdco I CEO or the TAM Director or to re-elect the then current TAM CEO or TAM CFO; and

• to approve any vote to be cast by the relevant company or its subsidiaries in its capacity as a shareholder.

Actions requiring supermajority shareholder approval include:

• to approve any amendments to the by-laws of any relevant company or its subsdiaries in respect to the following matters: (i) corporate purpose; (ii) corporate capital; (iii) the rights inherent to each class of shares and its shareholders; (iv) the attributions of shareholder regular meetings or limitations to attributions of the board of directors; (v) changes in the number of directors or officers; (vi) the term; (vii) the change in the corporate headquarters of a relevant company; (viii) the composition, attributions and liabilities of management of any relevant company and (ix) dividends and other distributions;

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• to approve the dissolution, liquidation, or winding up of a relevant company;

• to approve the transformation, merger, spin-up or any kind of corporate re-organization of a relevant company;

• to pay or distribute dividends or any other kind of distribution to the shareholders;

• to approve the issuance, redemption or amortization of any debt securities, equity securities or convertible securities;

• to approve a plan or the disposal by sale, encumbrance or otherwise of 50% or more of the assets, as determined by the balance sheet of the previous year, of Holdco I;

 • to approve the disposal by sale, encumbrance of otherwise of 50% or more of the assets of a subsidiary of Holdco I representing at least 20% of Holdco I or to approve the sale, encumbrance or disposition of equity securities such that Holdco I loses control;

• to approve the grant of any security interest or guarantee to secure obligations in excess of 50% of the assets of the relevant company; and

• to approve the execution, amendment, termination or ratification of acts or agreement with related parties but only if applicable law requires approval of such matters.

Voting Agreements, Transfers and Other Arrangements

Voting Agreements

The LATAM Controlling Shareholders and TEP Chile have agreed in the control group shareholders agreement to vote their respective LATAM Airlines Group common shares as follows:

• the parties agree to vote their LATAM Airlines Group common shares to assist the other parties in removing and replacing the directors such other parties elected to the LATAM Airlines Group board of directors;

• the parties agree to consult with one another and use their good faith efforts to reach an agreement on all actions (other than actions requiring supermajority approval under Chilean law) to be taken by the LATAM board of directors or the LATAM shareholders, and if unable to reach such agreement, to follow the proposal made by our board of directors;

• the parties agree to maintain the size of the LATAM Airlines Group board of directors at a total of nine directors and to maintain the quorum required for action by the LATAM Airlines Group board of directors at a majority of the total number of directors of the LATAM Airlines Group board of directors; and

• if, after good faith efforts to reach an agreement with respect to any action that requires supermajority approval under Chilean law and a mediation period, the parties do not reach such an agreement, then TEP Chile has agreed to vote its shares on such supermajority matter as directed by the LATAM Controlling Shareholders, which we refer to as a “directed vote.”

The parties to the Holdco I shareholders 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

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) in the case of TEP Chile only, TEP Chile satisfying certain minimum ownership requirements. On or after December 31, 2021, 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.

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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. 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 Shareholders is not elected to the board of directors of LATAM Airlines Group.

In addition, after December 31, 2021 and after the occurrence 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 favor of the LATAM Controlling Shareholders and (y) 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 transfer 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.

Restriction on transfer of TAM shares

LATAM agreed in the Holdco I shareholders’ agreement not to sell or transfer any shares of TAM stock to any person (other than our affiliates) at any time when TEP Chile owns any voting shares of Holdco I. However, LATAM will have the right to effect such a sale or transfer if, at the same time as such sale or transfer, LATAM (or its assignee) acquires all the voting shares of Holdco I beneficially owned by TEP Chile for an amount equal to TEP Chile’s then current tax basis in such shares and any costs TEP Chile is required to incur to effect such sale or transfer. TEP Chile has irrevocably granted us the assignable right to purchase all of the voting shares of Holdco I beneficially owned by TEP Chile in connection with any such sale.

Conversion Option

Pursuant to 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 Restrictions” section).  

On or after December 31, 2021, and after we have fully converted all of 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, 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.

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B. Related Party Transactions

General

We have engaged in a variety of transactions with our affiliates, including entities owned or controlled by certain of our controlling 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 33 to our audited consolidated financial statements for the fiscal year ended December 31, 2017.

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.

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-131.

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.

In February 2006 the European Commission (“EC”), the Department of Justice of the United States (“DOJ”), the Canadian Competition Bureau (“CCB”), and Conselho Administrativo de Defesa Econômica (“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$10.9 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 Justice overtuned the 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 judgement by the European Court of Justice. On 17 March 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. On December 2017 LAN Cargo and LATAM presented their arguments for this annulment. LATAM expects a favorable decision by the General Court of the European Union at this time.

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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 the light of said pending judicial appeal, we cannot predict the ultimate outcome of this matter at this time.

The investigations by the DOJ, CCB and the EC prompted the filing of civil actions and claims by freight forwarding and shipping companies against many airlines, including LAN Cargo and LATAM Airlines Group. LAN Cargo and ABSA reached a settlement agreement with the class action plaintiffs / non-class action claimants in the United States on August 6, 2012, and in Canada on August 20, 2013.

Civil actions have also been initiated against many airlines, including LAN Cargo and LATAM Airlines Group, in various European countries (Great Britain, Norway, Holland and Germany). The activity and progress of said civil actions is limited, in that they are now directly contingent upon the decision of the EC to issue a new decision correcting the faults identified in the judgement. We cannot predict the ultimate outcome of these cases at this time.

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 a consultant who assisted in the resolution of labor issues in Argentina in 2006-2007. The Company voluntarily reported this situation to the Securities and Exchange Commission (“SEC”) and the Justice Department of the United States (“DOJ”) and actively cooperated in those investigations. On February 4, 2016, Ignacio Cueto, the CEO of LAN, consented to entry of a cease-and-desist order by the SEC relating to 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 exchanges of opinions and conversations with the DOJ and the SEC, LATAM also reached definitive agreements with both authorities.

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.

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.

Legal proceedings involving TAM

TAM Linhas Aéreas 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 which crashed during departure, in addition to 22 actions filed by residents of the region where the accident occurred, who are claiming pain and suffering, and a class action related to this crash. Any damages resulting from the aforementioned legal claims are covered by the civil liability guarantee provided for in TAM’s insurance policy with Itaú Unibanco Seguros S.A. We believe that the cap of US$400 million in that insurance policy is sufficient to cover any potential penalties and judicial or extrajudicial agreements arising as a result of this matter.

Insurance coverage has been sufficient to cover the liabilities arising from an accident that occurred in July 2007 involving an Airbus A320 aircraft from TAM Linhas Aereas. Settlements have been made directly between the insurance company and the victims’ families. As of December 31, 2013, approximately 196 settlements have occurred and others are under negotiation between the insurance company and victims’ families. Management believes that the insurance coverage is adequate and that LATAM Airlines Brazil will not incur any expenses that were not contemplated by the scope of the insurance policy that would result in TAM’s obligation to pay damages.

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Tax related

TAM Linhas Aereas and other plaintiffs filed an ordinary action 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”)). In 2004 and 2011, the INSS issued an assessment notice tolling the Statute of Limitations of the social security credit as a result of TAM Linhas Aereas’ non-payment of the Airline Workers Fund. The administrative proceedings have been suspended until completion of the judicial process. The approximate adjusted value of this proceeding as of December 31, 2012 was US$43.3 million. In the opinion of our legal advisors, the chance of losing in this proceeding is possible. Assuming payment of this tax is required by law, we have established a provision in the amount of US$100.2 million (R$ 331 million) related to the TAM’s part as of December 31, 2017, pending the final outcome of the matter.

TAM Linhas Aereas is a plaintiff in an action filed against the Brazilian government in 1993 seeking damages for 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 estimated value of the action on December 31, 2017 is MUS$240.3 (R$795million). 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. We have not recognized these credits in our financial statements and will only do so if and when the aforementioned decision is final.  

TAM Linhas Aereas filed an ordinary claim, with a request for early judgment, in relation to a dispute concerning 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.

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 leased aircraft. The total amount involved in this administrative proceeding is MUS$2.33 (R$7.7 million) as of December 31, 2017. The administrative proceeding awaits a decision. In the opinion of our legal advisors, the chance of losing in this proceeding is possible.

A tax assessment was issued by the Brazilian IRS for the collection of Income Tax ("IRPJ") and Social Contribution on Net Income ("CSLL"), and a fine of 150% and interest was imposed on TAM. In summary, the RFB intends to require IRPJ and CSLL on the alleged capital gain earned by TAM S/A, as a result of the reduction of the capital stock of the controlled company Multiplus S/A. On December 31, 2017 the updated amount of the assessment and fees discussed was approximately MUS$148.73 (R$ 492 million). These tax proceedings are currently in process and subject to review by the Administrative Superior Court (CARF) and awaiting final administrative decision.

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A tax assessment was issued by the Sao 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, 2017 the updated amount of the assessment discussed was approximately MUS$108.22 (R$ 358 million). The Company believes that a favorable outcome is not likely. These tax proceedings are currently in a judicial discussion (Annulatory Action filed in January 2018).

A tax assessment of PIS/COFINS credits was issued by the Brazilian IRS on International Air Freight Shipping Services in the amount of MUS$73.76 (R$244 million) as of December 31, 2017. The possible outcome in this case is likely to be unfavorable and a penalty of MUS$60.78, (R$168 million) is expected. These tax proceedings are currently in process and subject to review by the Administrative Superior Court (CARF) awaiting final administrative decision.

It is important to highlight that TAM Linhas Aereas has other relevant legal cases involving tax issues.

For additional Legal Proceedings relating to the ordinary course of our business, please see Note 30 – Contingencies – to our audited consolidated financial statements.

Dividend Policy

In accordance with the Chilean Corporation Law, LATAM must distribute cash dividends equal to at least 30% of its annual consolidated net income calculated in accordance with IFRS subject to the terms ofOficio Circular No. 856 issued on October 17, 2014 by the Chilean Superintendency of Securities and Insurance. 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, unless the shares have not been fully paid by the shareholder after being subscribed.

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— E. Taxation—Cash Dividends and Other Distributions”). 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, the depositary, on behalf of ADS holders, will be granted access to the Formal Exchange Market to convert cash dividends from pesos to U.S. dollars and to pay such U.S. dollars to ADS holders outside Chile.

B. Significant Changes

None.

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 have been listed on the NYSE under the symbol “LFL” since November 7, 1997. On May 15, 2017, LATAM changed the symbol of its ADSs listed on the NYSE from “LFL” to “LTM”, as well as its shares listed on the SSE form “LAN” to “LTM”. The common shares also trade on the Bolsa de Valores de Valparaíso and the Bolsa Electrónica de Chile. The outstanding ADSs are identified by the CUSIP number 501723100. The following table sets forth, for the periods indicated, the high and low closing sale prices on the SSE for the common shares and the high and low closing prices on the NYSE for the common shares represented by ADSs. The information set forth in the table below reflects actual historical amounts and has not been restated in constant Chilean pesos.

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	Ch$ per Common Share				US$ per ADS
Period	Low		High		Low		High
2013		5,967.3		11,755.4		11.62		24.84
2014		6,533.3		8,791.6		10.60		16.36
2015		3,270.2		7,198.3		4.64		11.82
2016
Quarters:
First		3,276.4		4,730.5		4.49		7.00
Second		4,163.5		4,893.4		5.86		7.40
Third		4,350.6		5,855.8		6.53		8.96
Fourth		5,341.6		6,460.4		8.18		9.86
Annual:
Annual 2016		3,276.4		6,460.4		4.49		9.86
2017
Quarters:
First		5,574.1		8,759.0		8.18		13.24
Second		7,298.5		8,810.0		10.97		13.62
Third		7,387.0		8,950.0		11.04		14.40
Fourth		7,924.0		8,887.2		12.08		14.48
Months:
September		7,960.2		8,950.9		12.78		14.40
October		8,454.4		8,887.2		13.33		14.03
November		8,128.4		8,856.0		12.65		14.48
December		7,924.0		8,773.1		12.08		13.95
Annual:
Annual 2017		5,574.1		8,950.9		8.18		14.48
2018
Months:
January		8,662.5		10,467.0		14.27		17.19
February		9,183.6		10,299.0		15.47		17.13
March		9,131.0		9,761.2		14.91		16.34

Source: Bloomberg

As of December 31, 2017, a total of 606,407,693 million common shares were outstanding, including common shares represented by ADSs.

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 Market Law, 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.

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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 4:30 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 4:30 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.

ITEM 10. ADDITIONAL INFORMATION

This Item reflects legal amendments effected 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, 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 Corporation 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 company are generally governed by the company’s by-laws and the Chilean Corporation Law. Article 22 of the Chilean Corporation Law states that the purchaser of shares of a company implicitly accepts its by-laws and any prior agreements adopted at shareholders’ meetings. Additionally, the Chilean Corporation 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 Law provides that the provisions of the Chilean Corporation Law take precedence over any contrary provision in a corporation’s by-laws. The Chilean Corporation 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, a recent legal amendment has forbidden 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 Law sets forth the rules and requirements under which a corporation is deemed to be “publicly held.” Article 2 of the Chilean Corporation Law 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, Article 5 of the Chilean Securities Market Law indicates which corporation’s shares must be registered with the Securities Registry:

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• one with 500 or more shareholders; and

• one in which 100 or more shareholders own at least 10% of the subscribed capital (excluding any direct or indirect individual holdings exceeding 10%).

The framework of the Chilean securities market is regulated by the CMF under the Securities Market Law and the Chilean Corporation Law, which imposes certain disclosure requirements, restricts insider trading, prohibits price manipulation and protects minority investors. In particular, the Securities Market Law 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 Law and General Rule 269 issued by the SVS 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 sale of shares; and

• any acquisition or sale of contracts or securities the price or performance of which depends on the price variation of the LATAM Airlines Group’s shares.

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 Law and under CMF regulations, persons or entities that intend to acquire control, whether directly or indirectly, of a publicly traded company, 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 acquiror 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 conditions of any negotiations. Subsequently, the potential acquiror 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 acquiror’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 acquiror. 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 Law 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.

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Title XXV of the Securities Market Law on tender offers and CMF regulations provide that the following transactions shall be carried out through a tender offer:

• an offer which allows the taking control of a publicly traded company, unless the shares are being sold by a controlling shareholder of such company at a price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange;

• an offer for all the outstanding shares of a publicly traded company upon acquiring two-thirds or more of its voting shares (this offer must be made at a price not lower than the price at which appraisal rights may be exercised, that is, book value if the shares of the company are not actively traded or, if the shares of the company are actively traded, the weighted average price at which the stock has been traded during the 60 stock-exchange-business-day period between the 30^th and the 90^th stock-exchange-business-days immediately preceding the acquisition); and

• an offer for a controlling percentage of the shares of a publicly traded company if the acquiror intends to take control of the company (whether publicly traded or privately held) controlling such publicly traded company, to the extent that the latter represents 75.0% or more of the consolidated net assets of the former.

Article 200 of the Securities Market Law 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 Law 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, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in the company’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 return of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends of distribution 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 return 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 issuance by us. 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 February, 28, 2017, our share capital consisted of 608,374,525 common shares of which 606,407,693 are subscribed and fully paid shares and 1,966,832 shares are pending of subscription and payment. The unsubscribed shares include (i) 1,500,000 shares allocated to stock option compensation plans and (ii) 466,832 that remain unsubscribed following our most recent capital increase. The current share capital amount reflects the expiration of stock options, covering 4,789,718 shares that had been granted under employee compensation plans. Upon the expiration of the stock options on December 21, 2016, the Company’s capital stock was reduced to 608,374,525 shares.

Chilean law recognizes the right of corporations to issue common and preferred shares. To date, we have issued and are authorized by our shareholders to issue only common shares. Each share of stock is entitled to one vote. Pursuant to one employee compensation plan approved by extraordinary shareholders’ meeting held on June 11, 2013, the issuance of the shares for this compensation plan has been authorized but has not been made effective.

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Preemptive Rights and Increases in Share Capital

The Chilean Corporation Law requires Chilean companies to offer existing shareholders the right to purchase a sufficient number of shares to maintain their existing percentage of ownership in a company whenever that company issues new shares for cash, except for up to 10% of the capital increase which may be designated to employee compensation pursuant to article 24 of the Corporation Law. 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 Act is effective with respect to those common shares or an exemption from the registration requirements thereunder is available.

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 any registration statement would be filed. If 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. 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 Corporation Law, transactions of a publicly-traded company 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 company and to all of its subsidiaries .

These transactions include any negotiation, act, contract or operation in which the publicly-traded company intervenes together with either (i) parties which are legally deemed related pursuant to article 100 of the Chilean Securities Market Law, (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 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 enter into transactions with related parties if (i) the transaction is in the interest of the corporation, (ii) the transaction is made on an arm’s-length basis at market conditions, (iii) the individuals involved in the transactions report them immediately to the board, (iv) the transaction is approved after a reasoned explanation by the majority of the board, excluding those directors or liquidators that are involved in the transaction (who shall, nonetheless, render an opinion on the matter if required by the board), (v) the decisions of the board are disclosed at the next shareholders’ meeting, and (vi) in case the majority of the board is disqualified to vote, the majority of the non-involved directors have approved the transaction, or two thirds of the voting shares have approved the transaction).

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If, as noted in clause (vi) of the preceding paragraph, the transaction is to be approved by the shareholders’ meeting, the following additional rules apply: (i) the board shall appoint an independent appraiser that shall report to the shareholders on the transaction, (ii) the director’s committee or the non-involved directors may appoint a second independent appraiser, (iii) the appraiser’s reports shall be made available for 15 days, (iv) the receipt and availability of the reports shall be disclosed as a material fact and (iv) directors shall render an opinion on the transaction within five business days after receiving the reports.

Transactions which do not meet the foregoing requirements are valid and enforceable, but neither the corporation nor its shareholders shall have a cause of action to sue the infringing party for reimbursement on behalf of the corporation, for a total of the benefits reported to the interested party, in addition to indemnification for the damages caused. In such proceedings, the defendant shall prove that the transaction met the legal requirements.

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 out without complying with the foregoing rules: (i) if a transaction does not involve a substantial amount (it is deemed that a transaction does not involve a substantial amount if it does not exceed 1.0% of the net worth of the company and does not exceed the equivalent of 2,000 UF or approximately US$89,238 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, shall be deemed as a single transaction), (ii) transactions which according to the policies determined by the board of directors, are deemed to be within 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, 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 Corporation 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, and the most recent ordinary annual meeting of our shareholders was held on April 27, 2017.

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 not less than 15 days and not 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 and to the CMF and the Chilean stock exchanges. 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 Corporation Law and its regulatory norms. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed.

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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, under the Chilean Corporation Law, 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 13 items listed above;

• 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 Corporation Law; and

• the approval or ratification of transactions with related parties, as per article 147 of the Corporation Law (described above).

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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 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 business days 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 reference to the issues that will be discussed, together with instructions to obtain all the appropriate documentation regarding those issues, and publish such notice on its website. 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 and Liquidation Rights” below.

The Chilean Corporation 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 proposal in relation to the company’s affairs, together with the comments and proposals set forth by the directors’ committee. Similarly, the Chilean Corporation 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 directors’ committee.

Dividend and Liquidation Rights

In accordance with the Chilean Corporation Law, LATAM Airlines Group must distribute an annual cash dividend equal to at least 30% of its annual net income 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 is no net income 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, unless the shares 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 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 is required to receive a dividend in cash. See “—Preemptive Rights and Increases in Share Capital” above.

Dividends that are declared but not paid within the appropriate time period set forth in the Chilean Corporation 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, theCuerpos 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 not 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.

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Right of Dissenting Shareholders to Tender Their Shares

The Chilean Corporation 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 Chilean law No. 20,720, 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 paid to a dissenting shareholder of a publicly held corporation is 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 30^th and the 90^th stock-exchange-business-days-preceding the event giving rise to the withdrawal right. If, because of the volume, frequency, number and diversity of the buyers and sellers, the CMF determines that the shares are not shares actively traded on a stock exchange (acciones de transacción bursátil), the price paid to the dissenting shareholder is the book value. 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 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;

• 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;

• resolutions of the shareholders’ meeting approving the decision to make private a public corporation in case the requirements set forth in “—General” cease to be met;

• if a publicly-traded company ceases to be obligated to register its shares in the Securities Registry of the CMF, and an extraordinary shareholders’ meeting agrees to de-register the shares and finalize its disclosure obligations mandated by the Corporation Law;

• 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.

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Under article 69 bis of the Chilean Corporation Law, 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 also creates 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 participations pursuant to the provisions of article 71 bis of the Corporation Law).

Registration and Transfers

TheDepósito Central de Valores (“DCV”) 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 Aircrafts

Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Boeing 767-300 Fleet
Purchase Agreement No. 2126 with the Boeing Company	January 30, 1998	ØBoeing 767-300 passenger aircrafts (2)	US$200,000,000
Supplemental Agreement No. 16 to Purchase Agreement No. 2126	November 11, 2004	ØBoeing 767-300 passenger aircrafts (3) ØBoeing 767-300 freighter aircraft (1)	US$140,000,000
Supplemental Agreement No. 20 to Purchase Agreement No. 2126	April 28, 2005	ØBoeing 767-300 passenger aircraft (1) ØBoeing 767-300 freighter aircrafts (2)	US$300,000,000
Supplemental Agreement No. 21 to Purchase Agreement No. 2126	July 20, 2005	ØBoeing 767-300 passenger aircrafts (3)	US$410,000,000
Supplemental Agreement No. 22 to Purchase Agreement No. 2126	March 31, 2006	ØBoeing 767-300 (3) ØConverted two (2) Boeing 767-300 freighter aircrafts to two (2) Boeing 767-300 passenger aircrafts	US$430,000,000
Supplemental Agreement No. 23 to Purchase Agreement No. 2126	December 14, 2006	ØBoeing 767-300 passenger aircrafts (3)	US$460,000,000

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Supplemental Agreement No. 24 to Purchase Agreement No. 2126	November 10, 2008	ØBoeing 767-300 passenger aircrafts (4) ØTwo (2) aircrafts delivered in 2011, and two (2) aircrafts delivered in 2012 ØTwo purchase rights for Boeing 767-300 aircraft	US$636,000,000
Supplemental Agreement No. 28 to the Purchase Agreement No. 2126	March 22, 2010	ØAccelerate the delivery of ten 787-8 aircraft, substitute four aircraft from 787-9 to 787-8 and substitute three 767-316ER to 767-316F freighter aircraft
Supplemental Agreement No. 29 to the Purchase Agreement No. 2126	November 10, 2010	ØAccelerate the delivery of three Aircraft and substitute those three aircraft from 767-316F to 767-316ER.
Supplemental Agreement No. 30 to Purchase Agreement No. 2126	February 15, 2011	ØBoeing 767-300 passenger aircrafts (3) ØDelivery was scheduled to take place in 2012	US$510,000,000
Supplemental Agreement No. 31 to Purchase Agreement No. 2126	May 10, 2011	ØBoeing 767-300 passenger aircrafts (5) ØFour purchase rights for Boeing 767-300 passsenger aircraft ØDelivery was scheduled to take place in 2012	US$780,000,000
Supplemental Agreement No. 32 to Purchase Agreement No. 2126	December 22, 2011	ØExercise two purchase options for Boeing 767-300 aircrafts (2) ØDelivery was scheduled to take place in 2012 ØRemaining purchase options deleted	US$340,000,000
Boeing 787-8/9 Fleet
Purchase Agreement No. 3256 with the Boeing Company	October 29, 2007	ØBoeing 787-8 aircrafts (18) ØBoeing 787-9 aircrafts (8) ØOption of purchasing fifteen additional aircraft to be delivered in 2017 and 2018	US$3,200,000,000
Supplemental Agreement No. 1 to the Purchase Agreement No. 3256	March 22, 2010	ØAdvance 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. 2 to the Purchase Agreement No. 3256	July 8, 2010	ØAdvance scheduled delivery date of two Boeing 787-8 aircraft.
Supplemental Agreement No. 3 to the Purchase Agreement No. 3256	August 24, 2012	ØReplace two Boeing 787-8 aircraft with two Boeing 787-8 aircraft with a later delivery.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Delay Settlement Agreement to the Purchase Agreement No. 3256	September 16, 2013	ØAgreed 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	ØReschedule 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. 5 to the Purchase Agreement No. 3256	July 3, 2015	ØReschedule the delivery date of one Boeing 787-8 aircraft.
Supplemental Agreement No. 6 to the Purchase Agreement No. 3256	May 27, 2016	ØConvert 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. 7 to the Purchase Agreement No. 3256	December 20, 2016	ØReschedule the delivery of four Model 787-9 Aircraft and document the actual delivery months for two Model 787-9 Aircraft in 2019.
Supplemental Agreement No. 8 to Purchase Agreement No. 3256	July 28, 2017	ØReschedule the delivery of two Model 787-9 Aircraft and document the actual delivery months for two Model 787-9 Aircraft in 2019
Supplemental Agreement No. 8 to Purchase Agreement No. 3256	December 7, 2017	ØReschedule the delivery of two Model 787-9 Aircraft
Boeing 777 Freighter Fleet
Purchase Agreement No. 3194 with the Boeing Company	July 3, 2007	ØBoeing 777 freighter aircrafts (2) ØDelivery was scheduled to take place in 2011 and 2012	US$545,000,000
Letter Agreement 6-1162-KSW-6454R2 to the Purchase Agreement No. 3194	March 22, 2010	Ø Transfer two purchase rights from Purchase Agreement No. 2126 to Purchase Agreement No. 3194.
Supplemental Agreement No. 2 to Purchase Agreement No. 3194	November 2, 2010	ØExercise purchase option for Boeing 777 freighter aircraft (1)	US$280,000,000
Supplemental Agreement No. 3 to the Purchase Agreement No. 3194	September 22, 2011	ØAdvance the scheduled delivery date of one firm Boeing 777 freighter aircraft during 2012.
Supplemental Agreement No. 4 to the Purchase Agreement No. 3194	August 9, 2012	ØReflect the configuration of the aircraft covered under such Purchase Agreement.

98

Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Airbus A320-Family Fleet
Second A320-Family Purchase Agreement with Airbus S.A.S.	March 20, 1998	Ø    Airbus A320-Family aircrafts (5)	US$230,000,000
Amendment No. 1 to the Second A320-Family Purchase Agreement	November 14, 2003	Ø    Exercise three purchase rights for Airbus 319 aircraft, among other things.
Amendment No. 2 to the Second A320-Family Purchase Agreement	October 4, 2005	Ø    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	Ø    Exercise 15 purchase rights for 15 Airbus A320-Family Aircraft. Ø    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.
Amendment No. 5 to the Second A320-Family Purchase Agreement	December 23, 2009	Ø    Airbus A320-Family aircrafts (30)	US$2,000,000,000
Amendment No. 6 to the Second A320-Family Purchase Agreement	May 10, 2010	Ø    Convert the aircraft type of three aircraft and advance the scheduled delivery date of 13 aircraft.
Amendment No. 7 to the Second A320-Family Purchase Agreement	May 19, 2010	Ø    Advance the scheduled delivery date of three aircraft.
Amendment No. 8 to the Second A320-Family Purchase Agreement	September 23, 2010	Ø    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	Ø    Airbus A320-Family aircrafts (50)	US$2,600,000,000
Amendment No. 10 to the Second A320-Family Purchase Agreement	June 10, 2011	Ø    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	Ø    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	Ø    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.

99

Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Amendment No. 13 to the Second A320-Family Purchase Agreement	August 19, 2013	Ø    Convert several A320 aircraft to A321 aircraft and to postpone the scheduled delivery dates of several aircraft.
Amendment No. 14 to the Second A320-Family Purchase Agreement	March 31, 2014	Ø Covering the rescheduling of the scheduled delivery date of one Aircraft.
Amendment No. 15 to the Second A320-Family Purchase Agreement	May 16, 2014	Ø Covering the rescheduling of the scheduled delivery month of certain Aircraft.
Amendment No. 16 to the Second A320-Family Purchase Agreement	July 15, 2014	ØCovering cancellation and substitution of certain Aircraft.
Novation Agreement to the Second A320-Family Purchase Agreement	October 30, 2014	ØNovation of the original TAM A320/A330 Family Purchase Agreement from TAM to LATAM.
Amendment No. 17 to the Second A320-Family Purchase Agreement	December 11, 2014	Ø Covering the substitution of certain Aircraft.
Airbus A320 NEO-Family Fleet
A320 NEO Purchase Agreement	June 22, 2011	ØAirbus 320 NEO Family aircraft (20) ØDelivery scheduled to take place in 2017 and 2018	US$1,700,000,000
Amendment No. 1 to the A320 NEO Purchase Agreement	February 27, 2014	ØCovering the advancement of the date by which LATAM selects the propulsion systems.
Amendment No. 2 to the A320 NEO Purchase Agreement	July 15, 2014	ØCovering the order of incremental A320 NEO Aircraft.
Amendment No. 3 to the A320 NEO Purchase Agreement	December 11, 2014	ØCovering the order of incremental A320 NEO Aircraft and A321 NEO Aircraft.
Amendment No. 4 to the A320 NEO Purchase Agreement	April 15, 2016	Ø 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	ØChanges 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	ØCovering the cancellation of the delivery of four A320 NEO Aircraft.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
TAM Material Contracts – A320/A330 Family Purchase Agreement
Purchase Agreement with Airbus S.A.S.	November 2006	ØAirbus A320-Family aircrafts (31) ØAirbus A330-200 aircrafts (6) ØDelivery was scheduled to take place between 2007 and 2010	US$3,300,000,000
New Purchase Agreement with Airbus S.A.S.	January 2008	Ø Airbus A320-Family aircrafts (20) Ø Airbus A330-200 aircrafts (4) Ø Delivery was scheduled to take place between 2007 and 2014	US$2,140,000,000
New Purchase Agreement with Airbus S.A.S.	July 2010	ØAirbus A320-Family aircrafts (20) ØDelivery was scheduled to take place between 2014 and 2015	US$1,450,000,000
New Purchase Agreement with Airbus S.A.S.	October 2011	ØAirbus A320-Family aircrafts (10) ØAirbus A320 NEO Family aircrafts (22) ØDelivery scheduled to take place between 2016 and 2018 ØTen option rights for Airbus A320 NEO Family aircraft	US$1,730,000,000
Amendment No. 12 to the A320/A330 Purchase Agreement	January 2012	ØReschedule the delivery dates of certain aircraft.
Amendment No. 13 to the A320/A330 Purchase Agreement	November 2012	ØConvert the aircraft type of A320 family aircraft.
Amendment No. 14 to the A320/A330 Purchase Agreement	December 2012	Ø Convert the aircraft type of an A320 family aircraft and reschedule the delivery date of such aircraft.
Amendment No. 15 to the A320/A330 Purchase Agreement	February 2013	ØChanges to the scheduled delivery month of certain A320 Family Aircraft.
Amendment No. 16 to the A320/A330 Purchase Agreement	February 2013	ØChange 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	ØChange 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. 19 to the A320/A330 Purchase Agreement	December 2014	ØReschedule and substitute certain A321 Aircraft.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Amendment No. 20 to the A320/A330 Purchase Agreement	June 2015	Ø Change to the schedule delivery month of one A321 Aircraft.
Amendment No. 21 to the A320/A330 Purchase Agreement	December 2015	Ø Change to the schedule delivery month of two A320 NEO Aircraft.
Amendment No. 22 to the A320/A330 Purchase Agreement	April 15, 2016	ØRescheduling of the delivery of one A321 Aircraft.
Amendment No. 23 to the A320/A330 Purchase Agreement	April 15, 2016	ØReflect 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	ØCancel the delivery of eight A320 NEO Aircraft.
Amendment No. 25 to the A320/A330 Purchase Agreement	September 22, 2017	ØReschedule of the delivery of one A321 Aircraft, one A320 NEO Aircraft and four A321 NEO Aircraft
TAM Material Contracts – A350 Family Purchase Agreement
Purchase Agreement with Airbus S.A.S.	January 2008	ØAirbus A350 aircrafts (22) ØTen option rights for Airbus A350 aircraft	US$6,480,000,000
Amendment No. 1 to the A350 Purchase Agreement	July 2010	ØExercise its option of five A350 XWB options.
Amendment No. 2 to the A350 Purchase Agreement	July 2014	ØReschedule 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	ØNovating the A350 purchase agreement from TAM to LATAM.
Amendment No. 3 to the A350 Purchase Agreement	October 2014	ØReschedule the scheduled delivery month of a certain A350-900XWB aircraft.
Amendment No. 4 to the A350 Purchase Agreement	September 2015	ØModify 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	ØConvert a number of A350-900 XWB aircraft into six A350-1000 XWB aircraft and to reschedule the delivery of certain A350-900 XWB.

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Agreement	Date	Aircraft (number purchased)	Estimated Gross Value of Aircraft
Amendment No. 6 to the A350 Purchase Agreement	February 3, 2016	ØReschedule the delivery of two A350 - 900 XWB Aircraft.
Amendment No. 7 to the A350 Purchase Agreement	August 8, 2016	ØChange aircraft type, from two A350-900 XWB Aircraft to two A350 - 1000 XWB Aircraft.
Amendment No. 8 to the A350 Purchase Agreement	September 9, 2016	ØReschedule the delivery of two A350 - 900 XWB Aircraft.
Amendment No. 9 to the A350 purchase agreement	September 22, 2017	ØConvert two A350-1000 XWB Aircraft into A350-900 XWB Aircraft
TAM Material Contracts – Boeing 777 Purchase Agreement
Purchase Agreement with Boeing	February 2007	ØBoeing 777-32WER aircrafts (4)	US$1,070,000
Supplemental Agreement No. 1 to the Purchase Agreement	August 2007	ØExercise four option aircraft and to define certain aircraft configuration.
Supplemental Agreement No. 2 to the Purchase Agreement	March 2008	ØDocument 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	ØPurchase of two incremental 777 aircraft.
Supplemental Agreement No. 5 to the Purchase Agreement	July 2010	ØReschedule the delivery of certain aircraft.
Supplemental Agreement No. 6 to the Purchase Agreement	February 2011	ØPurchase of two incremental 777 aircraft.
Supplemental Agreement No. 7 to the Purchase Agreement	May 2014	ØSubstitute 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	ØReschedule the delivery of certain aircraft.

Other Material Contracts

Boeing

On May 9, 1997, we entered into the Aircraft General Terms Agreement with The Boeing Company (“AGTA”), applicable to all Boeing aircraft contracted for purchase from The Boeing Company.

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.

103

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.

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 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.

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. entered into an engine services agreement with GE Engine Services, Inc. for the provision of maintenance services of GE90-115BL engines, which power 10 B777 passenger fleet and 4 spare engines, for a period of 12 years per engine.

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.

PW1100G-JM Engine Maintenance Agreement

In February 2014, we entered into an engine support and maintenance agreement with United Technologies Internation 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.

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.

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On January 11, 2011, TAM Linhas Aereas S.A. entered into General Terms Agreement No. DEG5292 (the “GTA”) with Rolls-Royce PLC for the sale and support by Rolls-Royce of Trent XWB engines to power 27 A350XWB family aircraft and up to 7 Trent XWB 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 novated, 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 operating 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.

Jackson Square

During 2016, we entered into operating 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 an Operating Lease 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.

SABRE Contract

In November 2009, we entered into a master agreement with SABRE Inc., pursuant to which LATAM was granted with access and use of certain reservation systems and other SABRE software solutions. This agreement will remain in force for five years or until the expiration of all Work Orders to the agreement. In addition, 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 enter into force after the expiration of Work Order No. 1 to the agreement entered in November 2009 by LATAM and SABRE Inc.and 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.

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.

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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 Agreement

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.  

SABRE Contract

In October 2003, TAM entered into a general services agreement with SABRE Travel International Limited, pursuant to which TAM was granted a license (relating to the provision of maintenance services) for electronic reservation technology and database backup. The term of the agreement was tacitly and automatically extended to cover all Work Orders currently in force under the agreement and will expire at the same time with the expiration of the last Work Order. In addition, TAM has distribution agreements in place with SABRE as well as with other distribution providers.

In adittion, on May 4, 2015, we entered into a Master Services License Agreement with SABRE Inc. Pursuant to this agreement SABRE Inc., will grant TAM access and use of certain reservation systems. This agreement will enter into force after the expiration of that Work Order No. 1 to the November 2009 agreement between LATAM and SABRE Inc., and will be effective for an initial period of 10 years.

Amadeus Contract

In July 2009, TAM entered into a general services agreement with Amadeus IT Group S.A., pursuant to which TAM was granted a license (relating to the provision of maintenance services) for electronic reservation technology and database backup. The term of this agreement was ten years, unless terminated early by either party. On March 1, 2016, as part of LATAM’s plan to unify the Passenger Service Platform and migrate to a single service provider, TAM sent Amadeus an early termination notice to be effective during 2017. In addition, TAM has distribution agreements in place with Amadeus as well as with other distribution providers.

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 applied.

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%);

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• the requirement of prior approval by the Central Bank of Chile for certain operations;

• mandatory return of foreign currency to Chile; and

• mandatory conversion of foreign currency into Chilean pesos.

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.  

Investment in Our Shares and ADRs after the business combination with TAM

As a result of the combination with TAM, investments made 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.

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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 shareholder opposition to the particular question; or

• 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.

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For purposes of the operation of the Formal Exchange Market, the Central Bank of Chile sets a reference exchange rate (dólar acuerdo). The Central Bank of Chile resets the reference exchange rate monthly, taking internal and external inflation into account, and adjusts the reference exchange rate daily to reflect variations in parities between the Chilean peso, the U.S. dollar, the Japanese yen and the European euro.

The observed exchange rate (dólar observado) is the average exchange rate at which transactions were actually carried out in the Formal Exchange Market on a particular day, as certified by the Central Bank of Chile on the next banking day.

Prior to September 3, 1999, the Central Bank of Chile was authorized to buy or sell dollars 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, the Central Bank of Chile eliminated the exchange band. As a result, the Central Bank 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.

Purchases and sales of foreign exchange may be effected outside the Formal Exchange Market 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

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 Service (“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 a resident of Chile if such person has resided in Chile for more than six consecutive months in one calendar year or for a total of six months in two consecutive tax years. In addition, an individual is considered domiciled in Chile in case he or she resides in Chile with the actual or presumptive intent of staying 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 the Chilean Congress before it becomes effective.

Law No. 20,780, enacted on September 29, 2014, in conjunction with Law No. 20,899, enacted on February 8, 2016 (both, the “Tax Reform Act”) introduced a comprehensive modification to the Chilean income tax system. The Tax Reform Act introduced changes to the corporate tax rate, mandating a gradual increase of the rate from 20% to 25% or 27% in certain cases, the rules regarding minimum capitalization, and the taxation of Chilean investments abroad (the controlled-foreign-corporation rules), and introduced two new alternative general income tax regimes for Chilean taxpayers (Fully Integrated Regime and Partially Integrated Regime), among others. The new rules are currently effective, with the implementation process having commenced on October 1, 2014. The Fully Integrated Regime and the Partially Integrated Regime apply as from January 1, 2017. The mandatory regime for entities organized as stock corporations like Latam Airlines Group S.A. is the Partially Integrated System. The Corporate Income Tax rate for companies under this regime is 27% from 2018 onward. A transition rate of 25.5% applied in 2017.

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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. 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 Category Tax or 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. If we register net income but taxable losses, no credit against the Withholding Tax may be available. In addition, if we distribute less than all of our distributable income, the credit for First Category Tax we pay is proportionately reduced.

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. 35% of the credit must be added back to the Withholding Tax amount to be paid into the Treasury (referred to herein as First Category Tax Credit Restitution). 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 offset against the Withholding Tax.

Under a transitory provision in force until December 31, 2021, 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, although such treaty is not yet in force.

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	)		(5.24	)
Net dividend received		19.5			16.66
Effective dividend withholding rate		11	%		24	%

(*) Special considerations apply to a distribution performed in 2017

(**) 30% of net distributable income.

(**) The dividend of Ch$21.90 grossed up with the First Category Tax credit of Ch$8.10.

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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. The First Category Tax rate will be 27% for 2018 and following years. Special considerations applied to a distribution performed during 2017. These considerations are set out in a separate paragraph further below. The First Category Income Tax credits generated under the new tax regime, i.e. 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 and 24% in 2016.

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.

Special Considerations for distributions performed during 2017

The First Category Tax rate for 2017 was 25.5%. However, in 2017 the First Category Tax credit available against the Withholding Tax did not correspond to the First Category Tax rate of the year but to the average rate of First Category Tax credits accumulated until December 31, 2016. This average rate is 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. These credits 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.

Capital Gains

Gain 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 recognized 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, a gain not exceeding 10 Annual Tax Units (US$9,169 as of December 31, 2017) recognized by a Foreign Holder without taxable presence in Chile in a sale to a non-related buyer will not be taxable.

The gain on the sale of shares of common stock by a Foreign Holder is subject to a withholding of 35% of 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, 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 the transfer of common shares that have a high presence in the stock exchange, however, is not subject to capital gains tax in Chile, provided that the common shares are transferred in a local stock exchange or within the process of a public tender of common shares governed by the Securities Market Law. The common 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 corporation or a capital increase of the same, or in an exchange of convertible bonds.

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Notwithstanding the foregoing paragraph, Chile’s tax authority Ruling No. 1,480 (issued on August 22, 2014) 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 not subject to capital gains tax in Chile. Such exemption 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. 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 exchange; and

• meet at least one of the following requirements:

i. have an adjusted presence equal to or above 25%;

ii. have a Market Maker.

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$43,592 as of December 31, 2017) 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. This tax regime does not apply if the transaction involves an amount of shares that would allow the acquirer to take control of the publicly traded corporation, in which case the ordinary tax regime referred to in the previous paragraph will apply, unless the transfer is part of a tender offer governed by the Securities Market Law or the transfer is done on a Chilean stock exchange, without substantially exceeding the market price.

To meet the “Market Maker” requirement the issuer of the shares must execute a written contract with a stock broker incorporated in Chile that fulfills some additional requirements.

A capital gains 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, 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 entity must be formed outside of Chile, not have a domicile in Chile, and must be at least one of the following:

•          a fund registered with a regulatory authority of a EU or OECD country, or other country duly authorized by the CMF;

•          a pension fund that is formed exclusively by natural persons that receive pensions out of an accumulated capital in the fund, regulated by an authority of the countries mentioned above;

•          an insurance company regulated by the competent regulatory authority of the insurance business, as appropriate, which must be part of IAIS,International Association of Insurance Supervisors, or ASSAL,Asociación de Supervisores de Seguros de América Latina;

•          a foreign State or a division with political autonomy recognized by Chile, whether they invest through its government, central bank, issuing bank or corresponding monetary authority. Moreover, the investment can be made through investment authorities, investment agencies, investment corporations or other entities, provided that its purpose is to provide financial resources for the exclusive benefit of the foreign State or territorial division, and provided that the vehicle is not used also for investments or resources other than those of the sovereign fund; or

•          an endowment funds duly registered in a EU or OECD country, or other country duly authorized by the CMF.

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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 the foreign institutional investor must execute a written contract with a bank or a stock broker incorporated in Chile. In this contract, the bank or stock broker 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.

The tax basis of common shares received in exchange for ADRs will be the acquisition value of the common shares on the date of exchange duly adjusted for local inflation. The valuation procedure set forth in the deposit agreement, which values common shares which are being exchanged at the highest price at which they trade on the SSE on the date of the exchange, will determine the acquisition value for this purpose. Consequently, the surrender of ADRs for common shares and the immediate sale of the common shares for the value established under the Deposit Agreement will not generate a capital gain subject to taxation in Chile, provided that the sale of the common shares is made on the same date on which the exchange of ADRs for common shares is recorded, or if the price of the common shares at the exchange date, as determined above, is higher than the price at which the common shares are sold.

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 no 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. 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).

United States Federal Income Tax Considerations

This section describes the material United States 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 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, or

• a U.S. holder (as defined below) whose functional currency is not the U.S. dollar.

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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 United States 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”). Moreover, this summary does not address the U.S. federal estate, gift, 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, its legislative history, existing and proposed Treasury regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. There is currently no comprehensive income tax treaty in effect between the United States and the Republic of Chile. 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 a partnership holds the common shares or ADSs, the United States 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 United States federal income tax treatment of an investment in the common shares or ADSs, including the potential impact of the Act.

You are a U.S. holder if you are a beneficial owner of common shares or ADSs and you are:

• a citizen or resident of the United States,

• a domestic corporation,

• an estate whose income is subject to United States federal income tax regardless of its source, or

• a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

You should consult your own tax advisor regarding the United States federal, state and local and the Chilean and other tax consequences of owning and disposing of common shares and ADSs in your particular circumstances. 

ADSs

In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the 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 United States federal income tax.

Taxation of Dividends

Under the United States 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 United States federal income tax purposes) is subject to United States federal income taxation.

If you are a noncorporate U.S. holder, 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 if you hold the ADSs or common shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends paid on the ADSs or common shares will be treated as qualified dividend income if:

• the ADSs or common shares are readily tradable on an established securities market in the United States; and

• 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 PFIC.

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We believe that our common shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes. See “—PFIC Rules” below.

The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Accordingly, we expect that dividends we pay with respect to the ADSs will be qualified dividend income. Because our common shares are not expected to be listed on any United States securities market, it is unclear whether dividends we pay with respect to the common shares will also be qualified dividend income. If dividends we pay with respect to our common shares are not qualified dividend income, then the U.S. dollar amount of such dividends received by a U.S. holder (including dividends received by a noncorporate U.S. holder) will be subject to taxation at ordinary income tax rates.

You must include any Chilean tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. 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 States corporations in respect of dividends received from other United States 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. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the common shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Accordingly, you should expect to generally treat distributions we make as dividends.

Subject to generally applicable limitations and conditions under the Internal Revenue 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 will be creditable or deductible against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential 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.  

Dividends will generally be income from sources outside the United States and will, depending on your circumstances, generally be either “passive” or “general”or “foreign branch” income for purposes of computing the foreign tax credit allowable to you. 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 recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your common shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. 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 use the foreign tax credit arising from any Chilean tax imposed on the disposition of common shares or ADSs unless such credit can be applied against tax due on other income treated as derived from foreign sources in the appropriate limitation category.

Medicare 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% 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 Medicare tax to your income and gains in respect of your investment in the common shares or ADSs.

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PFIC Rules

We believe that common shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, 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. Instead, if you are a U.S. holder, unless you elect to be taxed annually on a mark-to-market basis with respect to your common shares or ADSs, or you elect to be taxed annually on the earnings of the PFIC attributable to your shares or ADSs as a “qualified electing fund”, you would be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for 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. With certain exceptions, your common shares or ADSs will 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. Dividends that you receive from us will not be eligible for the special 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 rates applicable to ordinary income.

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 dividends on, and to proceeds from the sale or redemption of, common 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 that 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 correct taxpayer identification number or otherwise fail to establish 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. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you may be allowed as a credit against your 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.

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 shares) are required to report information relating to such assets, subject to certain exceptions (including an exception for stock held in accounts maintained by certain financial institutions). Penalties can apply if U.S. holders fail to satisfy such reporting requirements. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of common shares and ADSs.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We 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 report and the exhibits hereto, may be inspected and copied at the SEC’s public reference rooms in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on 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 through the SEC’s website at www.sec.gov.

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As a foreign private issuer, we are not subject 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 available 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 of our fiscal year, and we file 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.  

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 oneshould 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.

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 2017 was 1,179.6 million gallons and the consumption forecast for 2018 is 1,270.1 million gallons. To manage its exposure to the cost of fuel, LATAM has a hedging program based on a Fuel Hedging Policy, which is annually updated and approved by Board of Directors. LATAM’s Fuel Hedging Program seeks to mitigate the liquidity risk in the short/medium term. LATAM has defined different time periods to hedge the fuel exposure, based on advance purchase behavior by customers, 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 to fuel price volatility. 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.

During 2017, 2016 and 2015 we entered into a mix of swaps and option contracts on ICE BRENT, 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:

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	LATAM Fuel Hedging Year ended December 31,
	2017 LATAM			2016 LATAM			2015 LATAM
Gallons Purchased (million)		441.1			781.2			544.7
% Total Annual Fuel Consumption		37.7	%		66.7	%		43.6	%
Combined Result of Hedges (in million of US$)		15.1			(48.0	)		(239.4	)

As of December 31, 2017, the fair value of our outstanding fuel related derivative contracts was estimated to be US$ 10.7 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 2.10 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, 2017, 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 2017, 2016 and 2015.

	LATAM fuel price sensitivity (effect on equity) Position as of December 31,
	2017 LATAM		2016 LATAM		2015 LATAM
	(millions of US$ per barrel)
BRENT or JET benchmark price
+5		+1.8		+3.1		+5.4
–5		-3.3		–4.8		–2.8

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 as of December 31, 2017, which reflects only a partial hedge of our expected fuel consumption, a vertical fall by US$5 in the BRENT and JET benchmark price (the monthly daily average) for each month would have meant savings of approximately US$ 109.7 million in the cost of the Company’s total fuel consumption. A vertical increase by US$5 in the JET and BRENT benchmark price (the monthly daily average) for each month would have meant an additional cost of approximately US$ 110.5 million of the Company’s total fuel consumption.

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 TAM S.A. and volatility in the R$/US$ exchange rate. TAM S.A.’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. Additionally, LATAM manages its economic exposures of future flows revenues on Great Britain Pound (GBP), by entering into FX derivative contracts.

In lower concentration, the company also faces foreign exchange risk relating to additional currencies such as: Euro, Chilean Peso, Australian Dollars, Argentinean Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Nuevo Sol, Colombian Peso and New Zealand Dollars. These currencies may also be hedged where the exposure and volality is of concern to LATAM’s risk management. As of December 31, 2017, the fair value of our FX derivative contracts was estimated to be US$ 4.4 million (positive).

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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).

The following table shows the sensitivity of the fair value of financial instruments as a result of reasonable changes in the exchange rates of Brazilian Real. The term projection is defined until the end of the last hedging contract in force:

LATAM foreign exchange sensitivity Derivatives Position as of December 31, 2017
Appreciation (depreciation) of US$	Effect on equity (Millions of US$)
+10%		+9.7
-10%		-10.7

As of December 31, 2017, the Company has FX derivatives of US$180 million (notional) for FX BRL.

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 TAM’s balance sheet has been reduced from over US$4.0 billion since the combination in June 2012 to around US$0.8 billion as of December 31, 2017. The Company continues working to mitigate this exposure through financial and operational proposals.

The following table shows the sensitivity of TAM’s financial results to changes in the R$/US$ exchange rate:

	TAM exchange rate sensitivity Position effect on pre-tax earnings as of December 31,
	2017		2016		2015
	LATAM		LATAM		LATAM
	(millions of US$)
Appreciation (depreciation) of R$/US$
–10%		+80.5		+119.2		+67.6
+10%		-80.5		–119.2		–67.6

Our foreign currency exchange exposure as of December 31, 2017 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		1.713.681		45,8	%		1.327.119		35,4	%		281.530		7,5	%		423.169		11,3	%		3.745.499
Other assets		9.652.566		64,1	%		5.182.800		34,4	%		8.693		0,1	%		208.393		1,4	%		15.052.452
Total assets		11.366.247		60,5	%		6.509.919		34,6	%		290.223		1,5	%		631.562		3,4	%		18.797.951
Current liabilities		2.942.683		50,4	%		1.777.575		30,4	%		543.150		9,3	%		579.298		9,9	%		5.842.706
Long-term liabilities		7.385.258		85,0	%		773.543		8,9	%		507.784		5,8	%		21.437		0,2	%		8.688.022
Total liabilities and shareholders’ equity		10.327.941		71,1	%		2.551.118		17,6	%		1.050.934		7,2	%		600.735		4,1	%		14.530.736

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For more information on Market Risk, see Note 3 “Financial Risk Management” to our audited consolidated financial statements.

Risk of Fluctuations in Interest Rates

As of December 31, 2017, LATAM had US$7,976 million in outstanding interest bearing loans. LATAM uses interest rate derivatives to reduce the impact of an increase of interest rates. 63.3% of LATAM outstanding debt as of December 31, 2017 was effectively at a fixed rate, either as fixed rate loans or variable rate loans hedged using a floating to fixed rate derivative instrument.

LATAM’s interest bearing loans can be classified by: variable interest rate debt, fixed interest rate debt and interest rate hedged debt. LATAM’s variable interest rate debt amounts to US$2,926 million, from which 86.7% is assigned to aircraft financing and 13.3% to non-aircraft financing. The fixed interest rate debt amounts are US$ 5,050 million of which 58.2% is assigned to aircraft financing and 41.8% to non-aircraft financing. The interest rate hedged debt amounts to US$135 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, 2017, the fair value of all the interest rate swaps was US$ 6.6 million (negative).

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 2017, the average interest rate of our entire outstanding interest-bearing long-term debt rate was 4.1%.

The following table summarizes our principal payment obligations on all of our interest-bearing debt as of December 31, 2017 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, 2016 for each loan.

	LATAM’s principal payment obligations by year of expected maturity(1)
	Average interest rate(2)			2018		2019		2020		2021		2022		2023 and thereafter
	(millions of US$)
Interest-bearing liabilities		4.1	%		1,244		1,332		1,465		634		786		2,513

⁽¹⁾ At cost.

⁽²⁾ Average interest rate means the average prevailing interest rate on our debt on December 31, 2017 after giving effect to hedging arrangements.

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The following table shows the sensitivity of changes in our long-term interest 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,
	2017 LATAM		2016 LATAM		2015 LATAM
	(millions of US$)
Increase (decrease) in LIBOR
+100 basis points		-29.3		-32.2		–26.7
–100 basis points		+29.3		+32.2		+26.7

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 futures curve.

	LATAM’s interest rate sensitivity (effect on equity) Position as of December 31,
	2017 LATAM		2016 LATAM		2015 LATAM
	(millions of US$)
Increase (decrease) in three month LIBOR
Future rates
+100 basis points		+1.9		+3.9		+8.7
–100 basis points		-1.9		-4.0		-9.0

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”).

Fees and Charges for ADR Holders

The Bank of New York Mellon, and since October 2011 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.  

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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$$0.05 (or less) per ADS	•	Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs	•	Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
US$$0.054 (or less) per ADSs per calendar year	•	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
	•	Conversion of foreign currencies into U.S. dollars
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 2017, the Company received US$703,745 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).

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.

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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

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, 2017. 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 officer and chief financial officer concluded that the disclosure controls and procedures, as of December 31, 2017, 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.

Management’s annual report on internal 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, 2017 based on the criteria established in “Internal 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, 2017 , the Company’s internal control over financial reporting is effective. The company’s internal control over financial reporting effectiveness as of December 31, 2017 has been audited by PricewaterhouseCoopers Consultores Auditores SpA, an independent registered public accounting firm, as stated in their report included herein.

(a)Attestation report of the registered public accounting firm. See page F-2 of our audited consolidated financial statements.

(b) Changes in internal control over financial reporting. There have been no changes have materially affected, or are likely to materially affect, our internal controls over financial reporting.

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ITEM 16. RESERVED

A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has designated Georges de Bourguignon Arndt as an “audit committee financial expert” within the meaning of this Item 16. A. Mr. de Bourguignon is independent within the meaning of Rule 10A-3 under the Exchange Act. See “Item 6. Directors, Senior Management and Employees— A. Directors and Senior Management.”

B. 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.latam.com, 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, Piso 20, Comuna 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.

C. 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, during the fiscal years ended December 31, 2017 and 2016:

	2017		2016
	USD (in thousands)
Audit fees		1,780		1,734
Audit-related fees		19		21
Tax fees		-		-
All Other fees		15		40
Total fees		1,814		1,795

Audit-related fees in the above table are the aggregate fees billed by PricewaterhouseCoopers 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 2017 correspond to attestation services related with revenues in Argentina and expenses in Ecuador. Fees in 2016 correspond to review over sustentability report and attestation services related with revenues in Argentina.

Other fees in the above table are fees billed by PricewaterhouseCoopers as of December 31, 2017 and correspond to training in connection with the Foreign Corrupt Practices Act. Fees in 2016 correspond primarily for review of requirements necessary for building construction authorization and survey salary in Peru.

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 for an amount of up to 10% 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. If the amount of any services is larger than these thresholds, approval by the Board of Directors’ Committee will be required.

D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

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F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

G. CORPORATE GOVERNANCE

New York Stock Exchange Corporate Governance Comparison

Pursuant to Section 303A.11 of 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. companies under the NYSE listing standards. We are a Chilean corporation with shares listed on the SSE, the Chilean Electronic Exchange and the Valparaiso Stock 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.

NYSE Standards	Our Corporate Governance Practice
Director Independence.Majority of board of directors must be independent. §303A.01	Under Chilean law, we are not required to have a majority of independent directors on our board.
	Our board of directors’ committee (all of whom are members of our board of directors) is composed of three directors, two of whom must be independent if we have a sufficient number of independent directors on our board.
	The definition of independence applicable to us pursuant to the Chilean Corporation Law differs in certain respects from the definition applicable to U.S. issuers under the NYSE rules.
	Pursuant to Law No. 20,382 on Corporate Governance, which came into effect on January 1, 2010, we are also required to have at least one independent director.
	Starting on January 1, 2010, directors are deemed to be independent if they have not fallen within any of the following categories during the 18 months prior to their election: (i) had a relevant relationship, interest or dependence on us, our affiliates, controlling shareholders, main executives or any of them, or had served any of the foregoing a directors, managers, administrators, main executives or advisors; (ii) had a close family relationship with any of the individuals indicated in (i); (iii) had served as directors, managers, administrators or main executives in a non-profit organization which received significant funds from the individuals indicated in (i); (iv) had been a partner or shareholder (with a direct or indirect participation in excess of 10%) in, or had served as directors, managers, administrators or main executives at a company which has rendered legal or consulting services (for relevant amounts) or external auditing services to the individuals indicated in (i); (v) had been a partner or shareholder (with a direct or indirect participation in excess of 10%) in, or had served as directors, managers, administrators or main executives, our main competitors, suppliers or clients. In addition, the election of such an independent director is subject to a procedure set forth by the cited Corporation Law.
Executive Sessions.Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03	There is no similar requirement under our bylaws or under applicable Chilean law.

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NYSE Standards	Our Corporate Governance Practice
Audit committee.Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act, as amended, and the more stringent requirements under the NYSE standards is required. §§303A.06, 303A.07	We are in compliance with Rule 10A-3. We are not required to satisfy the NYSE independence and other audit committee standards that are not prescribed by Rule 10A-3.
Nominating/corporate governance committee.Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04	We are not required to have, and do not have, a nominating/corporate governance committee.
Compensation committee.Compensation committee of independent directors is required, which must approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.05	We are not required to have a compensation committee. Pursuant to the Chilean Corporation Law, our board of directors’ committee must approve our senior management’s and employee’s compensation.
Equity compensation plans.Equity compensation plans require shareholder approval, subject to limited exemptions. §303A.08	Under the Chilean Corporation Law, equity compensation plans require shareholder approval.
Disclosure of Corporate Governance.Listed companies must adopt and disclose corporate governance guidelines. §303A.09	Chilean law does not require that corporate governance guidelines be adopted. Directors’ responsibilities and access to management and independent advisors are directly provided for by applicable law. Directors’ compensation is approved at the annual meeting of shareholders, pursuant to applicable law.
Code of Ethics.Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. §303A.10	We have adopted a code of ethics and conduct applicable 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” in the Investor Relations informational page. In addition, upon written request, by regular mail to LATAM Airlines Group S.A., Investor Relations Department, attention: Investor Relations, Av. Presidente Riesco 5711, 20th floor, Comuna Las Condes, Santiago, Chile or by e-mail at Investor.Relations@latam.com, we will provide any person with a copy of our code of ethics without charge. We are required by Item 16B of Form 20-F to disclose any waivers granted to our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions.
Disclosure of Compliance.Each listed company CEO must (a) certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards; (b) promptly notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with any applicable provisions of Section 303A; and (c) must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. The annual and interim Written Affirmations must be in the form specified by the NYSE. §303A.12	Not required in the Chilean regulations. The Company must only comply with Section 303A.12 (b) and (c).

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.net

H. Mine Safety Disclosure

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.

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ITEM 19. EXHIBITS

Documents filed as exhibits to this annual report

Exhibit No.	Description
1.1*	Amended By-laws of LATAM Airlines Group S.A.
2.1	Second Amended and Restated Deposit Agreement, dated as of October 28, 2011, between the Company and JPMorgan Chase Bank, N.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
2.3	Indenture, dated as of April 25, 2007, among TAM Capital Inc., Tam S.A., TAM Linhas Aéreas S.A., The Bank of New York and The Bank of New York (Luxembourg) S.A., incorporated herein by reference from our second pre-effective amendment to our Registration Statement on Form F-4, File No. 333-131938.
2.4	Indenture, dated as of October 29, 2009, among TAM Capital 2 Inc., TAM S.A., TAM Linhas Aéreas S.A., The Bank of New York Mellon and The Bank of New York Mellon (Luxembourg) S.A., incorporated herein by reference from our Annual Report for the fiscal year ended December 31, 2009 on Form 20-F, filed June 30, 2010, File No. 333-131938.
2.5	Indenture, dated as of June 3, 2011, between TAM Capital 3 Inc., TAM S.A., TAM Linhas Aéreas S.A., The Bank of New York Mellon and The Bank of New York Mellon (Luxembourg) S.A., incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.6	Indenture, dated as of November 7, 2013, between Guanay Finance Limited and Citibank N.A., incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.7	Form of Indenture and Security Agreement between Parina Leasing Limited, Cuclillo Leasing Limited, Rayador Leasing Limited or Canastero Leasing Limited and Wilmington Trust Company (including Annex A), incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.8	Indenture, dated as of June 9, 2015, between LATAM Airlines Group S.A. and The Bank of New York Mellon, incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016.
2.9*	Indenture, dated as of April 11, 2017, between LATAM Finance Limited, as issuer, LATAM Airlines Group S.A., as guarantor, and The Bank of New York Mellon, as trustee, transfer agent and paying agent.
2.10	We hereby agree to furnish to the SEC, upon its request, copies of any instruments defining the rights of holders of our long-term debt (or any long-term debt of our subsidiaries for which we are required to file consolidated or unconsolidated financial statements), where such indebtedness does not exceed 10% of our total consolidated assets.
4.1	Second A320-Family Purchase Agreement, dated March 20, 1998, between the Company and Airbus Industry relating to Airbus A320-Family Aircraft (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on June 24, 2001, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.1	Amendment No. 1, dated as of November 14, 2003, and Amendment No. 2, dated as of October 4, 2005, to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (as successor to Airbus Industry) (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 30, 2006, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.2	Amendment No. 3, dated as of March 6, 2007, to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 30, 2006, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.3	Amendment No. 5, dated as of December 23, 2009, to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 29, 2010, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.4	Amendments No. 6, 7, 8 and 9 (dated as of May 10, 2010, May 19, 2010, September 23, 2010 and December 21, 2010, respectively), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.5	Amendments No. 10 and 11 (dated as of June 10, 2011 and November 8, 2011, respectively), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012 and portions of which have been omitted pursuant to a request for confidential treatment).

127

Exhibit No.	Description
4.1.6	Amendment No. 12 (dated as of November 19, 2012), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.7	Amendment No. 13 (dated as of August 19, 2013), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.1.8	Amendments No. 14, 15, 16 and 17 (dated as of March 31, 2014, May 16, 2014, July 15, 2015 and December 11, 2014, respectively), to the Second A320-Family Purchase Agreement dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.1.9	Novation Agreement (dated as of October 30, 2014) between TAM Linhas Aereas S.A., LATAM Airlines Group S.A. and Airbus S.A.S., relating to the A320 Family/A330 purchase agreement dated November 14, 2006, as amended and restated, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.2	Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company as amended and supplemented, relating to Model 767-316ER, Model 767-38EF, and Model 767-316F Aircraft (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on December 21, 2004, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.1	Supplemental Agreements No. 16, 19, 20, 21 and 22 (dated as of November 11, 2004, January 21, March 10, April 1, April 28, and July 20, 2005, and March 31, 2006, respectively) to the Purchase Agreement No. 2126, dated January 30, 1998, between the Company and The Boeing Company, relating to Model 767-316ER, Model 767-38EF, and Model 767-316F Aircraft (incorporated by reference to our amended annual report filed on Form 20-F (File No. 001-14728) filed on May 7, 2007 and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.2	Supplemental Agreement No. 23, dated as of March 6, 2007, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on April 23, 2007, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.3	Supplemental Agreement No. 24, dated as of November 10, 2008, to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 25, 2009, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.4	Supplemental Agreements No. 28 and 29 (dated as of March 22, 2010 and November 10, 2010, respectively), to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company. Portions of these documents have been omitted pursuant to a request for confidential treatment (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.2.5	Supplemental Agreements No. 30, 31 and 32 (dated as of February 15, 2011, May 10, 2011 and December 22, 2011, respectively), to the Purchase Agreement No. 2126, dated as of January 30, 1998, between the Company and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.3	Aircraft Lease Common Terms Agreement between GE Commercial Aviation Services Limited and LAN Cargo S.A., dated as of April 30, 2007, and Aircraft Lease Agreements between Wells Fargo Bank Northwest N.A., as owner trustee, and LAN Cargo S.A., dated as of April 30, 2007 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 7, 2007, and portions of which have been omitted pursuant to a request for confidential treatment).

128

Exhibit No.	Description
4.4	Purchase Agreement No. 3194 between the Company and The Boeing Company relating to Boeing Model 777-Freighter aircraft, dated as of July 3, 2007, (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 25, 2008, and portions of which have been omitted pursuant to a request for confidential treatment).
4.4.1	Supplemental Agreement No. 2, dated as of November 2, 2010, to the Purchase Agreement No. 3194 between the Company and The Boeing Company, dated as of July 3, 2007 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.4.2	Supplemental Agreement No. 3, dated as of September 24, 2011, to the Purchase Agreement No. 3194 between the Company and The Boeing Company, dated as of July 3, 2007 (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.4.3	Supplemental Agreement No. 4, dated as of August 9, 2012, to the Purchase Agreement No. 3194 between the Company and The Boeing Company, dated as of July 3, 2007 (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.5	Purchase Agreement No. 3256 between the Company and The Boeing Company relating to Boeing Model 787-8 and 787-9 aircraft, dated as of October 29, 2007, (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on June 25, 2008, and portions of which have been omitted pursuant to a request for confidential treatment).
4.5.1	Supplemental Agreements No. 1 and 2, (dated March 22, 2010 and July 8, 2010, respectively) to the Purchase Agreement No. 3256, dated October 29, 2007, as amended, between the Company and The Boeing Company (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.5.2	Supplemental Agreement No. 3, dated as of August 24, 2012, to the Purchase Agreement No. 3256, as amended, between the Company and The Boeing Company, dated as of October 29, 2007 (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.5.3	Delay Settlement Agreement, dated as of September 16, 2013, to the Purchase Agreement No. 3256, as amended, between the Company and The Boeing Company, dated as of October 29, 2007. Portions of this document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.5.4	Supplemental Agreements No. 4 and 5 (dated as of April 22, 2015 and July 3, 2015, respectively) to the Purchase Agreement No. 3256, as amended, between the Company and The Boeing Company, dated as of October 29, 2007 (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016 and portions of which have been omitted pursuant to a request for confidential treatment).
4.5.5.	Supplemental Agreements No. 6 and 7 (dated as of May 27, 2016 and December 20, 2016, respectively) to the Purchase Agreement No. 3256, as amended, between the Company and The Boeing Company, dated as of October 29, 2007. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.6	General Terms Agreement No. CFM-1-2377460475 and Letter Agreement No. 1 to General Terms Agreement No. CFM-1-2377460475 between the Company and CFM International, Inc., both dated December 17, 2010 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).
4.7	Rate Per Flight Hour Engine Shop Maintenance Services Agreement between the Company and CFM International, Inc., dated December 17, 2010 (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011, and portions of which have been omitted pursuant to a request for confidential treatment).

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Exhibit No.	Description
4.8	Implementation Agreement, dated as of January 18, 2011, among the Company, Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011).
4.9.1	Extension Letter to the Implementation Agreement and Exchange Offer Agreement, dated January 12, 2012, among the Company, Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.9	Exchange Offer Agreement, dated as of January 18, 2011, among LAN Airlines S.A., Costa Verde Aeronáutica S.A., Inversiones Mineras del Cantábrico S.A., TAM S.A., TAM Empreedimentos e Participações S.A. and Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Oliveira Amaro and João Francisco Amaro (incorporated by reference to our amended annual report on Form 20-F (File No. 001-14728), filed on May 5, 2011).
4.10	Shareholders Agreement, dated as of January 25, 2012, between the Company and TEP Chile S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.11	Shareholders Agreement, dated as of January 25, 2012, among the Company, TEP Chile S.A. and Holdco I S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.12	Shareholders Agreement, dated as of January 25, 2012, among the Company, TEP Chile S.A., Holdco I S.A. and TAM S.A. (incorporated by reference to our amended registration statement on Form F-4 (File No. 333-177984), filed on November 15, 2011).
4.13	Letter Agreement No. 12 (GTA No. 6-9576), dated July 11, 2011, between the Company and the General Electric Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14	A320 NEO Purchase Agreement, dated as of June 22, 2011, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.1	Amendments No. 1, 2 and 3 (dated as of February 27, 2013, July 15, 2014 and December 11, 2014, respectively), to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.2	Letter Agreement No. 1 (dated as of July 15, 2014) to Amendment No. 2 (dated as of July 15, 2014) to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.14.3	Amendment No. 4, 5 and 6 (dated as of April 15, 2016, April 15, 2016, and August 8, 2016, respectively), to the A320 NEO Purchase Agreement dated as of June 22, 2011, between the Company and Airbus S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.15	Buyback Agreement No. 3001 relating to One (1) Airbus A318-100 Aircraft MSN 3001, dated as of April 14, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.16	Buyback Agreement No. 3030 relating to One (1) Airbus A318-100 Aircraft MSN 3003, dated as of August 10, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).

130

Exhibit No.	Description
4.17	Buyback Agreement No. 3062, to One (1) Airbus A318-100 Aircraft MSN 3062, dated as of May 13, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.18	Buyback Agreement No. 3214, to One (1) Airbus A318-100 Aircraft MSN 3214, dated as of June 9, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.19	Buyback Agreement No. 3216, to One (1) Airbus A318-100 Aircraft MSN 3216, dated as of July 13, 2011, between the Company and Airbus Financial Services (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.20	Aircraft General Terms Agreement Number AGTA-LAN, dated May 9, 1997, between the Company and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 2, 2012, and portions of which have been omitted pursuant to a request for confidential treatment).
4.21	Buyback Agreement No. 3371, dated as of July 25, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.22	Buyback Agreement No. 3390, dated as of October 26, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.23	Buyback Agreement No. 3438, dated as of December 5, 2012, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.24	Buyback Agreement No. 3469, dated as of January 4, 2013, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.25	Buyback Agreement No. 3509, dated as of February 20, 2013, between the Company and Airbus Financial Services. Portions of this document have been omitted pursuant to a request for confidential treatment (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.26	A320 Family Purchase Agreement, dated March 19, 1998, between Airbus S.A.S. (formerly known as Airbus Industrie GIE) and TAM Linhas Aéreas S.A. (formerly known as TAM Transportes Aéreas Meridionais S.A. and as successor in interest in TAM-Transportes Aéreas Regionais S.A.), incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.
4.26.1	Amendments No. 12, 13 and 14 (dated as of January 27, 2012 and November 30, 2012 and December 14, 2012, respectively), to the Second A320-Family Purchase Agreement, dated as of March 20, 1998, as amended and restated, between the Company and Airbus S.A.S. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728), filed on April 30, 2013, and portions of which have been omitted pursuant to a request for confidential treatment).
4.27	A350 Family Purchase Agreement, dated December 20, 2005, between Airbus S.A.S. and TAM Linhas Aéreas S.A., incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.

131

Exhibit No.	Description
4.27.1	A350 Family Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.2	Amendments No. 1, 2 and 3 (dated July 28, 2010, July 15, 2014 and October 30, 2014, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.3	Novation Agreement (dated as of July 21, 2014) between TAM Linhas Aereas S.A., LATAM Airlines Group S.A. and Airbus S.A.S., relating to the A350 Family Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.4	Amendments No. 4 and 5 (dated September 15, 2015 and November 19, 2015, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016 and portions of which have been omitted pursuant to a request for confidential treatment).
4.27.5	Amendments No. 6, 7 and 8 (dated February 3, 2016, August 8, 2016, and September 9, 2016, respectively) to the A350 Purchase Agreement, dated December 20, 2005, as amended and restated on January 21, 2008, between Airbus S.A.S. and TAM Linhas Aereas S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.29	V2500 Maintenance Agreement, dated September 14, 2000, between TAM Transportes Aéreos Regionais S.A. (incorporated by TAM Linhas Aéreas S.A.) and MTU Maintenance Hannover GmbH (MTU), incorporated herein by reference from our sixth pre-effective amendment to our Registration Statement on Form F-1, filed March 2, 2006, File No. 333-131938.
4.30	PW1100G-JM Engine Support and Maintenance Agreement, dated February 26, 2014, between LATAM Airlines Group S.A. and Pratt & Whitney Division. Portions of this document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.31	Framework Deed, dated May 28, 2013, between LATAM Airlines Group S.A. and Aercap Holdings N.V. Portions of this document have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.
4.32	A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.1	Amendments No. 15, 16, 17, 18, and 19 (dated as of February 18, 2013, February 27, 2013, August 19, 2013, July 15, 2014 and December 11, 2014, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.2	Amendments No. 20 and 21 (dated as of June 3, 2015 and December 21, 2015, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A. (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.32.3	Amendments No. 22, 23 and 24 (dated as of April 15, 2016, April 15, 2016, and August 8, 2016, respectively) to the A320 Family/A330 Purchase Agreement (dated as of November 14, 2006) between Airbus S.A.S. and TAM – Linhas Aereas S.A.. Portions of these documents have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission.

132

Exhibit No.	Description
4.33	Supplemental Agreement No. 7 (dated as of May 2014) to the Boeing 777-32WER Purchase Agreement (dated as of February 2007) between TAM – Linhas Aereas S.A. and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 1, 2015 and portions of which have been omitted pursuant to a request for confidential treatment).
4.33.1	Supplemental Agreement No. 8, dated as of April 22, 2015, to the Boeing 777-32WER Purchase Agreement (dated as of February 2007) between TAM Linhas Aéreas and The Boeing Company (incorporated by reference to our annual report on Form 20-F (File No. 001-14728) filed on April 29, 2016 and portions of which have been omitted pursuant to a request for confidential treatment).
8.1*	List of subsidiaries of the Company.
12.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certifications of Chief Financial Officer and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith

133

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

CONTENTS

Consolidated Statement of Financial Position

Consolidated Statement of Income by Function

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows - Direct Method

Notes to the Consolidated Financial Statements

CLP	-	CHILEAN PESO
ARS	-	ARGENTINE PESO
US$	-	united states dollar
THUS$	-	THOUSANDS OF UNITED STATES DOLLARS
COP	-	COLOMBIAN PESO
brl/R$	-	braZILIAN REAL
thr$	-	Thousands of Brazilian reaL
MXN	-	MEXICAN PESO
VEF	-	STRONG Bolivar

 F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Latam Airlines Group S.A.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statement of financial position of Latam Airlines Group S.A. and its subsidiaries as of December 31, 2017 and 2016, 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, 2017, 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, 2017, 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, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 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, 2017, based on criteria established inInternal Control - Integrated Framework(2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. 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.

PwC Chile, Av. Andrés Bello 2711 - piso 5, Las Condes - Santiago, Chile

RUT: 81.513.400-1 | Teléfono: (56 2) 22940 0000 | www.pwc.cl

F-2

 

Latam Airlines Group S.A.

2

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.

 

Santiago, Chile

April 4, 2018

We have served as the Company’s auditor since 1991

 F-3

Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.

Notes	Page
1 - General information	F-14
2 - Summary of significant accounting policies	F-19
2.1. Basis of Preparation	F-19
2.2. Basis of Consolidation	F-22
2.3. Foreign currency transactions	F-23
2.4. Property, plant and equipment	F-24
2.5. Intangible assets other than goodwill	F-25
2.6. Goodwill	F-26
2.7. Borrowing costs	F-26
2.8. Losses for impairment of non-financial assets	F-26
2.9. Financial assets	F-26
2.10. Derivative financial instruments and hedging activities	F-27
2.11. Inventories	F-28
2.12. Trade and other accounts receivable	F-29
2.13. Cash and cash equivalents	F-29
2.14. Capital	F-29
2.15. Trade and other accounts payables	F-29
2.16. Interest-bearing loans	F-29
2.17. Current and deferred taxes	F-30
2.18. Employee benefits	F-30
2.19. Provisions	F-31
2.20. Revenue recognition	F-31
2.21. Leases	F-32
2.22. Non-current assets (or disposal groups) classified as held for sale	F-32
2.23. Maintenance	F-32
2.24. Environmental costs	F-33
3 - Financial risk management	F-33
3.1. Financial risk factors	F-33
3.2. Capital risk management	F-47
3.3. Estimates of fair value	F-47
4 - Accounting estimates and judgments	F-49
5 - Segmental information	F-53
6 - Cash and cash equivalents	F-56
7 - Financial instruments	F-57
7.1. Financial instruments by category	F-57
7.2. Financial instruments by currency	F-59
8 - Trade, other accounts receivable and non-current accounts receivable	F-60
9 - Accounts receivable from/payable to related entities	F-63
10 - Inventories	F-64
11 - Other financial assets	F-65
12 - Other non-financial assets	F-66
13 - Non-current assets and disposal group classified as held for sale	F-67
14 - Investments in subsidiaries	F-68

 F-4

15 - Intangible assets other than goodwill	F-72
16 - Goodwill	F-73
17 - Property, plant and equipment	F-75
18 - Current and deferred tax	F-81
19 - Other financial liabilities	F-86
20 - Trade and other accounts payables	F-94
21 - Other provisions	F-96
22 - Other non-financial liabilities	F-99
23 - Employee benefits	F-100
24 - Accounts payable, non-current	F-102
25 - Equity	F-102
26 - Revenue	F-108
27 - Costs and expenses by nature	F-108
28 - Other income, by function	F-110
29 - Foreign currency and exchange rate differences	F-110
30 - Earnings per share	F-119
31 - Contingencies	F-120
32 - Commitments	F-132
33 - Transactions with related parties	F-137
34 - Share based payments	F-138
35 - Statement of cash flows	F-141
36 - The environment	F-143
37 - Events subsequent to the date of the financial statements	F-144

 F-5

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

		As of		As of
		December 31,		December 31,
	Note	2017		2016
		ThUS$		ThUS$
Current assets
Cash and cash equivalents	6 - 7		1,142,004		949,327
Other financial assets	7 - 11		559,919		712,828
Other non-financial assets	12		221,188		212,242
Trade and other accounts receivable	7 - 8		1,214,050		1,107,889
Accounts receivable from related entities	7 - 9		2,582		554
Inventories	10		236,666		241,363
Tax assets	18		77,987		65,377
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners			3,454,396		3,289,580
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners	13		291,103		337,195
Total current assets			3,745,499		3,626,775
Non-current assets
Other financial assets	7 - 11		88,090		102,125
Other non-financial assets	12		220,807		237,344
Accounts receivable	7 - 8		6,891		8,254
Intangible assets other than goodwill	15		1,617,247		1,610,313
Goodwill	16		2,672,550		2,710,382
Property, plant and equipment	17		10,065,335		10,498,149
Tax assets	18		17,532		20,272
Deferred tax assets	18		364,021		384,580
Total non-current assets			15,052,473		15,571,419
Total assets			18,797,972		19,198,194

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-6

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

LIABILITIES AND EQUITY

		As of			As of
		December 31,			December 31,
	Note	2017			2016
		ThUS$			ThUS$
LIABILITIES
Current liabilities
Other financial liabilities	7 - 19		1,300,949			1,839,528
Trade and other accounts payables	7 - 20		1,695,202			1,593,068
Accounts payable to related entities	7 - 9		760			269
Other provisions	21		2,783			2,643
Tax liabilities	18		3,511			14,286
Other non-financial liabilities	22		2,823,963			2,762,245
			5,827,168			6,212,039
Liabilities included in disposal groups classified as held for sale	13		15,546			10,152
Total current liabilities			5,842,714			6,222,191
Non-current liabilities
Other financial liabilities	7 - 19		6,605,508			6,796,952
Accounts payable	7 - 24		498,832			359,391
Other provisions	21		374,593			422,494
Deferred tax liabilities	18		949,697			915,759
Employee benefits	23		101,087			82,322
Other non-financial liabilities	22		158,305			213,781
Total non-current liabilities			8,688,022			8,790,699
Total liabilities			14,530,736			15,012,890
EQUITY
Share capital	25		3,146,265			3,149,564
Retained earnings	25		475,118			366,404
Treasury Shares	25		(178	)		(178	)
Other reserves			554,884			580,870
Parent's ownership interest			4,176,089			4,096,660
Non-controlling interest	14		91,147			88,644
Total equity			4,267,236			4,185,304
Total liabilities and equity			18,797,972			19,198,194

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-7

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

		For the period ended
		December 31,
	Note	2017			2016			2015
		ThUS$			ThUS$			ThUS$
Revenue	26		9,613,907			8,988,340			9,740,045
Cost of sales			(7,441,849	)		(6,967,037	)		(7,636,709	)
Gross margin			2,172,058			2,021,303			2,103,336
Other income	28		549,889			538,748			385,781
Distribution costs			(699,600	)		(747,426	)		(783,304	)
Administrative expenses			(938,931	)		(872,954	)		(878,006	)
Other expenses			(368,883	)		(373,738	)		(323,987	)
Other gains/(losses)			(7,754	)		(72,634	)		(55,280	)
Income from operation activities			706,779			493,299			448,540
Financial income			78,695			74,949			75,080
Financial costs	27		(393,286	)		(416,336	)		(413,357	)
Share of profit of investments accounted for using the equity method			-			-			37
Foreign exchange gains/(losses)	29		(18,718	)		121,651			(467,896	)
Result of indexation units			748			311			481
Income (loss) before taxes			374,218			273,874			(357,115	)
Income (loss) tax expense / benefit	18		(173,504	)		(163,204	)		178,383
NET INCOME (LOSS) FOR THE PERIOD			200,714			110,670			(178,732	)
Income (loss) attributable to owners of the parent			155,304			69,220			(219,274	)
Income (loss) attributable to non-controlling interest	14		45,410			41,450			40,542
Net income (loss) for the year			200,714			110,670			(178,732	)
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)	30		0.25610			0.12665			(0.40193	)
Diluted earnings (losses) per share (US$)	30		0.25610			0.12665			(0.40193	)

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-8

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the period ended
		December 31,
	Note	2017			2016			2015
		ThUS$			ThUS$			ThUS$
NET INCOME (LOSS)			200,714			110,670			(178,732	)
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	25		2,763			(3,105	)		(14,631	)
Total other comprehensive income that will not be reclassified to income before taxes			2,763			(3,105	)		(14,631	)
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax	29		(47,495	)		494,362			(1,409,439	)
Other comprehensive income, before taxes, currency translation differences			(47,495	)		494,362			(1,409,439	)
Cash flow hedges
Gains (losses) on cash flow hedges before taxes	19		18,344			127,390			80,387
Other comprehensive income (losses), before taxes, cash flow hedges			18,344			127,390			80,387
Total other comprehensive income that will be reclassified to income before taxes			(29,151	)		621,752			(1,329,052	)
Other components of other comprehensive income (loss), before taxes			(26,388	)		618,647			(1,343,683	)
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		(785	)		921			3,911
Accumulate income tax relating to other comprehensive income that will not be reclassified to income			(785	)		921			3,911
Income tax relating to other comprehensive income that will be reclassified to income
Income tax related to cash flow hedges in other comprehensive income			(1,770	)		(34,695	)		(21,103	)
Income taxes related to components of other comprehensive income that will be reclassified to income			(1,770	)		(34,695	)		(21,103	)
Total Other comprehensive income			(28,943	)		584,873			(1,360,875	)
Total comprehensive income (loss)			171,771			695,543			(1,539,607	)
Comprehensive income (loss) attributable to owners of the parent			128,876			648,539			(1,551,331	)
Comprehensive income (loss) attributable to non-controlling interests			42,895			47,004			11,724
TOTAL COMPREHENSIVE INCOME (LOSS)			171,771			695,543			(1,539,607	)

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-9

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
								Change in other reserves
													Actuarial gains or
								Currency			Cash flow		losses on defined			Shares based		Other			Total						Parent's			Non-
		Share			Treasury			translation			hedging		benefit 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, 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
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-			-			-			-		-			-		-			-			155,304			155,304			45,410			200,714
Other comprehensive income			-			-			(45,036	)		16,634		1,974			-					(26,428	)		-			(26,428	)		(2,515	)		(28,943	)
Total comprehensive income			-			-			(45,036	)		16,634		1,974			-		-			(26,428	)		155,304			128,876			42,895			171,771
Transactions with shareholders
Dividens	25		-			-			-			-		-			-		-			-			(46,590	)		(46,590	)		-			(46,590	)
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			(46,590	)		(49,447	)		(40,392	)		(89,839	)
Closing balance as of December 31, 2017			3,146,265			(178	)		(2,131,591	)		18,140		(10,926	)		39,481		2,639,780			554,884			475,118			4,176,089			91,147			4,267,236

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-10

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
								Change in other reserves
														Actuarial gains or
								Currency			Cash flow			losses on defined			Shares based		Other		Total						Parent's			Non-
		Share			Treasury			translation			hedging			benefit 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, 2016			2,545,705			(178	)		(2,576,041	)		(90,510	)		(10,717	)		35,647		2,634,679		(6,942	)		317,950			2,856,535			81,013			2,937,548
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-			-			-			-			-			-		-		-			69,220			69,220			41,450			110,670
Other comprehensive income			-			-			489,486			92,016			(2,183	)		-				579,319			-			579,319			5,554			584,873
Total comprehensive income			-			-			489,486			92,016			(2,183	)		-		-		579,319			69,220			648,539			47,004			695,543
Transactions with shareholders
Equity issue	25-34		608,496			-			-			-			-			-		-		-			-			608,496			-			608,496
Dividens	25		-			-			-			-			-			-		-		-			(20,766	)		(20,766	)		-			(20,766	)
Increase (decrease) through transfers and other changes, equity	25-34		(4,637	)		-			-			-			-			2,891		5,602		8,493			-			3,856			(39,373	)		(35,517	)
Total transactions with shareholders			603,859			-			-			-			-			2,891		5,602		8,493			(20,766	)		591,586			(39,373	)		552,213
Closing balance as of December 31, 2016			3,149,564			(178	)		(2,086,555	)		1,506			(12,900	)		38,538		2,640,281		580,870			366,404			4,096,660			88,644			4,185,304

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-11

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of the parent
							Change in other reserves
													Actuarial gains or
							Currency			Cash flow			losses on defined			Shares based		Other			Total						Parent's			Non-
		Share		Treasury			translation			hedging			benefit 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, 2015			2,545,705		(178	)		(1,193,871	)		(151,340	)		-			29,642		2,635,748			1,320,179			536,190			4,401,896			101,799			4,503,695
Total increase (decrease) in equity
Comprehensive income
Gain (losses)	25		-		-			-			-			-			-		-			-			(219,274	)		(219,274	)		40,542			(178,732	)
Other comprehensive income			-		-			(1,382,170	)		60,830			(10,717	)		-					(1,332,057	)		-			(1,332,057	)		(28,818	)		(1,360,875	)
Total comprehensive income			-		-			(1,382,170	)		60,830			(10,717	)		-		-			(1,332,057	)		(219,274	)		(1,551,331	)		11,724			(1,539,607	)
Transactions with shareholders
Increase (decrease) through transfers and other changes, equity	25-34		-		-			-			-			-			6,005		(1,069	)		4,936			1,034			5,970			(32,510	)		(26,540	)
Total transactions with shareholders			-		-			-			-			-			6,005		(1,069	)		4,936			1,034			5,970			(32,510	)		(26,540	)
Closing balance as of December 31, 2015			2,545,705		(178	)		(2,576,041	)		(90,510	)		(10,717	)		35,647		2,634,679			(6,942	)		317,950			2,856,535			81,013			2,937,548

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements. 

 F-12

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

		For the periods ended
		December 31,
	Note	2017			2016			2015
		ThUS$			ThUS$			ThUS$
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services			10,595,718			9,918,589			11,372,397
Other cash receipts from operating activities			73,668			70,359			88,237
Payments for operating activities
Payments to suppliers for goods and services			(6,722,713	)		(6,756,121	)		(7,029,582	)
Payments to and on behalf of employees			(1,955,310	)		(1,820,279	)		(2,165,184	)
Other payments for operating activities			(223,706	)		(162,839	)		(351,177	)
Income taxes refunded (paid)			(91,986	)		(59,556	)		(57,963	)
Other cash inflows (outflows)	35		(8,931	)		(209,269	)		(184,627	)
Net cash flows from operating activities			1,666,740			980,884			1,672,101
Cash flows used in investing activities
Cash flows from losses of control of subsidiaries or other businesses			6,503			-			-
Other cash receipts from sales of equity or debt instruments of other entities			3,248,693			2,969,731			519,460
Other payments to acquire equity or debt instruments of other entities			(3,106,411	)		(2,706,733	)		(704,115	)
Amounts raised from sale of property, plant and equipment			51,316			76,084			57,117
Purchases of property, plant and equipment			(403,666	)		(694,370	)		(1,569,749	)
Amounts raised from sale of intangible assets			-			1			91
Purchases of intangible assets			(87,318	)		(88,587	)		(52,449	)
Interest received			12,684			11,242			43,374
Other cash inflows (outflows)	35		(9,223	)		843			10,576
Net cash flow from (used in) investing activities			(287,422	)		(431,789	)		(1,695,695	)
Cash flows from (used in) financing activities
Amounts raised from issuance of shares			-			608,496			-
Amounts raised from long-term loans			1,305,384			1,820,016			1,791,484
Amounts raised from short-term loans			132,280			279,593			205,000
Loans repayments			(1,829,191	)		(2,121,130	)		(1,263,793	)
Payments of finance lease liabilities			(344,901	)		(314,580	)		(342,614	)
Dividends paid	35		(66,642	)		(41,223	)		(35,032	)
Interest paid			(389,724	)		(398,288	)		(383,648	)
Other cash inflows (outflows)	35		13,706			(229,163	)		(99,757	)
Net cash flows from (used in) financing activities			(1,179,088	)		(396,279	)		(128,360	)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change			200,230			152,816			(151,954	)
Effects of variation in the exchange rate on cash and cash equivalents			(7,553	)		43,014			(83,945	)
Net increase (decrease) in cash and cash equivalents			192,677			195,830			(235,899	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	6		949,327			753,497			989,396
CASH AND CASH EQUIVALENTS AT END OF PERIOD	6		1,142,004			949,327			753,497

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 F-13

LATAM AIRLINES GROUP S.A.AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2017

NOTE 1 - GENERAL INFORMATION

LATAM Airlines Group S.A. (the “Company”) is a public company registered with the Commission for the Financial Market (1), under No.306, whose shares are quoted in Chile on the Stock Brokers - Stock Exchange (Valparaíso) - the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange (“NYSE”) in New York in the form of American Depositary Receipts (“ADRs”).

Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by their subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia.

The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca.

Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the Commission for the Financial Market (1) and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs (2).

At December 31, 2017, the Company's capital stock is represented by 608,374,525 shares, all common shares, without par value, which is divided into: (a) the 606,407,693 subscribed and paid shares; and (b) 1,966,832 shares pending of subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plan; And (ii) 466,832 correspond to the balance of shares pending of placement of the last capital increase approved at the extraordinary meeting of shareholders of August 18, 2016.

(1)       On February 23, 2017 the Law No. 21,000 was published in the Official Journal, creating the new Commission for the Financial Market (CMF), a collegiate and technical entity that replaced the Superintendency of Securities and Insurance (SVS).

(2)       As reported in due course, during 2016, LATAM discontinued its Brazilian receipts program - BDR level III, currently LATAM not counting with securities in the Brazilian market.

 F-14

The Board of the Company is composed of nine members who are elected every two years by the ordinary shareholders' meeting. The Board meets in regular monthly sessions and in extraordinary sessions as the corporate needs demand. Of the nine board members, three form part of its Directors’ Committee which fulfills both the role foreseen in the Corporations Law and the functions of the Audit Committee required by the Sarbanes Oxley Law of the United States of America and the respective regulations of the SEC.

The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Ltda., Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A. and Inversiones La Espasa Dos y Cía. Ltda., owns 27.91% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.

As of December 31, 2017, the Company had a total of 1,485 registered shareholders. At that date approximately 4.14% of the Company’s share capital was in the form of ADRs.

For the period ended December 31, 2017, the Company had an average of 43,593 employees, ending this period with a total of 43,095 employees, spread over 6,922 Administrative employees, 4,742 in Maintenance, 15,126 in Operations, 9,016 in Cabin Crew, 3,957 in Controls Crew, and 3,332 in Sales.

 F-15

The main subsidiaries included in these consolidated financial statements are as follows:

a) Participation rate

				As December 31, 2017						As December 31, 2016						As December 31, 2015
		Country	Functional
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 Subsidary (*)	Chile	US$		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000
96.763.900-1	Inmobiliaria Aeronáutica S.A.	Chile	US$		0.0000		0.0000		0.0000		99.0100		0.9900		100.0000		99.0100		0.9900		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	Lan Perú S.A.	Peru	US$		49.0000		21.0000		70.0000		49.0000		21.0000		70.0000		49.0000		21.0000		70.0000
Foreign	Lan Chile Investments Limited and Subsidiary	Cayman Ins land	US$		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000		99.9900		0.0100		100.0000
93.383.000-4	Lan Cargo S.A.	Chile	US$		99.8939		0.0041		99.8980		99.8939		0.0041		99.8980		99.8939		0.0041		99.8980
Foreign	Connecta Corporation	U.S.A.	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
Foreign	Prime Airport Services Inc. and Subsidary	U.S.A.	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		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
Foreign	Aircraft International Leasing Limited	U.S.A.	US$		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000		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		0.0000		100.0000		100.0000
96.631.410-9	Ladeco Cargo S.A.	Chile	CLP		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000		100.0000		100.0000
Foreign	Laser Cargo S.R.L.	Argentina	ARS		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
Foreign	Lan Cargo Overseas Limited and Subsidiaries	Bahamas	US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.969.690-8	Lan Cargo Inversiones S.A. and Subsidary	Chile	US$		0.0000		100.0000		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 Ins land	US$		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000
Foreign	Peuco Finance Limited	Cayman Ins land	US$		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000
Foreign	Profesional Airline Services INC.	U.S.A.	US$		100.0000		0.0000		100.0000		0.0000		0.0000		0.0000		0.0000		0.0000		0.0000
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

(*) In June 2016, Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel Chile S.A.

(**) As of December 31, 2017, indirect ownership participation on TAM S.A and subsidiaries is from Holdco I S.A., LATAM is entitled to 99,9983% of the economic rights and 49% of the rights politicians product of provisional measure No. 714 of the Brazilian Government implemented during 2016 which allows foreign capital to have up to 49% of the property.

Thus, since April 2016, LATAM Airlines Group S.A. owns 901 voting shares of Holdco I S.A., equivalent to 49% of the total shares with voting rights of said company and TEP Chile S.A. owns 938 voting shares of Holdco I S.A., equivalent to 51% of the total voting shares of that company.

 F-16

b) Financial Information

		Statement of financial position																					Net Income
																							For the periods ended
																							December 31,
		As of December 31, 2017							As of December 31, 2016							As of December 31, 2015							2017			2016			2015
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$
96.518.860-6	Latam TravelChile S.A. and Subsidary (*)		6,771		2,197		4,574			5,468		2,727		2,741			5,613		5,522		91			1,833			2,650			2,341
96.763.900-1	Inmobiliaria Aeronáutica S.A.		-		-		-			36,756		8,843		27,913			39,302		14,832		24,470			-			3,443			1,404
96.969.680-0	Lan PaxGroup S.A. and Subsidiaries (**)		499,345		1,101,548		(596,406	)		475,763		1,045,761		(561,472	)		519,663		1,049,232		(521,907	)		(35,943	)		(36,331	)		(35,187	)
Foreign	Lan Perú S.A.		315,607		303,204		12,403			306,111		294,912		11,199			255,691		240,938		14,753			1,205			(2,164	)		5,068
Foreign	Lan Chile Investments Limited and Subsidiary (**)		-		-		-			-		-		-			2,015		13		2,002			-			23			(13	)
93.383.000-4	Lan Cargo S.A.		584,169		371,934		212,235			480,908		239,728		241,180			483,033		217,037		265,966			(30,220	)		(24,813	)		(74,408	)
Foreign	Connecta Corporation		38,735		17,248		21,487			31,981		23,525		8,456			37,070		38,298		(1,228	)		13,013			9,684			194
Foreign	Prime Airport Services Inc. and Subsidary (**)		12,671		15,722		(3,051	)		7,385		11,294		(3,909	)		6,683		11,180		(4,497	)		857			588			279
96.951.280-7	Transporte Aéreo S.A.		324,498		104,357		220,141			340,940		124,805		216,135			331,117		122,666		208,451			2,172			8,206			5,878
Foreign	Aircraft International Leasing Limited									-		-		-			-		4		(4	)		-			9			(4	)
96.631.520-2	Fast Air Almacenes de Carga S.A.		12,931		4,863		8,068			10,023		3,645		6,378			8,985		4,641		4,344			939			1,717			1,811
Foreign	Laser Cargo S.R.L.		18		27		(9	)		21		32		(11	)		27		39		(12	)		2			(1	)		69
Foreign	Lan Cargo Overseas Limited and Subsidiaries (**)		66,039		42,271		18,808			54,092		35,178		15,737			62,406		43,759		15,563			3,438			176			3,344
96.969.690-8	Lan Cargo Inversiones S.A. and Subsidary (**)		144,884		156,005		(10,112	)		80,644		95,747		(13,506	)		54,179		68,220		(12,601	)		3,389			(910	)		113
96.575.810-0	Inversiones Lan S.A. and Subsidiaries (**)		11,681		5,201		6,377			10,971		6,452		4,452			16,512		14,676		1,828			1,561			2,549			2,772
96.847.880-K	Technical Trainning LATAM S.A.		1,967		367		1,600			1,745		284		1,461			1,527		266		1,261			109			73			(72	)
Foreign	Latam Finance Limited		678,289		708,306		(30,017	)		-		-		-			-		-		-			(30,017	)		-			-
Foreign	Peuco Finance Limited		608,191		608,191		-			-		-		-			-		-		-			-			-			-
Foreign	Profesional Airline Services INC.		3,703		3,438		265			-		-		-			-		-		-			294			-			-
Foreign	TAM S.A. and Subsidiaries (**)		4,490,714		3,555,423		856,829			5,287,286		4,710,308		495,562			4,969,553		4,199,223		423,190			160,582			2,107			(183,581	)

(*) In June 2016, Lantours Division of Terrestrial Services S.A. changed its name to Latam Travel Chile S.A.

(**) The Equity reported corresponds to Equity attributable to owners of the parent, it does not include Non-controlling interest.

 F-17

Additionally, we have proceeded to consolidate the following special purpose entities: 1. Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 2. Guanay Finance Limited created to issue a bond collateralized with future credit card receivables; 3. Private investment funds and 4. Avoceta Leasing Limited created to finance the pre-delivery payments on aircraft. These companies have been consolidated as required by IFRS 10.

All controlled entities have been included in the consolidation.

Changes in the scope of consolidation between January 1, 2016 and December 31, 2017, are detailed below:

(1) Incorporation or acquisition of companies

- On January 2016, the increase in the share capital and statutory amendment for the purpose of creating a new class of shares of Lan Argentina SA, a subsidiary of Lan Pax Group SA, for a total amount was registered in the Public Registry of Commerce. of 90,000,000 nominated "C" class shares not endorsable and without the right to vote. Lan Pax Group S.A. participated in this capital increase, modifying its ownership in 4.87%, as a result of which, the indirect participation of LATAM Airlines Group S.A. increases to 99.8656%.

- On April 1, 2016, Multiplus Corretora de Seguros Ltda. was created, the ownership of which corresponds to 99.99% of Multiplus S.A. direct subsidiary of TAM S.A.

- On September 2016, Latam Finance Limited, a wholly-owned subsidiary of LATAM Airlines Group S.A., was created. Company operation started on April 2017.

- On November 2015, the company Peuco Finance Limited was created, whose ownership corresponds 100% to LATAM Airlines Group S.A. The operation of this company began in December 2017.

- Prismah Fidelidade Ltda. is constituted on June 29, 2012, whose ownership corresponds 99.99% to Multiplus S.A. direct subsidiary of TAM S.A. The operation of this company began in December 2017.

- On December 11, 2017, a capital increase was made in TAM S.A. for a total of MR $ 697,935 (ThUS $ 210,000), with no new shares issues. This capital increase was paid a whole 100% by the shareholder LATAM Airlines Goup S.A.

The foregoing, in accordance with the TAM's shareholder Holdco I S.A., who renounces to any right arisinged from this increase.

- As of December 31, 2017, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 4,951 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.09498%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.19414%

 F-18

(2) Dissolution of companies

- During the period 2016, Lan Chile Investments Limited, a subsidiary of LATAM Airlines Group S.A.; and Aircraft International Leasing Limited, a subsidiary of Lan Cargo S.A., were dissolved.

- On November 20, 2017 LATAM Airlines Group S.A. acquired 100% of the shares of Inmobiliaria Aeronáutica S.A., a merger and subsequent dissolution of said company was carried out.

(3) Sale of companies.

- On May 5, 2017 Lan Pax Group S.A. and Inversiones Lan S.A., both subsidiaries of LATAM Airlines Group S.A., sold to Talma Servicios Aeroportuarios S.A. and Inversiones Talma S.A.C. 100% of the capital stock of Rampas Andes Airport Services S.A.

The sale value of Rampas Andes Airport Services S.A. was ThUS $ 8,624.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.

2.1. Basis of Preparation

The consolidated financial statements of LATAM Airlines Group S.A. for the period ended December 31, 2017, have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments.

The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.

During 2016 the Company recorded out of period adjustments resulting in an aggregate net decrease of US$ 18.2 million to "Net income (loss) for the period" for the year ended December 31, 2016. These adjustments include US$ 39.5 million (loss) resulting from an account reconciliation process initiated after the Company's afiliate TAM S.A. and its subsidiaries completed the implementation of the SAP system. A further US$ 11.0 million (loss) reflect adjustments related to foreign exchange differences, also relating to the Company's subsidiaries in Brazil. The balance of US$ 32.3 million (gain) includes principally the adjustment of unclaimed fees for expired tickets for the Company and its affiliates outside Brazil. Management of TAM S.A. has concluded that the out of period adjustments that have been identified are material to the 2015 financial statements of TAM S.A., which should therefore require a restatement in Brazil. However, Management of LATAM has evaluated the impact of all out of period adjustments, both individually and in the aggregate, and concluding that due to their relative size and to qualitative factors they are not material to the annual consolidated financial statements for 2016 of Latam Airlines Group S.A. or to any previously reported consolidated financial statements, therefore no restatement or revision is necessary.

 F-19

In order to facilitate comparison, some minor reclassifications have been made to the consolidated financial statements for the previous year.

(a) Accounting pronouncements with implementation effective from January 1, 2017:

(i)          Standards and amendments	Date of issue	Mandatory Application: Annual periods beginning on or after
Amendment to IAS 7: Statement of cash flow	January 2016	01/01/2017
Amendment to IAS 12: Income tax	January 2016	01/01/2017
(ii)         Improvements
Improvements to International Financial Reporting Standards (2014-2016 cycle): IFRS 12 Disclosure of interests in other entities	December 2016	01/01/2017

The application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company.

(b)         Accounting pronouncements not yet in force for financial years beginning on January 1, 2017 and which has not been effected early adoption

(i)          Standards and amendments	Date of issue	Mandatory Application: Annual periods beginning on or after
IFRS 9: Financial instruments.	December 2009	01/01/2018
Amendment to IFRS 9: Financial instruments.	November 2013	01/01/2018
IFRS 15: Revenue from contracts with customers (1).	May 2014	01/01/2018
Amendment to IFRS 15: Revenue from contracts with customers.	April 2016	01/01/2018

 F-20

		Mandatory
		Application:
(i)          Standards and amendments	Date of issue	Annual periods beginning on or after
Amendment to IFRS 2: Share-based payments	June 2016	01/01/2018
Amendment to IFRS 4: Insurance contracts.	September  2016	01/01/2018
Amendment to IAS 40: Investment property	December 2016	01/01/2018
IFRS 16: Leases (2).	January 2016	01/01/2019
Amendment to IFRS 9: Financial Instruments	October 2017	01/01/2019
Amendment to IAS 28: Investments in associates and joint ventures	October 2017	01/01/2019
IFRS 17: Insurance contracts	May 2017	01/01/2021
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	September 2014	To be determined
(ii)         Improvements
Improvements to International Financial Reporting Standards. (cycle 2014-2016) IFRS 1: First-time adoption of international financial reporting standards and IAS 28 investments in associates and joint ventures.	December 2016	01/01/2018
Improvements to International Financial Reporting Standards. (cycle 2015-2017) IFRS 3: Business combinations,IAS 12: Income tax, IFRS 11: Joint arrangements and IAS 23: Borrowing costs	December 2017	01/01/2019
(iii)        Interpretations
IFRIC 22: Foreign currency transactions and advance consideration	December 2016	01/01/2018
IFRIC 23: Uncertain tax positions	June 2017	01/01/2019

 F-21

The Company’s management believes that the adoption of the standards, amendments and interpretations described above but not yet effective would not have a significant impact on the Company’s consolidated financial statements in the year of their first application, except for IFRS 15 and IFRS 16:

(1) IFRS 15 Revenue from Contracts with Customers supersedes actual standard for revenue recognition that actually uses the Company, as IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standards supersedes IFRS 15 supersedes, IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers; and SIC-31 Revenue - Barter Transactions Involving Advertising Services.

The Company evaluated the possible adoption impacts that this new standard will have on the consolidated financial statements and has identified changes in: i) the recognition of the income associated with the fines for changes, which were previously recognized at the time of the sale and now will be considered as a modification of the initial transport contract and therefore the recognition must be deferred until the rendering of the service; ii) the moment of recognition of the income from the sale of some services or products, where the Company concluded that it acted as principal, and therefore the revenues must be deferred until the service is rendered; and iii) the presentation of the income associated with the sale of products, where the Company concluded that it acted as agent and therefore the income must be presented net of the associated costs.

As of December 31, 2017, the effect of the changes indicated above As of December 31, 2017, the effect of the changes indicated above will not have a significant impact on the Company’s consolidated financial statements in the year of its first adoption.

(2) The IFRS 16 Leases add important changes in the accounting for lessees by introducing a similar treatment to financial leases for all operating leases with a term of more than 12 months. This mean, in general terms, that an asset should be recognized for the right to use the underlying leased assets and a liability representing its present value of payments associate to the agreement. Monthly leases payments will be replace by the asset depreciation and a financial cost in the income statement.

We are evaluating the impact that the adoption of the new lease rule will have on the consolidated financial statements. Currently, we believe that the adoption of this new standard will have a significant impact on the consolidated statement of financial position due to the recording of an asset for right of use and a liability, corresponding to the recording of the leases that are currently registered as operating leases.

LATAM Airlines Group S.A. and subsidiaries are still assessing this standard to determinate the effect on their Financial Statements, covenants and other financial indicators.

2.2. Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all the entities (including special-purpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition.

 F-22

Balances, transactions and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.

To account for and identify the financial information revealed when carrying out a business combination, such as the acquisition of an entity by the Company, is apply the acquisition method provided for in IFRS 3: Business combination.

(b) Transactions with non-controlling interests

The Company applies the policy of considering transactions with non-controlling interests, when not related to loss of control, as equity transactions without an effect on income.

(c) Sales of subsidiaries

When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the non-controlling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses).

If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value is subsequently accounted using the equity method.

(d) Investees or associates

Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost.

2.3. Foreign currency transactions

(a) Presentation and functional currencies

The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.

 F-23

(b) Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.

(c) Group entities

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency other than the presentation currency are translated to the presentation currency as follows:

(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

(iii)          All the resultant exchange differences by conversion are shown as a separate component in other comprehensive income.

The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar.

Adjustments to the Goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed.

2.4. Property, plant and equipment

The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in their initial recognition and in their subsequent measurement, at their historical cost less the corresponding depreciation and any loss due to deterioration.

The amounts of advances paid to the aircraft manufacturers are activated by the Company under Construction in progress until they are received.

Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or are recognized as a separate asset, only when it is probable that the future economic benefits associated with the elements of property, plant and equipment, they will flow to the Company and the cost of the item can be determined reliably. The value of the replaced component is written off. The rest of the repairs and maintenance are charged to the result of the year in which they are incurred.

The depreciation of the properties, plants and equipment is calculated using the linear method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown.

 F-24

The residual value and the useful life of the assets are reviewed and adjusted, if necessary, once a year. 

When the value of an asset exceeds its estimated recoverable amount, its value is immediately reduced to its recoverable amount (Note 2.8).

Losses and gains from the sale of property, plant and equipment are calculated by comparing the consideration with the book value and are included in the consolidated statement of income.

2.5. Intangible assets other than goodwill

(a) Airport slots and Loyalty program

Airport slots and the Coalition and Loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows:

Airport slots – Air transport CGU

Loyalty program – Coalition and loyalty program Multiplus CGU

(See Note 16)

The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period.

The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A.

The Brands, airport Slots and Loyalty program were recognized in fair values determined in accordance with IFRS 3, as a consequence of the business combination with TAM and Subsidiaries.

(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 costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets others than Goodwill when they have met all the criteria for capitalization.

(c) Brands

The Brands were acquired in the business combination with TAM S.A. and Subsidiaries and recognized at fair value under IFRS. During the year 2016, the estimated useful life of the brands change from an indefinite useful life to a five-year period, the period in which the value of the brands will be amortized (See Note 15).

 F-25

2.6. Goodwill

Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary orassociateon the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually or each time that there is evidence of impairment. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.

2.7. Borrowing costs

Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated income statement when they are accrued.

2.8. Losses for impairment of non-financial assets

Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date.

2.9. Financial assets

The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at the time of initial recognition, which occurs on the date of transaction.

(a) Financial assets at fair value through profit and loss

Financial assets at fair value through profit and loss are financial instruments held for trading and those which have been designated at fair value through profit or loss in their initial classification. A financial asset is classified in this category if acquired mainly for the purpose of being sold in the near future or when these assets are managed and measured using fair value. Derivatives are also classified as held for trading unless they are designated as hedges. The financial assets in this category and have been designated initial recognition through profit or loss, are classified as Cash and cash equivalents and Other current financial assets and those designated as instruments held for trading are classified as Other current and non-current financial assets.

 F-26

(b) Loans and receivables

Loans and receivables are non-derivative financial instruments with fixed or determinable payments not traded on an active market. These items are classified in current assets except for those with maturity over 12 months from the date of the consolidated statement of financial position, which are classified as non-current assets. Loans and receivables are included in trade and other accounts receivable in the consolidated statement of financial position (Note 2.12).

The regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

The financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method.

At the date of each consolidated statement of financial position, the Company assesses if there is objective evidence that a financial asset or group of financial assets may have suffered an impairment loss.

2.10. Derivative financial instruments and hedging activities

Derivatives are booked initially at fair value on the date the derivative contracts are signed and later they continue to be valued at their fair value. The method for booking the resultant loss or gain depends on whether the derivative has been designated as a hedging instrument and if so, the nature of the item hedged. The Company designates certain derivatives as:

(a) Hedge of the fair value of recognized assets (fair value hedge);

(b) Hedge of an identified risk associated with a recognized liability or an expected highly- Probable transaction (cash-flow hedge), or

(c) Derivatives that do not qualify for hedge accounting.

The Company documents, at the inception of each transaction, the relationship between the hedging instrument and the hedged item, as well as its objectives for managing risk and the strategy for carrying out various hedging transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged.

The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities.

 F-27

(a) Fair value hedges

Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.

(b) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income under other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.

In case of variable interest-rate hedges, the amounts recognized in the statement of other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest.

For fuel price hedges, the amounts shown in the statement of other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used.

For foreign currency hedges, the amounts recognized in the statement of other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income.

When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as “Other gains (losses)”.

(c) Derivatives not booked as a hedge

The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in “Other gains (losses)”.

2.11. Inventories

Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.

 F-28

2.12. Trade and other accounts receivable

Trade accounts receivable are shown initially at their fair value and later at their amortized cost in accordance with the effective interest rate method, less the allowance for impairment losses. An allowance for impairment loss of trade accounts receivable is made when there is objective evidence that the Company will not be able to recover all the amounts due according to the original terms of the accounts receivable.

The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are considered indicators that the receivable has been impaired. The amount of the provision is the difference between the book value of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate. The book value of the asset is reduced by the amount of the allowance and the loss is shown in the consolidated statement of income in Cost of sales. When an account receivable is written off, it is charged to the allowance account for accounts receivable.

2.13. Cash and cash equivalents

Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments.

2.14. Capital

The common shares are classified as net equity.

Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares.

2.15. Trade and other accounts payables

Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost.

2.16. Interest-bearing loans

Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.

Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.

 F-29

2.17. Current and deferred taxes

The expense by current tax is comprised of income and deferred taxes.

The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income.

Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.

Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which tocompensate the temporary differences.

The tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in other comprehensive income, directly in income by function or goodwill, respectively.

2.18. Employee benefits

(a) Personnel vacations

The Company recognizes the expense for personnel vacations on an accrual basis.

(b) Share-based compensation

The compensation plans implemented based on the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based payments, for plans based on the granting of options, the effect of fair value is recorded in equity with a charge to remuneration in a linear manner between the date of grant of said options and the date on which they become irrevocable, for the plans considered as cash settled award the fair value, updated as of the closing date of each reporting period, is recorded as a liability with charge to remuneration.

(c) Post-employment and other long-term benefits

Provisions are made for these obligations by applying the method of the projected unit credit method, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income.

 F-30

(d) Incentives

The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.

2.19. Provisions

Provisions are recognized when:

(i) The Companyhas a present legal or implicit obligation as a result of past events;

(ii) It is probable that payment is going to be necessary to settle an obligation; and

(iii) The amount has been reliably estimated.

2.20. Revenue recognition

Revenues include the fair value of the proceeds received or to be received on sales of goods and rendering services in the ordinary course of the Company’s business. Revenues are shown net of refunds, rebates and discounts.

(a) Rendering of services

(i) Passenger and cargo transport

The Company shows revenue from the transportation of passengers and cargo once the service has been provided.

Consistent with the foregoing, the Company presents the deferred revenues, generated by anticipated sale of flight tickets and freight services, in heading other non - financial liabilities in the Consolidated Statement of Financial Position.

(ii) Frequent flyer program

The Company currently has a frequent flyer programs, whose objective is customer loyalty through the delivery of kilometers or points fly whenever the programs holders make certain flights, use the services of entities registered with the program or make purchases with an associated credit card. The kilometers or points earned can be exchanged for flight tickets or other services of associated entities.

The consolidated financial statements include liabilities for this concept (deferred income), according to the estimate of the valuation established for the kilometers or points accumulated pending use at that date, in accordance with IFRIC 13: Customer loyalty programs.

(iii) Other revenues

The Company records revenues for other services when these have been provided.

 F-31

(b) Dividend income

Dividend income is booked when the right to receive the payment is established.

2.21. Leases

(a) When the Company is the lessee – financial lease

The Company leases certain Property, plant and equipment in which it has substantially all the risk and benefits deriving from the ownership; they are therefore classified as financial leases. Financial leases are initially recorded at the lower of the fair value of the asset leased and the present value of the minimum lease payments.

Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it produces a constant periodic rate of interest on the remaining balance of the liability for each year. The asset acquired under a financial lease is depreciated over its useful life and is included in Property, plant and equipment.

(b) When the Company is the lessee – operating lease

Leases, in which the lessor retains an important part of the risks and benefits deriving from ownership, are classified as operating leases. Payments with respect to operating leases (net of any incentive received from the lessor) are charged in the consolidated statement of income on a straight-line basis over the term of the lease.

2.22. Non-current assets or disposal groups classified as held for sale

Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.

2.23. Maintenance

The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are capitalized and depreciated until the next maintenance. The depreciation rate is determined on technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.

In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based on the use of the main components is recognized, since a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels exists. These are recognized as Cost of sales.

Additionally, some leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.

 F-32

The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.

2.24. Environmental costs

Disbursements related to environmental protection are charged to results when incurred.

NOTE 3 - FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.

(a) Market risk

Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk, and (iii) interest -rate risk.

The Company has developed policies and procedures for managing market risk, which aim to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.

For this, the Administration monitors the evolution of price levels, exchange rates and interest rates, and quantifies their risk exposures (Value at Risk), and develops and implements hedging strategies.

(i) Fuel-price risk:

Exposition:

For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54 USGC, which is subject to the fluctuations of international fuel prices.

Mitigation:

To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible use West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and greater liquidity.

Fuel Hedging Results:

During the period ended December 31, 2017, the Company recognized gains of US $ 15.1 million for fuel net premium coverage. During the same period of 2016, the Company recognized losses of US $ 48.0 million for the same concept.

 F-33

As of December 31, 2017, the market value of fuel positions amounted to US $ 10.7 million (positive). At the end of December 2016, this market value was US $ 8.1 million (positive).

The following tables show the level of hedge for different periods:

Positions as of December 31, 2017 (*)	Maturities
	Q118			Q218			Q318			Total
Percentage of coverage over the expected volume of consumption		19	%		12	%		5	%		12	%

(*) The volume shown in the table considers all the hedging instruments (swaps and options).

Positions as of December 31, 2016 (*)	Maturities
	Q117			Q217			Total
Percentage of coverage over the expected volume of consumption		21	%		16	%		18	%

(*) The volume shown in the table considers all the hedging instruments (swaps and options).

Sensitivity analysis

A drop in fuel price positively affects the Company through a reduction in costs. However, also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.

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 fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2018.

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2017 and the end of December, 2016.

	Positions as of December 31, 2017	Positions as of December 31, 2016
Benchmark price	effect on equity	effect on equity
(US$ per barrel)	(millions of US$)	(millions of US$)
+5	+1.8	+3.12
-5	- 3.3	-4.78

Given the structure of fuel coverage during 2017, considers a hedge-free portion, a vertical drop of 5 dollars in the JET reference price (considered as the monthly average), would have meant an approximate impact US $ 109.7 million of lower fuel costs. For the same period, a vertical rise of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact of approximately US $ 110.5 million of higher fuel costs.

 F-34

(ii) Foreign exchange rate risk:

Exposition:

The functional and presentation currency of the Financial Statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.

The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.

The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.

At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: euro, pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.

Mitigation:

The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.

FX Hedging Results:

In order to reduce the exposure to the exchange rate risk in the operational cash flows of 2017, and to ensure the operating margin, LATAM makes hedges using FX derivatives.

As of December 31, 2017, the market value of FX derivative positions amounted to US $ 4.4 million (positive). At the end of December 2016, this market value was US $ 1.1 million (negative).

During the period ended December 31, 2017, the Company recognized losses of US $ 9.7 million for FX net premium coverage. During the same period of 2016, the company recognized losses of US $ 40.3 million for this concept.

As of December 31, 2017, the Company has contracted FX derivatives for US $ 180 million for BRL. By the end of December 2016, the company had contracted FX derivatives for US $ 60 million for BRL, and US $ 10 million for GBP.

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.

 F-35

The following table shows the awareness of FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection term was defined until the end of the last contract of coverage in force, being the last business day of the second quarter of the year 2018:

Appreciation (depreciation)	Effect at December 31, 2017	Effect at December 31, 2016
of R$ (*)	Millions of US$	Millions of US$
-10%	-10.7	-1.02
+10%	+9.7	+3.44

(*)Both currencies (BRL and GBP) only apply period to the closing of 2016.

During 2017, the Company contracted derivative currency swaps to hedge debt issued the same year for a notional UF 8.7 million. As of December 31, 2017, the market value of derivative positions of currency swaps amounted to US$ 30.6 million (positive).

As of December 31, 2017, the Company has recorded an amount for ineffectiveness in the consolidated statement of income for this type of hedges for US $ 6.2 million (positive).

In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's Income Statement.

With the objective of reducing the impact on the Company's results caused by appreciations or depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure in US$ for TAM S.A.

The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:

Appreciation (depreciation)*	Effect at December 31, 2017	Effect at December 31, 2016
of R$/US$	Millons of US$	Millons of US$
-10%	+80.5	+119.2
+10%	-80.5	-119.2

(*) Appreciation (depreciation) of US$ regard to the covered currencies.

Effects of exchange rate derivatives in the Financial Statements

The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).

 F-36

Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in other comprehensive income.

The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:

Appreciation (depreciation)	Effect at December 31, 2017	Effect at December 31, 2016
of R$/US$	Millions of US$	Millions of US$
-10%	+386.62	+351.04
+10%	-316.33	-287.22

(iii) Interest -rate risk:

Exposition:

The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.

The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate ("ILC").

Mitigation:

In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 63% (63% at December 31, 2016) of the debt is fixed to fluctuations in interest rate.

Rate Hedging Results:

At December 31, 2017, the market value of the positions of interest rate derivatives amounted to US$ 6.6 million (negative). At end of December 2016 this market value was US$ 17.2 million (negative).

 F-37

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, 2017	Positions as of December 31, 2016
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	-29.26	-32.16
-100 basis points	+29.26	+32.16

Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.

Increase (decrease)	Positions as of December 31, 2017	Positions as of December 31, 2016
futures curve	effect on equity	effect on equity
in libor 3 months	(millions of US$)	(millions of US$)
+100 basis points	+1.9	+3.93
-100 basis points	-1.9	-4.03

The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.

During the periods presented, the Company has no registered amounts by ineffectiveness in consolidated statement of income for this kind of hedging.

(b) Credit risk

Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an obligation due or financial instrument, leading to a loss in market value of a financial instrument (only financial assets, not liabilities).

The Company is exposed to credit risk due to its operative and financial activities, including deposits with banks and financial institutions, investments in other kinds of instruments, exchange-rate transactions and the contracting of derivative instruments or options.

To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents).

 F-38

As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the Company has established maximum limits for investments which are monitored regularly.

(i) Financial activities

Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and other current financial assets.

In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.

The Company has no guarantees to mitigate this exposure.

(ii) Operational activities

The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“IATA”) organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they are excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.

The exposure consists of the term granted, which fluctuates between 1 and 45 days.

One of the tools the Company uses for reducing credit risk is to participate in global entities related to the industry, such as IATA, Business Sales Processing (“BSP”), Cargo Account Settlement Systems (“CASS”), IATA Clearing House (“ICH”) and banks (credit cards). These institutions fulfill the role of collectors and distributors between airlines and travel and cargo agencies. In the case of the Clearing House, it acts as an offsetting entity between airlines for the services provided between them. A reduction in term and implementation of guarantees has been achieved through these entities. Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.

Credit quality of financial assets

The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater.

 F-39

To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents).The bad-debt rate in the principal countries where the Company has a presence is insignificant.

(c) Liquidity risk

Liquidity risk represents the risk that the Company has no sufficient funds to meet its obligations.

Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs, the Company requires liquid funds, defined as cash and cash equivalents plus other short term financial assets, to meet its payment obligations.

The liquid funds, the future cash generation and the capacity to obtain additional funding, through bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its investment and financing future commitments.

At December 31, 2017 is US$ 1,614 million (US$ 1,486 million at December 31, 2016), invested in short term instruments through financial high credit rating levels entities.

In addition to the liquid funds, the Company has access to short term credit line. As of December 31, 2017, LATAM has working capital credit lines with multiple banks and additionally has a US$ 450 million undrawn committed credit line (US$ 325 million at December 31, 2016) subject to borrowing base availability.

 F-40

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

						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$		75,863		-		-		-		-		75,863		75,000	At Expiration		2.30		2.30
97.032.000-8	BBVA	Chile	UF		-		57,363		-		-		-		57,363		55,801	At Expiration		3.57		2.77
97.036.000-K	SANTANDER	Chile	US$		30,131		-		-		-		-		30,131		30,000	At Expiration		2.49		2.49
97.030.000-7	ESTADO	Chile	US$		40,257		-		-		-		-		40,257		40,000	At Expiration		2.57		2.57
97.003.000-K	BANCO DO BRASIL	Chile	US$		100,935		-		-		-		-		100,935		100,000	At Expiration		2.40		2.40
97.951.000-4	HSBC	Chile	US$		12,061		-		-		-		-		12,061		12,000	At Expiration		2.03		2.03
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		22,082		22,782		43,430		-		-		88,294		84,664	Quarterly		3.68		3.68
0-E	BLADEX	U.S.A.	US$		-		16,465		15,628		-		-		32,093		30,000	Semiannual		5.51		5.51
97.036.000-K	SANTANDER	Chile	US$		2,040		3,368		202,284		-		-		207,692		202,284	Quarterly		4.41		4.41
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	US$		-		84,375		650,625		96,250		772,188		1,603,438		1,200,000	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		20,860		41,720		226,379		245,067		534,026		379,274	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		8,368		25,415		56,305		12,751		-		102,839		98,091	Quarterly		2.66		2.22
0-E	BNP PARIBAS	U.S.A.	US$		14,498		59,863		148,469		145,315		313,452		681,597		575,221	Quarterly		3.41		3.40
0-E	WELLS FARGO	U.S.A.	US$		30,764		92,309		246,285		246,479		245,564		861,401		808,987	Quarterly		2.46		1.75
0-E	WILMINGTON TRUST COMPANY	U.S.A.	US$		32,026		95,042		253,469		244,836		676,474		1,301,847		1,034,853	Quarterly		4.48		4.48
0-E	CITIBANK	U.S.A.	US$		14,166		42,815		114,612		112,435		102,045		386,073		351,217	Quarterly		3.31		2.47
0-E	BTMU	U.S.A.	US$		3,292		9,997		26,677		26,704		14,133		80,803		74,734	Quarterly		2.87		2.27
0-E	APPLE BANK	U.S.A.	US$		1,611		4,928		13,163		13,196		7,369		40,267		37,223	Quarterly		2.78		2.18
0-E	US BANK	U.S.A.	US$		18,485		55,354		146,709		145,364		158,236		524,148		472,833	Quarterly		4.00		2.82
0-E	DEUTSCHE BANK	U.S.A.	US$		4,043		12,340		32,775		32,613		32,440		114,211		96,906	Quarterly		4.39		4.39
0-E	NATIXIS	France	US$		18,192		54,952		129,026		105,990		166,011		474,171		413,011	Quarterly		3.42		3.40
0-E	PK AirFinance	U.S.A.	US$		2,375		7,308		20,812		18,104		-		48,599		46,500	Monthly		3.18		3.18
0-E	KFW IPEX-BANK	Germany	US$		2,570		7,111		16,709		1,669		-		28,059		26,888	Quarterly		3.31		3.31
0-E	AIRBUS FINANCIAL	U.S.A.	US$		2,033		6,107		15,931		-		-		24,071		22,925	Monthly		3.19		3.19
0-E	INVESTEC	England	US$		1,930		11,092		26,103		26,045		11,055		76,225		63,378	Semiannual		6.04		6.04
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		1,757		5,843		246,926		-		-		254,526		241,287	At Expiration		3.38		3.38
Financial leases
0-E	ING	U.S.A.	US$		5,890		12,076		28,234		-		-		46,200		42,957	Quarterly		5.67		5.00
0-E	CITIBANK	U.S.A.	US$		12,699		38,248		91,821		51,222		2,880		196,870		184,274	Quarterly		3.78		3.17
0-E	PEFCO	U.S.A.	US$		13,354		34,430		23,211		-		-		70,995		67,783	Quarterly		5.46		4.85
0-E	BNP PARIBAS	U.S.A.	US$		13,955		35,567		50,433		2,312		-		102,267		98,105	Quarterly		3.66		3.25
0-E	WELLS FARGO	U.S.A.	US$		12,117		38,076		98,424		66,849		21,253		236,719		221,113	Quarterly		3.17		2.67
97.036.000-K	SANTANDER	Chile	US$		6,049		18,344		48,829		47,785		3,156		124,163		117,023	Quarterly		2.51		1.96
0-E	RRPF ENGINE	England	US$		370		3,325		8,798		8,692		9,499		30,684		25,983	Monthly		4.01		4.01
Other loans
0-E	CITIBANK (*)	U.S.A.	US$		25,783		77,810		206,749		-		-		310,342		285,891	Quarterly		6.00		6.00
Derivatives of coverage
-	Others	-	US$		5,656		6,719		6,228		-		-		18,603		17,407	-		0.00		0.00
	Total				535,352		960,284		3,010,385		1,630,990		2,780,822		8,917,833		7,633,613

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

 F-41

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

						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	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	US$		176		497		1,332		722		-		2,727		2,382	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	US$		4,248		7,903		23,141		71,323		-		106,615		99,036	Quarterly / Semiannual		5.59		5.59
0-E	WACAPOU LEASING S.A.	Luxembourg	US$		837		2,411		6,509		3,277		-		13,034		12,047	Quarterly		3.69		3.69
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	US$		11,735		32,230		204,836		-		-		248,801		244,513	Quarterly		4.87		4.81
0-E	BANCO IBM S.A	Brazil	BRL		34		-		-		-		-		34		21	Monthly		6.89		6.89
0-E	SOCIÉTÉ GÉNÉRALE	France	BRL		161		12		-		-		-		173		109	Monthly		6.89		6.89
	Total				17,191		43,053		235,818		75,322		-		371,384		358,108

 F-42

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

						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$				%		%
Trade and other accounts payables
-	OTHERS	OTHERS	ThUS$		566,838		-		-		-		-		566,838		566,838		-		-		-
			CLP		165,299		-		-		-		-		165,299		165,299		-		-		-
			BRL		315,605		-		-		-		-		315,605		315,605		-		-		-
			Other currencies		290,244		11,215		-		-		-		301,459		301,459		-		-		-
Accounts payable to related parties currents
78.997.060-2	Viajes Falabella Ltda.	Chile	CLP		534		-		-		-		-		534		534		-		-		-
0-E	Inversora Aeronáutica Argentina	Argentina	ThUS$		4		-		-		-		-		4		4		-		-		-
0-E	Consultoría Administrativa Profesional S.A. de C.V.	Mexico	MXN		210		-		-		-		-		210		210		-		-		-
78.591.370-1	Bethia S.A. y Filiales	Chile	CLP		12		-		-		-		-		12		12		-		-		-
	Total				1,338,746		11,215		-		-		-		1,349,961		1,349,961
	Total consolidated				1,891,289		1,014,552		3,246,203		1,706,312		2,780,822		10,639,178		9,341,682

 F-43

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

						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	ThUS$		75,212		-		-		-		-		75,212		75,000	At Expiration		1.85		1.85
97.032.000-8	BBVA	Chile	ThUS$		-		52,675		-		-		-		52,675		50,381	At Expiration		5.23		4.43
97.036.000-K	SANTANDER	Chile	ThUS$		30,193		-		-		-		-		30,193		30,000	At Expiration		2.39		2.39
97.030.000-7	ESTADO	Chile	ThUS$		40,191		-		-		-		-		40,191		40,000	At Expiration		1.91		1.91
97.003.000-K	BANCO DO BRASIL	Chile	ThUS$		72,151		-		-		-		-		72,151		70,000	At Expiration		3.08		3.08
97.951.000-4	HSBC	Chile	ThUS$		12,054		-		-		-		-		12,054		12,000	At Expiration		1.79		1.79
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		20,808		61,112		63,188		16,529		-		161,637		153,355	Quarterly		4.06		4.06
0-E	BLADEX	U.S.A.	ThUS$		-		14,579		31,949		-		-		46,528		42,500	Semiannual		5.14		5.14
0-E	DVB BANK SE	U.S.A.	ThUS$		145		199		28,911		-		-		29,255		28,911	Quarterly		1.86		1.86
97.036.000-K	SANTANDER	Chile	ThUS$		1,497		4,308		160,556		-		-		166,361		158,194	Quarterly		3.55		3.55
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	ThUS$		-		36,250		72,500		518,125		-		626,875		500,000	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		11,728		30,916		65,008		33,062		3,760		144,474		138,417	Quarterly		2.21		1.81
0-E	BNP PARIBAS	U.S.A.	ThUS$		13,805		56,324		142,178		141,965		376,894		731,166		628,118	Quarterly		2.97		2.96
0-E	WELLS FARGO	U.S.A.	ThUS$		35,896		107,830		287,878		288,338		411,076		1,131,018		1,056,345	Quarterly		2.37		1.68
0-E	WILMINGTON TRUST COMPANY	U.S.A.	ThUS$		25,833		79,043		206,952		200,674		733,080		1,245,582		967,336	Quarterly		4.25		4.25
0-E	CITIBANK	U.S.A.	ThUS$		20,224		61,020		164,077		166,165		184,053		595,539		548,168	Quarterly		2.72		1.96
97.036.000-K	SANTANDER	Chile	ThUS$		5,857		17,697		47,519		48,024		26,448		145,545		138,574	Quarterly		1.98		1.44
0-E	BTMU	U.S.A.	ThUS$		3,163		9,568		25,752		26,117		27,270		91,870		85,990	Quarterly		2.31		1.72
0-E	APPLE BANK	U.S.A.	ThUS$		1,551		4,712		12,693		12,891		13,857		45,704		42,754	Quarterly		2.29		1.69
0-E	US BANK	U.S.A.	ThUS$		18,563		55,592		147,357		146,045		230,747		598,304		532,608	Quarterly		3.99		2.81
0-E	DEUTSCHE BANK	U.S.A.	ThUS$		6,147		18,599		31,640		31,833		48,197		136,416		117,263	Quarterly		3.86		3.86
0-E	NATIXIS	France	ThUS$		14,779		44,826		116,809		96,087		206,036		478,537		422,851	Quarterly		2.60		2.57
0-E	PK AirFinance	U.S.A.	ThUS$		2,265		6,980		19,836		25,610		3,153		57,844		54,787	Monthly		2.40		2.40
0-E	KFW IPEX-BANK	Germany	ThUS$		2,503		7,587		18,772		9,178		-		38,040		36,191	Quarterly		2.55		2.55
0-E	AIRBUS FINANCIAL	U.S.A.	ThUS$		1,982		5,972		16,056		7,766		-		31,776		30,199	Monthly		2.49		2.49
0-E	INVESTEC	England	ThUS$		1,880		10,703		25,369		25,569		23,880		87,401		72,202	Semiannual		5.67		5.67
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		1,501		4,892		268,922		-		-		275,315		256,860	At Expiration		2.85		2.85
Financial leases
0-E	ING	U.S.A.	ThUS$		5,889		17,671		34,067		12,134		-		69,761		63,698	Quarterly		5.62		4.96
0-E	CREDIT AGRICOLE	France	ThUS$		1,788		5,457		-		-		-		7,245		7,157	Quarterly		1.85		1.85
0-E	CITIBANK	U.S.A.	ThUS$		6,083		18,250		48,667		14,262		-		87,262		78,249	Quarterly		6.40		5.67
0-E	PEFCO	U.S.A.	ThUS$		17,558		50,593		67,095		3,899		-		139,145		130,811	Quarterly		5.39		4.79
0-E	BNP PARIBAS	U.S.A.	ThUS$		13,744		41,508		79,165		22,474		-		156,891		149,119	Quarterly		3.69		3.26
0-E	WELLS FARGO	U.S.A.	ThUS$		5,591		16,751		44,615		44,514		1,880		113,351		103,326	Quarterly		3.98		3.54
0-E	DVB BANK SE	U.S.A.	ThUS$		4,773		9,541		-		-		-		14,314		14,127	Quarterly		2.57		2.57
0-E	RRPF ENGINE	England	ThUS$		-		-		8,248		8,248		12,716		29,212		25,274	Monthly		2.35		2.35
Other loans
0-E	BOEING	U.S.A.	ThUS$		163		320		26,214		-		-		26,697		26,214	At Expiration		2.35		2.35
0-E	CITIBANK (*)	U.S.A.	ThUS$		25,802		77,795		207,001		103,341		-		413,939		370,389	Quarterly		6.00		6.00
Hedging derivatives
-	OTROS	-	ThUS$		7,364		15,479		7,846		-		-		30,689		-	-		0.00		0.00
-	Total				508,683		944,749		2,476,840		2,002,850		2,303,047		8,236,169		7,257,368

(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.

 F-44

Clases de pasivo para el análisis del riesgo de liquidez agrupado por vencimiento al 31 de diciembre de 2016

Nombre empresa deudora: TAM S.A. y Filiales, Rut 02.012.862/0001-60, Brasil.

						Más de		Más de		Más de
		País de	Descripción	Hasta		90 días		uno a		tres a		Más de				Total
Rut empresa		empresa	de la	90		a un		tres		cinco		cinco		Total		Valor		Tipo de	Tasa		Tasa
acreedora	Nombre empresa acreedora	acreedora	moneda	días		año		años		años		años		Valor		nominal		amortización	efectiva		nominal
				MUS$		MUS$		MUS$		MUS$		MUS$		MUS$		MUS$			%		%
Préstamos bancarios
0-E	NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ	Holanda	US$		179		493		1,315		1,314		54		3,355		2,882	Mensual		6.01		6.01
0-E	CITIBANK	E.E.U.U.	US$		1,528		203,150		-		-		-		204,678		200,000	Al Vencimiento		3.39		3.14
Obligaciones con el Público
0-E	THE BANK OF NEW YORK	E.E.U.U.	US$		-		352,938		83,750		562,813		-		999,501		800,000	Al Vencimiento		8.17		8.00
Arrendamiento Financiero
0-E	AFS INVESTMENT IX LLC	E.E.U.U.	US$		2,733		7,698		20,522		8,548		-		39,501		35,448	Mensual		1.25		1.25
0-E	DVB BANK SE	E.E.U.U.	US$		120		165		-		-		-		285		282	Mensual		2.50		2.50
0-E	GENERAL ELECTRIC CAPITAL CORPORATION	E.E.U.U.	US$		3,852		5,098		-		-		-		8,950		8,846	Mensual		2.30		2.30
0-E	KFW IPEX-BANK	Alemania	US$		592		1,552		-		-		-		2,144		2,123	Mensual/Trimestral		2.80		2.80
0-E	NATIXIS	Francia	US$		4,290		7,837		22,834		40,968		41,834		117,763		107,443	Trimestral/Semestral		4.90		4.90
0-E	WACAPOU LEASING S.A.	Luxemburgo	US$		833		2,385		6,457		6,542		-		16,217		14,754	Trimestral		3.00		3.00
0-E	SOCIÉTÉ GÉNÉRALE MILAN BRANCH	Italia	US$		11,875		32,116		85,995		171,553		-		301,539		279,335	Trimestral		4.18		4.11
0-E	BANCO IBM S.A	Brasil	BRL		380		1,161		35		-		-		1,576		1,031	Mensual		13.63		13.63
0-E	HP FINANCIAL SERVICE	Brasil	BRL		225		-		-		-		-		225		222	Mensual		10.02		10.02
0-E	SOCIÉTÉ GÉNÉRALE	Francia	BRL		146		465		176		-		-		787		519	Mensual		13.63		13.63
	Total				26,753		615,058		221,084		791,738		41,888		1,696,521		1,452,885

 F-45

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

						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$				%		%
Trade and other accounts payables
-	OTHERS	OTHERS	ThUS$		549,897		21,215			-		-		-		571,112		571,112		-		-		-
			CLP		48,842		(30	)		-		-		-		48,812		48,812		-		-		-
			BRL		346,037		27			-		-		-		346,064		346,064		-		-		-
			Others currencies		140,471		11,467			-		-		-		151,938		151,938		-		-		-
Accounts payable to related parties currents
0-E	Consultoría Administrativa Profesional S.A. de C.V.	Mexico	MXN		170		-			-		-		-		170		170		-		-		-
78.997.060-2	Viajes Falabella Ltda.	Chile	CLP		46		-			-		-		-		46		46		-		-		-
0-E	TAM Aviação Executiva e Taxi Aéreo S.A.	Brazil	BRL		28		-			-		-		-		28		28		-		-		-
65.216.000-K	Comunidad Mujer	Chile	CLP		13		-			-		-		-		13		13
78.591.370-1	Bethia S.A. y Filiales	Chile	CLP		6		-			-		-		-		6		6
79.773.440-3	Transportes San Felipe S.A.	Chile	CLP		4		-			-		-		-		4		4		-		-		-
0-E	Inversora Aeronáutica Argentina	Argentina	ThUS$		2		-			-		-		-		2		2		-		-		-
	Total				1,085,516		32,679			-		-		-		1,118,195		1,118,195
	Total consolidated				1,620,952		1,592,486			2,697,924		2,794,588		2,344,935		11,050,885		9,828,448

 F-46

The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.

At the end of 2016, the Company provided US$ 30.2 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2017, the Company had provided US$ 16.4 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate and interest rates.

3.2. Capital risk management

The Company���s objectives, with respect to the management of capital, are (i) to comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.

The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.

Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.

The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2017 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with stable outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.

3.3. Estimates of fair value.

At December 31, 2017, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:

1. Hedge Instruments:

This category includes the following instruments:

- Interest rate derivative contracts,

- Fuel derivative contracts,

- Currency derivative contracts.

 F-47

2. Financial Investments:

This category includes the following instruments:

- Investments in short-term Mutual Funds (cash equivalent),

- Private investment funds.

The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.

The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.

The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:

	As of December 31, 2017								As of December 31, 2016
			Fair value measurements using values								Fair value measurements using values
			considered as								considered as
	Fair value		Level I		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		29,658		29,658		-		-		15,522		15,522		-		-
Short-term mutual funds		29,658		29,658		-		-		15,522		15,522		-		-
Other financial assets, current		536,001		473,653		62,348		-		548,402		536,991		11,411		-
Fair value derived interest rate		3,113		-		3,113		-		-		-		-		-
Fair value of fuel derivatives		10,711		-		10,711		-		10,088		-		10,088		-
Fair value derived from foreign currency		48,322		-		48,322		-		1,259		-		1,259		-
Interest accrued since the last payment date of Cross Currency Swap		202		-		202		-		64		-		64		-
Private investment funds		472,232		472,232		-		-		536,991		536,991		-		-
Domestic and foreign bonds		1,421		1,421		-		-		-		-		-		-
Other financial assets, not current		519		-		519		-		-		-		-		-
Fair value derived from foreign currency		519		-		519		-		-		-		-		-
Liabilities
Other financial liabilities, current		12,200		-		12,200		-		24,881		-		24,881		-
Fair value of interest rate derivatives		8,919		-		8,919		-		9,579		-		9,579		-
Fair value of foreign currency derivatives		2,092		-		2,092		-		13,155		-		13,155		-
Interest accrued since the last payment date of Currency Swap		1,189		-		1,189		-		2,147		-		2,147		-
Other financial liabilities, non current		2,617		-		2,617		-		6,679		-		6,679		-
Fair value of interest rate derivatives		2,617		-		2,617		-		6,679		-		6,679		-

 F-48

Additionally, at December 31, 2017, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:

	As of December 31, 2017				As of December 31, 2016
	Book		Fair		Book		Fair
	value		value		value		value
	ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		1,112,346		1,112,346		933,805		933,805
Cash on hand		8,562		8,562		8,630		8,630
Bank balance		330,430		330,430		255,746		255,746
Overnight		239,292		239,292		295,060		295,060
Time deposits		534,062		534,062		374,369		374,369
Other financial assets, current		23,918		23,918		164,426		164,426
Other financial assets		23,918		23,918		164,426		164,426
Trade debtors, other accounts receivable and Current accounts receivable		1,214,050		1,214,050		1,107,889		1,107,889
Accounts receivable from entities related, current		2,582		2,582		554		554
Other financial assets, not current		87,571		87,571		102,125		102,125
Accounts receivable, non-current		6,891		6,891		8,254		8,254
Other current financial liabilities		1,288,749		1,499,495		1,814,647		2,022,290
Accounts payable for trade and other accounts payable, current		1,695,202		1,695,202		1,593,068		1,593,068
Accounts payable to entities related, current		760		760		269		269
Other financial liabilities, not current		6,602,891		6,738,872		6,790,273		6,970,375
Accounts payable, not current		498,832		498,832		359,391		359,391

The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.

The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end.

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

The Company has used estimates to value and record certain assets, liabilities, revenue, expenditure, and commitments. Basically, these estimates relate to:

(a)       Evaluation of possible losses through impairment of goodwill and intangible assets with an indefinite useful life.

 F-49

As of December 31, 2017, the goodwill amounts to ThUS $ 2,672,550 (ThUS $ 2,710,382 as of December 31, 2016), while the intangible assets comprise the Airport Slots for ThUS $ 964,513 (ThUS $ 978,849 as of December 31, 2016) and Loyalty Program for ThUS $ 321,440 (ThUS $ 326,262 as of December 31, 2016).

The Company checks at least once a year whether goodwill and intangible assets with an indefinite useful life have suffered an impairment loss. For this evaluation, the Company has identified two cash generating units (CGU), "Air transport" and "Multiplus coalition and loyalty program". The book value of the surplus value assigned to each CGU as of December 31, 2017 amounted to ThUS $ 2,146,692 and ThUS $ 525,858 (ThUS $ 2,176,634 and ThUS $ 533,748 as of December 31, 2016), which include the following Intangible assets of indefinite useful life:

	Air Transport CGU				Coalition and loyalty Program Multiplus CGU
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$
Airport Slots		964,513		978,849		-		-
Loyalty program		-		-		321,440		326,262

The recoverable value of these cash-generating units (CGUs) has been determined based on calculations of their value in use. The principal assumptions used by the management include: growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The estimation of these assumptions requires significant judgment by the management, as these variables feature inherent uncertainty; however, the assumptions used are consistent with Company’s internal planning. Therefore, management evaluates and updates the estimates on an annual basis, in light of conditions that affect these variables. The mainly assumptions used as well as, the corresponding sensitivity analyses are showed in Note 16.

(b)       Useful life, residual value, and impairment of property, plant, and equipment

The depreciation of assets is calculated based on the linear model, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according with the Company’s future economic benefits associated with them.

Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may render the useful life different to the lifespan estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.

Residual values are estimated in accordance with the market value that these assets will have at the end of their useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, once a year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).

 F-50

(c)       Recoverability of deferred tax assets

Deferred taxes are calculated according to the liability method, on the temporary differences that arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available with which to offset the temporary differences. The Company makes financial and fiscal projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that these projections are consistent with those used to measure other long-lived assets. As of December 31, 2017, the Company has recognized deferred tax assets of ThUS $ 364,021 (ThUS $ 384,580 as of December 31, 2016) and has ceased to recognize deferred tax assets on tax losses of ThUS $ 81,155 (ThUS $ 115,801 as of December 31, 2016) (Note 18).

(d)       Air tickets sold that are not actually used.

The Company register advance sales of tickets as deferred revenue. Revenue from ticket sales is recognized in the income statement when the service is provided or when the tickets expires unused, reducing the corresponding deferred revenue. The Company evaluates monthly the probability that tickets expiry unused, based on the history of used tickets. Changes in the exchange probability would have an impact our revenue in the year in which the change occurs and in future years. As of December 31, 2017, deferred revenue associated with air tickets sold amounted to ThUS$ 1,550,447 (ThUS$ 1,535,229 as of December 31, 2016). An hypothetical change of 1% in passenger behavior regarding to the ticket usage, that is, if during the next six months after sells probability of used were 89% rather than 90%, as we consider, it would lead to a change in the expiry period from six to seven months, which, would have an impact of up to ThUS$ 20,000 in the results of 2017.

(e)       Valuation of loyalty points and kilometers granted to loyalty program members, pending usage.

As of December 31, 2017 and 2016 the Company operated the following loyalty programs: LATAM Pass, LATAM Fidelidade and Multiplus, with the objective of enhancing customer loyalty by offering points or kilometers (see Note 22).

The members of these programs accumulate kilometers when they fly with LATAM Airlines Group or any other airline member of the onewordl® program, as well as use the services of the associated entities.

When kilometers and points are redeemed for products and services other than the services provided by the Company, revenue is recognized immediately; when they are redeemed for air tickets on airlines from LATAM Airlines Group S.A. and subsidiaries, revenue is deferred until the transport service is provided or the corresponding tickets expired.

Deferred revenue from loyalty programs at the closing date corresponds to the valuation of points and kilometers granted to loyalty program members, pending of use, weighted by the probability to be redeemed.

 

According to IFRIC-13, kilometers and points value that the Company estimate are not likely to be redeemed (“breakage”), they recognize the associated value proportionally during the period in which the remaining kilometers or points are expected to be redeemed. The Company uses statistical models to estimate the breakage, based on historical redemption patterns and projections prepared by external experts.

 F-51

As of December 31, 2017, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS $ 853,505 (ThUS$ 896,190 as of December 31, 2016). A hypothetical change of one percentage point in the exchange probability would result in an impact as of December 31, 2017 of ThUS$ 25,000 (ThUS$ 30,632 as of December 31, 2016). While the deferred revenues associated with the loyalty programs LATAM Fidelidade and Multiplus amount to ThUS $ 364,866 (ThUS$ 392,107 as of December 31, 2016). A hypothetical change of two percentage points in the number of points pending to be exchanged would result in an impact ThUS$ 16,700 in 2017 (ThUS$ 14,639 in 2016).

The value of kilometers and other components are determined by the Company based on a fair value analysis. As of December 31, 2017 a hypothetical change of one percentage point in the fair value of the unused kilometers would result in an impact of ThUS$ 8,000 in 2017 (ThUS$ 8,400 in 2016).

(f)       Provisions needs, and their valuation when required

Known contingencies are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The Company applies professional judgment, experience, and knowledge to use available information to determine these values, in light of the specific characteristics of known risks. This process facilitates the early assessment and valuation of potential risks in individual cases or in the development of contingent eventualities.

(g)      Investment in subsidiary (TAM)

The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.

The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus insuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.

Since the integration of LAN and TAM operations, the most critical airline operations in Brazil have been managed by the CEO of TAM while global activities have been managed by the CEO of LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the LATAM Board.

 F-52

The CEO of LATAM also evaluates the performance of LATAM Group executives and, together with the LATAM Board, determines compensation. Although Brazilian law currently imposes restrictions on the percentages of voting rights that may be held by foreign investors, LATAM believes that the economic basis of these agreements meets the requirements of accounting standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.

These estimates were made based on the best information available relating to the matters analyzed.

In any case, it is possible that events that may take place in the future could lead to their modification in future reporting periods, which would be made in a prospective manner.

NOTE 5 - SEGMENTAL INFORMATION

The Company has determined that it has two operating segments: the air transportation business and the coalition and loyalty program Multiplus.

The Air transport segment corresponds to the route network for air transport and it is based on the way that the business is run and managed, according to the centralized nature of its operations, the ability to open and close routes and reallocate resources (aircraft, crew, staff, etc..) within the network, which is a functional relationship between all of them, making them inseparable. This segment definition is the most common level used by the global airline industry.

The segment of loyalty coalition called Multiplus, unlike LATAM Pass and LATAM Fidelidade, is a frequent flyer programs which operate as a unilateral system of loyalty that offers a flexible coalition system, interrelated among its members, with 19.4 million of members, along with being a regulated entity with a separately business and not directly related to air transport.

 F-53

For the periods ended

										Coalition and
	Air									loyalty program
	transportation									Multiplus									Eliminations									Consolidated
	At December 31,									At December 31,									At December 31,									At December 31,
	2017			2016			2015			2017			2016			2015			2017			2016			2015			2017			2016			2015
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Income from ordinary activities from external customers (*)		9,159,031			8,587,772			9,278,041			454,876			400,568			462,004			-			-			-			9,613,907			8,988,340			9,740,045
LAN passenger		4,313,287			4,104,348			4,241,918			-			-			-			-			-			-			4,313,287			4,104,348			4,241,918
TAM passenger		3,726,314			3,372,799			3,706,692			454,876			400,568			462,004			-			-			-			4,181,190			3,773,367			4,168,696
Freight		1,119,430			1,110,625			1,329,431			-			-			-			-			-			-			1,119,430			1,110,625			1,329,431
Income from ordinary activities from transactions with other operating segments		454,876			400,568			462,004			67,554			65,969			67,826			(522,430	)		(466,537	)		(529,830	)		-			-
Other operating income		308,937			364,551			230,823			240,952			174,197			154,958			-			-			-			549,889			538,748			385,781
Interest income		28,184			27,287			21,818			50,511			58,380			63,647						(10,718	)		(10,385	)		78,695			74,949			75,080
Interest expense		(393,286	)		(427,054	)		(423,742	)		-			-						-			10,718			10,385			(393,286	)		(416,336	)		(413,357	)
Total net interest expense		(365,102	)		(399,767	)		(401,924	)		50,511			58,380			63,647			-			-			-			(314,591	)		(341,387	)		(338,277	)
Depreciation and amortization		(994,416	)		(952,285	)		(923,311	)		(7,209	)		(8,043	)		(11,095	)		-			-			-			(1,001,625	)		(960,328	)		(934,406	)
Material non-cash items other than depreciation and amortization		(75,479	)		10,069			(507,921	)		(145	)		(991	)		1,893			-			-			-			(75,624	)		9,078			(506,028	)
Disposal of fixed assets and inventory losses		(39,238	)		(82,734	)		(20,932	)		-			-			-			-			-			-			(39,238	)		(82,734	)		(20,932	)
Doubtful accounts		(18,272	)		(29,674	)		(18,292	)		(144	)		(476	)		611			-			-			-			(18,416	)		(30,150	)		(17,681	)
Exchange differences		(18,717	)		122,129			(469,178	)		(1	)		(478	)		1,282			-			-			-			(18,718	)		121,651			(467,896	)
Result of indexation units		748			348			481			-			(37	)		-			-			-			-			748			311			481
Income (loss) atributable to owners of the parents		(3,482	)		(83,653	)		(356,039	)		158,783			152,873			136,765			-			-			-			155,301			69,220			(219,274	)
Participation of the entity in the income of associates		-			-			37			-			-			-			-			-			-			-			-			37
Expenses for income tax		(104,376	)		(92,476	)		249,090			(69,128	)		(70,728	)		(70,707	)		-			-			-			(173,504	)		(163,204	)		178,383
Segment profit / (loss)		41,931			(42,203	)		(315,497	)		158,783			152,873			136,765			-			-			-			200,714			110,670			(178,732	)
Assets of segment		17,430,937			17,805,749			16,924,200			1,373,049			1,400,432			1,182,111			(6,014	)		(7,987	)		(4,893	)		18,797,972			19,198,194			18,101,418
Segment liabilities		14,007,916			14,469,505			14,700,072			563,849			572,065			490,076			(41,029	)		(28,680	)		(26,278	)		14,530,736			15,012,890			15,163,870
Amount of non-current asset additions		412,846			1,481,090			1,492,281			-			-			-			-			-			-			412,846			1,481,090			1,492,281
Property, plant and equipment		325,513			1,390,730			1,439,057			-			-			-			-			-			-			325,513			1,390,730			1,439,057
Intangibles other than goodwill		87,333			90,360			53,224			-			-			-			-			-			-			87,333			90,360			53,224
Purchase of non-monetary assets of segment		490,983			782,957			1,622,198			-			-			-			-			-			-			490,983			782,957			1,622,198

(*) The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.

 F-54

For the periods ended

											Coalition and
		Air									loyalty program
		transportation									Multiplus									Eliminations									Consolidated
		At December 31,									At December 31,									At December 31,									At December 31,
		2017			2016			2015			2017			2016			2015			2017			2016			2015			2017			2016			2015
		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Net cash flows from
Purchases of property, plant and equipment	��		403,282			693,581			691,930			384			789			2,440			-			-			-			403,666			694,370			694,370
Additions associated with maintenance			218,537			197,866			230,526			-			-			-			-			-			-			218,537			197,866			230,526
Other additions			184,745			495,715			461,404			384			789			2,440			-			-			-			185,129			496,504			463,844
Purchases of intangible assets			79,102			84,377			41,399			8,216			4,210			11,050			-			-			-			87,318			88,587			52,449
Net cash flows from (used in) operating activities			1,489,797			827,108			1,531,395			186,367			154,411			147,348			(9,424	)		(635	)		(6,642	)		1,666,740			980,884			1,672,101
Net cash flow from (used in) investing activities			(278,790	)		(426,989	)		(1,679,272	)		(8,632	)		(4,800	)		(16,423	)		-			-			-			(287,422	)		(431,789	)		(1,695,695	)
Net cash flows from (used in) financing activities			(1,010,705	)		(246,907	)		(4,708	)		(168,383	)		(149,372	)		(123,652	)		-			-			-			(1,179,088	)		(396,279	)		(128,360	)

(**) The company does not have the cash flows of intangible asset acquisitions associated with maintenance.

 F-55

The Company’s revenues by geographic area are as follows:

	For the period ended
	At December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Peru		626,316		627,215		681,340
Argentina		1,113,467		1,030,973		979,324
U.S.A.		900,413		933,130		1,025,475
Europe		676,282		714,436		723,062
Colombia		359,276		343,001		353,007
Brazil		3,436,402		2,974,234		3,464,297
Ecuador		190,268		198,171		238,500
Chile		1,527,158		1,512,570		1,575,519
Asia Pacific and rest of Latin America		784,325		654,610		699,521
Income from ordinary activities		9,613,907		8,988,340		9,740,045
Other operating income		549,889		538,748		385,781

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		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Cash on hand		8,562		8,630
Bank balances		330,430		255,746
Overnight		239,292		295,060
Total Cash		578,284		559,436
Cash equivalents
Time deposits		534,062		374,369
Mutual funds		29,658		15,522
Total cash equivalents		563,720		389,891
Total cash and cash equivalents		1,142,004		949,327

 F-56

Cash and cash equivalents are denominated in the following currencies:

	As of		As of
Currency	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Argentine peso		12,135		7,871
Brazilian real		106,499		97,401
Chilean peso		81,845		30,758
Colombian peso		7,264		4,336
Euro		11,746		1,695
US Dollar		882,114		780,124
Other currencies		40,401		27,142
Total		1,142,004		949,327

NOTE 7 - FINANCIAL INSTRUMENTS

7.1.      Financial instruments by category

As of December 31, 2017

							Initial designation
Assets	Loans				Held		as fair value
	and		Hedge		for		through
	receivables		derivatives		trading		profit and loss		Total
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		1,112,346		-		-		29,658		1,142,004
Other financial assets, current (*)		23,918		62,348		1,421		472,232		559,919
Trade and others accounts receivable, current		1,214,050		-		-		-		1,214,050
Accounts receivable from related entities, current		2,582		-		-		-		2,582
Other financial assets, non current (*)		87,077		519		494		-		88,090
Accounts receivable, non current		6,891		-		-		-		6,891
Total		2,446,864		62,867		1,915		501,890		3,013,536

Liabilities	Other		Held
	financial		Hedge
	liabilities		derivatives		Total
	ThUS$		ThUS$		ThUS$
Other liabilities, current		1,288,749		12,200		1,300,949
Trade and others accounts payable, current		1,695,202		-		1,695,202
Accounts payable to related entities, current		760		-		760
Other financial liabilities, non-current		6,602,891		2,617		6,605,508
Accounts payable, non-current		498,832		-		498,832
Total		10,086,434		14,817		10,101,251

(*)        The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

 F-57

As of December 31, 2016

							Initial designation
Assets	Loans				Held		as fair value
	and		Hedge		for		through
	receivables		derivatives		trading		profit and loss		Total
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		933,805		-		-		15,522		949,327
Other financial assets, current (*)		164,426		11,411		-		536,991		712,828
Trade and others accounts receivable, current		1,107,889		-		-		-		1,107,889
Accounts receivable from related entities, current		554		-		-		-		554
Other financial assets, non current (*)		101,603		-		522		-		102,125
Accounts receivable, non current		8,254		-		-		-		8,254
Total		2,316,531		11,411		522		552,513		2,880,977

Liabilities	Other		Held
	financial		Hedge
	liabilities		derivatives		Total
	ThUS$		ThUS$		ThUS$
Other liabilities, current		1,814,647		24,881		1,839,528
Trade and others accounts payable, current		1,593,068		-		1,593,068
Accounts payable to related entities, current		269		-		269
Other financial liabilities, non-current		6,790,273		6,679		6,796,952
Accounts payable, non-current		359,391		-		359,391
Total		10,557,648		31,560		10,589,208

(*)      The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

 F-58

7.2.      Financial instruments by currency

a)     Assets

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Cash and cash equivalents		1,142,004		949,327
Argentine peso		12,135		7,871
Brazilian real		106,499		97,401
Chilean peso		81,845		30,758
Colombian peso		7,264		4,336
Euro		11,746		1,695
US Dollar		882,114		780,124
Other currencies		40,401		27,142
Other financial assets (current and non-current)		648,009		814,953
Argentine peso		297		337
Brazilian real		475,810		686,501
Chilean peso		26,679		668
Colombian peso		1,928		1,023
Euro		7,853		6,966
US Dollar		133,431		117,346
Other currencies		2,011		2,112
Trade and other accounts receivable, current		1,214,050		1,107,889
Argentine peso		49,958		82,770
Brazilian real		635,890		551,260
Chilean peso		83,415		92,791
Colombian peso		3,249		16,454
Euro		48,286		21,923
US Dollar		257,324		312,394
Other currencies (*)		135,928		30,297
Accounts receivable, non-current		6,891		8,254
Brazilian real		4		4
Chilean peso		6,887		8,250
Accounts receivable from related entities, current		2,582		554
Brazilian real		2		-
Chilean peso		735		554
US Dollar		1,845		-
Total assets		3,013,536		2,880,977
Argentine peso		62,390		90,978
Brazilian real		1,218,205		1,335,166
Chilean peso		199,561		133,021
Colombian peso		12,441		21,813
Euro		67,885		30,584
US Dollar		1,274,714		1,209,864
Other currencies		178,340		59,551

(*)     See the composition of the others currencies in Note 8 Trade, other accounts receivable and non-current accounts receivable.

b) Liabilities

Liabilities information is detailed in the table within Note 3 Financial risk management.

 F-59

NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON-CURRENT ACCOUNTS RECEIVABLE

	As of			As of
	December 31,			December 31,
	2017			2016
	ThUS$			ThUS$
Trade accounts receivable		1,175,796			1,022,933
Other accounts receivable		133,054			170,264
Total trade and other accounts receivable		1,308,850			1,193,197
Less: Allowance for impairment loss		(87,909	)		(77,054	)
Total net trade and accounts receivable		1,220,941			1,116,143
Less: non-current portion – accounts receivable		(6,891	)		(8,254	)
Trade and other accounts receivable, current		1,214,050			1,107,889

The fair value of trade and other accounts receivable does not differ significantly from the book value.

The maturity of these accounts at the end of each period is as follows:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Fully performing		1,040,671		907,358
Matured accounts receivable, but not impaired
Expired from 1 to 90 days		34,153		27,651
Expired from 91 to 180 days		10,141		9,303
More than 180 days overdue (*)		2,922		1,567
Total matured accounts receivable, but not impaired		47,216		38,521
Matured accounts receivable and impaired Judicial, pre-judicial collection and protested documents		43,175		34,909
Debtor under pre-judicial collection process and portfolio sensitization		44,734		42,145
Total matured accounts receivable and impaired		87,909		77,054
Total		1,175,796		1,022,933

(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision.

 F-60

Currency balances that make up the Trade and other accounts receivable and non-current accounts receivable are the following:

	As of		As of
	December 31,		December 31,
Currency	2017		2016
	ThUS$		ThUS$
Argentine Peso		49,958		82,770
Brazilian Real		635,894		551,264
Chilean Peso		90,302		101,041
Colombian peso		3,249		16,454
Euro		48,286		21,923
US Dollar		257,324		312,394
Other currency (*)		135,928		30,297
Total		1,220,941		1,116,143
(*) Other currencies
Australian Dollar		40,303		5,487
Chinese Yuan		37		271
Danish Krone		197		151
Pound Sterling		5,068		3,904
Indian Rupee		3,277		303
Japanese Yen		18,756		2,601
Norwegian Kroner		133		184
Swiss Franc		2,430		1,512
Korean Won		18,225		4,241
New Taiwanese Dollar		2,983		662
Other currencies		44,519		10,938
Total		135,928		30,254

The Company records allowances when there is evidence of impairment of trade receivables. The criteria used to determine that there is objective evidence of impairment losses are the maturity of the portfolio, specific acts of damage (default) and specific market signals.

Maturity	Impairment
Judicial and pre-judicial collection assets		100	%
Over 1 year		100	%
Between 6 and 12 months		50	%

 F-61

Movement in the allowance for impairment loss of Trade and other accounts receivables are the following:

	Opening					(Increase)			Closing
	balance			Write-offs		Decrease			balance
Periods	ThUS$			ThUS$		ThUS$			ThUS$
From January 1 to December 31, 2015		(71,042	)		10,120		850			(60,072	)
From January 1 to December 31, 2016		(60,072	)		20,910		(37,892	)		(77,054	)
From January 1 to December 31, 2017		(77,054	)		8,249		(19,104	)		(87,909	)

Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.

Historic and current re-negotiations are not relevant and the policy is to analyze case by case in order to classify them according to the existence of risk, determining whether it is appropriate to re-classify accounts to pre-judicial recovery. If such re-classification is justified, an allowance is made for the account, whether overdue or falling due.

The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.

As of December 31, 2017

As of December 31, 2016

Gross exposure

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

1,175,796

(87,909

)

1,087,887

1,022,933

(77,054

)

945,879

Other accounts receivable

133,054

-

133,054

170,264

-

170,264

There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.

 F-62

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

(a)       Accounts Receivable

					As of		As of
			Country		December 31,		December 31,
Tax No.	Related party	Relationship	of origin	Currency	2017		2016
					ThUS$		ThUS$
Foreign	Qatar Airways	Indirect shareholder	Qatar	ThU$		1,845		-
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		728		538
Foreign	TAM Aviação Executiva e
	Taxi Aéreo S.A.	Related director	Brazil	BRL		2		-
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	CLP		5		14
96.810.370-9	Inversiones Costa Verde
	Ltda. y CPA.	Related director	Chile	CLP		2		2
	Total current assets					2,582		554

(b)       Accounts payable

					As of		As of
			Country		December 31,		December 31,
Tax No.	Related party	Relationship	of origin	Currency	2017		2016
					ThUS$		ThUS$
78.997.060-2	Viajes Falabella Ltda.	Related director	Chile	CLP		534		46
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		12		6
Foreign	Inversora Aeronáutica Argentina S.A.	Related director	Argentina	ThUS$		4		2
65.216.000-K	Comunidad Mujer	Related director	Chile	CLP		-		13
Foreign	Consultoría Administrativa
	Profesional S.A. de C.V.	Related company	México	MXN		210		170
Foreign	TAM Aviação Executiva
	e Taxi Aéreo S.A.	Related director	Brazil	BRL		-		28
79.773.440-3	Transportes San Felipe S.A	Common property	Chile	CLP		-		4
	Total current liabilities					760		269

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary.

 F-63

NOTE 10 -INVENTORIES

The composition of Inventories is as follows:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Technical stock		195,530		191,864
Non-technical stock		41,136		49,499
Total		236,666		241,363

The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence, as per the following detail:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Provision for obsolescence Technical stock		21,839		31,647
Provision for obsolescenceNon-technical stock		6,488		3,429
Total		28,327		35,076

The resulting amounts do not exceed the respective net realization values.

As of December 31, 2017, the Company recorded ThUS$ 155,421 (ThUS$ 167,365 at December 31, 2016) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

 F-64

NOTE 11 - OTHER FINANCIAL ASSETS

The composition of other financial assets is as follows:

	Current Assets				Non-current assets				Total Assets
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)      Other financial assets
Private investment funds		472,232		536,991		-		-		472,232		536,991
Deposits in guarantee (aircraft)		15,690		16,819		41,058		56,846		56,748		73,665
Guarantees for margins of derivatives		2,197		939		-		-		2,197		939
Other investments		-		-		494		522		494		522
Domestic and foreign bonds		1,421		-		-		-		1,421		-
Other guarantees given		6,031		140,733		46,019		44,757		52,050		185,490
Other		-		5,935		-		-		-		5,935
Subtotal of other financial assets		497,571		701,417		87,571		102,125		585,142		803,542
(b)      Hedging assets
Interest accrued since the last payment date
of Cross currency swap		202		64		-		-		202 64
Fair value of interest rate derivatives		3,113		-		-		-		3,113		-
Fair value of foreign currency derivatives		48,322		1,259		519		-		48,841		1,259
Fair value of fuel price derivatives		10,711		10,088		-		-		10,711		10,088
Subtotal of hedging assets		62,348		11,411		519		-		62,867		11,411
Total Other Financial Assets		559,919		712,828		88,090		102,125		648,009		814,953

The types of derivative hedging contracts maintained by the Company at the end of each period are described in Note 19.

 F-65

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		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)   Advance payments
Aircraft leases		31,322		37,560		4,718		14,065		36,040		51,625
Aircraft insurance and other		17,681		14,717		-		-		17,681		14,717
Others		10,012		4,521		1,186		1,573		11,198		6,094
Subtotal advance payments		59,015		56,798		5,904		15,638		64,919		72,436
(b)   Other assets
Aircraft maintenance reserve (*)		21,505		51,576		51,836		90,175		73,341		141,751
Sales tax		137,866		102,351		37,959		40,232		175,825		142,583
Other taxes		2,475		500		-		-		2,475		500
Contributions to Société Internationale  de Télécommunications Aéronautiques ("SITA")		327		406		670		591		997		997
Judicial deposits		-		-		124,438		90,604		124,438		90,604
Others		-		611		-		104		-		715
Subtotal other assets		162,173		155,444		214,903		221,706		377,076		377,150
Total Other Non - Financial Assets		221,188		212,242		220,807		237,344		441,995		449,586

(*) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.

These amounts are calculated based on performance measures, such as flight hours or cycles, are paid periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.

In some cases (five lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. The cost of aircraft maintenance in the last years has been higher than the related maintenance reserves for all aircraft.

As of December 31, 2017, maintenance reserves total ThUS $ 73,341 (ThUS $ 141,751 as of December 31, 2016), corresponding to 14 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.

Aircraft maintenance reserves are classified as current or non-current depending on the dates when the related maintenance is expected to be performed (Note 2.23)

 F-66

NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

Non-current assets and in disposal groups held for sale at December 31, 2017 and December 31, 2016 are detailed below:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Current assets
Aircraft		236,022		281,158
Engines and rotables		9,197		29,083
Other assets		45,884		26,954
Total		291,103		337,195
Current liabilities
Other liabilities		15,546		10,152
Total		15,546		10,152

The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.

(a) Assets reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale

During 2016, two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 aircraft, two Boeing 777 aircraft, eight A330 spare engines, A330 rotables and two buildings under the heading Non-current assets were transferred from the Property, plant and equipment heading. or groups of assets for disposal, classified as held for sale.

As a result, as of December 31, 2016, an adjustment of US $ 55 million was recorded to write down these assets to their net.

During 2016, two Airbus A319 aircraft, one Airbus A320 aircraft, two Airbus A330 aircraft, one A330 spare engine and D200 rotables were sold.

During 2017, an adjustment of US $ 17.4 million was recognized to record these assets at their net realizable value.

In addition, during 2017 seven Airbus A330 Spare engines and twoAirbus A330 aircraft were sold.

 F-67

The detail of fleet classified as non-current assets or groups of assets for disposal classified as held for sale is the following:

	As of			As of
	December 31,			December 31,
Aircraft	2017			2016
Boeing 777 Freighter		2	(*)		2	(*)
Airbus A330-200		1			3
Airbus A320-200		1			1
ATR42-300		1			1
Total		5			7

(*) One aircraft leased to DHL.

(b)       Assets reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale

During in the first quarter of 2017, stocks of the fleet Airbus A330, were reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale.

During 2017 an adjustment of US $ 1.3 million was recognized to record these assets at their net realizable value.

In addition, during 2017 part of the A330 inventory was sold.

NOTE 14 - INVESTMENTS IN SUBSIDIARIES

(a)       Investments in subsidiaries

The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.

Detail of significant subsidiaries and summarized financial information:

			Ownership
			As of		As of
	Country of	Functional	December 31,		December 31,
Name of significant subsidiary	incorporation	currency	2017		2016
			%		%
Lan Perú S.A.	Peru	US$		70.00000		70.00000
Lan Cargo S.A.	Chile	US$		99.89803		99.89803
Lan Argentina S.A.	Argentina	ARS		99.86560		99.86560
Transporte Aéreo S.A.	Chile	US$		100.00000		100.00000
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.	Ecuador	US$		100.00000		100.00000
Aerovías de Integración Regional, AIRES S.A.	Colombia	COP		99.19061		99.19061
TAM S.A.	Brazil	BRL		99.99938		99.99938

The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.

 F-68

Summary financial information of significant subsidiaries

													Results for the period
	Statement of financial position as of December 31, 2017												ended December 31, 2017
	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$
Lan Perú S.A.		315,607		294,308		21,299		303,204		301,476		1,728		1,046,423		1,205
Lan Cargo S.A.		584,169		266,836		317,333		371,934		292,529		79,405		264,544		(30,220	)
Lan Argentina S.A.		198,951		166,445		32,506		143,731		139,914		3,817		387,557		(41,636	)
Transporte Aéreo S.A.		324,498		30,909		293,589		104,357		36,901		67,456		317,436		2,172
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.		96,407		66,166		30,241		84,123		78,817		5,306		219,039		3,722
Aerovías de Integración Regional, AIRES S.A.		138,138		64,160		73,978		91,431		80,081		11,350		279,414		526
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

	Statement of financial position as of December 31, 2016												Results for the period ended December 31, 2016
	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$
Lan Perú S.A.		306,111		283,691		22,420		294,912		293,602		1,310		967,787		(2,164	)
Lan Cargo S.A.		480,908		144,309		336,599		239,728		211,395		28,333		266,296		(24,813	)
Lan Argentina S.A.		216,331		194,306		22,025		200,172		197,330		2,842		371,896		(29,572	)
Transporte Aéreo S.A.		340,940		36,986		303,954		124,805		59,668		65,137		297,247		8,206
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.		89,667		56,064		33,603		81,101		75,985		5,116		219,676		(1,281	)
Aerovías de Integración Regional, AIRES S.A.		129,734		55,132		74,602		85,288		74,160		11,128		277,503		(13,675	)
TAM S.A. (*)		5,287,286		1,794,189		3,493,097		4,710,308		2,837,620		1,872,688		4,145,951		2,107

 F-69

	Statement of financial position as of December 31, 2015												Results for the period ended December 31, 2015
	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$
Lan Perú S.A.		255,691		232,547		23,144		240,938		239,521		1,417		1,078,992		5,068
Lan Cargo S.A.		483,033		159,294		323,739		217,037		147,423		69,614		278,117		(74,408	)
Lan Argentina S.A.		195,756		180,558		15,198		170,384		168,126		2,258		443,317		9,432
Transporte Aéreo S.A.		331,117		41,756		289,361		122,666		44,495		78,171		324,464		5,878
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.		126,001		80,641		45,360		116,153		111,245		4,908		246,402		(1,278	)
Aerovías de Integración Regional,  AIRES S.A.		130,039		62,937		67,102		75,003		64,829		10,174		291,354		(34,079	)
TAM S.A. (*)		4,711,316		1,350,377		3,360,939		4,199,223		1,963,400		2,235,823		4,597,611		(183,812	)

(*) Correspond to consolidated information of TAM S.A. and Subsidiaries.

 F-70

(b)       Non-controlling interest

			As of		As of		As of			As of
		Country	December 31,		December 31,		December 31,			December 31,
Equity	Tax No.	of origin	2017		2016		2017			2016
			%		%		ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		3,722			3,360
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10196		849			957
Promotora Aérea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		51.00000		51.00000		4,578			3,162
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0,13940		0.70422		3,502			515
Lan Argentina S.A.	0-E	Argentina		0,02842		0.13440		79			(311	)
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		1			1
Americonsult Costa Rica S.A.	0-E	Costa Rica		1.00000		1.00000		12			12
Linea Aérea Carguera de Colombiana S.A.	0-E	Colombia		10.00000		10.00000		(520	)		(905	)
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.80944		0.80944		461			436
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		1,324			1,104
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		77,139			80,313
Total								91,147			88,644

			As of		As of		As of		For the period ended
		Country	December 31,		December 31,		December 31,		December 31,
Incomes	Tax No.	of origin	2017		2016		2015		2017			2016			2015
			%		%		%		ThUS$			ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		30.00000		360			(649	)		1,521
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10196		0.10605		(4	)		(7	)		(69	)
Promotora Aerea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		51.00000		51.00000		51.00000		1,416			96			1,349
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0,13940		0.70422		0.70422		117			364			281
Lan Argentina S.A.	0-E	Argentina		0,02842		0.13440		1.00000		24			77			61
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		1.00000		-			(4	)		1
Americonsult Costa Rica S.A.	0-E	Costa Rica		1.00000		1.00000		1.00000		-			-			5
Linea Aérea Carguera de Colombiana S.A.	0-E	Colombia		10.00000		10.00000		10.00000		398			(106	)		14
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.80944		0.80944		0.98307		4			(140	)		(335	)
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		5.02000		299			146			431
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		27.26000		42,796			41,673			37,283
Total										45,410			41,450			40,542

 F-71

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,
	2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$
Airport slots		964,513		978,849		964,513		978,849
Loyalty program		321,440		326,262		321,440		326,262
Computer software		160,970		157,016		509,377		419,652
Developing software		123,415		91,053		123,415		91,053
Trademarks (1)		46,909		57,133		62,539		63,730
Other assets		-		-		-		808
Total		1,617,247		1,610,313		1,981,284		1,880,354

Movement in Intangible assets other than goodwill:

	Computer									Trademarks
	software			Developing			Airport			and loyalty
	Net			software			slots (2)			program (1) (2)			Total
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2015		126,797			74,050			1,201,028			478,204			1,880,079
Additions		4,954			48,270			-			-			53,224
Withdrawals		(4,612	)		(162	)		-			(1	)		(4,775	)
Transfer software		28,726			(30,426	)		-			-			(1,700	)
Foreing exchange		(14,871	)		(16,845	)		(384,041	)		(152,910	)		(568,667	)
Amortization		(36,736	)		-			-			-			(36,736	)
Closing balance as of December 31, 2015		104,258			74,887			816,987			325,293			1,321,425
Opening balance as of January 1, 2016		104,258			74,887			816,987			325,293			1,321,425
Additions		6,688			83,672			-			-			90,360
Withdrawals		(736	)		(191	)		-			-			(927	)
Transfer software		85,029			(74,376	)		-			-			10,653
Foreing exchange		5,689			7,061			161,862			64,447			239,059
Amortization		(43,912	)		-			-			(6,345	)		(50,257	)
Closing balance as of December 31, 2016		157,016			91,053			978,849			383,395			1,610,313
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
Foreing 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

(1) In 2016, after the extensive work of integration after the association between LAN and TAM, during which there has been solid progress in the homologation of the optimization processes of its air connections, in addition to the restructuring and modernization of the fleet of aircraft, the Company has resolved adopt a unique name and identity, and announce that the brand of the group will be LATAM ", which would unite all companies under a single image.

 F-72

Given the above, we have proceeded to review the brands useful life, concluding that these should go from an indefinite to defined useful life. The estimated new useful life is 5 years, equivalent to the period for finishing all the image changes necessary.

(2) See Note 2.5

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs and brands as of December 31, 2017, amounts to ThUS$ 373,463 (ThUS$ 270,041 at December 31, 2016).

NOTE 16 – GOODWILL

The Goodwill amount at December 31, 2017 is ThUS$ 2,672,550 (ThUS$ 2,710,382 at December 31, 2016 and ThUS$ 2,280,575 at December 31, 2015). Movement of Goodwill separated by CGU it includes the following:

				Coalition
Movement of Goodwill, separated by CGU:				and loyalty
	Air			program
	Transport			Multiplus			Total
	ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2015		2,658,503			654,898			3,313,401
Increase (decrease) due to exchange rate differences		(823,415	)		(209,411	)		(1,032,826	)
Closing balance as of December 31, 2015		1,835,088			445,487			2,280,575
Opening balance as of January 1, 2016		1,835,088			445,487			2,280,575
Increase (decrease) due to exchange rate differences		341,813			88,261			430,074
Others		(267	)		-			(267	)
Closing balance as of December 31, 2016		2,176,634			533,748			2,710,382
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

The Company has two cash- generating units (CGUs), “Air transportation” and, “Coalition and loyalty program Multiplus”. The CGU "Air transport" considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, and in a developed series of regional and international routes in America, Europe and Oceania, while the CGU "Coalition and loyalty program Multiplus” works with an integrated network associated companies in Brazil.

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of expected cash flows, 5 years after tax, which are based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated using the estimated growth rates, which do not exceed the average rates of long-term growth.

 F-73

Management establish rates for annual growth, discount, inflation and exchange for each cash generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based on past performance and management's expectations over market developments in each country where it operates. The discount rates used are in American Dollars for the CGU "Air transportation" and Brazilian Reals for CGU "Program coalition loyalty Multiplus", both after taxes and reflect specific risks related to each country where the Company operates. Inflation and exchange rates are based on available data for each country and the information provided by the Central Bank of each country, and the fuel price is determined based on estimated production levels, competitive environment market in which they operate and its business strategy.

As of December 31, 2017 the recoverable values were determined using the following assumptions presented below:

		Air transportation	Coalition and loyalty
		CGU	program Multiplus CGU (2)
Annual growth rate (Terminal)	%	1.0 - 2.0	4.0 - 5.0
Exchange rate (1)	R$/US$	3.3 - 3.9	3.3 - 3.9
Discount rate based on the weighted average cost of capital (WACC)	%	7.55 - 8.55	-
Discount rate based on cost of equity (Ke)	%	-	12.4 - 13.4
Fuel Price from futures price curves commodities markets	US$/barrel	73-78	-

(1) In line with the expectations of the Central Bank of Brazil

(2) The flow, as well as annual growth rte and discount, are denominated in real.

The result of the impairment test, which includes a sensitivity analysis of the main variables, showed that the estimated recoverable amount is higher than carrying value of the book value of net assets allocated to the cash generating unit, and therefore impairment was not detected.

CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:

					Decrease
	Increase		Increase		Minimum
	Maximum		Maximum		terminal
	WACC		CoE		growth rate
	%		%		%
Air transportation CGU		8.55		-		1.0
Coalition and loyalty program Multiplus CGU		-		13.4		4.0

In none of the previous cases impairment in the cash- generating unit was presented.

 F-74 ��

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

The compositionbycategory of Property, plant and equipment is as follows:

	Gross Book Value				Acumulated depreciation						Net Book Value
	As of		As of		As of			As of			As of		As of
	December 31,		December 31,		December 31,			December 31,			December 31,		December 31,
	2017		2016		2017			2016			2017		2016
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$		ThUS$
Construction in progress (*)		556,822		470,065		-			-			556,822		470,065
Land		49,780		50,148		-			-			49,780		50,148
Buildings		190,552		190,771		(66,004	)		(60,552	)		124,548		130,219
Plant and equipment		9,222,540		10,099,587		(2,390,142	)		(2,350,045	)		6,832,398		7,749,542
Own aircraft		8,544,185		9,436,684		(2,138,612	)		(2,123,025	)		6,405,573		7,313,659
Other (**)		678,355		662,903		(251,530	)		(227,020	)		426,825		435,883
Machinery		39,084		39,246		(29,296	)		(26,821	)		9,788		12,425
Information technology equipment		166,713		163,695		(136,557	)		(123,981	)		30,156		39,714
Fixed installations and accessories		186,989		178,363		(106,212	)		(94,451	)		80,777		83,912
Motor vehicles		70,290		96,808		(58,812	)		(67,855	)		11,478		28,953
Leasehold improvements		186,679		192,100		(102,454	)		(87,559	)		84,225		104,541
Other property, plants and equipment		3,640,838		3,005,981		(1,355,475	)		(1,177,351	)		2,285,363		1,828,630
Financial leasing aircraft		3,551,041		2,905,556		(1,328,421	)		(1,152,190	)		2,222,620		1,753,366
Other		89,797		100,425		(27,054	)		(25,161	)		62,743		75,264
Total		14,310,287		14,486,764		(4,244,952	)		(3,988,615	)		10,065,335		10,498,149

(*) As of December 31, 2017, includes pre-delivery payments to aircraft manufacturers for ThUS$ 543,720 (ThUS$ 434,250 as of December 31, 2016)

(**) Mainly considers rotable and tools.

 F-75

(a)        Movement in the different categories of Property, plant and equipment:

																										Other
														Information			Fixed									property,			Property,
										Plant and				technology			installations			Motor			Leasehold			plant and			Plant and
	Construction						Buildings			equipment				equipment			& accessories			vehicles			improvements			equipment			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, 2015		937,279			57,988			167,006			6,954,089				51,009			43,783			1,965			56,523			2,503,434			10,773,076
Additions		39,711			-			439			1,304,199				15,322			1,692			280			13,188			64,226			1,439,057
Disposals		-			-			(500	)		(76,675	)	(1)		(27	)		-			(8	)		-			(11	)		(77,221	)
Retirements		(1,262	)		-			(956	)		(38,240	)			(104	)		(476	)		(4	)		-			(8,902	)		(49,944	)
Depreciation expenses		-			-			(7,161	)		(521,688	)			(16,196	)		(11,649	)		(378	)		(13,973	)		(174,474	)		(745,519	)
Foreing exchange		(932	)		(11,786	)		(18,248	)		(129,933	)			(6,126	)		(13,269	)		(638	)		(1,659	)		(252,709	)		(435,300	)
Other increases (decreases)		168,016			(889	)		(49,089	)		(150,677	)			11			68,877			308			9			(2,058	)		34,508
Changes, total		205,533			(12,675	)		(75,515	)		386,986				(7,120	)		45,175			(440	)		(2,435	)		(373,928	)		165,581
Closing balance as of December 31, 2015		1,142,812			45,313			91,491			7,341,075				43,889			88,958			1,525			54,088			2,129,506			10,938,657
Opening balance as of January 1, 2016		1,142,812			45,313			91,491			7,341,075				43,889			88,958			1,525			54,088			2,129,506			10,938,657
Additions		14,481			-			272			1,301,093				7,392			292			6			54,181			13,013			1,390,730
Disposals		-			-			-			(16,918	)	(2)		(59	)		-			(32	)		-			(2,972	)		(19,981	)
Retirements		(284	)		-			(68	)		(39,816	)			(55	)		(1,258	)		-			-			(2,604	)		(44,085	)
Depreciation expenses		-			-			(6,234	)		(562,131	)			(14,909	)		(13,664	)		(293	)		(23,283	)		(124,038	)		(744,552	)
Foreing exchange		5,081			4,835			2,538			51,770				2,924			9,384			223			2,849			93,383			172,987
Other increases (decreases)		(692,025	)		-			42,220			(285,198	)	(3)		532			200			(384	)		16,706			(277,658	)		(1,195,607	)
Changes, total		(672,747	)		4,835			38,728			448,800				(4,175	)		(5,046	)		(480	)		50,453			(300,876	)		(440,508	)
Closing balance as of December 31, 2016		470,065			50,148			130,219			7,789,875				39,714			83,912			1,045			104,541			1,828,630			10,498,149
Opening balance as of January 1, 2017		470,065			50,148			130,219			7,789,875				39,714			83,912			1,045			104,541			1,828,630			10,498,149
Additions		11,145			-			-			258,615				5,708			329			77			8,156			41,483			325,513
Disposals		-			-			-			(16,004	)			(6	)		(10	)		(43	)		-			(27	)		(16,090	)
Retirements		(127	)		-			(6	)		(24,341	)			(473	)		(497	)		-			-			(1,610	)		(27,054	)
Depreciation expenses		-			-			(7,946	)		(496,857	)			(14,587	)		(14,124	)		(187	)		(27,266	)		(204,237	)		(765,204	)
Foreing exchange		107			(368	)		(275	)		(4,603	)			(183	)		(820	)		(8	)		(243	)		(5,113	)		(11,506	)
Other increases (decreases)		75,632			-			2,556			(653,457	)			(17	)		11,987			(448	)		(963	)		626,237			61,527
Changes, total		86,757			(368	)		(5,671	)		(936,647	)			(9,558	)		(3,135	)		(609	)		(20,316	)		456,733			(432,814	)
Closing balance as of December 31, 2017		556,822			49,780			124,548			6,853,228				30,156			80,777			436			84,225			2,285,363			10,065,335

(1) During the first half of 2015 three Airbus A340 aircraft were sold.

During the second half of 2015 seven Dash-200 aircraft were sold.

During the second half of 2015 two Airbus A319 aircraft were sold.

(2) During 2016 the sale of two Airbus A330 aircraft was materialized.

(3) During 2016 the reclassification to non-current assets or groups of assets for disposal classified as held for sale (see Note 13) of two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 aircraft and two Boeing 777 aircraft was materialized.

 F-76

(b)       Composition of the fleet:

		Aircraft included
		in Property,						Operating					Total
		plant and equipment						leases					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	2017			2016			2017			2016		2017			2016
Boeing 767	300ER		34			34			2			3		36			37
Boeing 767	300F		8	(1)		8	(1)		2			3		10	(1)		11	(1)
Boeing 777	300ER		4			4			6			6		10			10
Boeing 777	Freighter		-			-			-			2		-			2
Boeing 787	800		6			6			4			4		10			10
Boeing 787	900		4			4			10			8		14			12
Airbus A319	100		37			36			9			12		46			48
Airbus A320	200		93	(2)		93			38			53		131	(2)		146
Airbus A320	NEO		1			1			3			1		4			2
Airbus A321	200		30			30			17			17		47			47
Airbus A350	900		5	(3)		5			2	(3)		2		7	(3)		7
Total			222			221			93			111		315			332

(1) Two aircraft leased to FEDEX as of December 2017; three aircraft as of December 2016.

(2) Three aircraft leased to Salam Air and one to Sundair

(3) Four aircraft leased to Qatar Air. Two in operating leases and two in Properties, plant and equipment.

(c)       Method used for the depreciation of Property, plant and equipment:

		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		23
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		5
Other property, plant  and equipment	Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)		10		23

(*) Except for the Boeing 767 300ER and Boeing 767 300F fleets which consider a lower residual value due to the extension of their useful life to 22 and 23 years respectively. Additionally certain technical components, which are depreciated based on the basis of cycles and flight hours.

The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values ​​are estimated according to market value at the end of such contracts.

(**) Aircraft with remarketing clause are those that are required to sell at the end of the contract.

 F-77

As of December 31, 2017, the deferred charge for the period, which is included in the consolidated statement of income, amounts to ThUS $ 765,204 (ThUS $ 744,552 as of December 31, 2016). This charge is recognized in the items of cost of sales and administrative expenses of the consolidated statement of income.

(d)       Additional information regarding Property, plant and equipment:

(i)       Property, plant and equipment pledged as guarantee:

Description of Property, plant and equipment pledged as guarantee:

			As of				As of
			December 31,				December 31,
			2017				2016
Guarantee	Assets		Existing		Book		Existing		Book
agent (*)	committed	Fleet	Debt		Value		Debt		Value
			ThUS$		ThUS$		ThUS$		ThUS$
Wilmington	Aircraft and engines	Airbus A321 / A350		637,934		721,602		596,224		722,979
Trust Company		Boeing 767		593,655		888,948		811,723		1,164,364
		Boeing 787		720,267		842,127		739,031		899,445
				-		-
Banco Santander S.A.	Aircraft and engines	Airbus A319		-		-		50,671		91,889
		Airbus A320		199,165		291,649		462,950		709,788
		Airbus A321		29,296		40,584		32,853		44,227
				-		-
BNP Paribas	Aircraft and engines	Airbus A319		84,767		136,407		134,346		228,384
		Airbus A320		110,267		175,650		128,173		181,838
				-
Credit Agricole	Aircraft and engines	Airbus A319		20,874		38,826		26,014		37,389
		Airbus A320		46,895		98,098		71,794		144,157
		Airbus A321		30,322		85,463		40,609		93,110
				-		-		-
Wells Fargo	Aircraft and engines	Airbus A320		224,786		306,660		252,428		333,419
						-
Bank of Utah	Aircraft and engines	Airbus A320 / A350		614,632		666,665		670,826		709,280
				-		-
Natixis	Aircraft and engines	Airbus A320		34,592		72,388		45,748		66,738
		Airbus A321		378,418		481,397		377,104		514,625
				-		-
Citibank N. A.	Aircraft and engines	Airbus A320		94,882		141,817		111,243		166,370
		Airbus A321		36,026		72,741		42,867		70,166
				-		-
KfW IPEX-Bank	Aircraft and engines	Airbus A319		5,592		5,505		7,494		6,360
		Airbus A320		21,296		30,513		28,696		36,066
Airbus Financial Services	Aircraft and engines	Airbus A319		22,927		26,973		30,199		33,823
PK AirFinance US, Inc.	Aircraft and engines	Airbus A320		46,500		56,539		54,786		46,341
JP Morgan	Aircraft and engines	Boeing 777 (1)		169,674		216,000		192,671		236,400
Banco BBVA	Land and buildings (2)			55,801		66,876		50,381		69,498
Total direct guarantee				4,178,568		5,463,428		4,958,831		6,606,656

(*) Due to the characteristics of a syndicated loan, the guarantee agent is the representative of the creditors.

(1) These assets are classified under Non-current assets and disposal group classified as held for sale

(2) Corresponds to a debt classified in item loans to exporters (see Note 19).

The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying value of the goods provided as guarantees.

 F-78

Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at December 31, 2017 amounted to ThUS$ 1,087,052 (ThUS$ 913,494 at December 31, 2016). The book value of assets with indirect guarantees as of December 31, 2017 amounts to ThUS$ 2,222,620 (ThUS$ 1,740,815 as of December 31, 2016).

(ii)       Commitments and others

Fully depreciated assets and commitments for future purchases are as follows:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Gross book value of fully depreciated property, plant and equipment still in use		136,811		116,386
Commitments for the acquisition of aircraft (*)		15,400,000		15,100,000
(*) Acording to the manufacturer’s price list.

Purchase commitment of aircraft

	Year of delivery
Manufacturer	2018		2019		2020		2021		2022		Total
Airbus S.A.S.		13		11		16		21		11		72
A320-NEO		7		3		9		8		5		32
A321		-		1		-		-		-		1
A321-NEO		2		3		5		5		4		19
A350-1000		-		-		2		8		2		12
A350-900		4		4		-		-		-		8
The Boeing Company		-		6		2		2		-		10
Boeing 777		-		2		-		-		-		2
Boeing 787-9		-		4		2		2		-		8
Total		13		17		18		23		11		82

As of December 31, 2017, as a result of the different aircraft purchase agreements signed with Airbus SAS, there remain 52 Airbus aircraft of the A320 family, with deliveries between 2018 and 2022, and 20 Airbus aircraft of the A350 family with dates of delivery between 2018 and 2022.

The approximate amount is ThUS$ 12,600,000, according to the manufacturer’s price list.

As of December 31, 2017, as a result of the different aircraft purchase agreements signed with The Boeing Company, there are 8 Boeing 787 Dreamliner aircraft remaining, with delivery dates between 2019 and 2021, and 2 Boeing 777 aircraft, with delivery scheduled for the year 2019.

The approximate amount, according to the manufacturer's list prices, is ThUS $ 2,800,000.

 F-79

(iii) Capitalized interest costs with respect to Property, plant and equipment.

		For the periods ended
		December 31,
			2017	2016		2015
Average rate of capitalization of capitalized interest costs	%		4.21	3.54		2.79
Costs of capitalized interest	ThUS$		11,053	(696	)	22,551

(iv) Financial leases

The detail of the main financial leases is as follows:

			As of		As of
			December 31,		December 31,
Lessor	Aircraft	Model	2017		2016
Bandurria Leasing Limitd	Airbus A319	100		3		-
Bandurria Leasing Limitd	Airbus A320	200		4		-
Becacina Leasing LLC	Boeing 767	300ER		1		1
Caiquen Leasing LLC	Boeing 767	300F		1		1
Cernicalo Leasing LLC	Boeing 767	300F		-		2
Cisne Leasing LLC	Boeing 767	300ER		2		2
Codorniz Leasing Limited	Airbus A319	100		-		2
Conure Leasing Limited	Airbus A320	200		2		2
Flamenco Leasing LLC	Boeing 767	300ER		1		1
FLYAFI 1 S.R.L.	Boeing 777	300ER		1		1
FLYAFI 2 S.R.L.	Boeing 777	300ER		1		1
FLYAFI 3 S.R.L.	Boeing 777	300ER		1		1
Garza Leasing LLC	Boeing 767	300ER		1		1
General Electric Capital Corporation	Airbus A330	200		-		3
Intraelo BETA Corpotation (KFW)	Airbus A320	200		-		1
Jilguero Leasing LLC	Boing B767	300ER		3		-
Loica Leasing Limited	Airbus A319	100		2		2
Loica Leasing Limited	Airbus A320	200		2		2
Mirlo Leasing LLC	Boeing 767	300ER		1		1
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)	Airbus A320	200		1		1
NBB São Paulo Lease CO. Limited (BBAM)	Airbus A321	200		1		1
Osprey Leasing Limited	Airbus A319	100		8		8
Patagon Leasing Limited	Airbus A319	100		3		-
Petrel Leasing LLC	Boeing 767	300ER		1		1
Pilpilen Leasing Limited	Airbus A320	200		-		4
Pochard Leasing LLC	Boeing 767	300ER		2		2
Quetro Leasing LLC	Boeing 767	300ER		3		3
SG Infraestructure Italia S.R.L.	Boeing 777	300ER		1		1
SL Alcyone LTD (Showa)	Airbus A320	200		1		1
Torcaza Leasing Limited	Airbus A320	200		8		-
Tricahue Leasing LLC	Boeing 767	300ER		3		3
Wacapou Leasing S.A	Airbus A320	200		1		1
Wells Fargo Bank North National Association	Airbus A319	100		1		-
Total				60		50

 F-80

Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.

Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircrafts, perform maintenance on the aircrafts and update the airworthiness certificates at their own cost.

The assets acquired under the financial leasing modality are classified under Other property, plant and equipment. As of December 31, 2017, the Company registered sixty aircraft under this modality (fifty aircraft as of December 31, 2016).

The book value of assets under financial leases as of December 31, 2017 amounts to ThUS$ 2,107,526 (ThUS$ 1,753,366 at December 31, 2016).

The minimum payments under financial leases are as follows:

	As of December  31, 2017							As of December  31, 2016							As of December  31, 2015
	Gross					Present		Gross					Present		Gross					Present
	Value		Interest			Value		Value		Interest			Value		Value		Interest			Value
	ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$
No later than one year		303,863		(32,447	)		271,416		285,168		(32,365	)		252,803		360,862		(47,492	)		313,370
Between one and five years		835,696		(30,050	)		805,646		704,822		(43,146	)		661,676		1,003,237		(75,363	)		927,874
Over five years		36,788		(816	)		35,972		43,713		(120	)		43,593		95,050		(1,406	)		93,644
Total		1,176,347		(63,313	)		1,113,034		1,033,703		(75,631	)		958,072		1,459,149		(124,261	)		1,334,888

NOTE 18 - CURRENT AND DEFERRED TAXES

In the period ended December 31, 2017, the income tax provision was calculated for such period, applying the rate of 25.5% for the business year 2017, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.

Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System" is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System" the top rate would reach 25% in 2017.

As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System", unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System". This decision was taken in the last quarter of 2016.

On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System" and could not elect to use the other system.

The Partially Integrated Taxation System is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.

 F-81

Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities always correspond to the same entity and tax authority.

(a) Current taxes

(a.1)       The composition of the current tax assets is the following:

	Current assets				Non-current assets				Total assets
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provisional monthly
payments (advances)		65,257		43,821		-		-		65,257		43,821
Other recoverable credits		12,730		21,556		17,532		20,272		30,262		41,828
Total assets by current tax		77,987		65,377		17,532		20,272		95,519		85,649

(a.2)       The composition of the current tax liabilities are as follows:

	Current liabilities				Non-current liabilities				Total liabilities
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Income tax provision		3,511		9,632		-		-		3,511		9,632
Additional tax provision		-		4,654		-		-		-		4,654
Total liabilities by current tax		3,511		14,286		-		-		3,511		14,286

(b)       Deferred taxes

The balances of deferred tax are the following:

	Assets						Liabilities
	As of			As of			As of			As of
	December 31,			December 31,			December 31,			December 31,
Concept	2017			2016			2017			2016
	ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		210,855			11,735			1,401,277			1,387,760
Leased assets		(103,201	)		(35,922	)		275,142			203,836
Amortization		(484	)		(15,820	)		54,335			61,660
Provisions		(9,771	)		222,253			690			(59,096	)
Revaluation of financial instruments		(734	)		-			(4,484	)		(3,223	)
Tax losses		290,973			202,536			(1,188,586	)		(1,126,200	)
Intangibles		-			-			406,536			430,705
Others		(23,617	)		(202	)		4,787			20,317
Total		364,021			384,580			949,697			915,759

The balance of deferred tax assets and liabilities are composed primarily of temporary differences to be reversed in the long term.

 F-82

Movements of Deferred tax assets and liabilities

(a) From January 1 to December 31, 2015

	Opening			Recognized in			Recognized in			Exchange						Ending
	balance			consolidated			comprehensive			rate						balance
	Assets/(liabilities)			income			income			variation			Others			Asset (liability)
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		(871,640	)		(267,891	)		-			8,540			-			(1,130,991	)
Leased assets		(185,775	)		(73,330	)		-			7,803			-			(251,302	)
Amortization		(160,100	)		84,330			-			4,606			-			(71,164	)
Provisions		351,077			150,362			3,911			(126,813	)		-			378,537
Revaluation of financial instruments		12,806			19,760			(21,103	)		(3,179	)		-			8,284
Tax losses (*)		722,749			320,397			-			(33,364	)		-			1,009,782
Intangibles		(523,275	)		(8,362	)		-			167,323			-			(364,314	)
Others		9,587			45,638			-			(62,182	)		(6,845	)		(13,802	)
Total		(644,571	)		270,904			(17,192	)		(37,266	)		(6,845	)		(434,970	)

(b) From January 1 to December 31, 2016

	Opening			Recognized in			Recognized in			Exchange						Ending
	balance			consolidated			comprehensive			rate						balance
	Assets/(liabilities)			income			income			variation			Others			Asset (liability)
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		(1,130,991	)		(241,435	)		-			(3,599	)		-			(1,376,025	)
Leased assets		(251,302	)		14,833			-			(3,289	)		-			(239,758	)
Amortization		(71,164	)		(4,375	)		-			(1,941	)		-			(77,480	)
Provisions		378,537			(149,969	)		921			53,448			(1,568	)		281,369
Revaluation of financial instruments		8,284			28,294			(34,695	)		1,340			-			3,223
Tax losses (*)		1,009,782			304,892			-			14,062			-			1,328,736
Intangibles		(364,314	)		4,131			-			(70,522	)		-			(430,705	)
Others		(13,802	)		(30,185	)		-			22,234			1,214			(20,539	)
Total		(434,970	)		(73,814	)		(33,774	)		11,733			(354	)		(531,179	)

(c) From January 1 to December 31, 2017

	Opening			Recognized in			Recognized in			Exchange			Ending
	balance			consolidated			comprehensive			rate			balance
	Assets/(liabilities)			income			income			variation			Asset (liability)
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		(1,376,025	)		185,282			-			322			(1,190,421	)
Leased assets		(239,758	)		(138,879	)		-			294			(378,343	)
Amortization		(77,480	)		22,486			-			174			(54,820	)
Provisions		281,369			(286,267	)		(785	)		(4,778	)		(10,461	)
Revaluation of financial instruments		3,223			2,417			(1,770	)		(120	)		3,750
Tax losses (*)		1,328,736			152,081			-			(1,257	)		1,479,560
Intangibles		(430,705	)		24,436			-			(267	)		(406,536	)
Others		(20,539	)		(7,547	)		-			(319	)		(28,405	)
Total		(531,179	)		(45,991	)		(2,555	)		(5,951	)		(585,676	)

 F-83

Deferred tax assets not recognized:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Tax losses		81,155		115,801
Total Deferred tax assets not recognized		81,155		115,801

Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization of future tax benefit By the above at December 31, 2017, the Company has not recognized deferred tax assets of ThUS$ 81,155 (ThUS$ 115,801 at December 31, 2016) according with a loss of ThUS$ 247,920 (ThUS$ 340,591 at December 31, 2016).

Deferred tax expense and current income taxes:

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Current tax expense
Current tax expense		127,024		87,307		92,916
Adjustment to previous period’s current tax		489		2,083		(395	)
Total current tax expense, net		127,513		89,390		92,521
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences		45,991		73,814		(270,904	)
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness		-		-		-
Total deferred tax expense, net		45,991		73,814		(270,904	)
Income tax expense		173,504		163,204		(178,383	)

 F-84

Composition of income tax expense (income):

	For the period ended
	December 31,
	2017		2016			2015
	ThUS$		ThUS$			ThUS$
Current tax expense, net, foreign		100,657		80,600			89,460
Current tax expense, net, Chile		26,856		8,790			3,061
Total current tax expense, net		127,513		89,390			92,521
Deferred tax expense, net, foreign		21,846		119,175			(280,445	)
Deferred tax expense, net, Chile		24,145		(45,361	)		9,541
Deferred tax expense, net, total		45,991		73,814			(270,904	)
Income tax expense		173,504		163,204			(178,383	)

Profit before tax by the legal tax rate in Chile (25.5% and 24.0% at December 31, 2017 and 2016, respectively)

	For the period ended									For the period ended
	December 31,									December 31,
	2017			2016			2015			2017			2016			2015
	ThUS$			ThUS$			ThUS$			%			%			%
Tax expense using the legal rate (*)		95,425			65,449			(89,472	)		25.50			24.00			22.50
Tax effect by change in tax rate (*)		897			-			-			0.24			-			-
Tax effect of rates in other jurisdictions		42,326			16,333			(21,803	)		11.31			5.99			5.48
Tax effect of non-taxable operating revenues		(44,593	)		(62,419	)		(106,381	)		(11.92	)		(22.89	)		26.75
Tax effect of disallowable expenses		35,481			132,469			38,677			9.48			48.58			(9.73	)
Tax effect of the use of tax losses not previously recognized		211			-			-			0.06			-			-
Other increases (decreases) in legal tax charge		43,757			11,372			596			11.69			4.17			(0.15	)
Total adjustments to tax expense using the legal rate		78,079			97,755			(88,911	)		20.86			35.85			22.35
Tax expense using the effective rate		173,504			163,204			(178,383	)		46.36			59.85			44.85

(*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that this law contains, the First- Category Tax rate is gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.

Thus, at December 31, 2017 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.

 F-85

Deferred taxes related to items charged to net equity:

	For the period ended
	December 31,
	2017			2016
	ThUS$			ThUS$
Aggregate deferred taxation of components of other comprehensive income		(2,555	)		(33,774	)
Aggregate deferred taxation related to items charged to net equity		-			(807	)

NOTE 19 - OTHER FINANCIAL LIABILITIES

The composition of other financial liabilities is as follows:

	As of			As of
	December 31,			December 31,
	2017			2016
	ThUS$			ThUS$
Current
(a)  Interest bearing loans		1,288,749			1,814,647
(b)  Hedge derivatives		12,200	��		24,881
Total current		1,300,949			1,839,528
Non-current
(a)  Interest bearing loans		6,602,891			6,790,273
(b)  Hedge derivatives		2,617			6,679
Total non-current		6,605,508			6,796,952

(a) Interest bearing loans

Obligations with credit institutions and debt instruments:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Current
Loans to exporters		314,618		278,164
Bank loans (1)		59,017		290,810
Guaranteed obligations		531,173		578,014
Other guaranteed obligations		2,170		1,908
Subtotal bank loans		906,978		1,148,896
Obligation with the public (2)		14,785		312,043
Financial leases		276,541		268,040
Other loans		90,445		85,668
Total current		1,288,749		1,814,647

 F-86

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Non-current
Bank loans		260,433		294,477
Guaranteed obligations (3)		3,505,669		4,180,538
Other guaranteed obligations		240,007		254,512
Subtotal bank loans		4,006,109		4,729,527
Obligation with the public (4) (5) (6)		1,569,281		997,302
Financial leases		832,964		754,321
Other loans		194,537		309,123
Total non-current		6,602,891		6,790,273
Total obligations with financial institutions		7,891,640		8,604,920

(1) On September 29, 2016 TAM Linhas Aéreas S.A. obtained financing for US$ 200 million, guaranteed with 18% of the shares of Multiplus S.A., percentage adjustable depending on the shares price. Additionally, TAM obtained a hedging economic (Cross Currency Swap) for the same amount and period, in order to convert the commitment currency from US$ to BRL.

On March 30, 2017, TAM Linhas Aéreas S.A. restructured the financing mentioned in the previous paragraph, modifying the nominal amount of the transaction to US $ 137 million.

On September 27, 2017, TAM Linhas Aéreas S.A. made the payment of capital plus interest corresponding to the last installment of the financing described above. Simultaneously, all the garments were lifted on the shares of Multiplus S.A. delivered as collateral.

(2) On April 25, 2017, the payment of the principal plus interest on the long-term bonds issued by the company TAM Capital Inc. for an amount of US$ 300,000,000 at an interest rate of 7.375% annual. The payment consisted of 100% of the capital, US$ 300,000,000, and interest accrued as of the date of payment for ThUS $ 11,063.

(3) On April 10, 2017, the issuance and private placement of debt securities in the amount of US$ 140,000,000 was made under the current structure of the Enhanced Equipment Trust Certificates ("EETC") issued and placed the year 2015 to finance the acquisition of eleven Airbus A321-200, two Airbus A350-900 and four Boeing 787-9 with arrivals between July 2015 and April 2016. The offer is made up of Class C Certificates, which are subordinate to the Current Class A Certificates and Class B Certificates held by the Company. The term of the Class C Certificates is six years and expires in 2023.

(4) On April 11, 2017, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group SA, has issued and placed on the international market, pursuant to Rule 144 -A and Regulation S of the securities laws of the United States of America, long-term unsecured bonds in the amount of US$ 700,000,000, maturing in 2024 at an annual interest rate of 6.875%.

As reported in the essential fact of April 6, 2017, the Issue and placement of the 144-A Bonds was intended to finance general corporate purposes of LATAM.

 F-87

(5) On August 17, 2017, LATAM made the placement in the local market (Santiago Stock Exchange) of the Series A Bonds (BLATM-A), Series B (BLATM-B), Series C (BLATM-) C) and Series D (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in the Securities Registry of the Commission for the Financial Market (“CMF”), under number 862 for a total of UF 9,000,000.

The total amount placed of the Series A Bond was UF 2,500,000; The total amount placed of the Series B Bond was UF 2,500,000. The total amount placed of the Series C Bond was UF 1,850,000. The total amount placed of the Series D Bond was UF 1,850,000, thus totaling UF 8,700,000.

The Series A Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series B Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%. The Series C Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series D Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%.

The proceeds of the placement of the Series A, Series B, Series C and Series D Bonds were allocated in full to the partial financing of the early redemption of the total bonds of TAM Capital 3 inc.

(6) On September 1, 2017, TAM Capital 3 Inc., a company controlled indirectly by TAM S.A. through its subsidiary TAM Linhas Aéreas SA, which consolidates its financial statements with LATAM, made the full advance redemption of the bonds it placed abroad on June 3, 2011, for an amount of US $ 500 million at a 8.375% rate and with an expiration date on June 3, 2021. The total redemption was partially financed with the placement of bonds in the local market described in number (5) above, and the balance, with other funds available from the Company.

All interest-bearing liabilities are recorded according to the effective rate method. Under IFRS, in the case of fixed rate loans, the effective rate determined does not vary over the duration of the loan, whereas in variable rate loans, the effective rate changes to the date of each payment of interest.

Currency balances that make the interest bearing loans:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Currency
Brazilian real		130		1,253
Chilean peso (U.F.)		521,122		203,194
US Dollar		7,370,388		8,400,473
Total		7,891,640		8,604,920

 F-88

Interest-bearing loans due in installments to December 31, 2017

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Loans to exporters
97.032.000-8	BBVA	Chile	ThUS$		75,000		-		-		-		-		75,000		75,781		-		-		-		-		75,781	At Expiration		2.30		2.30
97.032.000-8	BBVA	Chile	UF		-		55,801		-		-		-		55,801		-		55,934		-		-		-		55,934	At Expiration		3.57		2.77
97.036.000-K	SANTANDER	Chile	ThUS$		30,000		-		-		-		-		30,000		30,129		-		-		-		-		30,129	At Expiration		2.49		2.49
97.030.000-7	ESTADO	Chile	ThUS$		40,000		-		-		-		-		40,000		40,071		-		-		-		-		40,071	At Expiration		2.57		2.57
97.003.000-K	BANCO DO BRASIL	Chile	ThUS$		100,000		-		-		-		-		100,000		100,696		-		-		-		-		100,696	At Expiration		2.40		2.40
97.951.000-4	HSBC	Chile	ThUS$		12,000		-		-		-		-		12,000		12,007		-		-		-		-		12,007	At Expiration		2.03		2.03
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		21,298		21,360		42,006		-		-		84,664		21,542		21,360		41,548		-		-		84,450	Quarterly		3.68		3.68
0-E	BLADEX	U.S.A.	ThUS$		-		15,000		15,000		-		-		30,000		-		15,133		14,750		-		-		29,883	Semiannual		5.51		5.51
97.036.000-K	SANTANDER	Chile	ThUS$		-		-		202,284		-		-		202,284		439		-		202,284		-		-		202,723	Quarterly		4.41		4.41
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	ThUS$		-		-		500,000		-		700,000		1,200,000		-		13,047		492,745		-		697,536		1,203,328	At Expiration		7.44		7.03
97.030.000-7	ESTADO	Chile	UF		-		-		-		189,637		189,637		379,274		-		1,738				189,500		189,500		380,738	At Expiration		5.50		5.50
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		7,767		23,840		54,074		12,410		-		98,091		8,101		23,840		52,924		12,026		-		96,891	Quarterly		2.66		2.22
0-E	BNP PARIBAS	U.S.A.	ThUS$		10,929		44,145		114,800		119,948		285,399		575,221		13,328		44,781		111,319		117,987		282,714		570,129	Quarterly		3.41		3.40
0-E	WELLS FARGO	U.S.A.	ThUS$		27,223		82,402		225,221		233,425		240,716		808,987		30,143		82,402		203,371		224,295		236,179		776,390	Quarterly		2.46		1.75
0-E	WILMINGTON TRUST	U.S.A.	ThUS$		20,427		61,669		175,334		183,332		594,091		1,034,853		26,614		61,669		169,506		180,520		590,723		1,029,032	Quarterly		4.48		4.48
0-E	CITIBANK	U.S.A.	ThUS$		11,994		36,501		101,230		104,308		97,184		351,217		13,231		36,501		95,208		101,558		94,807		341,305	Quarterly		3.31		2.47
0-E	BTMU	U.S.A.	ThUS$		2,856		8,689		24,007		25,278		13,904		74,734		3,082		8,689		22,955		24,941		13,849		73,516	Quarterly		2.87		2.27
0-E	APPLE BANK	U.S.A.	ThUS$		1,401		4,278		11,828		12,474		7,242		37,223		1,583		4,278		11,303		12,303		7,212		36,679	Quarterly		2.78		2.18
0-E	US BANK	U.S.A.	ThUS$		15,157		45,992		126,550		132,441		152,693		472,833		17,364		45,992		109,705		125,006		148,318		446,385	Quarterly		4.00		2.82
0-E	DEUTSCHE BANK	U.S.A.	ThUS$		2,965		9,127		25,826		28,202		30,786		96,906		3,534		9,127		25,130		27,739		30,323		95,853	Quarterly		4.39		4.39
0-E	NATIXIS	France	ThUS$		14,645		44,627		107,068		91,823		154,848		413,011		15,642		44,627		105,056		90,823		153,124		409,272	Quarterly		3.42		3.40
0-E	PK AIRFINANCE	U.S.A.	ThUS$		2,163		6,722		19,744		17,871		-		46,500		2,225		6,722		19,744		17,871		-		46,562	Monthly		3.18		3.18
0-E	KFW IPEX-BANK	Germany	ThUS$		2,397		6,678		16,173		1,640		-		26,888		2,428		6,677		16,174		1,640		-		26,919	Quarterly		3.31		3.31
0-E	AIRBUS FINANCIAL	U.S.A.	ThUS$		1,855		5,654		15,416		-		-		22,925		1,900		5,654		15,416		-		-		22,970	Monthly		3.19		3.19
0-E	INVESTEC	England	ThUS$		1,374		7,990		20,440		22,977		10,597		63,378		1,808		8,181		19,801		22,769		10,565		63,124	Semiannual		6.04		6.04
-	SWAP Aviones llegados	-	ThUS$		301		749		765		-		-		1,815		301		749		765		-		-		1,815	Quarterly				-
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		-		-		241,287		-		-		241,287		2,170		-		240,007		-		-		242,177	At Expiration		3.38		3.38
Financial leases
0-E	ING	U.S.A.	ThUS$		5,347		10,779		26,831		-		-		42,957		5,717		10,779		26,500		-		-		42,996	Quarterly		5.67		5.00
0-E	CITIBANK	U.S.A.	ThUS$		11,206		34,267		86,085		49,853		2,863		184,274		12,013		34,267		84,104		49,516		2,859		182,759	Quarterly		3.78		3.17
0-E	PEFCO	U.S.A.	ThUS$		12,526		32,850		22,407		-		-		67,783		12,956		32,850		22,088		-		-		67,894	Quarterly		5.46		4.85
0-E	BNP PARIBAS	U.S.A.	ThUS$		13,146		33,840		48,823		2,296		-		98,105		13,548		33,840		48,253		2,293		-		97,934	Quarterly		3.66		3.25
0-E	WELLS FARGO	U.S.A.	ThUS$		10,630		33,866		91,162		64,471		20,984		221,113		11,460		33,866		88,674		63,860		20,903		218,763	Quarterly		3.17		2.67
97.036.000-K	SANTANDER	Chile	ThUS$		5,459		16,542		45,416		46,472		3,134		117,023		5,813		16,542		44,010		46,153		3,128		115,646	Quarterly		2.51		1.96
0-E	RRPF ENGINE	England	ThUS$		265		2,430		6,856		7,441		8,991		25,983		265		2,430		6,856		7,441		8,991		25,983	Monthly		4.01		4.01
Other loans
0-E	CITIBANK (*)	U.S.A.	ThUS$		21,822		67,859		196,210		-		-		285,891		22,586		67,859		194,537		-		-		284,982	Quarterly		6.00		6.00
	Total				482,153		713,657		2,562,843		1,346,299		2,513,069		7,618,021		508,477		729,534		2,484,733		1,318,241		2,490,731		7,531,716

(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.

 F-89

Interest-bearing loans due in installments to December 31, 2017

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Bank loans
0-E	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	ThUS$		130		401		1,161		690		-		2,382		142		401		1,161		690		-		2,394	Monthly		6.01		6.01
Financial leases
0-E	NATIXIS	France	ThUS$		2,853		6,099		19,682		70,402		-		99,036		3,592		6,099		19,682		70,402		-		99,775	Quarterly/Semiannual		5.59		5.59
0-E	WACAPOU LEASING S.A.	Luxemburg	ThUS$		696		2,125		6,020		3,206		-		12,047		732		2,125		6,020		3,207		-		12,084	Quarterly		3.69		3.69
0-E	SOCIÉTÉ GÉNÉRALE MILAN BRANCH	Italy	ThUS$		8,964		27,525		208,024		-		-		244,513		9,992		27,525		208,024		-		-		245,541	Quarterly		4.87		4.81
0-E	BANCO IBM S.A	Brazil	BRL		21		-		-		-		-		21		21		-		-		-		-		21	Monthly		6.89		6.89
0-E	SOCIETE GENERALE	France	BRL		101		8		-		-		-		109		101		8		-		-		-		109	Monthly		6.89		6.89
	Total				12,765		36,158		234,887		74,298		-		358,108		14,580		36,158		234,887		74,299		-		359,924
	Total consolidated				494,918		749,815		2,797,730		1,420,597		2,513,069		7,976,129		523,057		765,692		2,719,620		1,392,540		2,490,731		7,891,640

 F-90

Interest-bearing loans due in installments to December 31, 2016

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

				Nominal values												Accounting values
						More than		More than		More than								More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to		90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90		to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days		year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Loans to exporters
97.032.000-8	BBVA	Chile	ThUS$		75,000		-		-		-		-		75,000		75,234		-		-		-		-		75,234	At Expiration		1.85		1.85
97.032.000-8	BBVA	Chile	UF		-		50,381		-		-		-		50,381		-		50,324		-		-		-		50,324	At Expiration		5.23		4.43
97.036.000-K	SANTANDER	Chile	ThUS$		30,000		-		-		-		-		30,000		30,183		-		-		-		-		30,183	At Expiration		2.39		2.39
97.030.000-7	ESTADO	Chile	ThUS$		40,000		-		-		-		-		40,000		40,098		-		-		-		-		40,098	At Expiration		1.91		1.91
97.003.000-K	BANCO DO BRASIL	Chile	ThUS$		70,000		-		-		-		-		70,000		70,323		-		-		-		-		70,323	At Expiration		3.08		3.08
97.951.000-4	HSBC	Chile	ThUS$		12,000		-		-		-		-		12,000		12,002		-		-		-		-		12,002	At Expiration		1.79		1.79
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		19,229		57,686		60,186		16,254		-		153,355		19,819		57,686		59,176		16,189		-		152,870	Quarterly		4.06		4.06
0-E	BLADEX	U.S.A.	ThUS$		-		12,500		30,000		-		-		42,500		-		12,667		29,625		-		-		42,292	Semiannual		5.14		5.14
0-E	DVB BANK SE	U.S.A.	ThUS$		-		-		28,911		-		-		28,911		3		-		28,911		-		-		28,914	Quarterly		1.86		1.86
97.036.000-K	SANTANDER	Chile	ThUS$		-		-		158,194		-		-		158,194		542		-		158,194		-		-		158,736	Quarterly		3.55		3.55
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	ThUS$		-		-		-		500,000		-		500,000		2,291		-		-		489,885		-		492,176	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		11,073		29,252		62,209		32,172		3,711		138,417		11,454		29,252		60,781		31,221		3,631		136,339	Quarterly		2.21		1.81
0-E	BNP PARIBAS	U.S.A.	ThUS$		10,496		42,401		111,962		118,181		345,078		628,118		12,792		43,023		108,271		116,067		341,481		621,634	Quarterly		2.97		2.96
0-E	WELLS FARGO	U.S.A.	ThUS$		31,448		95,186		260,112		269,512		400,087		1,056,345		35,211		95,186		233,012		257,387		391,253		1,012,049	Quarterly		2.37		1.68
0-E	WILMINGTON TRUST	U.S.A.	ThUS$		15,554		49,236		135,254		140,848		626,444		967,336		20,997		49,236		130,792		138,455		622,153		961,633	Quarterly		4.25		4.25
0-E	CITIBANK	U.S.A.	ThUS$		17,495		53,162		146,932		154,774		175,805		548,168		19,059		53,162		138,257		150,891		172,087		533,456	Quarterly		2.72		1.96
97.036.000-K	SANTANDER	Chile	ThUS$		5,347		16,204		44,472		46,386		26,165		138,574		5,680		16,204		42,707		45,815		26,063		136,469	Quarterly		1.98		1.44
0-E	BTMU	U.S.A.	ThUS$		2,787		8,470		23,393		24,635		26,705		85,990		3,001		8,470		22,132		24,149		26,519		84,271	Quarterly		2.31		1.72
0-E	APPLE BANK	U.S.A.	ThUS$		1,364		4,167		11,516		12,146		13,561		42,754		1,538		4,166		10,889		11,902		13,464		41,959	Quarterly		2.29		1.69
0-E	US BANK	U.S.A.	ThUS$		14,817		44,958		123,705		129,462		219,666		532,608		17,298		44,958		104,709		120,509		211,895		499,369	Quarterly		3.99		2.81
0-E	DEUTSCHE BANK	U.S.A.	ThUS$		4,992		15,365		24,725		26,984		45,197		117,263		5,570		15,365		24,023		26,515		44,522		115,995	Quarterly		3.86		3.86
0-E	NATIXIS	France	ThUS$		12,289		37,388		98,873		82,066		192,235		422,851		13,038		37,388		97,469		81,130		190,048		419,073	Quarterly		2.60		2.57
0-E	PK AIRFINANCE	U.S.A.	ThUS$		2,018		6,268		18,413		24,944		3,144		54,787		2,071		6,269		18,412		24,944		3,144		54,840	Monthly		2.40		2.40
0-E	KFW IPEX-BANK	Germany	ThUS$		2,288		7,015		17,869		9,019		-		36,191		2,319		7,015		17,869		9,019		-		36,222	Quarterly		2.55		2.55
0-E	AIRBUS FINANCIAL	U.S.A.	ThUS$		1,797		5,476		15,262		7,664		-		30,199		1,841		5,477		15,261		7,664		-		30,243	Monthly		2.49		2.49
0-E	INVESTEC	England	ThUS$		1,298		7,526		19,290		21,667		22,421		72,202		1,771		7,733		18,533		21,368		22,309		71,714	Semiannual		5.67		5.67
-	SWAP Aviones llegados	-	ThUS$		403		1,067		1,658		158		-		3,286		403		1,067		1,658		158		-		3,286	Quarterly		-		-
Other guaranteed obligations
0-E	CREDIT AGRICOLE	France	ThUS$		-		-		256,860		-		-		256,860		1,908		-		254,512		-		-		256,420	Quarterly		2.85		2.85
Financial leases
0-E	ING	U.S.A.	ThUS$		5,089		15,653		31,151		11,805		-		63,698		5,641		15,652		30,577		11,771		-		63,641	Quarterly		5.62		4.96
0-E	CREDIT AGRICOLE	France	ThUS$		1,754		5,403		-		-		-		7,157		1,780		5,403		-		-		-		7,183	Quarterly		1.85		1.85
0-E	CITIBANK	U.S.A.	ThUS$		4,956		15,312		44,177		13,804		-		78,249		5,622		15,312		43,413		13,762		-		78,109	Quarterly		6.40		5.67
0-E	PEFCO	U.S.A.	ThUS$		15,979		47,048		63,957		3,827		-		130,811		16,852		47,048		63,072		3,819		-		130,791	Quarterly		5.39		4.79
0-E	BNP PARIBAS	U.S.A.	ThUS$		12,520		38,494		75,958		22,147		-		149,119		13,122		38,494		74,776		22,079		-		148,471	Quarterly		3.69		3.26
0-E	WELLS FARGO	U.S.A.	ThUS$		4,678		14,261		39,862		42,663		1,862		103,326		5,018		14,260		38,834		42,430		1,861		102,403	Quarterly		3.98		3.54
0-E	DVB BANK SE	U.S.A.	ThUS$		4,680		9,447		-		-		-		14,127		4,713		9,448		-		-		-		14,161	Quarterly		2.57		2.57
0-E	RRPF ENGINE	England	ThUS$		-		-		6,402		6,955		11,917		25,274		-		-		6,402		6,955		11,917		25,274	Monthly		2.35		2.35
Other loans
0-E	BOEING	U.S.A.	ThUS$		-		-		26,214		-		-		26,214		185		-		26,214		-		-		26,399	At Expiration		2.35		2.35
0-E	CITIBANK (*)	U.S.A.	ThUS$		20,555		63,942		184,866		101,026		-		370,389		21,541		63,942		182,043		100,866		-		368,392	Quarterly		6.00		6.00
	Total				451,906		753,268		2,122,383		1,819,099		2,113,998		7,260,654		480,920		754,207		2,040,524		1,774,950		2,082,347		7,132,948

(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.

 F-91

Interest-bearing loans due in installments to December 31, 2016

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

						Nominal values													Accounting values
						More than		More than		More than									More than		More than		More than
				Up to		90 days		one to		three to		More than		Total		Up to			90 days		one to		three to		More than		Total
		Creditor		90		to one		three		five		five		nominal		90			to one		three		five		five		accounting			Effective		Nominal
Tax No.	Creditor	country	Currency	days		year		years		years		years		value		days			year		years		years		years		value		Amortization	rate		rate
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$		ThUS$		ThUS$			%		%
Bank loans
0-E	NEDERLANDSCHE
	CREDIETVERZEKERING MAATSCHAPPIJ	Holland	ThUS$		122		378		1,094		1,234		54		2,882		137			378		1,094		1,233		55		2,897	Monthly		6.01		6.01
0-E	CITIBANK	U.S.A	ThUS$		-		200,000		-		-		-		200,000		(151	)		199,729		-		-		-		199,578	At Expiration		3.39		3.14
Obligation with the public
0-E	THE BANK OF NEW YORK	U.S.A	ThUS$		-		300,000		-		500,000		-		800,000		8,173			301,579		4,119		503,298		-		817,169	At Expiration		8.17		8.00
Financial leases
0-E	AFS INVESTMENT IX LLC	U.S.A	ThUS$		2,086		6,437		18,556		8,369		-		35,448		2,253			6,437		18,556		8,369		-		35,615	Monthly		1.25		1.25
0-E	DVB BANK SE	U.S.A	ThUS$		118		164		-		-		-		282		119			164		-		-		-		283	Monthly		2.50		2.50
0-E	GENERAL ELECTRIC CAPITAL CORPORATION	U.S.A	ThUS$		3,771		5,075		-		-		-		8,846		3,794			5,075		-		-		-		8,869	Monthly		2.30		2.30
0-E	KFW IPEX-BANK	Germany	ThUS$		579		1,544		-		-		-		2,123		583			1,544		-		-		-		2,127	Monthly/Quarterly		2.80		2.80
0-E	NATIXIS	France	ThUS$		2,675		5,732		18,485		38,820		41,731		107,443		3,533			5,732		18,485		38,820		41,731		108,301	Quarterly/Semiannual		4.90		4.90
0-E	WACAPOU LEASING S.A.	Luxemburg	ThUS$		668		2,038		5,768		6,280		-		14,754		709			2,038		5,768		6,280		-		14,795	Quarterly		3.00		3.00
0-E	SOCIÉTÉ GÉNÉRALE MILAN BRANCH	Italy	ThUS$		8,547		26,275		74,783		169,730		-		279,335		9,779			26,275		74,783		169,730		-		280,567	Quarterly		4.18		4.11
0-E	BANCO IBM S.A	Brazil	BRL		260		749		22		-		-		1,031		260			749		21		-		-		1,030	Monthly		13.63		13.63
0-E	HP FINANCIAL SERVICE	Brazil	BRL		222		-		-		-		-		222		222			-		-		-		-		222	Monthly		10.02		10.02
0-E	SOCIETE GENERALE	France	BRL		102		307		110		-		-		519		102			307		110		-		-		519	Monthly		13.63		13.63
	Total				19,150		548,699		118,818		724,433		41,785		1,452,885		29,513			550,007		122,936		727,730		41,786		1,471,972
	Total consolidated				471,056		1,301,967		2,241,201		2,543,532		2,155,783		8,713,539		510,433			1,304,214		2,163,460		2,502,680		2,124,133		8,604,920

 F-92

(b) Hedge derivatives

									Total hedge
	Current liabilities				Non-current liabilities				derivatives
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Accrued interest from the last date of interest rate swap		1,189		2,148		-		-		1,189		2,148
Fair value of interest rate derivatives		8,919		9,578		2,617		6,679		11,536		16,257
Fair value of foreign currency derivatives		2,092		13,155		-		-		2,092		13,155
Total hedge derivatives		12,200		24,881		2,617		6,679		14,817		31,560

The foreign currency derivatives correspond to options, forwards and swaps.

Hedging operation

The fair values of net assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below:

	As of			As of
	December 31,			December 31,
	2017			2016
	ThUS$			ThUS$
Cross currency swaps (CCS) (1)		38,875			(12,286	)
Interest rate swaps (2)		(6,542	)		(16,926	)
Fuel options (3)		10,711			10,088
Currency forward - options US$/GBP$ (4)		-			618
Currency forward - options US$/EUR$ (4)		-			109
Currency options R$/US$ (4)		4,370			(1,752	)
Currency options CLP/US$ (4)		636			-

(1) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate and the exchange rate US$/UF of bank loans. These contracts are recorded as cash flow hedges and fair value.

(2) Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3 months LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedges.

(3) Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges.

(4) Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$, US$/EUR and US$/GBP. These contracts are recorded as cash flow hedges.

 F-93

During the periods presented, the Company only has cash flow and fair value hedges (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will occur and will impact results in the next 3 months from the date of the consolidated statement of financial position, while in the case of hedges of interest rates, these they will occur and will impact results throughout the life of the associated loans, up to their maturity. In the case of currency hedges through a CCS, there is a group of hedging relationships, in which two types of hedge accounting are generated, one of cash flow for the US $ / UF component; and another of fair value, for the floating rate component US $. The other group of hedging relationships only generates cash flow hedge accounting for the US $ / UF component.

During the periods presented, no hedging operations of future highly probable transaction that have not been realized have occurred.

Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.

The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:

	For the period ended
	December 31,
	2017			2016			2015
	ThUS$			ThUS$			ThUS$
Debit (credit) recognized in comprehensive income during the period		18,344			127,390			80,387
Debit (credit) transferred from net equity to income during the period		(15,000	)		(113,403	)		(151,244	)

NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES

The composition of Trade and other accounts payables is as follows:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Current
(a) Trade and other accounts payables		1,349,201		1,117,926
(b) Accrued liabilities at the reporting date		346,001		475,142
Total trade and other accounts payables		1,695,202		1,593,068

 F-94

(a) Trade and other accounts payable:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Trade creditors		1,096,540		876,163
Leasing obligation		4,448		10,446
Other accounts payable		248,213		231,317
Total		1,349,201		1,117,926

The details of Trade and other accounts payables are as follows:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Boarding Fee		249,898		170,053
Aircraft Fuel		219,601		188,276
Suppliers technical purchases		114,690		40,305
Airport charges and overflight		106,534		77,484
Handling and ground handling		103,784		87,406
Other personnel expenses		89,621		81,632
Professional services and advisory		81,679		79,270
Marketing		75,220		61,053
Leases, maintenance and IT services		69,873		44,287
Services on board		68,605		44,589
Air companies		31,381		21,197
Land services		31,151		74,260
Maintenance		26,244		25,962
Crew		24,163		29,074
Achievement of goals		5,732		17,801
Communications		5,273		7,500
Aviation insurance		5,108		7,694
Aircraft and engines leasing		4,285		10,446
SEC agreement (*)		-		4,719
Others		36,359		44,918
Total trade and other accounts payables		1,349,201		1,117,926

(*) Provision made for payments of fines, on July 25, 2016 LATAM reached agreements with the U.S. Department of Justice ("DOJ") U.S. and the Securities and Exchange Commission ("SEC") both authorities of the United States of America, in force as of this date, regarding the investigation on payments by LAN Airlines S.A. made in 2006-2007 to a consultant who advised on the resolution of labor matters in Argentina. The amount to the SEC agreement is ThUS$ 6,744 plus interests of ThUS$ 2,694.

As of December 31, 2017, the debt was paid in full.

 F-95

(b) Liabilities accrued:

		As of		As of
		December 31,		December 31,
		2017		2016
	��	ThUS$		ThUS$
Accrued personnel expenses			125,246		113,785
Aircraft and engine maintenance			92,711		244,949
Accounts payable to personnel (*)			99,862		89,523
Others accrued liabilities			28,182		26,885
Total accrued liabilities			346,001		475,142

(*) Profits and bonds participation (Note 23 letter b)

NOTE 21 - OTHER PROVISIONS

Other provisions:

	Current liabilities				Non-current liabilities				Total Liabilities
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provision for contingencies (1)
Tax contingencies		1,913		1,425		258,305		313,064		260,218		314,489
Civil contingencies		497		993		62,858		56,413		63,355		57,406
Labor contingencies		373		225		28,360		29,307		28,733		29,532
Other		-		-		15,187		15,046		15,187		15,046
Provision for European Commision investigation (2)		-		-		9,883		8,664		9,883		8,664
Total other provisions (3)		2,783		2,643		374,593		422,494		377,376		425,137

(1) Provisions for contingencies:

The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.

The civil contingencies correspond to different demands of civil order filed against the Company.

The labor contingencies correspond to different demands of labor order filed against the Company.

The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.

 F-96

(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.

(3) Total other provision at December 31, 2017, and 2016, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3.

Movement of provisions:

				European
	Legal			Commission
	claims (1)			Investigation (2)			Total
	ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2015		705,552			9,999			715,551
Increase in provisions		54,675			-			54,675
Provision used		(19,522	)		-			(19,522	)
Difference by subsidiaries conversion		(220,266	)		-			(220,266	)
Reversal of provision		(100,740	)		-			(100,740	)
Exchange difference		(1,246	)		(1,033	)		(2,279	)
Closing balance as of December 31, 2015		418,453			8,966			427,419
Opening balance as of January 1, 2016		418,453			8,966			427,419
Increase in provisions		141,797			-			141,797
Provision used		(21,997	)		-			(21,997	)
Difference by subsidiaries conversion		79,396			-			79,396
Reversal of provision		(201,425	)		-			(201,425	)
Exchange difference		249			(302	)		(53	)
Closing balance as of December 31, 2016		416,473			8,664			425,137
Opening balance as of January 1, 2017		416,473			8,664			425,137
Increase in provisions		106,943			-			106,943
Provision used		(14,860	)		-			(14,860	)
Difference by subsidiaries conversion		(5,830	)		-			(5,830	)
Reversal of provision		(135,109	)		-			(135,109	)
Exchange difference		(124	)		1,219			1,095
Closing balance as of December 31, 2017		367,493			9,883			377,376

 F-97

(1) Cumulative balances include judicial deposit delivered as security, with respect to the "Aerovía Fundo" (FA), for US $ 100 million, made in order to suspend the application of the tax credit. The Company is discussing in the Court the constitutionality of the requirement made by FA in a lawsuit. Initially it was covered by the effects of a precautionary measure, this means that the Company would not be obliged to collect the tax, as long as there is no judicial decision in this regard. However, the decision taken by the judge in the first instance was published unfavorably, revoking the injunction. As the lawsuit is still underway (TAM appealed this first decision), the Company needed to make the judicial deposit, for the suspension of the enforceability of the tax credit; deposit that was classified in this item, discounting the existing provision for this purpose. Finally, if the final decision is favorable to the Company, the deposit made will return to TAM. On the other hand, if the court confirms the first decision, said deposit will become a final payment in favor of the Government of Brazil. The procedural stage as of December 31, 2017 is described in Note 31 in the Role of the case 2001.51.01.012530-0.

(2) European Commission Provision:

Provision constituted on the occasion of the process initiated in December 2007 by the General Competition Directorate of the European Commission against more than 25 cargo airlines, among which is Lan Cargo SA, which forms part of the global investigation initiated in 2006 for possible infractions of free competition in the air cargo market, which was carried out jointly by the European and United States authorities.

With respect to Europe, the General Directorate of Competition imposed fines totaling € 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros) for infractions of European Union regulations on free competition against eleven (11) airlines, among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A. For its part, LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these infractions, an amount that was provisioned in the financial statements of LATAM. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the Court of Justice of the European Union. On December 16, 2015, the European Court resolved the appeal and annulled the Commission's Decision. The European Commission did not appeal the judgment, but on March 17, 2017, the European Commission again adopted its original decision to impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of 776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed the same fine of 8.2 million Euros. The procedural stage as of December 31, 2017 is described in Note 31 in section (ii) judgments received by LATAM Airlines Group S.A. and Subsidiaries.

 F-98

NOTE 22 - OTHER NON-FINANCIAL LIABILITIES

	Current liabilities				Non-current liabilities				Total Liabilities
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Deferred revenues (*)		2,690,961		2,655,086		158,305		213,781		2,849,266		2,868,867
Sales tax		22,902		19,402		-		-		22,902		19,402
Retentions		38,197		45,542		-		-		38,197		45,542
Others taxes		8,695		7,465		-		-		8,695		7,465
Dividends payable		46,590		20,766		-		-		46,590		20,766
Other sundry liabilities		16,618		13,984		-		-		16,618		13,984
Total other non-financial liabilities		2,823,963		2,762,245		158,305		213,781		2,982,268		2,976,026

(*) Note 2.20.

The balance comprises, mainly, deferred income by services not yet rendered at December 31, 2017 and 2016; and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:

LATAM Pass is the frequent passenger program created by LAN to reward the preference and loyalty of its customers with multiple benefits and privileges, through the accumulation of kilometers that can be exchanged for free flight tickets or for a varied range of products and services. Customers accumulate LATAM Pass kilometers every time they fly on LAN, TAM, oneworld® member companies and other airlines associated with the program, as well as buying at stores or using the services of a vast network of companies that have an agreement with the program around the world.

For its part, TAM, thinking of people who travel constantly, created the LATAM Fidelidade program, in order to improve the service and give recognition to those who choose the company. Through the program, customers accumulate points in a wide variety of loyalty programs in a single account and can redeem them in all TAM destinations and associated airline companies, and even more, participate in the Multiplus Fidelidade Network.

Multiplus is a coalition of loyalty programs, with the objective of operating accumulation and exchange of points. This program has a network integrated by associated companies, including hotels, financial institutions, retail companies, supermarkets, vehicle leases and magazines, among many other partners from different segments.

 F-99

NOTE 23 - EMPLOYEE BENEFITS

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Retirements payments		55,119		49,680
Resignation payments		10,124		10,097
Other obligations		35,844		22,545
Total liability for employee benefits		101,087		82,322

(a) The movement in retirements and resignation payments and other obligations:

			Increase (decrease)						Actuarial
	Opening		current service			Benefits			(gains)			Currency			Closing
	balance		provision			paid			losses			translation			balance
	ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
From January 1 to December 31, 2015		74,102		(13,609	)		(3,824	)		14,631			(6,029	)		65,271
From January 1 to December 31, 2016		65,271		17,487			(4,536	)		3,105			995			82,322
From January 1 to December 31, 2017		82,322		21,635			(5,399	)		(2,763	)		5,292			101,087

The principal assumptions used in the calculation to the provision in Chile are presented below:

	As of
	December 31,
Assumptions	2017			2016
Discount rate		4.55	%		4.54	%
Expected rate of salary increase		4.50	%		4.50	%
Rate of turnover		6.98	%		6.16	%
Mortality rate		RV-2014			RV-2009
Inflation rate		2.72	%		2.86	%
Retirement age of women		60			60
Retirement age of men		65			65

The discount rate corresponds to the 20-year term rate of the BCP Central Bank of Chile Bonds. The RV-2014 mortality tables correspond to those established by the Commission for the Financial Market of Chile and for the determination of the inflation rates; the market performance curves of Central Bank of Chile papers of the BCUs have been used. BCP long term at the date of scope.

The calculation of the present value of the defined benefit obligation is sensitive to the variation of some actuarial assumptions such as discount rate, salary increase, rotation and inflation.

 F-100

The sensitivity analysis for these variables is presented below:

	Effect on the liability
	As of			As of
	December 31,			December 31,
	2017			2016
	ThUS$			ThUS$
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.		(5,795	)		(5,665	)
Change in the accrued liability an closing for decrease of 100 p.b.		6,617			5,952
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.		6,412			6,334
Change in the accrued liability an closing for decrease of 100 p.b.		(5,750	)		(5,644	)

(b) The liability for short-term:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Profit-sharing and bonuses (*)		99,862		89,523

(*) Accounts payables to employees (Note 20 letter b)

The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives.

(c) Employment expenses are detailed below:

	For the periods ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Salaries and wages		1,604,552		1,549,402		1,631,320
Short-term employee benefits		145,245		132,436		171,366
Termination benefits		85,070		79,062		51,684
Other personnel expenses		188,767		190,233		218,435
Total		2,023,634		1,951,133		2,072,805

 F-101

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
Aircraft and engine maintenance		483,795		347,085
Provision for vacations and bonuses		14,725		12,080
Other sundry liabilities		312		226
Total accounts payable, non-current		498,832		359,391

NOTE 25 - EQUITY

(a) Capital

The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.

The paid capital of the Company at December 31, 2017 amounts to ThUS$ 3,146,265 (*) divided into 606,407,693 common stock of a same series (ThUS$ 3,149,564 (**) divided into 606,407,693 shares as of December 31, 2016), a single series nominative, ordinary character with no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.

(*) Includes deduction of issuance costs for ThUS $ 3,299 and adjustment for placement of 10,282 shares for ThUS $ 156, approved at the Extraordinary Shareholders Meeting of the Company on April 27, 2017.

(**) Includes adjustment for placement of the aforementioned 10,282 shares for ThUS $ 156.

(b) Subscribed and paid shares

On August 18, 2016, the Company held an extraordinary meeting of shareholders in which it was approved to increase the capital by issuing 61,316,424 shares of payment, all ordinary shares, without par value. As of December 31, 2017, 60,849,592 shares had been placed against this increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the end of the preferred subscription period, which expired on, December 2016, raising the equivalent of US$ 304,996,850; and (b) 30,349,907 additional shares subscribed on December 28, 2016, earning the equivalent of US$ 303,499,070.

As a result of the last placement, as of December 31, 2017, the number Company shares subscribed and paid amounts to 606,407,693.

 F-102

At December 31, 2017, the Company's capital stock is represented by 608,374,525 shares, all of the same and unique series, nominative, ordinary, with no par value, which is divided into: (a) the 606,407,693 subscribed and paid shares mentioned above; and (b) 1,966,832 shares pending subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plans; and (ii) 466,832 correspond to the balance of shares pending placement of the last capital increase.

During 2016, the Company's capital stock was expressed in 613,164,243 shares, all of the same and unique series, nominative, ordinary, with no par value, that is, 551,847,819 shares already authorized at the beginning of the year and 61,316,424 shares authorized in the last Capital increase dated August 18, 2016. However, on December 21, 2016, the deadline for the subscription and payment of 4,789,718 shares that were destined to compensation plans for workers expired, so that the Company's capital stock was reduced to 608,374,525 shares.

The following table shows the movement of the authorized and fully paid shares described above:

Movement of authorized shares

	Nro. Of
	shares
Autorized shares as of January 1, 2016		551,847,819
Increase capital approved at Extraordinary Shareholders meeting dated August 18, 2016		61,316,424
Full capital decrease due to maturity of the subscription and payment period of the compensation plan 2011, December 21, 2016 (*)		(4,789,718	)
Authorized shares as of December 31, 2016		608,374,525
Autorized shares as of January 1, 2017		608,374,525
There is no movement of authorized shares during the period 2017		-
Authorized shares as of December 31, 2017		608,374,525

(*) See Note 34 (a.1)

Movement fully paid shares

				Movement
				value		Cost of issuance
				of shares		and placement			Paid- in
	N° of			(1)		of shares (2)			Capital
	shares			ThUS$		ThUS$			ThUS$
Paid shares as of January 1, 2016		545,547,819			2,552,066		(6,361	)		2,545,705
Approved at Extraordinary Shereholders meeting dated August 18, 2016		60,849,592			608,496		-			608,496
Capital reserve		-			-		(4,793	)		(4,793	)
Increase (decrease) by transfers and other changes (4)		10,282			156		-			156
Paid shares as of December 31, 2016		606,407,693			3,160,718		(11,154	)		3,149,564
Paid shares as of January 1, 2017		606,407,693			3,160,718		(11,154	)		3,149,564
Capital reserve		-			-		(3,299	)		(3,299	)
Paid shares as of December 31, 2017		606,407,693	(3)		3,160,718		(14,453	)		3,146,265

(1)        Amounts reported represent only those arising from the payment of the shares subscribed.

 F-103

(2)        Decrease of capital by capitalization of reserves for cost of issuance and placement of shares established according to Extraordinary Shareholder´s Meetings, where such decreases were authorized.

(3)        At December 31, 2017, the difference between authorized shares and fully paid shares are 1,966,832 shares, of which 1,500,000 correspond to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 34(a.2)) and 466,832 correspond to the shares issued and unsubscribed from the capital increase approved at the Extraordinary Shareholders Meeting held on August 18, 2016.

(4)        These 10,282 shares were placed in January 2014 and charged to the Compensation plan 2011 (See Note 34 (a.1))

(c)        Treasury stock

At December 31, 2017, the Company held no treasury stock, the remaining of ThUS$ (178) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares which held in its portfolio.

(d)        Reserve of share- based payments

Movement of Reserves of share- based payments:

			Stock
	Opening		option		Deferred			Net movement		Closing
Periods	balance		plan		tax			of the period		balance
	ThUS$		ThUS$		ThUS$			ThUS$		ThUS$
From January 1 to December 31, 2015		29,642		8,924		(2,919	)		6,005		35,647
From January 1 to December 31, 2016		35,647		3,698		(807	)		2,891		38,538
From January 1 to December 31, 2017		38,538		943		-			943		39,481

These reserves are related to the “Share-based payments” explained in Note 34.

(e)        Other sundry reserves

Movement of Other sundry reserves:

	Opening		Legal			Closing
Periods	balance		reserves			balance
	ThUS$		ThUS$			ThUS$
From January 1 to December 31, 2015		2,635,748		(1,069	)		2,634,679
From January 1 to December 31, 2016		2,634,679		5,602			2,640,281
From January 1 to December 31, 2017		2,640,281		(501	)		2,639,780

 F-104

Balance of Other sundry reserves comprises the following:

	As of			As of			As of
	December 31,			December 31,			December 31,
	2017			2016			2015
	ThUS$			ThUS$			ThUS$
Higher value for TAM S.A. share exchange (1)		2,665,692			2,665,692			2,665,692
Reserve for the adjustment to the value of fixed assets (2)		2,620			2,620			2,620
Transactions with non-controlling interest (3)		(25,911	)		(25,911	)		(25,891	)
Cost of issuance and placement of shares		0			(9	)		(4,793	)
Others		(2,621	)		(2,111	)		(2,949	)
Total		2,639,780			2,640,281			2,634,679

(1) Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012.

(2) Corresponds to the technical revaluation of fixed assets authorized by the Commission for the Financial Market in 1979, in Circular N° 1529. The revaluation was optional and could be taken only once, the reserve is not distributable and can only be capitalized.

(3) The balance at December 31, 2017, correspond to the loss generated by the participation of Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526).

 F-105

(f)         Reserves with effect in other comprehensive income.

Movement of Reserves with effect in other comprehensive income:

							Actuarial gain
	Currency			Cash flow			or loss on defined
	translation			hedging			benefit plans
	reserve			reserve			reserve			Total
	ThUS$			ThUS$			ThUS$			ThUS$
Opening balance as of January 1, 2015		(1,193,871	)		(151,340	)		-			(1,345,211	)
Derivatives valuation gains (losses)		-			82,730			-			82,730
Deferred tax		-			(21,900	)		-			(21,900	)
Actuarial reserves by employee benefit plans		-			-			(14,627	)		(14,627	)
Deferred tax actuarial IAS by employee benefit plans		-			-			3,910			3,910
Difference by subsidiaries conversion		(1,382,170	)		-			-			(1,382,170	)
Closing balance as of December 31, 2015		(2,576,041	)		(90,510	)		(10,717	)		(2,677,268	)
Opening balance as of January 1, 2016		(2,576,041	)		(90,510	)		(10,717	)		(2,677,268	)
Derivatives valuation gains (losses)		-			126,360			-			126,360
Deferred tax		-			(34,344	)		-			(34,344	)
Actuarial reserves by employee benefit plans		-			-			(3,104	)		(3,104	)
Deferred tax actuarial IAS by employee benefit plans		-			-			921			921
Difference by subsidiaries conversion		489,486			-			-			489,486
Closing balance as of December 31, 2016		(2,086,555	)		1,506			(12,900	)		(2,097,949	)
Opening balance as of January 1, 2017		(2,086,555	)		1,506			(12,900	)		(2,097,949	)
Derivatives valuation gains (losses)		-			18,436			-			18,436
Deferred tax		-			(1,802	)		-			(1,802	)
Actuarial reserves by employee benefit plans		-			-			2,758			2,758
Deferred tax actuarial IAS by employee benefit plans		-			-			(784	)		(784	)
Difference by subsidiaries conversion		(45,036	)		-			-			(45,036	)
Closing balance as of December 31, 2017		(2,131,591	)		18,140			(10,926	)		(2,124,377	)

(f.1)      Currency translation reserve

These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.

 F-106

(f.2)      Cash flow hedging reserve

These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.

(f.3)      Reserves of actuarial gains or losses on defined benefit plans

Correspond to the increase or decrease in the obligation present value for defined benefit plan due to changes in actuarial assumptions, and experience adjustments, which is the effects of differences between the previous actuarial assumptions and what has actually occurred.

(g)        Retained earnings

Movement of Retained earnings:

			Result						Other
	Opening		for the						increase		Closing
Periods	balance		period			Dividends			(decreases)		balance
	ThUS$		ThUS$			ThUS$			ThUS$		ThUS$
From January 1 to December 31, 2015		536,190		(219,274	)		-			1,034		317,950
From January 1 to December 31, 2016		317,950		69,220			(20,766	)		-		366,404
From January 1 to December 31, 2017		366,404		155,304			(46,590	)		-		475,118

(h)        Dividends per share

	Minimum mandatory		Final dividend
	dividend		dividend
Description of dividend	2017		2016
Date of dividend		12/31/2017		12-31-2016
Amount of the dividend (ThUS$)		46,590		20,766	(*)
Number of shares among which the dividend is distributed		606,407,693		606,407,693
Dividend per share (US$)		0.0768		0.0342

(*) In accordance with the Material Fact issued on April 27, 2017, LATAM Airlines Group S.A. shareholders approved the distribution of the final dividend proposed by the board of directors in the Ordinary Session of April 4, 2017, amounting to ThUS $ 20,766, which corresponds to 30% of the profits for the year corresponding to the year 2016.

The payment was made on May 18, 2017.

 F-107

NOTE 26 - REVENUE

The detail of revenues is as follows:

	For the periods ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Passengers LAN		4,313,287		4,104,348		4,241,918
Passengers TAM		4,181,190		3,773,367		4,168,696
Cargo		1,119,430		1,110,625		1,329,431
Total		9,613,907		8,988,340		9,740,045

NOTE 27 - COSTS AND EXPENSES BY NATURE

(a) Costs and operating expenses

The main operating costs and administrative expenses are detailed below:

	For the periods ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Aircraft fuel		2,318,816		2,056,643		2,651,067
Other rentals and landing fees		1,172,129		1,077,407		1,109,826
Aircraft rentals		579,551		568,979		525,134
Aircraft maintenance		430,825		366,153		437,235
Comissions		252,474		269,296		302,774
Passenger services		288,662		286,621		295,439
Other operating expenses		1,381,546		1,424,595		1,293,320
Total		6,424,003		6,049,694		6,614,795

 F-108

(b) Depreciation and amortization

Depreciation and amortization are detailed below:

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Depreciation (*)		943,215		910,071		897,670
Amortization		58,410		50,257		36,736
Total		1,001,625		960,328		934,406

(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at December 31, 2017 is ThUS$ 359,940 and ThUS$ 345,651 for the same period of 2016.

(c) Personnel expenses

The costs for personnel expenses are disclosed in Note 23 liability for employee benefits.

(d) Financial costs

The detail of financial costs is as follows:

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Bank loan interest		347,551		352,405		331,511
Financial leases		37,522		32,573		42,855
Other financial instruments		8,213		31,358		38,991
Total		393,286		416,336		413,357

Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 23, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.

 F-109

NOTE 28 - OTHER INCOME, BY FUNCTION

Other income by function is as follows:

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Coalition and loyalty program Multiplus		240,952		174,197		154,958
Tours		109,463		133,575		113,225
Aircraft leasing		103,741		65,011		46,547
Customs and warehousing		26,793		24,548		25,457
Maintenance		6,585		17,090		11,669
Duty free		8,038		11,141		16,408
Other miscellaneous income		54,317		113,186		17,517
Total		549,889		538,748		385,781

NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the chilean peso, argentine peso, colombian peso, brazilian real and guaraní.

The functional currency is defined as the currency of the primary economic environment in which an entity operates and in each entity and all other currencies are defined as foreign currency.

Considering the above, the balances by currency mentioned in this note correspond to the sum of foreign currency of each of the entities that make LATAM Airlines Group S.A. and Subsidiaries.

 F-110

(a) Foreign currency

The foreign currency detail of balances of monetary items in current and non-current assets is as follows:

	As of		As of
	December 31,		December 31,
Current assets	2017		2016
	ThUS$		ThUS$
Cash and cash equivalents		260,092		201,416
Argentine peso		7,309		4,438
Brazilian real		14,242		9,705
Chilean peso		81,693		30,221
Colombian peso		1,105		1,137
Euro		11,746		1,695
U.S. dollar		108,327		128,694
Other currency		35,670		25,526
Other financial assets, current		36,484		14,573
Argentine peso		21		12
Brazilian real		17		734
Chilean peso		26,605		585
Colombian peso		150		-
U.S. dollar		9,343		12,879
Other currency		348		363

 F-111

	As of		As of
	December 31,		December 31,
Current assets	2017		2016
	ThUS$		ThUS$
Other non - financial assets, current		107,170		107,789
Argentine peso		16,507		16,086
Brazilian real		19,686		20,158
Chilean peso		34,258		1,619
Colombian peso		340		713
Euro		2,722		1,563
U.S. dollar		21,907		50,157
Other currency		11,750		17,493
Trade and other accounts receivable, current		373,447		251,204
Argentine peso		49,680		54,356
Brazilian real		22,006		30,675
Chilean peso		82,369		90,482
Colombian peso		1,169		9,720
Euro		48,286		21,923
U.S. dollar		34,268		14,086
Other currency		135,669		29,962
Accounts receivable from related entities, current		958		554
Chilean peso		735		554
U.S. dollar		223		-
Tax current assets		33,575		28,198
Argentine peso		1,679		1,798
Brazilian real		3,934		2,462
Chilean peso		3,317		6,333
Colombian peso		660		1,418
Euro		179		273
U.S. dollar		327		177
Peruvian sol		21,948		14,387
Other currency		1,531		1,350
Total current assets		811,726		603,734
Argentine peso		75,196		76,690
Brazilian real		59,885		63,734
Chilean peso		228,977		129,794
Colombian peso		3,424		12,988
Euro		62,933		25,454
U.S. Dollar		174,395		205,993
Other currency		206,916		89,081

 F-112

	As of		As of
	December 31,		December 31,
Non-current assets	2017		2016
	ThUS$		ThUS$
Other financial assets, non-current		20,975		26,772
Brazilian real		3,831		2,769
Chilean peso		74		83
Colombian peso		281		285
Euro		7,853		6,966
U.S. dollar		7,273		14,920
Other currency		1,663		1,749
Other non - financial assets, non-current		9,108		19,069
Argentine peso		172		142
Brazilian real		6,368		6,029
U.S. dollar		38		8,309
Other currency		2,530		4,589
Accounts receivable, non-current		6,887		7,356
Chilean peso		6,887		7,356
Deferred tax assets		2,081		2,110
Colombian peso		86		117
Other currency		1,995		1,993
Total  non-current assets		39,051		55,307
Argentine peso		172		142
Brazilian real		10,199		8,798
Chilean peso		6,961		7,439
Colombian peso		367		402
Euro		7,853		6,966
U.S. dollar		7,311		23,229
Other currency		6,188		8,331

 F-113

The foreign currency detail of balances of monetary items in current liabilities and non-current is as follows:

	Up to 90 days					91 days to 1 year
	As of		As of			As of		As of
	December 31,		December 31,			December 31,		December 31,
Current liabilities	2017		2016			2017		2016
	ThUS$		ThUS$			ThUS$		ThUS$
Other financial liabilities, current		36,000		287,175			115,182		455,086
Chilean peso		21,542		55,962			79,032		108,010
U.S. dollar		14,458		231,213			36,150		347,076
Trade and other accounts payables, current		919,373		585,149			33,707		16,097
Argentine peso		122,452		20,838			8,636		907
Brazilian real		28,810		40,740			669		27
Chilean peso		233,202		60,701			11,311		12,255
Colombian peso		2,964		9,049			855		578
Euro		58,081		23,445			9,165		5
U.S. dollar		409,380		374,431			1,154		962
Peruvian sol		39,064		33,701			825		1,093
Mexican peso		2,732		1,535			115		-
Pound sterling		5,839		1,769			199		246
Uruguayan peso		1,890		6,899			-		-
Other currency		14,959		12,041			778		24
Accounts payable to related entities, current		760		220			-		-
Chilean peso		546		23			-		-
U.S. dollar		4		8			-		-
Other currency		210		189			-		-
Other provisions, current		959		511			-		-
Chilean peso		30		28			-		-
Other currency		929		483			-		-
Tax liabilities, current		-		(204	)		174		2,501
Argentine peso		-		-			174		2,501
Brazilian real		-		(3	)		-		-
Chilean peso		-		(25	)		-		-
Other currency		-		(176	)		-		-

 F-114

	Up to 90 days				91 days to 1 year
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
Current liabilities	2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$
Other non-financial liabilities, current		25,190		33,439		-		-
Argentine peso		393		13,463		-		-
Brazilian real		542		430		-		-
Chilean peso		11,283		14,999		-		-
Colombian peso		837		578		-		-
Euro		5,954		168		-		-
U.S. dollar		3,160		684		-		-
Other currency		3,021		3,117		-		-
Total current liabilities		982,282		906,290		149,063		473,684
Argentine peso		122,845		34,301		8,810		3,408
Brazilian real		29,352		41,167		669		27
Chilean peso		266,603		131,688		90,343		120,265
Colombian peso		3,801		9,627		855		578
Euro		64,035		23,613		9,165		5
U.S. dollar		427,002		606,336		37,304		348,038
Other currency		68,644		59,558		1,917		1,363

 F-115

	More than 1 to 3 years				More than 3 to 5 years				More than 5 years
	As of		As of		As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
Non-current liabilities	2017		2016		2017		2016		2017		2016
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Other financial liabilities, non-current		276,436		178,793		263,798		747,218		189,500		41,785
Chilean peso		41,548		59,177		189,500		16,189		189,500		-
U.S. dollar		234,888		119,616		74,298		731,029		-		41,785
Accounts payable, non-current		362,964		195,629		-		-		-		-
Chilean peso		13,251		10,474		-		-		-		-
U.S. dollar		348,329		183,904		-		-		-		-
Other currency		1,384		1,251		-		-		-		-
Other provisions, non-current		41,514		39,513		-		-		-		-
Argentine peso		940		635		-		-		-		-
Brazillian real		24,074		23,541		-		-		-		-
Chilean peso		-		38		-		-		-		-
Colombian peso		551		569		-		-		-		-
Euro		9,883		8,664		-		-		-		-
U.S. dollar		6,066		6,066		-		-		-		-
Provisions for employees benefits, non-current		77,579		68,774		-		-		-		-
Brazilian real		-		28		-		-		-		-
Chilean peso		73,399		68,380		-		-		-		-
U.S. dollar		4,180		366		-		-		-		-
Other non-financial liabilities, non-current		-		3		-		-		-		-
Colombian peso		-		3		-		-		-		-
Total non-current liabilities		758,493		482,712		263,798		747,218		189,500		41,785
Argentine peso		940		635		-		-		-		-
Brazilian real		24,074		23,569		-		-		-		-
Chilean peso		128,198		138,069		189,500		16,189		189,500		-
Colombian peso		551		572		-		-		-		-
Euro		9,883		8,664		-		-		-		-
U.S. dollar		593,463		309,952		74,298		731,029		-		41,785
Other currency		1,384		1,251		-		-		-		-

 F-116

	As of			As of
	December 31,			December 31,
General summary of foreign currency:	2017			2016
	ThUS$			ThUS$
Total assets		850,777			659,041
Argentine peso		75,368			76,832
Brazilian real		70,084			72,532
Chilean peso		235,938			137,233
Colombian peso		3,791			13,390
Euro		70,786			32,420
U.S. dollar		181,706			229,222
Other currency		213,104			97,412
Total liabilities		2,343,136			2,651,689
Argentine peso		132,595			38,344
Brazilian real		54,095			64,763
Chilean peso		864,144			406,211
Colombian peso		5,207			10,777
Euro		83,083			32,282
U.S. dollar		1,132,067			2,037,140
Other currency		71,945			62,172
Net position
Argentine peso		(57,227	)		38,488
Brazilian real		15,989			7,769
Chilean peso		(628,206	)		(268,978	)
Colombian peso		(1,416	)		2,613
Euro		(12,297	)		138
U.S. dollar		(950,361	)		(1,807,918	)
Other currency		141,159			35,240

 F-117

(b) Exchange differences

Exchange differences recognized in income, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2017, 2016 and 2015, generated a charge of ThUS $ 18,718, a credit of ThUS $ 121,651 and a charge of ThUS $ 467,896, respectively.

Exchange differences recognized in equity as reserves for exchange differences for conversion, for the period ended December 31, 2017, 2016 and 2015, generated a charge of ThUS $ 47,495, a credit of ThUS $ 494,362 and a charge of ThUS $1, 409,439, respectively.

The following shows the current exchange rates for the U.S. dollar, on the dates indicated:

	As of December 31,
	2017		2016		2015		2014
Argentine peso		18.57		15.84		12.97		8.55
Brazilian real		3.31		3.25		3.98		2.66
Chilean peso		614.75		669.47		710.16		606.75
Colombian peso		2,984.77		3,000.25		3,183.00		2,389.50
Euro		0.83		0.95		0.92		0.82
Strong bolivar		3,345.00		673.76		198.70		12.00
Australian dollar		1.28		1.38		1.37		1.22
Boliviano		6.86		6.86		6.85		6.86
Mexican peso		19.66		20.63		17.34		14.74
New Zealand dollar		1.41		1.44		1.46		1.28
Peruvian Sol		3.24		3.35		3.41		2.99
Uruguayan peso		28.74		29.28		29.88		24.25

 F-118

NOTE 30 - EARNINGS / (LOSS) PER SHARE

	For the period ended
	December 31,
Basic earnings / (loss) per share	2017		2016		2015
Earnings / (loss) attributable to owners of the parent (ThUS$)		155,304		69,220		(219,274	)
Weighted average number of shares, basic		606,407,693		546,559,599		545,547,819
Basic earnings / (loss) per share (US$)		0.25610		0.12665		(0.40193	)

	For the period ended
	December 31,
Diluted earnings / (loss) per share	2017		2016			2015
Earnings / (loss) attributable to owners of the parent (ThUS$)		155,304		69,220			(219,274	)
Weighted average number of shares, basic		606,407,693		546,559,599	(*)		545,547,819
Weighted average number of shares, diluted		606,407,693		546,559,599			545,547,819
Diluted earnings / (loss) per share (US$)		0.25610		0.12665			(0.40193	)

(*) In the calculation of diluted earnings per share have not been considered the compensation plan disclosed in Note 34 (a.1), because the average market price is lower than the price of options.

 F-119

NOTE 31 – CONTINGENCIES

I. Lawsuits

1) Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Atlantic Aviation Investments LLC (AAI).	Supreme Court of the State of New York County of New York.	07-6022920	Atlantic Aviation Investments LLC. ("AAI"), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 29th , 2007  Varig Logistics S.A. ("Variglog") for non-payment of four documented loans in credit agreements governed by New York law. These contracts establish the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A.	The decision ordering Variglog to pay principal, interest and costs to AAI is in the enforcement stage in Switzerland. A settlement for CHF 24,541,781.45 was reached in Brazil for the Swiss funds, and it was agreed that it would be divided as follows: (i) 54.6% of Variglog’s assets for the Swiss funds; and (ii) 45.4% to AAI, subject to approval of the Brazilian Bankruptcy Commission. Variglog also filed a petition in Switzerland for recognition of the decision declaring its condition of being in judicial recovery, and subsequently, of being declared in bankruptcy. The Brazilian courts approved the AAI settlement and Variglog’s bankruptcy on April 11, 2016, which were confirmed by those courts on September 21, 2016. The final decision approving the agreement was certified September 23, 2016. US$8.9 million have been recovered thus far to date, leaving a balance of US$2.08 million pending. Variglog funds remain under embargo by AAII in Switzerland.	10,976 Plus interests and costs

 F-120

2) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
LATAM Airlines Group S.A. y Lan Cargo S.A.	European Commission.	-	Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate  for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight.	On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011. On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction). On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of THUS$ 9,823.135 (8.220.000 Euros) This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the decision, but presented a new one on March 17, 2017 reiterating the imposition of the same fine on the eleven original airlines. The fine totals 776,465,000 Euros. It imposed the same fine as before on Lan Cargo and its parent, LATAM Airlines Group S.A., totaling 8.2 million Euros. On May 31, 2017 Lan Cargo S.A. and LATAM Airlines Group S.A. filed a petition with the General Court of the European Union seeking vacation of this decision. We presented our defense in December 2017.	9,823

 F-121

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Lan Cargo S.A. y LATAM Airlines Group S.A.	In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway)  y Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands) , Cologne Regional Court (Landgerich Köln Germany).	-	Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany.	Cases are in the uncovering evidence stage.	-0-
Aerolinhas Brasileiras S.A.	Federal Justice.	0008285-53.2015.403.6105	An action seeking to quash a decision and petioning for early protection in order to obgain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge.	This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines:  (i) ABSA: ThUS$10,438; (ii) Norberto Jochmann: ThUS$201; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper.  This obligation had also been stayed by the court of federal justice in this process.  Awaiting CADE’s statement. ABSA began a judicial review in search of an additional reduction in the fine amount.  At this time we cannot predict the final amount of the fine as the judicial review by the Federal Court Judge is still pending.	11,828

 F-122

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Aerolinhas Brasileiras S.A.	Federal Justice.	0001872-58.2014.4.03.6105	An annulment action with a motion for preliminary injunction was filed on 28/02/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006.43.	We have been waiting since August 21, 2015 for a statement by Serasa on TAM’s letter of indemnity and a statement by the Union. The statement was authenticated  on January 29, 2016. A petition on evidence and replications were filed on June 20, 2016. A new insurance policy was submitted on March 3, 2016 with the change to the guarantee requested by PGFN, which was declared on June 3, 2016.  A decision is pending.	15,811
Tam Linhas Aéreas S.A.	Department of Federal Revenue of  Brazil	19515.720476/2015-83	Alleged irregularities in the SAT payments for the periods 01/2011 to 12/2012	A judgment by CARF is pending since April 12, 2016.	66,258
Tam Linhas Aéreas S.A.	Court of the Second Region.	2001.51.01.012530-0	Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to collect the Air Fund.	Unfavorable court decision in first instance. Currently expecting the ruling on the appeal filed by the company. In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered for MUS$106. The court decision requesting that the Expert make all clarifications requested by the parties in a period of 30 days was published on March 29, 2016. The plaintiffs’ submitted a petition on June 21, 2016 requesting acceptance of the opinion of their consultant and an urgent ruling on the dispute. No amount additional to the deposit that has already been made is required if this case is lost.	100,240
Tam Linhas Aéreas S.A.	Internal Revenue Service of Brazil.	10880.725950/2011-05	Compensation credits of the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS) Declared on DCOMPs.	The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed.  The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of  Tax Appeals  (CARF)  on  June 8, 2015.  TAM’s appeal was included in the CARF session held August 25, 2016. An agreement that converted the proceedings into a formal case was published on October 7, 2016.	64,383

 F-123

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Aerovías de Integración Regional,                AIRES S.A.	United States  Court of Appeals for the Eleventh Circuit, Florida, U.S.A.	2013-20319 CA 01	The July 30th , 2012 Aerovías de Integración Recional, Aires S.A. ( LATAM AIRLINES COLOMBIA) initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LATAM AIRLINES COLOMBIA arising from breach of contractual obligations of the aircraft HK-4107. The June 20th , 2013 AIRES SA And / Or LATAM AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LATAM AIRLINES COLOMBIA customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.	This case is being heard by the 45th Civil Court of the Bogotá Circuit in Colombia.  The court issued an order on August 16, 2016 setting the hearing date pursuant to Article 101 for February 2, 2017.  At that hearing, a reconciliation should have been attempted, the facts in dispute determined, interrogatories made and evidence admitted.  At the petition of Regional One’s attorneys on January 27, 2017, which was accepted by the respondent, the hearing to be held on February 2, 2017 was postponed.  A reconciliation hearing was held on June 14, 2017 that failed.  This commenced the evidentiary stage in which the legal representative of LATAM Airlines Colombia was interrogated.  The judge must now decree which evidence must be presented and analyzed.  The U.S. Federal Court for the State of Florida rendered a decision on March 26, 2014 sustaining the petition of Lan Colombia Airlines to stay the proceedings in the U.S. as long as the lawsuit in Colombia was pending.  The U.S. Court also closed the case administratively.  The Federal Court of Appeals confirmed the closing of the U.S. case on April 1, 2015.  On October 13, 2015, Regional One filed a petition with the U.S. Court seeking a reopening of the case.  Lan Colombia Airlines presented its arguments for keeping the case closed, which were sustained by the Court on August 23, 2016.  The case in the U.S. continues to be closed.	12,443

 F-124

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Tam Linhas Aéreas S.A.	Internal Revenue Service of Brazil	10880.722.355/2014-52	On August 19th, 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.	An administrative objection was filed on September 17th, 2014. A first-instance ruling was rendered on June 1, 2016 that was partially favorable.  The separate fine was revoked. A voluntary appeal was filed on June 30, 2016, which is pending a decision by CARF. On January 9, 2016, the case was referred to the Second Division, Fourth Chamber, of the Third Section of the Administrative Council of Tax Appeals (CARF).	73,890
Tam Viagens S.A.	Department of Finance to the municipality of São Paulo.	67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965	A claim was filed alleging infraction and seeking a fine because of a deficient basis for calculation of the service tax (ISS) because the company supposedly made incorrect deductions.	We received notice of the petition on December 22, 2015. The objection was filed on January 19, 2016.  The company was notified on November 23, 2016 of the decision that partially sustained the interim infringement ruling.  An ordinary appeal was filed on December 19, 2016 before the Municipal Tax Council of Sao Paulo and a judgment is pending.	108,396
Tam Linhas Aéreas S.A.	Labor Court of São Paulo.	0001734-78.2014.5.02.0045	Action filed by the Ministry of Labor, which requires compliance with legislation on breaks, extra hours and others.	This case is in the initial stages.  It could possibly impact both operations and employee work shift control.  TAM won in the first instance, but the Prosecutor’s Office has appealed the trial court’s decision.  That decision was sustained by the appellate court.  A petition by the Prosecutor’s Office for clarification is now pending before the courts. The Office of the Public Prosecutor withdrew the petition for clarification and the case was closed in favor of LATAM.  Now pending are the measures pertaining to lawsuit management so that transfer to the court is declared.	16,170

 F-125

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM S.A.	Conselho Administrativo de Recursos Fiscais.	13855.720077/2014-02	Notice of an alleged infringement presented by Secretaria da Receita Federal do Brasil requiring the payment of IRPJ and CSLL, taxes related to the income earned by TAM on March, 2011, in relation of the reduction of the statute capital of Multiplus S.A.	On January 12, 2014, it was filed an appeal against the object of the notice of infringement. Currently, the company is waiting for the court judgment regarding the appeal filed in the Conselho Administrativo de Recursos Fiscais (CARF) The case will be put into the system again for re-assignment for hearing and reporting because of the departure of Eduardo de Andrade, a CARF council member. The decision was against TAM.  The lawsuit was on August 13, 2017.  The administrative court’s decision was that TAM Linhas Aereas must pay Corporate Income Tax (IRPJ) and the Social Contribution based on Net Profits (CSLL).  The Company was summoned to hear a decision on December 18, 2017.  TAM filed an appeal on December 28, 2017 and must now await the appellate decision.	149,031
TAM Linhas Aéreas S.A.	Sao Paulo Labor Court, Sao Paulo	1001531-73.2016.5.02.0710	The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.	In August 2016, the Ministry of Labor filed a new lawsuit before the competent Labor Court in Sao Paulo, in the same terms as case 0000009-45.2016.5.02.090, as previously reported. The judgment is pending. (16/02/2018).	17,230

 F-126

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
LATAM Airlines Group S.A.	22° Civil Court of Santiago	C-29.945-2016	The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it.	The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017. LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit. A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement.The Court issued the evidentiary decree on May 12, 2017. We filed a petition for reconsideration because we disagreed with certain points of evidence. That petition was partially sustained by the Court on June 27, 2017. The evidentiary stage commenced and then concluded on July 20, 2017. Observations to the evidence must now be presented. That period expires August 1, 2017. We filed our observations to the evidence on August 1, 2017. We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable. The plaintiff filed an appeal on December 26, 2017. Now pending is the admission of the appeal by the Court of Appeals.	21,547
TAM Linhas Aéreas S.A.	10th Jurisdiction of Federal Tax Enforcement of Sao Paulo	0020869-47.2017.4.03.6182	Tax Enforcement Lien No. 0061196-68.2016.4.03.6182 on Profit-Based Social Contributions from 2004 to 2007.	This tax enforcement was referred to the 10th Federal Jurisdiction on February 16, 2017. A petition reporting our request to submit collateral was recorded on April 18, 2017. At this time, the period is pending for the plaintiff to respond to our petition.	42,548
TAM Linhas Aéreas S.A.	Federal Revenue Bureau	10880.900360/2017-55	A claim regarding the negative Company Income Tax (IRPJ) balance. Appraisals of compensation that were not accepted.	The case was referred to the National Claims Management Center of the Federal Revenue Bureau for Sao Paulo on May 11, 2017.	15,910

 F-127

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
TAM  Linhas Aéreas S.A.	Internal Revenue Service of Brazil	16643.000085/2009-47	Notice of claim to recover income taxes and social contributions paid on the basis of net profits (SCL) according to the royalty expenses and use of the TAM trademark.	Before the Internal Revenue Service of Brazil.  A service of process is expected in the lawsuit on admissibility of the special appeal, filed by the General Counsel of the National Treasury, as well as notification of the decision rendered by the Administrative Council of Tax Appeals (CARF). The decision was made to file a lawsuit on December 5, 2017.	17,657
TAM Linhas Aéreas S.A.	Internal Revenue Service of Brazil	10831.012344/2005-55	Notice of an infringement filed by the Company to request the import tax (II), the Social Integration Program (PIS) of the Social Security Funding Contribution (COFINS) as a result of an unidentified international cargo loss.	Before the Internal Revenue Service of Brazil. The administrative decision was against the company. The matter is pending a decision by the CARF.	17,844
TAM Linhas Aéreas S.A.	Treasury Department of the State of Sao Paulo	3.123.785-0	Notice of an infringement to demand payment of the tax on the circulation of merchandise and services (ICMS) assessable on aircraft imports.	Before the Treasury Department of the State of Sao Paulo.  A decision is now pending on the appeal that the company has filed with the Federal Supreme Court (STF).	14,647
TAM Linhas Aéreas S.A.	Treasury Department of the State of Sao Paulo	4.037.054	Action brought by the Treasury Department of the State of Sao Paulo because of non-payment of the tax on the circulation of merchandise and services (ICMS) in relation to telecommunications services.	Before the Treasury Department of the State of Sao Paulo. Defensive arguments have been presented. The first-instance decision sustained all parts of the notice. We filed an ordinary appeal on which a decision is pending by the Sao Paulo Tax Court.	10,808
TAM Linhas Aéreas S.A.	DERAT SPO (Delegacía de Receita Federal)	13808.005459/2001-45	Collection of the Social Security Funding Contribution (COFINS) based on gross revenue of the company in the period 1999-2000	The decision on collection was pending through June 2, 2010.	27,226

 F-128

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Pantanal Linhas Aéreas S.A.	Tax Enforcement Court	0253410-30.2012.8.26.0014	A lawsuit seeking enforcement of the fine and ICMS.	A decision is pending on the appeal.	10,877
TAM Linhas Aéreas S.A	Federal Revenue Bureau	10880.938.664/2016-12	An administrative lawsuit about compensation not being proportional to the negative corporate income tax balance.	A decision is pending by CARF on the appeal.	27,369
TAM Linhas Aéreas S.A.	Vara das execucões fiscais.	1997.0002503-9	This is a tax collection claim for a customs fine—forfeiture of the temporary customs clearance of goods (new lawsuit).	Collateral insurance was offered in 2016 and accepted by the Ministry of Finance in a petition made November 9, 2016.  The defensive arguments were presented (attachments against the tax collection) and the decision was favorable to TAM, which makes the payment of a fine more unlikely for TAM.  Now pending in the lawsuit is a decision in the appeal made by the Ministry of Finance.	9,983
TAM Linhas Aéreas S.A.	Delegacía de Receita Federal	10611.720630/2017-16	This is an administrative claim about a fine for the incorrectness of an import declaration (new lawsuit).	The administrative defensive arguments were presented September 28, 2017.	22,253
TAM Linhas Aéreas S.A.	Delegacía de Receita Federal	10611.720852/2016-58	An improper charge of the Contribution for the Financing of Social Security (COFINS) on an import (new lawsuit).	We are currently awaiting a decision.  There is no predictable decision date because it depends on the court of the government agency.	16,079
TAM Linhas Aéreas S.A	Delegacía de Receita Federal	16692.721.933/2017-80	The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport (new claim).	We are awaiting the presentation of an administrative defense.	34.321

 F-129

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
SNEA (Sindicato Nacional das empresas aeroviárias)	União Federal	0012177-54.2016.4.01.3400	A claim against the 72% increase in airport control fees (TAT-ADR) and approach control fees (TAT-APP) charged by the Airspace Control Department (“DECEA”).	A decision is now pending on the appeal presented by SNEA.	23.118
TAM Linhas Aéreas S/A	União Federal	2001.51.01.020420-0	TAM and other airlines filed a recourse claim seeking a finding that there is no legal or tax basis to be released from collecting the Additional Airport Fee (“ATAERO”).	A decision by the superior court is pending. The amount is indeterminate because even though TAM is the plaintiff, if the ruling is against it, it could be ordered by the trial judge to pay certain fees.	-0-

- In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2017, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 21.

- The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.

(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

 F-130

II. Governmental Investigations.

1) On July 25, 2016, LATAM reached agreements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) regarding the investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a consultant advising it in the resolution of labor matters in Argentina.

The purpose of the investigation was to determine whether these payments violated the U.S. Foreign Corrupt Practices Act (“FCPA”) that: (i) forbids bribery of foreign government authorities in order to obtain a commercial advantage; and (ii) requires the companies that must abide by the FCPA to keep appropriate accounting records and implant an adequate internal control system. The FCPA is applicable to LATAM because of its ADR program in effect on the U.S. securities market.

After an exhaustive investigation, the DOJ and SEC concluded that there was no violation of the bribery provisions of the FCPA, which is consistent with the results of LATAM’s internal investigation. However, the DOJ and SEC consider that LAN accounted for these payments incorrectly and, consequently, infringed the part of the FCPA requiring companies to keep accurate accounting records. These authorities also consider that LAN’s internal controls in 2006-2007 were weak, so LAN would have also violated the provisions in the FCPA requiring it to maintain an adequate internal control system.

The agreements signed, included the following:

a) The agreement with the DOJ involves: (i) entering into a Deferred Prosecution Agreement (“DPA”), which is a public contract under which the DOJ files public charges alleging an infringement of the FCPA accounting regulations. LATAM is not obligated to answer these charges, the DOJ will not pursue them for a period of 3 years, and the DOJ will dismiss the charges after expiration of that 3-year period provided LATAM complies with all terms of the DPA. In exchange, LATAM must admit to the negotiated events described in the DPA and agree to pay the negotiated fine explained below and abide by other terms stipulated in the agreement; (ii) clauses in which LATAM admits that the payments to the consultant in Argentina were incorrectly accounted for and that at the time those payments were made (2006-2007), it did not have adequate internal controls in place; (iii) LATAM’s agreement to have an outside consultant monitor, evaluate and report to the DOJ on the effectiveness of LATAM’s compliance program for a period of 27 months; and LATAM’s agreement to continue evaluating and reporting directly to the DOJ on the effectiveness of its compliance program for a period of 9 months after the consultant’s work concludes; and (iv) LATAM paid a fine of ThUS$ 12,750.

b) The agreement with the SEC involves: (i) accepting a Cease and Desist Order, which is an administrative resolution of the SEC closing the investigation, in which LATAM will accept certain obligations and statements of fact that are described in the document; (ii) accepting the same obligations regarding the consultant mentioned above; and (iii) LATAM paid a fine of KUS$6,744 and interest of ThUS$ 2,694.

Nothing is owed to the SEC at this time as ThUS$ 4,719 was paid in July 2017.

 F-131

LATAM continued to cooperate with the Chilean authorities on this matter. The investigation continues. The 7th Criminal Court set the hearing date for October 24, 2017, at the request of the Office of the Public Prosecutor. The Prosecutor has petitioned that the investigation be closed.

2) LATAM received six Requests for Information from the Central-North Metropolitan Region Legal Division, on October 25, 2016, on November 11, 2016, on March 8, 2017, on March 22, 2017, on July 7, 2017 and the last on August 28, 2017. It requested information related to the investigation of payments made by LAN Airlines in 2006 and 2007 to a consultant who advised it on the resolution of labor matters in Argentina. It also requested an explanation of information provided to the market. The five requests have already been answered and the requested information has been provided. The 7th Criminal Court set the hearing date for October 24, 2017 at the request of the Public Prosecutor. A reopening of the investigation was denied at that hearing and that denial was confirmed by the Santiago Court of Appeals on November 20, 2017.

3) The ecuatorian airline affiliate, LATAM Airlines Ecuador was given notice on August 26, 2016 of an investigation of LATAM Airlines Ecuador and two other airlines begun, at its own initiative, by one of the Investigative Departments of the Ecuadoran Market Power Control Commission, limited to alleged signs of conscious parallelism in relation to specific fares on one domestic route in Ecuador from August 2012 to February 2013. The Investigative Prefecture has 180 days (through February 21, 2017) to issue a report on whether to quash the investigation or file charges against two or more of the parties involved. That period can be extended for another 180 days. A proceeding would begin only if the decision is made to file charges. The Commission extended the term of the investigation for another 180 days (through August 18, 2017) LATAM Airlines Ecuador is cooperating with the authority and has retained a law firm and economist expert in the subject to advise the company during this process and any additional information requested will be furnished. We received notice on August 23, 2017 that the Market Regulatory Commission decided to quash the investigation against AEROLANE LÍNEAS AÉREAS NACIONALES DEL ECUADOR S.A. and two other airlines because there was insufficient information to charge them. This decision is final.

NOTE 32 – COMMITMENTS

(a) Loan covenants

With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis, for which, in any case non-compliance does not generate acceleration of the loans.

Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership, in relation to the ownership structure and the controlling group, and disposal of the assets which mainly refers to important transfers of assets.

The Company and its subsidiaries do not maintain financial credit contracts with banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries.

 F-132

The Revolving Credit Facility ("Revolving Credit Facility") with guaranteed aircraft, engines, spare parts and supplies for a total amount of US $ 450 million includes restrictions of minimum liquidity measured at the level of the Consolidated Company and measured at the individual level for the companies LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. which remain stand by while the credit line is not used. This credit line established with a consortium of eleven banks led by Citibank, is not used as of December 31, 2017.

As of December 31, 2017, the Company is in compliance with all the indicators detailed above.

(b) Commitments under operating leases as lessee

Details of the main operating leases are as follows:

		As of		As of
		December 31,		December 31,
Lessor	Aircraft	2017		2016
ACS Aero 1 Alpha limited	Airbus A320		1		-
Aircraft 76B-26329 Inc.	Boeing 767		1		1
Aircraft 76B-27615 Inc.	Boeing 767		-		1
Aircraft 76B-28206 Inc.	Boeing 767		1		1
Aviación Centaurus, A.I.E.	Airbus A319		3		3
Aviación Centaurus, A.I.E.	Airbus A321		1		1
Aviación Real A.I.E.	Airbus A319		1		1
Aviación Real A.I.E.	Airbus A320		1		1
Aviación Tritón A.I.E.	Airbus A319		3		3
Avolon Aerospace AOE 19 Limited	Airbus A320		-		1
Avolon Aerospace AOE 20 Limited	Airbus A320		-		1
Avolon Aerospace AOE 6 Limited	Airbus A320		-		1
Avolon Aerospace AOE 62 Limited	Boeing 777		1		1
Avolon Aerospace AOE 100 Limited	Airbus A320		2		-
AWAS 5234 Trust	Airbus A320		1		1
Baker & Spice Aviation Limited	Airbus A320		1		1
Bank of America	Airbus A321		2		2
Bank of Utah	Boeing 787		2		-
CIT Aerospace International	Airbus A320		1		2
ECAF I 1215 DAC	Airbus A320		-		1
ECAF I 2838 DAC	Airbus A320		1		1
ECAF I 40589 DAC	Boeing 777		1		1
Eden Irish Aircr Leasing MSN 1459	Airbus A320		1		1
GECAS Sverige Aircraft Leasing Worldwide AB	Airbus A320		-		1
GFL Aircraft Leasing Netherlands B.V.	Airbus A320		-		1
IC Airlease One Limited	Airbus A321		1		1
JSA Aircraft 38484, LLC	Boeing 787		1		1
JSA Aircraft 7126, LLC	Airbus A320		1		1
JSA Aircraft 7128, LLC	Airbus A321		1		1
JSA Aircraft 7239, LLC	Airbus A321		1		1
JSA Aircraft 7298, LLC	Airbus A321		1		1
Macquarie Aerospace Finance 5125-2 Trust	Airbus A320		1		1
Macquarie Aerospace Finance 5178 Limited	Airbus A320		1		1

 F-133

		As of		As of
		December 31,		December 31,
Lessor	Aircraft	2017		2016
Magix Airlease Limited	Airbus A320		-		1
MASL Sweden (8) AB	Airbus A320		-		1
Merlin Aviation Leasing (Ireland) 18 Limited	Airbus A320		1		1
Merlin Aviation Leasing (Ireland) 7 Limited	Airbus A320		1		-
NBB Cuckoo Co., Ltd	Airbus A321		1		1
NBB Grosbeak Co., Ltd	Airbus A321		1		1
NBB Redstart Co. Ltd	Airbus A321		1		1
NBB-6658 Lease Partnership	Airbus A321		1		1
NBB-6670 Lease Partnership	Airbus A321		1		1
Orix Aviation Systems Limited	Airbus A320		4		5
PAAL Aquila Company Limited	Airbus A321		2		2
PAAL Gemini Company Limited	Airbus A321		1		1
SASOF II (J) Aviation Ireland Limited	Airbus A319		-		1
Shenton Aircraft Leasing Limited	Airbus A320		1		1
Sky High XXIV Leasing Company Limited	Airbus A320		5		5
Sky High XXV Leasing Company Limited	Airbus A320		2		2
SMBC Aviation Capital Limited	Airbus A320		4		6
SMBC Aviation Capital Limited	Airbus A321		2		2
TC-CIT Aviation Ireland Limited	Airbus A320		-		1
Volito Aviation August 2007 AB	Airbus A320		2		2
Volito Aviation November 2006 AB	Airbus A320		2		2
Volito November 2006 AB	Airbus A320		2		2
Wells Fargo Bank North National Association	Airbus A319		2		3
Wells Fargo Bank North National Association	Airbus A320		-		2
Wells Fargo Bank Northwest National Association	Airbus A320		5		7
Wells Fargo Bank Northwest National Association	Airbus A350		2		2
Wells Fargo Bank Northwest National Association	Boeing 767		2		3
Wells Fargo Bank Northwest National Association	Boeing 777		4		6
Wells Fargo Bank Northwest National Association	Boeing 787		11		11
Wilmington Trust Company	Airbus A319		-		1
Total			93		111

The rentals are shown in results for the period for which they are incurred.

The minimum future lease payments not yet payable are the following:

	As of		As of
	December 31,		December 31,
	2017		2016
	ThUS$		ThUS$
No later than one year		462,205		533,319
Between one and five years		1,620,253		1,459,362
Over five years		1,498,064		1,262,509
Total		3,580,522		3,255,190

 F-134

The minimum operating lease payments charged to income are the following:

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Minimum operating lease payments		579,551		568,979		525,134
Total		579,551		568,979		525,134

During 2017 two Airbus A320-200N were added for a period of twelve years each and two Airbus A319-100 aircraft, fifteen Airbus A320 aircraft were returned. On the other hand, two Boeing 787-9 aircraft were added for a period of twelve year each and one Boeing 767-300ER aircraft and one Boeing 767-300 Freighter aircraft were returned.

The operating lease agreements entered into by the Parent Company and its subsidiaries establish that aircraft maintenance must be carried out in accordance with the technical provisions of the manufacturer and in the margins agreed in the contracts with the lessor, a cost assumed by the lessee. Additionally, for each aircraft, the lessee must purchase policies that cover the associated risk and the amount of the assets involved. As for the rent payments, these are unrestricted and cannot be netted from other accounts receivable or payable by the lessor and the lessee.

At December 31, 2017 the Company has existing letters of credit related to operating leasing as follows:

			Value		Release
Creditor Guarantee	Debtor	Type	ThUS$		date
GE Capital Aviation Services Limited	Lan Cargo S.A.	One letter of credit		1,100	Nov 30, 2018
ACS Aero 1 Alpha Limited	LATAM Airlines Group S.A.	One letter of credit		3,255	Aug 31, 2018
Bank of America	LATAM Airlines Group S.A.	Three letter of credit		1,043	Jul 2, 2018
Bank of Utah	LATAM Airlines Group S.A.	One letter of credit		2,000	Mar 24, 2019
Engine Lease Finance Corporation	LATAM Airlines Group S.A.	One letter of credit		4,750	Oct 8, 2018
GE Capital Aviation Services Ltd.	LATAM Airlines Group S.A.	Six letter of credit		22,105	Apr 30, 2018
International Lease Finance Corp	LATAM Airlines Group S.A.	Three letter of credit		1,450	Aug 5, 2018
ORIX Aviation Systems Limited	LATAM Airlines Group S.A.	Two letter of credit		7,366	Dec 11, 2018
Wells Fargo Bank	LATAM Airlines Group S.A.	Nine letter of credit		15,160	Mar 2, 2018
CIT Aerospace International	Tam Linhas Aéreas S.A.	One letter of credit		6,000	Oct 25, 2018
Wells Fargo Bank North N.A.	Tam Linhas Aéreas S.A.	One letter of credit		5,500	Jul 15, 2018
				69,729

 F-135

(c) Other commitments

At December 31, 2017 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:

			Value		Release
Creditor Guarantee	Debtor	Type	ThUS$		date
Servicio Nacional de Aduana del Ecuador	Líneas Aéreas Nacionales del Ecuador S.A.	Three letter of credit		1,705	Aug 5, 2018
Corporación Peruana de Aeropuertos y Aviación Comercial	Lan Perú S.A.	Twenty five letter of credit		1,897	Jan 31, 2018
Lima Airport Partners S.R.L.	Lan Perú S.A.	Eighteen letter of credit		996	Apr 30, 2018
Superintendencia Nacional de Aduanas y de Administración Tributaria	Lan Perú S.A.	Ten letter of credit		80,000	Jan 21, 2018
Aena Aeropuertos S.A.	LATAM Airlines Group S.A.	Four letter of credit		2,809	Nov 15, 2018
American Alternative Insurance Corporation	LATAM Airlines Group S.A.	Six letter of credit		3,690	Apr 5, 2018
Comisión Europea	LATAM Airlines Group S.A.	One letter of credit		9,868	Jun 16, 2018
Deutsche Bank A.G.	LATAM Airlines Group S.A.	One letter of credit		15,000	Mar 31, 2018
Dirección General de Aeronáutica Civil	LATAM Airlines Group S.A.	Fifty three letter of credit		19,759	Feb 28, 2018
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador	LATAM Airlines Group S.A.	One letter of credit		5,500	Jun 18, 2018
Metropolitan Dade County	LATAM Airlines Group S.A.	Eight letter of credit		2,273	Mar 13, 2018
4ª Vara Mista de Bayeux	Tam Linhas Aéreas S.A.	One insurance policies guarantee		1,044	Mar 25, 2021
Conselho Administrativo de Conselhos Federais	Tam Linhas Aéreas S.A.	One insurance policies guarantee		12,703	May 19, 2020
Fundação de Proteão de Defesa do Consumidor Procon	Tam Linhas Aéreas S.A.	Two insurance policies guarantee		3,926	Apr 1, 2021
União Federal	Tam Linhas Aéreas S.A.	One insurance policies guarantee		6,604	Oct 20, 2021
União Federal -Fazenda Nacional	Tam Linhas Aéreas S.A.	One insurance policies guarantee		41,243	Jul 30, 2020
União Federal - Procuradoira - Gral da fazenda Nacional	Tam Linhas Aéreas S.A.	Four insurance policies guarantee		50,196	Jan 4, 2020
União Federal Vara Comarca de DF	Tam Linhas Aéreas S.A.	One insurance policies guarantee		1,551	Sep 28, 2021
União Federal Vara Comarca de SP	Tam Linhas Aéreas S.A.	One insurance policies guarantee		19,268	Feb 22, 2021
				280,032

 F-136

NOTE 33 - TRANSACTIONS WITH RELATED PARTIES

(a) Details of transactions with related parties as follows:

						Transaction amount
		Nature of		Nature of		with related parties
		relationship with	Country	related parties		As of December 31,
Tax No.	Related party	related parties	of origin	transactions	Currency	2017			2016			2015
						ThUS$			ThUS$			ThUS$
96.810.370-9	Inversiones Costa Verde Ltda. y CPA.	Related director	Chile	Tickets sales	CLP		18			6			15
65.216.000-K	Comunidad Mujer	Related director	Chile	Tickets sales	CLP		14			9			2
				Services provided for advertising	CLP		-			(12	)		(10	)
78.591.370-1	Bethia S.A and subsidiaries	Related director	Chile	Services received of cargo transport	CLP		1,643			(394	)		(259	)
				Services received from National and International Courier	CLP		(382	)		(285	)		(227	)
				Services provided of cargo transport	CLP		(17	)		192			30
65.216.000-K	Viajes Falabella Ltda.	Related director	Chile	Sales commissions	CLP		(761	)		(727	)		(50	)
79.773.440-3	Transportes San Felipe S.A	Related director	Chile	Services received of transfer of passengers	CLP		-			(84	)		(127	)
				Tickets sales	CLP		1			3			7
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	Tickets sales	CLP		72			76			117
Foreign	Consultoría Administrativa Profesional S.A. de C.V.	Associate	Mexico	Professional counseling services received	MXN		(2,357	)		(2,563	)		(1,191	)
Foreign	Inversora Aeronáutica Argentina	Related director	Argentina	Leases as lessor	ARS		(251	)		(264	)		(269	)
				Revenue billboard advertising maintaining	US$		-			-			1
Foreign	TAM Aviação Executiva e Taxi Aéreo S/A	Related director	Brazil	Services provided	BRL		45			(120	)		(61	)
				Services received at airports	BRL		(39	)		7			5
Foreign	Qatar Airways	Indirect shareholder	Qatar	Services provided by aircraft lease	US$		31,707			-			-
				Interlineal received service	US$		(2,139	)		-			-
				Interlineal provided service	US$		5,279			-			-
				Services provided of handling	US$		1,002			-			-

The balances of Accounts receivable and accounts payable to related parties are disclosed in Note 9.

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.

 F-137

(b) Compensation of key management

The Company has defined for these purposes that key management personnel are the executives who define the Company’s policies and major guidelines and who directly affect the results of the business, considering the levels of Vice-Presidents, Chief Executives and Directors (Senior).

	For the period ended
	December 31,
	2017		2016		2015
	ThUS$		ThUS$		ThUS$
Remuneration		17,826		16,514		17,185
Management fees		468		556		547
Non-monetary benefits		740		778		864
Short-term benefits		36,970		23,459		19,814
Share-based payments		13,173		8,085		10,811
Total		69,177		49,392		49,221

NOTE 34 - SHARE-BASED PAYMENTS

(a) Compensation plan for increase of capital

Compensation plans implemented by providing options for the subscription and payment of shares that have been granted by LATAM Airlines Group S.A. to employees of the Company and its subsidiaries, are recognized in the financial statements in accordance with the provisions of IFRS 2 "Share-based Payment”, showing the effect of the fair value of the options granted under compensation in linear between the date of grant of such options and the date on which these irrevocable.

(a.1) Compensation plan 2011

On December 21, 2016, the subscription and payment period of the 4,800,000 shares corresponding to the compensation plan approved at the Extraordinary Shareholders' Meeting held on December 21, 2011, expired.

Of the total shares allocated to the 2011 Compensation Plan, only 10,282 shares were subscribed and paid, having been placed on the market in January 2014. In view of the above, at the expiration date, the 2011 Compensation Plan had a balance of 4,789,718 shares pending of subscription and payment, which was deducted from the authorized capital of the Company.

	Number of Stock Options
	In share-based payment arrangements
			Options			Expired
	Opening		waived by			Action			Closing
Periods	balance		executives			Options			Balance
From January 1 to December 31, 2016		4,518,000		(4,172,000	)		(346,000	)		-
From January 1 to December 31, 2017		-		-			-			-

 F-138

These options was valued and recorded at fair value at the grant date, determined by the "Black-Scholes-Merton”. No result has been recognized as of December 2017 (ThUS$ 2,989 at December 31, 2016).

(a.2) Compensation plan 2013

At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, in conformity with the stipulations established in Article 24 of the Corporations Law. With regard to this compensation, a defined date for implementation does not exist.

(b) Compensation plan 2016-2018

The company implemented a retention plan long-term for executives, which lasts until December 2018, with a vesting period between October 2018 and March 2019, which consists of an extraordinary bonus whose calculation formula is based on the variation the value to experience the action of LATAM Airlines Group S.A. for a period of time.

This benefit is recognized in accordance with the provisions of IFRS 2 "Share-based Payments" and has been considered as cash settled award and therefore recorded at fair value as a liability, which is updated to the closing date of each financial statement with effect on profit or loss.

	Base Units
	Opening										Closing
Periods	balance		Granted		Annulled			Exercised			Balance
From January 1 to December 31, 2016		4,719,720		-		-			-			4,719,720
From January 1 to December 31, 2017		4,719,720		37,359		(1,193,286	)		(630,897	)		2,932,896

The fair value has been determined on the basis of the best estimate of the future value of the Company share multiplied by the number of units granted bases.

At December 31, 2017, the carrying amount of ThUS$ 13,173, is classified under "Administrative expenses" in the Consolidated Statement of Income by Function.

(c) Subsidiaries compensation plans

(c.1) Stock Options

Multiplus S.A., subsidiaries of TAM S.A., have outstanding stock options at December 31, 2017, which amounted to 316,025 shares (at December 31, 2016, the distribution of outstanding stock options amounted to 394,698 for Multiplus S.A.).

 F-139

Multiplus S.A.

					4nd Extraordinary
	3rd Grant		4th Grant		Grant
Description	03/21/2012		04/03/2013		11/20/2013		Total
Outstanding option number as December 31, 2016		84,249		173,399		137,050		394,698
Outstanding option number as December 31, 2017		84,249		163,251		68,525		316,025

For Multiplus S.A., the plan's terms provide that the options granted to the usual prizes are divided into three equal parts and employees may exercise one-third of their two, three and four, options respectively, as long as they keep being employees of the company. The agreed term of the options is seven years after the grant of the option. The first extraordinary granting was divided into two equal parts, and only half of the options may be exercised after three years and half after four years. The second extraordinary granting was also divided into two equal parts, which may be exercised after one and two years respectively.

The acquisition of the share's rights, in both companies is as follows:

	Number of shares				Number of shares
	Accrued options				Non accrued options
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
Company	2017		2016		2017		2016
Multiplus S.A.		-		-		316,025		394,698

In accordance with IFRS 2 - Payments based on shares, the fair value of the option must be recalculated and recorded in the liability of the Company, once cash payment is made (cash-settled). The fair value of these options was calculated using the "Black-Scholes-Merton" method, where the assumptions were updated with information from LATAM Airlines Group S.A. As of December 31, 2017 and December 31, 2016 there is no value recorded in liabilities and results.

(c.2) Payments based on restricted stock

In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 ordinary, registered book entry securities with no face value, issued by the Company to beneficiaries.

The quantity of restricted stock units was calculated based on employees’ expected remunerations divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to the restricted stock when the following conditions have been met:

a.           Compliance with the performance goal defined by this Council as return on Capital Invested.

b.           The Beneficiary must remain as an administrator or employee of the Company for the period running from the date of issue to the following dates described, in order to obtain rights over the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third) after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.

 F-140

Number shares in circulation

								Not acquired due
	Opening							to breach of employment			Closing
	balance		Granted		Exercised			retention conditions			balance
From January 1 to December 31, 2016		175,910		138,282		(15,811	)		(60,525	)		237,856
From January 1 to December 31, 2017		237,856		129,218		(41,801	)		(15,563	)		309,710

NOTE 35 - STATEMENT OF CASH FLOWS

(a)         The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 17 letter (d), additional information in numeral (iv) Financial leases.

(b)         Other inflows (outflows) of cash:

	For the periods ended
	December 31,
	2017			2016			2015
	ThUS$			ThUS$			ThUS$
Guarantees		59,988			(51,559	)		(2,125	)
Fuel hedge		19,862			(50,029	)		(243,587	)
DOJ fine		-			(12,750	)		-
SEC agreement		-			(4,719	)		-
Fuel derivatives premiums		(2,832	)		(6,840	)		(20,932	)
Hedging margin guarantees		(4,201	)		1,184			87,842
Tax paid on bank transaction		(6,635	)		(10,668	)		(7,176	)
Bank commissions, taxes paid and other		(7,738	)		(769	)		(5,137	)
Change reservation systems		(16,120	)		-			11,000
Currency hedge		(17,798	)		(39,534	)		1,802
Court deposits		(33,457	)		(33,635	)		(6,314	)
Others		-			50			-
Total Other inflows (outflows) Operation flow		(8,931	)		(209,269	)		(184,627	)
Others deposits in guarantees		3,754			-			-
Recovery loans convertible into shares		-			8,896			20,000
Certificate of bank deposits		-			-			3,497
Tax paid on bank transaction		(2,594	)		(3,716	)		(12,921	)
Others		(10,383	)		(4,337	)		-
Total Other inflows (outflows) Investment flow		(9,223	)		843			10,576
Loan guarantee		80,615			(74,186	)		-
Credit card loan manager		-			-			3,227
Early redemption of bonds TAM 2020		-			-			(15,328	)
Guarantees bonds emission		-			-			(26,111	)
Aircraft Financing advances		(26,214	)		(125,149	)		(28,144	)
Settlement of derivative contracts		(40,695	)		(29,828	)		(35,891	)
Others		-			-			2,490
Total Other inflows (outflows) Financing flow		13,706			(229,163	)		(99,757	)

 F-141

(c) Dividends:

	For the periods ended
	December 31,
	2017			2016			2015
	ThUS$			ThUS$			ThUS$
Latam Airlines Group S.A.		(20,766	)		-			-
Multiplus S.A. (*)		(45,876	)		(40,823	)		(34,632	)
Lan Perú S.A. (*)		-			(400	)		(400	)
Total dividends paid		(66,642	)		(41,223	)		(35,032	)

(*) Dividends paid to minority shareholders

d) Reconciliation of liabilities arising from financing activities:

	As of		Cash flows								Non-Flow Movements					As of
Obligations with	December 31,		Obtainment		Payment						Interest accrued					December 31,
financial institutions	2016		Capital		Capital			Interest			and others		Reclassifications			2017
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$		ThUS$			ThUS$
Loans to exporters		278,164		130,000		(99,719	)		(7,563	)		13,737		-			314,619
Bank loans		585,287		70,357		(345,552	)		(21,127	)		32,668		-			321,633
Guaranteed obligations		4,758,552		182,140		(486,599	)		(154,072	)		155,907		(419,085	)		4,036,843
Other guaranteed obligations		256,420		-		(15,022	)		(8,890	)		9,667		-			242,175
Obligation with the public		1,309,345		1,055,167		(797,828	)		(128,764	)		146,146		-			1,584,066
Financial leases		1,022,361		-		(344,005	)		(46,874	)		58,937		419,085			1,109,504
Other loans		394,791		13,107		(124,688	)		(22,434	)		22,024		-			282,800
Total Obligations with financial institutions		8,604,920		1,450,771		(2,213,413	)		(389,724	)		439,086		-			7,891,640

(e) Advances of aircraft

Below are the cash flows associated with aircraft purchases, which are included in the statement of consolidated cash flow, in the item Purchases of properties, plants and equipment:

	For the periods ended
	December 31,
	2017			2016
	MUS$			MUS$
Increases (payments)		(205,143	)		(170,684	)
Recoveries		78,641			727,585
Total cash flows		(126,502	)		556,901

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NOTE 36 - THE ENVIRONMENT

LATAM Airlines Group S.A has a commitment to sustainable development seeking to generate value taking into account the governance, environmental and social aspects. The company manages environmental issues at a corporate level, centralized in the Sustainability Management. For the company to monitor and minimize its impact on the environment is a commitment of the highest level; where the continuous improvement and contribute to the solution of the global climate change problem, generating added value to the company and the region, are the pillars of its management.

One of the functions of the Sustainability Management in environmental issues, together with the various areas of the Company, is to ensure environmental compliance, implement a management system and environmental programs that comply with the requirements every day more. demanding worldwide; in addition to continuous improvement programs in their internal processes, which generate environmental, social and economic benefits and which are added to those currently carried out.

Within the sustainability strategy, the Environment dimension of LATAM Airlines Group S.A., is called Climate Change and is based on the goal of achieving world leadership in this area, and for which we work on the following aspects:

i. Carbon footprint

ii. Eco Efficiency

iii. Sustainable Alternative Energy

iv. Standards and Certifications

This is how, during 2017, the following initiatives have been carried out:

- Implementation of an Environmental Management System for the main operations of the company. It is highlighted that the company during 2016 has recertified its environmental management system in Miami facilities following the guidelines of the international standard ISO 14.001.

- Maintenance of the Stage 2 Certification of IATA Environmental Assestment (IEnvA) whose scope is the international flights operated from Chile, the most advanced level of this certification; being the first in the continent and one of the four airlines in the world that have this certification.

- Preparation of the environmental chapter for the sustainability report of the company, which allows to measure progress in environmental issues.

- Answer to the questionnaire of the DJSI.

- Measurement and external verification of the Corporate Carbon Footprint.

- Neutralization of land operations in the operations of Colombia and Peru with emblematic reforestation projects in the respective countries.

It is highlighted that in 2017, LATAM Airlines Group maintained its inclusion for the fourth consecutive year in the world category of the Dow Jones Sustainability Index, with only 3 airlines in the world belonging to this select group.

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NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS

Subsequent to December 31, 2017 and until the date of issuance of these financial statements, there is no knowledge of other financial or other events that significantly affect the balances or their interpretation.

The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of December 31, 2017, have been approved in an Extraordinary Board Meeting on March 14, 2018.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 4, 2018	LATAM AIRLINES GROUP S.A.
	By: /s/ Enrique Cueto
	Name: Enrique Cueto
	Title: Latam Airlines Group CEO

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