UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

March 16, 2017

Commission File Number 1-14728

LATAM Airlines Group S.A.

(Translation of Registrant’s Name Into English)

Presidente Riesco 5711, 20th floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  x             Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

CONTENTS

Consolidated Statement of Financial Position

Consolidated Statement of Income by Function

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows - Direct Method

Notes to the Consolidated Financial Statements

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

REPORT OF INDEPENDENT AUDITORS

(Free translation from the original in Spanish)

Santiago, March 15, 2017

To the Board of Directors and Shareholders

Latam Airlines Group S.A.

We have audited the accompanying consolidated financial statements of Latam Airlines Group S.A. and subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2016 and 2015 and the related statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and the corresponding notes to the consolidated financial statements.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). This responsibility includes the design, implementation and maintenance of a relevant internal control for the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Chilean generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. As a consequence we do not express that kind of opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Santiago, March 15, 2017

Latam Airlines Group S.A.

2

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects the financial position of Latam Airlines Group S.A. and subsidiaries as at December 31, 2016 and 2015, and the results of operations and cash flows for the years then ended in accordance with the International Financial Reporting Standards (IFRS).

/s/ Jonathan Yeomans Gibbons	/s/ PricewaterhouseCoopers
Jonathan Yeomans Gibbons
RUT: 13.473.972-K

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

Notes	Page
1 - General information	1
2 - Summary of significant accounting policies	5
2.1. Basis of Preparation	5
2.2. Basis of Consolidation	9
2.3. Foreign currency transactions	10
2.4. Property, plant and equipment	11
2.5. Intangible assets other than goodwill	11
2.6. Goodwill	12
2.7. Borrowing costs	12
2.8. Losses for impairment of non-financial assets	12
2.9. Financial assets	13
2.10. Derivative financial instruments and hedging activities	13
2.11. Inventories	15
2.12. Trade and other accounts receivable	15
2.13. Cash and cash equivalents	15
2.14. Capital	15
2.15. Trade and other accounts payables	15
2.16. Interest-bearing loans	16
2.17. Current and deferred taxes	16
2.18. Employee benefits	16
2.19. Provisions	17
2.20. Revenue recognition	17
2.21. Leases	18
2.22. Non-current assets (or disposal groups) classified as held for sale	18
2.23. Maintenance	18
2.24. Environmental costs	19
3 - Financial risk management	19
3.1. Financial risk factors	19
3.2. Capital risk management	33
3.3. Estimates of fair value	33
4 - Accounting estimates and judgments	36
5 - Segmental information	39
6 - Cash and cash equivalents	41
7 - Financial instruments	43
7.1. Financial instruments by category	43
7.2. Financial instruments by currency	45
8 - Trade, other accounts receivable and non-current accounts receivable	46
9 - Accounts receivable from/payable to related entities	49
10 - Inventories	50
11 - Other financial assets	51
12 - Other non-financial assets	52
13 - Non-current assets and disposal group classified as held for sale	53
14 - Investments in subsidiaries	54

15 - Intangible assets other than goodwill	57
16 - Goodwill	58
17 - Property, plant and equipment	60
18 - Current and deferred tax	66
19 - Other financial liabilities	72
20 - Trade and other accounts payables	79
21 - Other provisions	81
22 - Other non-financial liabilities	83
23 - Employee benefits	84
24 - Accounts payable, non-current	86
25 - Equity	86
26 - Revenue	91
27 - Costs and expenses by nature	92
28 - Other income, by function	93
29 - Foreign currency and exchange rate differences	94
30 - Earnings per share	102
31 - Contingencies	103
32 - Commitments	111
33 - Transactions with related parties	116
34 - Share based payments	117
35 - Statement of cash flows	121
36 - The environment	122
37 - Events subsequent to the date of the financial statements	123

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS
		As of		As of
		December 31,		December 31,
	Note	2016		2015
		ThUS$		ThUS$
Current assets
Cash and cash equivalents	6 - 7		949,327		753,497
Other financial assets	7 - 11		712,828		651,348
Other non-financial assets	12		212,242		330,016
Trade and other accounts receivable	7 - 8		1,107,889		796,974
Accounts receivable from related entities	7 - 9		554		183
Inventories	10		241,363		224,908
Tax assets	18		65,377		64,015
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners			3,289,580		2,820,941
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners	13		337,195		1,960
Total current assets			3,626,775		2,822,901
Non-current assets
Other financial assets	7 - 11		102,125		89,458
Other non-financial assets	12		237,344		235,463
Accounts receivable	7 - 8		8,254		10,715
Intangible assets other than goodwill	15		1,610,313		1,321,425
Goodwill	16		2,710,382		2,280,575
Property, plant and equipment	17		10,498,149		10,938,657
Tax assets	18		20,272		25,629
Deferred tax assets	18		384,580		376,595
Total non-current assets			15,571,419		15,278,517
Total assets			19,198,194		18,101,418

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

LIABILITIES AND EQUITY
		As of			As of
		December 31,			December 31,
LIABILITIES	Note	2016			2015
		ThUS$			ThUS$
Current liabilities
Other financial liabilities	7 - 19		1,839,528			1,644,235
Trade and other accounts payables	7 - 20		1,593,068			1,483,957
Accounts payable to related entities	7 - 9		269			447
Other provisions	21		2,643			2,922
Tax liabilities	18		14,286			19,378
Other non-financial liabilities	22		2,762,245			2,490,033
			6,212,039			5,640,972
Liabilities included in disposal groups classified as held for sale			10,152			-
Total current liabilities			6,222,191			5,640,972
Non-current liabilities
Other financial liabilities	7 - 19		6,796,952			7,532,385
Accounts payable	7 - 24		359,391			417,050
Other provisions	21		422,494			424,497
Deferred tax liabilities	18		915,759			811,565
Employee benefits	23		82,322			65,271
Other non-financial liabilities	22		213,781			272,130
Total non-current liabilities			8,790,699			9,522,898
Total liabilities			15,012,890			15,163,870
EQUITY
Share capital	25		3,149,564			2,545,705
Retained earnings	25		366,404			317,950
Treasury Shares	25		(178	)		(178	)
Other reserves			580,870			(6,942	)
Parent's ownership interest			4,096,660			2,856,535
Non-controlling interest	14		88,644			81,013
Total equity			4,185,304			2,937,548
Total liabilities and equity			19,198,194			18,101,418

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

		For the period ended
		December 31,
	Note	2016			2015
		ThUS$			ThUS$
Revenue	26		8,988,340			9,740,045
Cost of sales			(6,967,037	)		(7,636,709	)
Gross margin			2,021,303			2,103,336
Other income	28		538,748			385,781
Distribution costs			(747,426	)		(783,304	)
Administrative expenses			(872,954	)		(878,006	)
Other expenses			(373,738	)		(323,987	)
Other gains/(losses)			(72,634	)		(55,280	)
Income from operation activities			493,299			448,540
Financial income			74,949			75,080
Financial costs	27		(416,336	)		(413,357	)
Share of profit of investments accounted for using the equity method			-			37
Foreign exchange gains/(losses)	29		121,651			(467,896	)
Result of indexation units			311			481
Income (loss) before taxes			273,874			(357,115	)
Income (loss) tax expense / benefit	18		(163,204	)		178,383
NET INCOME (LOSS) FOR THE PERIOD			110,670			(178,732	)
Income (loss) attributable to owners of the parent			69,220			(219,274	)
Income (loss) attributable to non-controlling interest	14		41,450			40,542
Net income (loss) for the year			110,670			(178,732	)
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)	30		0.12665			(0.40193	)
Diluted earnings (losses) per share (US$)	30		0.12665			(0.40193	)

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the period ended
		December 31,
	Note	2016			2015
		ThUS$			ThUS$
NET INCOME (LOSS)			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		(3,105	)		(14,631	)
Total other comprehensive income that will not be reclassified to income before taxes			(3,105	)		(14,631	)
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax	29		494,362			(1,409,439	)
Other comprehensive income, before taxes, currency translation differences			494,362			(1,409,439	)
Cash flow hedges
Gains (losses) on cash flow hedges before taxes	19		127,390			80,387
Other comprehensive income (losses), before taxes, cash flow hedges			127,390			80,387
Total other comprehensive income that will be reclassified to income before taxes			621,752			(1,329,052	)
Other components of other comprehensive income (loss), before taxes			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		921			3,911
Accumulate income tax relating to other comprehensive income that will not be reclassified to income			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			(34,695	)		(21,103	)
Income taxes related to components of other comprehensive income that will be reclassified to income			(34,695	)		(21,103	)
Total Other comprehensive income			584,873			(1,360,875	)
Total comprehensive income (loss)			695,543			(1,539,607	)
Comprehensive income (loss) attributable to owners of the parent			648,539			(1,551,331	)
Comprehensive income (loss) attributable to non-controlling interests			47,004			11,724
TOAL COMPREHENSIVE INCOME (LOSS)			695,543			(1,539,607	)

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

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) inequity
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.

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) inequity
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.

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

		For the periods ended
		December 31,
	Note	2016			2015
		ThUS$			ThUS$
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services			9,918,589			11,372,397
Other cash receipts from operating activities			70,359			88,237
Payments for operating activities
Payments to suppliers for goods and services			(6,756,121	)		(7,029,582	)
Payments to and on behalf of employees			(1,820,279	)		(2,165,184	)
Other payments for operating activities			(162,839	)		(351,177	)
Interest received			11,242			43,374
Income taxes refunded (paid)			(59,556	)		(57,963	)
Other cash inflows (outflows)	35		(209,269	)		(184,627	)
Net cash flows from operating activities			992,126			1,715,475
Cash flows used in investing activities
Other cash receipts from sales of equity or debt instruments of other entities			2,969,731			519,460
Other payments to acquire equity or debt instruments of other entities			(2,706,733	)		(704,115	)
Amounts raised from sale of property, plant and equipment			76,084			57,117
Purchases of property, plant and equipment			(694,370	)		(1,569,749	)
Amounts raised from sale of intangible assets			1			91
Purchases of intangible assets			(88,587	)		(52,449	)
Other cash inflows (outflows)	35		843			10,576
Net cash flow from (used in) investing activities			(443,031	)		(1,739,069	)
Cash flows from (used in) financing activities
Amounts raised from issuance of shares			608,496			-
Amounts raised from long-term loans			1,820,016			1,791,484
Amounts raised from short-term loans			279,593			205,000
Loans repayments			(2,121,130	)		(1,263,793	)
Payments of finance lease liabilities			(314,580	)		(342,614	)
Dividends paid	35		(41,223	)		(35,032	)
Interest paid			(398,288	)		(383,648	)
Other cash inflows (outflows)	35		(229,163	)		(99,757	)
Net cash flows from (used in) financing activities			(396,279	)		(128,360	)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change			152,816			(151,954	)
Effects of variation in the exchange rate on cash and cash equivalents			43,014			(83,945	)
Net increase (decrease) in cash and cash equivalents			195,830			(235,899	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	35		753,497			989,396
CASH AND CASH EQUIVALENTS AT END OF PERIOD	6		949,327			753,497

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016

NOTE 1 - GENERAL INFORMATION

LATAM Airlines Group S.A. (the “Company”) is a public company registered with the Chilean Superintendency of Securities and Insurance (SVS), under No.306, whose shares are quoted in Chile on the Stock Brokers - Stock Exchange (Valparaíso) - the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange (“NYSE”) in New York in the form of American Depositary Receipts (“ADRs”).

Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are performed directly or through its subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia.

The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca.

Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the SVS and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs.

On July 18, 2016, LATAM received the approval by Comissão de Valores Mobiliários (“CVM”) for a discontinuation of Brazilian LATAM depositary receipts-BDRS level III ("BDRs"), supported by common shares of the Company and, consequently, our registration of the foreign issuer. On May 24, 2016, the Company reported as an Essential Fact the maturity date May 23, 2016 deadline for holders of BDRs to express their option to keep the shares and the blockade by BM&FBOVESPA with the same date of the respective balances of shares of the holders of BDRs who chose to adhere to the procedure for sale of shares through the procedure called Sale Facility and assigned for this purpose a theoretical value of sales in the Santiago Stock Exchange. On June 9, 2016, the Company reported that BTG Pactual Chile S.A. Stockbrokers ("BTG Pactual Chile"), a chilean institution contracted by the Company, made the sale on the Santiago Stock Exchange of the shares of the respective holders who adhered to Sale Facility procedure.

As of December 31, 2015, the Company's subscribed and paid capital was represented by 545,558,101 commons shares, without par value. On August 18, 2016, the Company held an extraordinary shareholders' meeting in which it was approved to increase the capital by issuing 61,316,424 shares of payment, all of them commons shares, without par value. As of December 31, 2016, 60,849,592 shares, equivalent to this increase, had been placed, so at that date the number of shares subscribed and paid by the Company amounted to 606,407,693 shares.

At December 31, 2016, the Company's capital stock is represented by 608,374,525 shares, all common shares, without par value, which is divided into: (a) the 606,407,693 subscribed and paid shares mentioned above; And (b) 1,966,832 shares pending of subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plan; And (ii) 466,832 correspond to the balance of shares pending of placement of the last capital increase.

It should be noted that the Company's capital stock was expressed in 613,164,243 shares, all ordinary shares, without nominal value. However, on December 21, 2016, the deadline for the subscription and payment of 4,789,718 shares that were also destined to compensation plans for the workers expired, so the Company's capital stock was fully reduced to the already mentioned 608.374.525 shares.

The Board of the Company is composed of nine members who are elected every two years by the ordinary shareholders' meeting. The Board meets in regular monthly sessions and in extraordinary sessions as the corporate needs demand. Of the nine board members, three form part of its Directors’ Committee which fulfills both the role foreseen in the Corporations Law and the functions of the Audit Committee required by the Sarbanes Oxley Law of the United States of America and the respective regulations of the SEC.

The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Limitada, Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A., Inversiones, Inversiones La Espasa Dos y Cía. Ltda. and Inversiones Mineras del Cantábrico S.A. owns 28.27% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.

As of December 31, 2016, the Company had a total of 1,566 registered shareholders. At that date approximately 4.69 % of the Company’s share capital was in the form of ADRs.

For the period ended December 31, 2016, the Company had an average of 48,336 employees, ending this period with a total of 45,916 employees, spread over 8,010 Administrative employees, 4,895 in Maintenance, 15,924 in Operations, 8,970 in Cabin Crew, 3,882 in Controls Crew, and 4,235 in Sales.

2

The main subsidiaries included in these consolidated financial statements are as follows:

a) Participation rate

				As December 31, 2016						As December 31, 2015
		Country	Functional
Tax No.	Company	of origin	Currency	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
96.763.900-1	Inmobiliaria Aeronáutica S.A.	Chile	US$		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
Foreign	Lan Perú S.A.	Peru	US$		49.0000		21.0000		70.0000		49.0000		21.0000		70.0000
Foreign	Lan Chile Investments Limited and Subsidiary	Cayman Insland	US$		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
Foreign	Connecta Corporation	U.S.A.	US$		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
96.951.280-7	Transporte Aéreo S.A.	Chile	US$		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		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
Foreign	Laser Cargo S.R.L.	Argentina	ARS		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
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
96.575.810-0	Inversiones Lan S.A. and Subsidiaries	Chile	US$		99.7100		0.2900		100.0000		99.7100		0.2900		100.0000
59.068.920-3	Technical Trainning LATAM S.A.	Chile	CLP		99.8300		0.1700		100.0000		99.8300		0.1700		100.0000
Foreign	TAM S.A. and Subsidiaries (**)	Brazil	BRL		63.0901		36.9099		100.0000		63.0901		36.9099		100.0000

(*) Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel Chile S.A.

(**) As of December 31, 2016, indirect ownership participation on TAM S.A and subsidiaries is from Holdco I S.A., LATAM is entitled to 99,9983% of the economic rights and 49% of the rights politicians product of provisional measure No. 714 of the Brazilian government that allows foreign capital to have up to 49% of the property.

Thus, since April 2016, LATAM Airlines Group S.A. owns 901 voting shares of Holdco I S.A., equivalent to 49% of the total shares with voting rights of said company and TEP Chile S.A. owns 938 voting shares of Holdco I S.A., equivalent to 51% of the total voting shares of that company.

3

b) Statement of financial position

		Statement of financial position														Net Income
																For the periods ended
																December 31,
		As of December 31, 2016							As of December 31, 2015							2016			2015
Tax No.	Company	Assets		Liabilities		Equity			Assets		Liabilities		Equity			Gain /(loss)
		ThUS$		ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$			ThUS$
96.518.860-6	Latam Travel Chile S.A. and Subsidary (*)		5,468		2,727		2,741			5,613		5,522		91			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 Pax Group S.A. and Subsidiaries (**)		475,763		1,045,761		(561,472	)		519,663		1,049,232		(521,907	)		(36,331	)		(35,187	)
Foreign	Lan Perú S.A.		306,111		294,912		11,199			255,691		240,938		14,753			(2,164	)		5,068
Foreign Foreign	Lan Chile Investments Limited and Subsidiary (**)		-		-		-			2,015		13		2,002			23			(13	)
93.383.000-4	Lan Cargo S.A.		480,908		239,728		241,180			483,033		217,037		265,966			(24,813	)		(74,408	)
Foreign	Connecta Corporation		31,981		23,525		8,456			37,070		38,298		(1,228	)		9,684			194
Foreign	Prime Airport Services Inc. and Subsidary (**)		7,385		11,294		(3,909	)		6,683		11,180		(4,497	)		588			279
96.951.280-7	Transporte Aéreo S.A.		340,940		124,805		216,135			331,117		122,666		208,451			8,206			5,878
Foreign	Aircraft International Leasing Limited		-		-		-			-		4		(4	)		9			(4	)
96.631.520-2	Fast Air Almacenes de Carga S.A.		10,023		3,645		6,378			8,985		4,641		4,344			1,717			1,811
Foreign	Laser Cargo S.R.L.		21		32		(11	)		27		39		(12	)		(1	)		69
Foreign	Lan Cargo Overseas Limited and Subsidiaries (**)		54,092		35,178		15,737			62,406		43,759		15,563			176			3,344
96.969.690-8	Lan Cargo Inversiones S.A. and Subsidary (**)		80,644		95,747		(13,506	)		54,179		68,220		(12,601	)		(910	)		113
96.575.810-0	Inversiones Lan S.A. and Subsidiaries (**)		10,971		6,452		4,452			16,512		14,676		1,828			2,549			2,772
59.068.920-3	Technical Trainning LATAM S.A.		1,745		284		1,461			1,527		266		1,261			73			(72	)
Foreign	TAM S.A. and Subsidiaries (**)		5,287,286		4,710,308		495,562			4,969,553		4,199,223		423,190			2,107			(183,581	)

(*) Lantours Division de Servicios Terrestres S.A. changes its name to Latam Travel Chile S.A.

(**) The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest.

Additionally, we have proceeded to consolidate the following special purpose entities: 1. JOL (Japanese Operating Lease) created in order to finance the purchase of certain aircraft; 2. Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 3. Guanay Finance Limited created to issue a bond collateralized with future credit card receivables; 4. Private investment funds and 5. Avoceta Leasing Limited created to finance the pre-delivery payments on aircraft. These companies have been consolidated as required by IFRS 10.

All the entities controlled have been included in the consolidation.

Changes in the scope of consolidation between January 1, 2015 and December 31, 2016, are detailed below:

(1) Incorporation or acquisition of companies

- On October 2015, Rampas Airport Services S.A., subsidiary of Lan Pax Group S.A. increases its capital and paid in the amount of ThUS$ 6,000 by issuing new shares, changing the property of the company as follows: Lan Pax Group S.A. increased its share to 99.99738%, Inversiones Lan S.A. decreased its stake to 0.00002% and Aerolane Líneas Aéreas Nacionales del Ecuador S.A. acquires stake for 0.0026%.

4

- On January 2016 it was registered at the Public Registry of Commerce, the Increase in Share Capital and statutory modification for the purpose of creating a new class of shares of Lan Argentina S.A., subsidiary of Lan Pax Group S.A., for a total of 90,000,000 Class "C" shares registered non-endorsable and non-voting. Lan Pax Group S.A. participated in this capital increase, changing its ownership to 4.87%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 95.85660%

- On April 1, 2016, Multiplus Corretora de Seguros Ltda. was created, the ownership of which corresponds to 99.99% of Multiplus S.A. direct subsidiary of TAM S.A.

- During period 2016, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 4,767 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.0914%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.19061%

(2) Dissolution of companies

- In July 2015, the Company Ladeco Cargo S.A., subsidiary of Lan Cargo S.A., was dissolved.

- During the period 2016, Lan Chile Investments Limited, subsidiary of LATAM Airlines S.A.; and Aircraft International Leasing Limited, subsidiary of Lan Cargo S.A., were dissolved.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.

2.1. Basis of Preparation

The consolidated financial statements of LATAM Airlines Group S.A. for the period ended December 31, 2016, have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

On October 17, 2014, the SVS issued Circular No. 856, instructing the audited entities to record in the year 2014, against equity the differences in assets and liabilities for deferred taxes produced by direct effect of the increase in the rate of First class taxes introduced by Law No. 20,780, which, considering that such treatment differs from those established by IAS 12, and, therefore, the preparation framework represented a change And presentation of financial information that had been adopted up to that date.

Considering that what was expressed in the previous paragraph represented a specific and temporary diversion of IFRS, starting in 2016 and in accordance with paragraph 4A of IFRS 1, the Company has decided to retroactively apply IFRS, in accordance with IAS 8 "Accounting policies, changes in accounting estimates and errors" as if it had never failed to apply such IFRS.

5

As mentioned in the previous paragraph does not modify any of the accounts presented in the statements of financial position as of December 31, 2016 and 2015, as well as at December 31, 2015 and 2014, as expressed in paragraph 40A of IAS 1 "Presentation of Financial Statements", it is not necessary to present the statement of financial position as of January 1, 2015 (third column).

The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments.

The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.

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

(a)        Accounting pronouncements with implementation effective from January 1, 2016:

(i)        Standards and amendments	Date of issue	Mandatory Application: Annual periods beginning on or after
Amendment to IFRS 11: Joint arrangements.	May 2014	01/01/2016
Amendment to IAS 16: Property, plant and equipment, and IAS 38: Intangible assets.	May 2014	01/01/2016
Amendment to IAS 27: Separate financial statements.	August 2014	01/01/2016
Amendment IAS 1: Presentation of Financial Statements.	December 2014	01/01/2016
Amendment to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of interests in other entities and IAS 28: Investments in associates and joint ventures.	December 2014	01/01/2016

6

(ii)        Improvements	Date of issue	Mandatory Application: Annual periods beginning on or after
Improvements to International Financial Reporting Standards (2012-2014 cycle ): IFRS 5 Non-current assets held for sale and discontinued operations; IFRS 7 Financial instruments: Disclosures; IAS 19 Employee benefits and IAS 34 Interim financial reporting.	September 2014	01/01/2016

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 which has not been effected early adoption

(i)       Standards and amendments	Date of issue	Mandatory Application: Annual periods beginning on or after
Amendment to IAS 7: Statement of Cash Flows.	January 2016	01/01/2017
Amendment to IAS 12: Income Taxes.	January 2016	01/01/2017
IFRS 9: Financial instruments.	December 2009	01/01/2018
Amendment to IFRS 9: Financial instruments.	November 2013	01/01/2018
IFRS 15: Revenue from contracts with customers (1).	May 2014	01/01/2018
Amendment to IFRS 15: Revenue from contracts with customers.	April 2016	01/01/2018
Amendment to IFRS 2: Share-based payments	June 2016	01/01/2018
Amendment to IFRS 4: Insurance contracts.	September 2016	01/01/2018
Amendment to IAS 40: Investment property	December 2016	01/01/2018
IFRS 16: Leases (2).	January 2016	01/01/2019
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.	September 2014	To be determined

7

(ii)       Improvements	Date of issue	Mandatory Application: Annual periods beginning on or after
Improvements to International Financial Reporting Standards. (cycle 2012-2014) IFRS 1: First-time adoption of international financial reporting standards; IFRS 12 Disclosure of interests in other entities and IAS 28 investments in associates and joint ventures.	December 2016	01/01/2017 (improvements IFRS 12)
(iii)       Interpretations		01/01/2018 (improvements IFRS 1 and IAS 28)
IFRIC 22: Foreign currency transactions and advance consideration	December 2016	01/01/2018

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

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

We are currently evaluating how the adoption of the revenue recognition standard will impact our Consolidated Financial Statements. Interpretations are on-going and could have a significant impact on our implementation. We currently believe the adoption will not have a significant impact on passenger and cargo revenue recognition. However, the impact in revenue and liability for frequent flyer program are still being analyzed.

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

8

We are currently evaluating how the adoption of the leases recognition standard will impact our Consolidated Financial Statements. Interpretations are on-going and could have a material impact on our implementation. Currently, we expect that the adoption of the new lease standard will have a material impact on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases.

LATAM Airlines Group S.A. and subsidiaries are still assessing these standard to determinate the effect on their Financial Statements, covenants and other financial indicators.

2.2. Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all the entities (including special-purpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition.

Balances, transactions and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.

To account for and identify the financial information to be revealed when carrying out a business combination, such as the acquisition of an entity by the Company, shall apply the acquisition method provided for in IFRS 3: Business combination.

(b) Transactions with non-controlling interests

The Company applies the policy of considering transactions with non-controlling interests, when not related to loss of control, as equity transactions without an effect on income.

(c) Sales of subsidiaries

When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the non-controlling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses).

If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value is subsequently accounted using the equity method.

9

(d) Investees or associates

Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost.

2.3. Foreign currency transactions

(a) Presentation and functional currencies

The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.

(b) Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.

(c) Group entities

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

(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.

10

2.4. Property, plant and equipment

The land of LATAM Airlines Group S.A. and Subsidiaries is recognized at cost less any accumulated impairment loss. The rest of the Property, plant and equipment are registered, initially and subsequently, at historic cost less the corresponding depreciation and any impairment loss.

The amounts of advance payments to aircraft manufacturers are capitalized by the Company under Construction in progress until receipt of the aircraft.

Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or shown as a separate asset only when it is probable that the future economic benefits associated with the elements of Property, plant and equipment are going to flow to the Company and the cost of the element can be determined reliably. The value of the component replaced is written off in the books at the time of replacement. The rest of the repairs and maintenance are charged to the results of the year in which they are incurred.

Depreciation of Property, plant and equipment is calculated using the straight-line method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown.

The residual value and useful life of assets are reviewed, and adjusted if necessary, once per year.

When the carrying amount of an asset is higher than its estimated recoverable amount, its value is reduced immediately to its recoverable amount (Note 2.8).

Losses and gains on the sale of Property, plant and equipment are calculated by comparing the compensation with the book value and are included in the consolidated statement of income.

2.5. Intangible assets other than goodwill

(a) Airport slots and Loyalty program

Airport slots and the Coalition and Loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows:

Airport slots – Air transport CGU

Loyalty program – Coalition and loyalty program Multiplus CGU

(See Note 16)

The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period.

The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A.

The Brands, airport Slots and Loyalty program were recognized in fair values determined in accordance with IFRS 3, as a consequence of the business combination with TAM and Subsidiaries.

11

(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).

2.6. Goodwill

Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually or each time that there is evidence of impairment. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.

2.7. Borrowing costs

Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated income statement when they are accrued.

2.8. Losses for impairment of non-financial assets

Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date.

12

2.9. Financial assets

The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at the time of initial recognition, which occurs on the date of transaction.

(a) Financial assets at fair value through profit and loss

Financial assets at fair value through profit and loss are financial instruments held for trading and those which have been designated at fair value through profit or loss in their initial classification. A financial asset is classified in this category if acquired mainly for the purpose of being sold in the near future or when these assets are managed and measured using fair value. Derivatives are also classified as held for trading unless they are designated as hedges. The financial assets in this category and have been designated initial recognition through profit or loss, are classified as Cash and cash equivalents and Other current financial assets and those designated as instruments held for trading are classified as Other current and non-current financial assets.

(b) Loans and receivables

Loans and receivables are non-derivative financial instruments with fixed or determinable payments not traded on an active market. These items are classified in current assets except for those with maturity over 12 months from the date of the consolidated statement of financial position, which are classified as non-current assets. Loans and receivables are included in trade and other accounts receivable in the consolidated statement of financial position (Note 2.12).

The regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

The financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method.

At the date of each consolidated statement of financial position, the Company assesses if there is objective evidence that a financial asset or group of financial assets may have suffered an impairment loss.

2.10. Derivative financial instruments and hedging activities

Derivatives are booked initially at fair value on the date the derivative contracts are signed and later they continue to be valued at their fair value. The method for booking the resultant loss or gain depends on whether the derivative has been designated as a hedging instrument and if so, the nature of the item hedged. The Company designates certain derivatives as:

(a)         Hedge of the fair value of recognized assets (fair value hedge);

13

(b)         Hedge of an identified risk associated with a recognized liability or an expected highly- Probable transaction (cash-flow hedge), or

(c)         Derivatives that do not qualify for hedge accounting.

The Company documents, at the inception of each transaction, the relationship between the hedging instrument and the hedged item, as well as its objectives for managing risk and the strategy for carrying out various hedging transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged.

The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months.
Derivatives not booked as hedges are classified as Other financial assets or liabilities.

(a) Fair value hedges

Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.

(b) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of 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)”.

14

(c) Derivatives not booked as a hedge

The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in “Other gains (losses)”.

2.11. Inventories

Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.

2.12. Trade and other accounts receivable

Trade accounts receivable are shown initially at their fair value and later at their amortized cost in accordance with the effective interest rate method, less the allowance for impairment losses. An allowance for impairment loss of trade accounts receivable is made when there is objective evidence that the Company will not be able to recover all the amounts due according to the original terms of the accounts receivable.

The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are considered indicators that the receivable has been impaired. The amount of the provision is the difference between the book value of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate. The book value of the asset is reduced by the amount of the allowance and the loss is shown in the consolidated statement of income in Cost of sales. When an account receivable is written off, it is charged to the allowance account for accounts receivable.

2.13. Cash and cash equivalents

Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments.

2.14. Capital

The common shares are classified as net equity.

Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares.

2.15. Trade and other accounts payables

Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost.

15

2.16. Interest-bearing loans

Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.

Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.

2.17. Current and deferred taxes

The expense by current tax is comprised of income and deferred taxes.

The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income.

Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.

Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences.

The tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in Other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in Other comprehensive income, directly in income by function or goodwill, respectively.

2.18. Employee benefits

(a) Personnel vacations

The Company recognizes the expense for personnel vacations on an accrual basis.

(b) Share-based compensation

The compensation plans implemented based on the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based payments, for plans based on the granting of options, the effect of fair value is recorded in equity with a charge to remuneration in a linear manner between the date of grant of said options and the date on which 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.

16

(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.

(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 Company has a present legal or implicit obligation as a result of past events;

(ii) It is probable that payment is going to be necessary to settle an obligation; and

(iii) The amount has been reliably estimated.

2.20. Revenue recognition

Revenues include the fair value of the proceeds received or to be received on sales of goods and rendering services in the ordinary course of the Company’s business. Revenues are shown net of refunds, rebates and discounts.

(a) 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 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.

17

The consolidated financial statements include liabilities for this concept (deferred income), according to the estimate of the valuation established for the kilometers or points accumulated pending use at that date, in accordance with IFRIC 13: Customer loyalty programs.

(iii) Other revenues

The Company records revenues for other services when these have been provided.

(b) Dividend income

Dividend income is booked when the right to receive the payment is established.

2.21. Leases

(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.

18

In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based on the use of the main components is recognized, since a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels exists. These are recognized as Cost of sales.

Additionally, some leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.

The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.

2.24. Environmental costs

Disbursements related to environmental protection are charged to results when incurred.

NOTE 3 - FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.

(a) Market risk

Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk, and (iii) interest -rate risk.

The Company has developed policies and procedures for managing market risk, which aim to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.

For this, the Administration monitors the evolution of price levels and rates, and quantifies their risk exposures (Value at Risk), and develops and implements hedging strategies.

(i) Fuel-price risk:

Exposition:

For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54 USGC, which is subject to the fluctuations of international fuel prices.

19

Mitigation:

To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible use West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and are highly liquid.

Fuel Hedging Results:

During the period ended at December 31, 2016, the Company recognized losses of US$ 48.0 million on fuel derivative. During the same period of 2015, the Company recognized losses of US$ 239.4 million for the same reason.

At December 31, 2016, the market value of its fuel positions amounted to US$ 8.1 million (positive). At December 31, 2015, this market value was US$ 56.4 million (negative).

The following tables show the level of hedge for different periods:

Positions as of December 31, 2016 (*)	Maturities
	Q117			Q217			Total
Percentage of the hedge of expected consumption value		21	%		16	%		18	%

(*) The volume shown in the table considers all the hedging instruments (swaps and options).

Positions as of December 31, 2015 (*)	Maturities
	Q116			Q216			Q316			Q416			Total
Percentage of the hedge of expected consumption value		63	%		27	%		27	%		11	%		32	%

(*) The volume shown in the table considers all the hedging instruments (swaps and options).

Sensitivity analysis

A drop in fuel price positively affects the Company through a reduction in costs. However, also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.

The 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 last quarter of 2017.

20

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of September 2016 and the end of December, 2015.

		Positions as of December 31, 2016		Positions as of December 31, 2015
Benchmark price		effect on equity		effect on equity
(US$ per barrel)		(millions of US$)		(millions of US$)
	+5		+3.12		+5.41
	-5		-4.78		-2.78

Given the fuel hedge structure during the year 2016, which considers a hedge-free portion, a vertical fall by 5 dollars in the JET benchmark price (the monthly daily average), would have meant an impact of approximately US$ 116.3 million in the cost of total fuel consumption for the same period. For the year 2016, a vertical rise by 5 dollars in the JET benchmark price (the monthly daily average) would have meant an impact of approximately US$ 114.5 million of increased fuel costs.

(ii) Foreign exchange rate risk:

Exposition:

The functional and presentation currency of the Financial Statements of the Parent Company is the United States dollar, so the risk of Transactional exchange rate and Conversion arises mainly from its own operating activities of the business, strategic and accounting of the Company are denominated in a different currency than the functional currency.

LATAM Subsidiaries are also exposed to currency risk that impacts the consolidated results of the Company.

Most currency exposure of LATAM comes from the concentration of business in Brazil, which are mostly denominated in Brazilian Real (BRL), being actively managed by the company.

Additionally, the company manages the economic exposure to operating revenues in Pound Sterling (GBP).

In lower concentrations the Company is therefore exposed to fluctuations in others currencies, such as: Euro, Australian Dollar, Colombian Peso, Chilean Peso, Argentine Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Sol and New Zealand Dollar.

Mitigation:

The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.

FX Hedging Results:

With the aim of reducing exposure to exchange rate risk on operating cash flows in 2016 and 2017, and secure the operating margin, LATAM and TAM conduct hedging through FX derivatives.

21

At December 31, 2016, the market value of its FX positions amounted to US$ 1.1 million (negative). At end of December 2015 the market value was of US$ 8.0 million (positive).

During the period ended at December 31, 2016 the Company recognized losses of US$ 40.3 million on hedging FX. During the same period of 2015 the Company recognized gains of US$ 19.0 million on hedging FX.

At end of December 2016, the Company has contracted FX derivatives for US$ 60 million to BRL and US$ 10 million to GBP. At end of December 2015, the Company had contracted FX for US$ 270 million to BRL, US$ 30 million to EUR and US$ 15 million to GBP.

Sensitivity analysis:

A depreciation of exchange rate R$/ US$ and US$/GBP, affects negatively the Company for a rise of its costs in US$, however, it also affects positively the value of contracted derivate positions.

The FX derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The following table presents the sensitivity of derivative FX Forward instruments agrees with reasonable changes to exchange rate and its effect on equity. The projection term was defined until the end of the last current contract hedge, being the last business day of the first quarter of 2017:

Appreciation (depreciation)*			Effect at December 31, 2016		Effect at December 31, 2015
of  R$ /GBP			Millions of US$		Millions of US$
	-10	%		-1.02		-21.28
	+10	%		+3.44		+16.71

In the case of TAM S.A. which operates with the Brazilian Real as its functional currency, a large proportion of the company’s assets liabilities are expressed in United States Dollars. Therefore, this subsidiary’s profit and loss varies when its financial assets and liabilities, and its accounts receivable listed in dollars are converted to Brazilian Reals. This impact on profit and loss is consolidated in the Company.

In order to reduce the volatility on the financial statements of the Company caused by rises and falls in the R$/US$ exchange rate, the Company has contracted hedging derivatives has conducted transactions for to reduce the net US$ liabilities held by TAM S.A.

22

The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:

Appreciation (depreciation)*			Effect at December 31, 2016		Effect at December 31, 2015
of R$/US$			Millons of US$		Millons of US$
	-10	%		+119.2		+67.6
	+10	%		-119.2		-67.6

(*) Appreciation (depreciation) of US$ regard to the covered currencies.

Effects of exchange rate derivatives in the Financial Statements

The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).

Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in Other comprehensive income.

The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:

Appreciation (depreciation)			Effect at December 31, 2016		Effect at December 31, 2015
of R$/US$			Millions of US$		Millions of US$
	-10	%		+351.04		+296.41
	+10	%		-287.22		-242.52

(iii) Interest -rate risk:

Exposition:

The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.

The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate ("ILC"), and the Interest Rate Term of Brazil ("TJLP").

23

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% (71% at December 31, 2015) of the debt is fixed to fluctuations in interest rate.

Rate Hedging Results:

At December 31, 2016, the market value of the positions of interest rate derivatives amounted to US$ 17.2 million (negative). At end of December 2015 this market value was US$ 39.8 million (negative).

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, 2016		Positions as of December 31, 2015
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		-32.16		-26.70
-100 basis points		+32.16		+26.70

Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.

Increase (decrease)	Positions as of December 31, 2016		Positions as of December 31, 2015
futures curve	effect on equity		effect on equity
in libor 3 months	(millions of US$)		(millions of US$)
+100  basis points		+3.93		+8.71
-100   basis points		-4.03		-9.02

The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.

During the periods presented, the Company has no registered amounts by ineffectiveness in consolidated statement of income for this kind of hedging.

24

(b) Credit risk

Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an obligation due or financial instrument, leading to a loss in market value of a financial instrument (only financial assets, not liabilities).

The Company is exposed to credit risk due to its operative and financial activities, including deposits with banks and financial institutions, investments in other kinds of instruments, exchange-rate transactions and the contracting of derivative instruments or options.

To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents).

As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the company has established maximum limits for investments which are monitored regularly.

(i) Financial activities

Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and Other current financial assets.

In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.

The Company has no guarantees to mitigate this exposure.

(ii) Operational activities

The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“IATA”) organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they are excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.

The exposure consists of the term granted, which fluctuates between 1 and 45 days.

25

One of the tools the Company uses for reducing credit risk is to participate in global entities related to the industry, such as IATA, Business Sales Processing (“BSP”), Cargo Account Settlement Systems (“CASS”), IATA Clearing House (“ICH”) and banks (credit cards). These institutions fulfill the role of collectors and distributors between airlines and travel and cargo agencies. In the case of the Clearing House, it acts as an offsetting entity between airlines for the services provided between them. A reduction in term and implementation of guarantees has been achieved through these entities. Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.

Credit quality of financial assets

The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater.

To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents).The bad-debt rate in the principal countries where the Company has a presence is insignificant.

(c) Liquidity risk

Liquidity risk represents the risk that the Company has no sufficient funds to meet its obligations.

Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs, the Company requires liquid funds, defined as cash and cash equivalents plus other short term financial assets, to meet its payment obligations.

The liquid funds, the future cash generation and the capacity to obtain additional funding, through bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its investment and financing future commitments.

The liquid funds balance as of December 31, 2016 is US$ 1,486 million (US$ 1,360 million at December 31, 2015), invested in short term instruments through financial high credit rating levels entities.

In addition to the liquid funds, the Company has access to short term credit line. As of December 31, 2016, LATAM has working capital credit lines with multiple banks and additionally has a US$ 325 million undrawn committed credit line (US$ 130 million at December 31, 2015).

26

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	US$		75,212		-		-		-		-		75,212		75,000	At Expiration		1.85		1.85
97.032.000-8	BBVA	Chile	UF		-		52,675		-		-		-		52,675		50,381	At Expiration		5.23		4.43
97.036.000-K	SANTANDER	Chile	US$		30,193		-		-		-		-		30,193		30,000	At Expiration		2.39		2.39
97.030.000-7	ESTADO	Chile	US$		40,191		-		-		-		-		40,191		40,000	At Expiration		1.91		1.91
97.003.000-K	BANCO DO BRASIL	Chile	US$		72,151		-		-		-		-		72,151		70,000	At Expiration		3.08		3.08
97.951.000-4	HSBC	Chile	US$		12,054		-		-		-		-		12,054		12,000	At Expiration		1.79		1.79
Obligations with the public
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.	US$		-		14,579		31,949		-		-		46,528		42,500	Semiannual		5.14		5.14
0-E	DVB BANK SE	U.S.A.	US$		145		199		28,911		-		-		29,255		28,911	Quarterly		1.86		1.86
97.036.000-K	SANTANDER	Chile	US$		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.	US$		-		36,250		72,500		518,125		-		626,875		500,000	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		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.	US$		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.	US$		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.	US$		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.	US$		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	US$		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.	US$		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.	US$		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.	US$		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.	US$		6,147		18,599		31,640		31,833		48,197		136,416		117,263	Quarterly		3.86		3.86
0-E	NATIXIS	France	US$		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.	US$		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	US$		2,503		7,587		18,772		9,178		-		38,040		36,191	Quarterly		2.55		2.55
0-E	AIRBUS FINANCIAL	U.S.A.	US$		1,982		5,972		16,056		7,766		-		31,776		30,199	Monthly		2.49		2.49
0-E	INVESTEC	England	US$		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	US$		1,501		4,892		268,922		-		-		275,315		256,860	At Expiration		2.85		2.85
Financial leases
0-E	ING	U.S.A.	US$		5,889		17,671		34,067		12,134		-		69,761		63,698	Quarterly		5.62		4.96
0-E	CREDIT AGRICOLE	France	US$		1,788		5,457		-		-		-		7,245		7,157	Quarterly		1.85		1.85
0-E	CITIBANK	U.S.A.	US$		6,083		18,250		48,667		14,262		-		87,262		78,249	Quarterly		6.40		5.67
0-E	PEFCO	U.S.A.	US$		17,558		50,593		67,095		3,899		-		139,145		130,811	Quarterly		5.39		4.79
0-E	BNP PARIBAS	U.S.A.	US$		13,744		41,508		79,165		22,474		-		156,891		149,119	Quarterly		3.69		3.26
0-E	WELLS FARGO	U.S.A.	US$		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.	US$		4,773		9,541		-		-		-		14,314		14,127	Quarterly		2.57		2.57
0-E	RRPF ENGINE	England	US$		-		-		8,248		8,248		12,716		29,212		25,274	Monthly		2.35		2.35
Other loans
0-E	BOEING	U.S.A.	US$		163		320		26,214		-		-		26,697		26,214	At Expiration		2.35		2.35
0-E	CITIBANK (*)	U.S.A.	US$		25,802		77,795		207,001		103,341		-		413,939		370,389	Quarterly		6.00		6.00
Hedging derivatives
-	OTHERS	-	US$		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.

27

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2016

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$		179		493		1,315		1,314		54		3,355		2,882	Monthly		6.01		6.01
0-E	CITIBANK	U.S.A.	US$		1,528		203,150		-		-		-		204,678		200,000	At Expiration		3.39		3.14
Obligation with the public
0-E	THE BANK OF NEW YORK	U.S.A.	US$		-		352,938		83,750		562,813		-		999,501		800,000	At Expiration		8.17		8.00
Financial leases
0-E	AFS INVESTMENT IX LLC	U.S.A.	US$		2,733		7,698		20,522		8,548		-		39,501		35,448	Monthly		1.25		1.25
0-E	DVB BANK SE	U.S.A.	US$		120		165		-		-		-		285		282	Monthly		2.50		2.50
0-E
	GENERAL ELECTRIC CAPITAL CORPORATION	U.S.A.	US$		3,852		5,098		-		-		-		8,950		8,846	Monthly		2.30		2.30
0-E	KFW IPEX-BANK	Germany	US$		592		1,552		-		-		-		2,144		2,123	Monthly/Quarterly		2.80		2.80
0-E	NATIXIS	France	US$		4,290		7,837		22,834		40,968		41,834		117,763		107,443	Quarterly/Semiannual		4.90		4.90
0-E	WACAPOU LEASING S.A.	Luxemburg	US$		833		2,385		6,457		6,542		-		16,217		14,754	Quarterly		3.00		3.00
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	US$		11,875		32,116		85,995		171,553		-		301,539		279,335	Quarterly		4.18		4.11
0-E	BANCO IBM S.A	Brazil	BRL		380		1,161		35		-		-		1,576		1,031	Monthly		13.63		13.63
0-E	HP FINANCIAL SERVICE	Brazil	BRL		225		-		-		-		-		225		222	Monthly		10.02		10.02
0-E	SOCIÉTÉ GÉNÉRALE	France	BRL		146		465		176		-		-		787		519	Monthly		13.63		13.63
	Total				26,753		615,058		221,084		791,738		41,888		1,696,521		1,452,885

28

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	US$		549,897		21,215			-		-		-		571,112		571,112	-		-		-
			CLP		48,842		(30	)		-		-		-		48,812		48,812	-		-		-
			BRL		346,037		27			-		-		-		346,064		346,064	-		-		-
			Other 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	US$		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

29

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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$		100,253		-		-		-		-		100,253		100,000	At Expiration		1.00		1.00
97.036.000-K	SANTANDER	Chile	US$		100,363		-		-		-		-		100,363		100,000	At Expiration		1.44		1.44
97.030.000-7	ESTADO	Chile	US$		55,172		-		-		-		-		55,172		55,000	At Expiration		1.05		1.05
97.004.000-5	BANCO DE CHILE	Chile	US$		50,059		-		-		-		-		50,059		50,000	At Expiration		1.42		1.42
97.003.000-K	BANCO DO BRASIL	Chile	US$		70,133		-		-		-		-		70,133		70,000	At Expiration		1.18		1.18
97.951.000-4	HSBC	Chile	US$		12,020		-		-		-		-		12,020		12,000	At Expiration		0.66		0.66
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		19,873		58,407		112,252		35,953		-		226,485		211,135	Quarterly		4.18		4.18
0-E	BANCO BLADEX	U.S.A.	US$		-		9,702		30,526		15,514		-		55,742		50,000	Semiannual		4.58		4.58
0-E	DVB BANK SE	U.S.A.	US$		146		430		154,061		-		-		154,637		153,514	Quarterly		1.67		1.67
97.036.000-K	SANTANDER	Chile	US$		1,053		-		226,712		-		-		227,765		226,712	Quarterly		2.24		2.24
Obligations with the public
0-E	BANK OF NEW YORK	U.S.A.	US$		-		36,250		72,500		554,375		-		663,125		500,000	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	Francia	US$		31,813		92,167		210,541		55,381		12,677		402,579		389,027	Quarterly		1.83		1.66
0-E	BNP PARIBAS	U.S.A.	US$		9,899		29,975		82,094		83,427		148,904		354,299		319,397	Quarterly		2.29		2.22
0-E	WELLS FARGO	U.S.A.	US$		35,636		106,990		285,967		286,959		554,616		1,270,168		1,180,751	Quarterly		2.27		1.57
0-E	WILMINGTON TRUST	U.S.A.	US$		6,110		69,232		135,334		133,363		539,019		883,058		675,696	Quarterly		4.25		4.25
0-E	CITIBANK	U.S.A.	US$		19,478		58,741		158,957		162,459		266,273		665,908		617,002	Quarterly		2.40		1.64
97.036.000-K	SANTANDER	Chile	US$		5,585		16,848		45,653		46,740		50,124		164,950		159,669	Quarterly		1.47		0.93
0-E	BTMU	U.S.A.	US$		2,992		9,035		24,541		25,214		39,930		101,712		96,954	Quarterly		1.82		1.22
0-E	APPLE BANK	U.S.A.	US$		1,471		4,445		12,079		12,431		20,099		50,525		48,142	Quarterly		1.72		1.12
0-E	US BANK	U.S.A.	US$		18,643		55,824		147,994		146,709		303,600		672,770		591,039	Quarterly		3.99		2.81
0-E	DEUTSCHE BANK	U.S.A.	US$		5,923		17,881		39,185		30,729		63,268		156,986		136,698	Quarterly		3.40		3.40
0-E	NATIXIS	France	US$		13,740		41,730		115,026		100,617		249,194		520,307		469,423	Quarterly		2.08		2.05
0-E	HSBC	U.S.A.	US$		1,590		4,790		12,908		13,112		25,175		57,575		53,583	Quarterly		2.40		1.59
0-E	PK AirFinance	U.S.A.	US$		2,172		6,675		18,928		20,812		18,104		66,691		62,514	Monthly		2.04		2.04
0-E	KFW IPEX-BANK	Germany	US$		728		2,232		5,684		4,131		1,658		14,433		13,593	Quarterly		2.45		2.45
Other guaranteed obligations
0-E	DVB BANK SE	U.S.A.	US$		8,225		24,695		-		-		-		32,920		32,492	Quarterly		2.32		2.32
Financial leases
0-E	ING	U.S.A.	US$		9,214		26,054		41,527		28,234		-		105,029		94,998	Quarterly		5.13		4.57
0-E	CREDIT AGRICOLE	France	US$		1,711		5,236		7,216		-		-		14,163		13,955	Quarterly		1.28		1.28
0-E	CITIBANK	U.S.A.	US$		6,083		18,250		48,667		38,596		-		111,596		97,383	Quarterly		6.40		5.67
0-E	PEFCO	U.S.A.	US$		17,556		52,674		115,934		23,211		-		209,375		192,914	Quarterly		5.37		4.77
0-E	BNP PARIBAS	U.S.A.	US$		11,368		34,292		86,206		31,782		-		163,648		153,107	Quarterly		4.08		3.64
0-E	WELLS FARGO	U.S.A.	US$		5,594		16,768		44,663		44,565		24,125		135,715		121,628	Quarterly		3.98		3.54
0-E	DVB BANK SE	U.S.A.	US$		4,732		14,225		14,269		-		-		33,226		32,567	Quarterly		2.06		2.06
0-E	BANC OF AMERICA	U.S.A.	US$		703		2,756		-		-		-		3,459		2,770	Monthly		1.41		1.41
Other loans
0-E	BOEING	U.S.A.	US$		655		533		151,362		-		-		152,550		151,362	At Expiration		1.80		1.80
0-E	CITIBANK (*)	U.S.A.	US$		25,820		77,850		207,190		206,749		-		517,609		450,000	Quarterly		6.00		6.00
Hedging derivatives
-	OTROS	-	US$		12,232		33,061		40,986		3,688		16		89,983		85,653	-		0.00		0.00
	Total				668,745		927,748		2,648,962		2,104,751		2,316,782		8,666,988		7,770,678

(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.

30

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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$		181		493		1,315		1,314		712		4,015		3,353	Monthly		6.01		6.01
Obligation with the public
0-E	BANK OF NEW YORK	U.S.A.	US$		440		65,321		397,785		86,590		521,727		1,071,863		800,000	At Expiration		8.17		8.00
Financial leases
0-E	AFS INVESTMENT IX LLC	U.S.A.	US$		2,771		7,700		20,527		18,808		-		49,806		43,505	Monthly		1.25		1.25
0-E	AIRBUS FINANCIAL	U.S.A.	US$		3,715		11,054		21,830		15,730		-		52,329		49,995	Monthly		1.43		1.43
0-E	CREDIT AGRICOLE -CIB	France	US$		4,542		-		-		-		-		4,542		4,500	Quarterly/Semiannual		3.25		3.25
0-E	DVB BANK SE	U.S.A.	US$		123		361		284		-		-		768		755	Monthly		1.64		1.64
0-E	GENERAL ELECTRIC CAPITAL CORPORATION	U.S.A.	US$		3,834		11,437		9,050		-		-		24,321		23,761	Monthly		1.25		1.25
0-E	KFW IPEX-BANK	Germany	US$		3,345		6,879		15,973		12,429		-		38,626		36,899	Monthly/Quarterly		1.72		1.72
0-E	NATIXIS	France	US$		4,338		7,812		22,635		23,030		70,925		128,740		115,020	Quarterly/Semiannual		3.85		3.85
0-E	PK AIRFINANCE US, INC.	U.S.A.	US$		1,428		21,992		-		-		-		23,420		23,045	Monthly		1.75		1.75
0-E	WACAPOU LEASING S.A.	Luxemburg	US$		520		1,386		3,198		14,567		-		19,671		18,368	Quarterly		2.00		2.00
0-E	SOCIÉTÉ GÉNÉRALE  MILAN BRANCH	Italy	US$		11,993		31,874		85,695		214,612		-		344,174		312,486	Quarterly		3.63		3.55
0-E	BANCO IBM S.A	Brazil	BRL		267		846		1,230		-		-		2,343		1,728	Monthly		14.14		14.14
0-E	HP FINANCIAL SERVICE	Brazil	BRL		188		564		188		-		-		940		882	Monthly		10.02		10.02
0-E	SOCIÉTÉ GÉNÉRALE	France	BRL		104		330		626		-		-		1,060		775	Monthly		14.14		14.14
	Total				37,789		168,049		580,336		387,080		593,364		1,766,618		1,435,072

31

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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	US$		442,320		14,369		-		-		-		456,689		456,689		-		-		-
			CLP		39,823		114		-		-		-		39,937		39,937		-		-		-
			BRL		301,569		16		-		-		-		301,585		301,585		-		-		-
			Others currencies		218,347		9,016		-		-		-		227,363		227,363		-		-		-
Accounts payable to related parties currents
65.216.000-K	COMUNIDAD MUJER	Chile	CLP		10		-		-		-		-		10		10		-		-		-
78.591.370-1	BETHIA S.A. Y FILIALES	Chile	CLP		5		-		-		-		-		5		5		-		-		-
78.997.060-2	Viajes Falabella Ltda.	Chile	CLP		68										68		68		-		-		-
0-E	Consultoría Administrativa Profesional	Mexico	MXN		342		-		-		-		-		342		342		-		-		-
0-E	INVERSORA AERONÁUTICA ARGENTINA	Argentina	US$		22		-		-		-		-		22		22		-		-		-
	Total				1,002,506		23,515		-		-		-		1,026,021		1,026,021
	Total  consolidated				1,709,040		1,119,312		3,229,298		2,491,831		2,910,146		11,459,627		10,231,771

32

The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.

At the end of 2015, the Company provided US$ 49.6 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2016, the Company had provided US$ 30.2 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate and interest rates.

3.2. Capital risk management

The Company’s objectives, with respect to the management of capital, are (i) to comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.

The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.

Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.

The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2016 the Company has an international long term credit rating of BB- with negative outlook by Standard & Poor’s, a B+ rating with negative outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.

3.3. Estimates of fair value.

At December 31, 2016, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:

1. Hedge Instruments:

This category includes the following instruments:

- Interest rate derivative contracts,

- Fuel derivative contracts,

- Currency derivative contracts.

33

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, 2016								As of December 31, 2015
			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		15,522		15,522		-		-		26,600		26,600		-		-
Short-term mutual funds		15,522		15,522		-		-		26,600		26,600		-		-
Other financial assets, current		548,402		536,991		11,411		-		622,963		606,385		16,578		-
Fair value of fuel derivatives		10,088		-		10,088		-		6,293		-		6,293		-
Fair value of foreign currency derivatives		1,259		-		1,259		-		9,888		-		9,888		-
Interest accrued since the last payment date of Cross Currency Swap		64		-		64		-		397		-		397		-
Private investment funds		536,991		536,991		-		-		448,810		448,810		-		-
Domestic and foreign bonds		-		-		-		-		157,575		157,575		-		-
Liabilities
Other financial liabilities, current		24,881		-		24,881		-		134,089		-		134,089		-
Fair value of interest rate derivatives		9,579		-		9,579		-		33,518		-		33,518		-
Fair value of fuel derivatives		-		-		-		-		39,818				39,818
Fair value of foreign currency derivatives		13,155		-		13,155		-		56,424		-		56,424		-
Interest accrued since the last payment date of Currency Swap		2,147		-		2,147		-		4,329		-		4,329		-
Interest rate derivatives not recognized as a hedge		-		-		-		-		-				-
Other financial liabilities, non current		6,679		-		6,679		-		16,128		-		16,128		-
Fair value of interest rate derivatives		6,679		-		6,679		-		16,128		-		16,128		-

34

Additionally, at December 31, 2016, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:

	As of  December 31, 2016				As of  December 31, 2015
	Book		Fair		Book		Fair
	value		value		value		value
	ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		933,805		933,805		726,897		726,897
Cash on hand		8,630		8,630		10,656		10,656
Bank balance		255,746		255,746		255,421		255,421
Overnight		295,060		295,060		267,764		267,764
Time deposits		374,369		374,369		193,056		193,056
Other financial assets, current		164,426		164,426		28,385		28,385
Other financial assets		164,426		164,426		28,385		28,385
Trade and other accounts receivable current		1,107,889		1,107,889		796,974		796,974
Accounts receivable from related entities		554		554		183		183
Other financial assets, non current		102,125		102,125		89,458		89,458
Accounts receivable		8,254		8,254		10,715		10,715
Other financial liabilities, current		1,814,647		2,022,290		1,510,146		1,873,552
Trade and other accounts payables		1,593,068		1,593,068		1,483,957		1,483,957
Accounts payable to related entities		269		269		447		447
Other financial liabilities, non current		6,790,273		6,970,375		7,516,257		7,382,221
Accounts payable, non-current		359,391		359,391		417,050		417,050

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.

35

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

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

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

As of December 31, 2016 goodwill amounted to ThUS$ 2,710,382 (ThUS$ 2,280,575 at December 31, 2015), while intangible assets with an indefinite useful life comprised airport slots for ThUS$ 978,849 (ThUS$ 816,987 at December 31, 2015), Loyalty Program for ThUS$ 326,262 (ThUS$ 272,312 at December 31, 2015) and Trademarks (*) for ThUS$ 52.981 at December 31, 2015.

At least once per year the Company verifies whether goodwill and intangible assets with an indefinite useful life have suffered any losses through impairment. For the purposes of this evaluation, the Company has identified two cash-generating units (CGUs): “Air transport” and “Multiplus loyalty and coalition program.” The book value of goodwill assigned to each CGU as of December 31, 2016, amounted to ThUS$ 2,176,634 and ThUS$ 533,748 (ThUS$ 1,835,088 and ThUS$ 445,487 at December 31, 2015), which included intangible assets with undefined useful life:

	Air Transport CGU				Coalition and loyalty Program Multiplus CGU
	As of		As of		As of		As of
	December 31,		December 31,		December 31,		December 31,
	2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$
Airport Slots		978,849		816,987		-		-
Trade marks (*)		-		52,981		-		-
Loyalty program		-		-		326,262		272,312

(*) At December 31, 2016, the Company has changed the estimated useful life of the brands from an indefinite useful life to a five-year period (See Note 15).

The recoverable value of these cash-generating units (CGUs) has been determined based on calculations of their value in use. The principal assumptions used by the management include: growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The estimation of these assumptions requires significant judgment by the management, as these variables feature inherent uncertainty; however, the assumptions used are consistent with Company’s internal planning. Therefore, management evaluates and updates the estimates on an annual basis, in light of conditions that affect these variables. The mainly assumptions used as well as, the corresponding sensitivity analyses are showed in Note 16.

36

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

The depreciation of assets is calculated based on the linear model, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according with the Company’s future economic benefits associated with them.

Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may render the useful life different to the lifespan estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.

Residual values are estimated in accordance with the market value that these assets will have at the end of their useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, once a year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).

 

(c)        Recoverability of deferred tax assets

Deferred taxes are calculated in accordance with the liability method, applied over temporary differences that arise between the fiscal based of assets and liabilities, and their book value. Deferred tax assets for tax losses are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company makes tax and financial projections to evaluate the realization of deferred tax asset over the course of time. Additionally, these projections are ensured to be consistent with those used to measure other long term assets. As of December 31, 2016 the company recognized deferred tax assets amounting to ThUS$ 384,580 (ThUS$ 376,595 at December 31, 2015), and had ceased to recognize deferred tax assets for tax losses amounting to ThUS$ 115,801 (ThUS$ 15,513 at December 31, 2015) (Note 18).

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

The Company advance sales of tickets as deferred revenue. Revenue from ticket sales is recognized in the income statement when the service is provided or when the tickets expires unused, reducing the corresponding deferred revenue. The Company evaluates monthly the probability that tickets expiry unused, based on the history of used tickets. Changes in the exchange probability would have an impact our revenue in the year in which the change occurs and in future years. As of December 31, 2016, deferred revenue associated with air tickets sold amounted to ThUS$ 1,535,229 (ThUS$ 1,223,886 as of December 31, 2015). An hypothetical change of 1% in passenger behavior regarding to the ticket usage, - that is, if during the next six months after sells probability of used were 89% rather than 90%, as we consider, it would lead to a change in the expiry period from six to seven months, which, as of December 31, 2016, would have an impact of up to ThUS$ 20,000.

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

37

As of December 31, 2016 and December 31, 2015, the Company operated the following loyalty programs: LATAM Pass, LATAM Fidelidade and Multiplus, with the objective of enhancing customer loyalty by offering points or kilometers (see Note 22).

When kilometers and points are redeemed for products and services other than the services provided by the Company, revenue is recognized immediately; when they are redeemed for air tickets on airlines from to LATAM Airlines Group S.A. and subsidiaries, revenue is deferred until the transport service is provided or the corresponding tickets expired.

Deferred revenue from loyalty programs at the closing date corresponds to the valuation of points and kilometers granted to loyalty program members, pending of use, and the probability to be redeemed.

 

According to IFRIC-13, kilometers and points value that the Company estimate are not likely to be redeemed (“breakage”), they recognize the associated value proportionally during the period in which the remaining kilometers or points are expected to be redeemed. The Company uses statistical models to estimate the breakage, based on historical redemption patterns Changes in the breakage would have a significant impact on our revenue in the year in which the change occurs and in future years.

As of December 31, 2016, deferred revenue associated with the LATAM Pass loyalty program amounted to ThUS$ 896,190 (ThUS$ 973,264 at December 31, 2015). As of December 31, 2016 a hypothetical change of 1% in the probability of usage would result in an impact of approximately ThUS$ 30,632 and ThUS$ 30,000 at the same period of 2015. Meanwhile, deferred revenue associated with the LATAM Fidelidade and Multiplus loyalty programs amounted to ThUS$ 392,107 (ThUS$ 452,264 at December 31, 2015). As of December 31, 2016 a hypothetical change of 2% in the probability of usage would result in an impact of approximately ThUS$ 14,639 and ThUS$ 11,755 at the same period of 2015.

The fair value of kilometers is determined by the Company based in its best estimate of the price at which they have been sold in the past. As of December 31, 2016 a hypothetical change of 1% in the fair value of the unused kilometers would result in an impact of approximately ThUS$ 8,400 and ThUS$ 8,800 at the same period of 2015.

(f)        Provisions needs, and their valuation when required

Known contingencies are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The Company applies professional judgment, experience, and knowledge to use available information to determine these values, in light of the specific characteristics of known risks. This process facilitates the early assessment and valuation of potential risks in individual cases or in the development of contingent eventualities.

(g)       Investment in subsidiary (TAM)

The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.

38

The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus insuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.

Since the integration of LAN and TAM operations, the most critical airline operations in Brazil have been managed by the CEO of TAM while global activities have been managed by the CEO of LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the LATAM Board.

The CEO of LATAM also evaluates the performance of LATAM Group executives and, together with the LATAM Board, determines compensation. Although Brazilian law currently imposes restrictions on the percentages of voting rights that may be held by foreign investors, LATAM believes that the economic basis of these agreements meets the requirements of accounting standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.

These estimates were made based on the best information available relating to the matters analyzed.

In any case, it is possible that events that may take place in the future could lead to their modification in future reporting periods, which would be made in a prospective manner.

NOTE 5 - SEGMENTAL INFORMATION

The Company has determined that it has two operating segments: the air transportation business and the coalition and loyalty program Multiplus.

The Air transport segment corresponds to the route network for air transport and it is based on the way that the business is run and managed, according to the centralized nature of its operations, the ability to open and close routes and reallocate resources (aircraft, crew, staff, etc..) within the network, which is a functional relationship between all of them, making them inseparable. This segment definition is the most common level used by the global airline industry.

The segment of loyalty coalition called Multiplus, unlike LATAM Pass and LATAM Fidelidade, is a frequent flyer programs which operate as a unilateral system of loyalty that offers a flexible coalition system, interrelated among its members, with 16.5 million of members, along with being a regulated entity with a separately business and not directly related to air transport.

39

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,
	2016			2015			2016			2015			2016			2015			2016			2015
	ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$
Income from ordinary activities from external customers (*)		8,587,772			9,278,041			400,568			462,004			-			-			8,988,340			9,740,045
LAN passenger		4,104,348			4,241,918			-			-			-			-			4,104,348			4,241,918
TAM passenger		3,372,799			3,706,692			400,568			462,004			-			-			3,773,367			4,168,696
Freight		1,110,625			1,329,431			-			-			-			-			1,110,625			1,329,431
Income from ordinary activities from transactions with other operating segments		400,568			462,004			65,969			67,826			(466,537	)		(529,830	)		-			-
Other operating income		364,551			230,823			174,197			154,958			-			-			538,748			385,781
Interest income		27,287			21,818			58,380			63,647			(10,718	)		(10,385	)		74,949			75,080
Interest expense		(427,054	)		(423,742	)		-			-			10,718			10,385			(416,336	)		(413,357	)
Total net interest expense		(399,767	)		(401,924	)		58,380			63,647			-			-			(341,387	)		(338,277	)
Depreciation and amortization		(952,285	)		(923,311	)		(8,043	)		(11,095	)		-			-			(960,328	)		(934,406	)
Material non-cash items other than depreciation and amortization		10,069			(507,921	)		(991	)		1,893			-			-			9,078			(506,028	)
Disposal of fixed assets and inventory losses		(82,734	)		(20,932	)		-			-			-			-			(82,734	)		(20,932	)
Doubtful accounts		(29,674	)		(18,292	)		(476	)		611			-			-			(30,150	)		(17,681	)
Exchange differences		122,129			(469,178	)		(478	)		1,282			-			-			121,651			(467,896	)
Result of indexation units		348			481			(37	)		-			-			-			311			481
Income (loss) atributable to owners of the parents		(83,653	)		(356,039	)		152,873			136,765			-			-			69,220			(219,274	)
Participation of the entity in  the income of associates		-			37			-			-			-			-			-			37
Expenses for income tax		(92,476	)		249,090			(70,728	)		(70,707	)		-			-			(163,204	)		178,383
Segment profit / (loss)		(42,203	)		(315,497	)		152,873			136,765			-			-			110,670			(178,732	)
Assets of segment		17,805,749			16,924,200			1,400,432			1,182,111			(7,987	)		(4,893	)		19,198,194			18,101,418
Amount of non-current asset additions		1,481,090			1,492,281			-			-			-			-			1,481,090			1,492,281
Property, plant and equipment		1,390,730			1,439,057			-			-			-			-			1,390,730			1,439,057
Intangibles other than goodwill		90,360			53,224			-			-			-			-			90,360			53,224
Segment liabilities		14,469,505			14,700,072			572,065			490,076			(28,680	)		(26,278	)		15,012,890			15,163,870
Purchase of non-monetary assets of segment		782,957			1,622,198			-			-			-			-			782,957			1,622,198

(*)  The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.

40

The Company’s revenues by geographic area are as follows:

	For the period ended
	At December 31,
	2016		2015
	ThUS$		ThUS$
Peru		627,215		681,340
Argentina		1,030,973		979,324
U.S.A.		933,130		1,025,475
Europe		714,436		723,062
Colombia		343,001		353,007
Brazil		2,974,234		3,464,297
Ecuador		198,171		238,500
Chili		1,512,570		1,575,519
Asia Pacific and rest of Latin America		654,610		699,521
Income from ordinary activities		8,988,340		9,740,045
Other operating income		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,
	2016		2015
	ThUS$		ThUS$
Cash on hand		8,630		10,656
Bank balances		255,746		255,421
Overnight		295,060		267,764
Total Cash		559,436		533,841
Cash equivalents
Time deposits		374,369		193,056
Mutual funds		15,522		26,600
Total cash equivalents		389,891		219,656
Total cash and cash equivalents		949,327		753,497

41

Cash and cash equivalents are denominated in the following currencies:

	As of		As of
	December 31,		December 31,
Currency	2016		2015
	ThUS$		ThUS$
Argentine peso		7,871		18,733
Brazilian real		97,401		106,219
Chilean peso		30,758		17,978
Colombian peso		4,336		14,601
Euro		1,695		10,663
US Dollar		780,124		564,214
Strong bolivar (*)		61		2,986
Other currencies		27,081		18,103
Total		949,327		753,497

(*)       At December 31, 2015, the Company reflected an exchange rate loss of ThUS$ 40,968 consequence change in the SICAD rate of Venezuela (13.5 VEF/US$) at the SIMADI rate equivalent to 198.70 VEF/US$.

As of December 31, 2016, the DICOM rate, which replaces SIMADI (February 2016), and to this date is 673.76 VEF/US$, Applied to cash and cash equivalents in VEF, represented a balance of ThUS$ 61 (ThUS$ 2,986 at December 31, 2015)

42

NOTE 7 - FINANCIAL INSTRUMENTS

7.1.       Financial instruments by category

As of December 31, 2016

							Initial  designation
	Loans				Held		as fair value
	and		Hedge		for		through
Assets	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

	Other		Held
	financial		Hedge
Liabilities	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.

43

As of December 31, 2015

							Initial  designation
	Loans				Held		as fair value
	and		Hedge		for		through
Assets	receivables		derivatives		trading		profit and loss		Total
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Cash and cash equivalents		726,897		-		-		26,600		753,497
Other financial assets, current (*)		28,385		16,578		157,575		448,810		651,348
Trade and others accounts receivable, current		796,974		-		-		-		796,974
Accounts receivable from related entities, current		183		-		-		-		183
Other financial assets, non current (*)		88,820		-		638		-		89,458
Accounts receivable, non current		10,715		-		-		-		10,715
Total		1,651,974		16,578		158,213		475,410		2,302,175

	Other		Held
	financial		Hedge
Liabilities	liabilities		derivatives		Total
	ThUS$		ThUS$		ThUS$
Other liabilities, current	1,510,146		134,089		1,644,235
Trade and others accounts payable, current		1,483,957		-		1,483,957
Accounts payable to related entities, current		447		-		447
Other financial liabilities, non-current		7,516,257		16,128		7,532,385
Accounts payable, non-current		417,050		-		417,050
Total		10,927,857		150,217		11,078,074

(*)      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.

44

7.2.       Financial instruments by currency

a)         Assets

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Cash and cash equivalents		949,327		753,497
Argentine peso		7,871		18,733
Brazilian real		97,401		106,219
Chilean peso		30,758		17,978
Colombian peso		4,336		14,601
Euro		1,695		10,663
US Dollar		780,124		564,214
Strong bolivar		61		2,986
Other currencies		27,081		18,103
Other financial assets (current and non-current)		814,953		740,806
Argentine peso		337		157,281
Brazilian real		686,501		449,934
Chilean peso		668		640
Colombian peso		1,023		1,670
Euro		6,966		614
US Dollar		117,346		128,620
Strong bolivar		76		22
Other currencies		2,036		2,025
Trade and other accounts receivable, current		1,107,889		796,974
Argentine peso		82,770		71,438
Brazilian real		551,260		191,037
Chilean peso		92,791		57,755
Colombian peso		16,454		13,208
Euro		21,923		30,006
US Dollar		312,394		344,153
Strong bolivar		43		7,225
Other currencies (*)		30,254		82,152
Accounts receivable, non-current		8,254		10,715
Brazilian real		4		521
Chilean peso		8,250		5,041
US Dollar		-		5,000
Other currencies (*)		-		153
Accounts receivable from related entities, current		554		183
Brazilian real		-		2
Chilean peso		554		181
Total assets		2,880,977		2,302,175
Argentine peso		90,978		247,452
Brazilian real		1,335,166		747,713
Chilean peso		133,021		81,595
Colombian peso		21,813		29,479
Euro		30,584		41,283
US Dollar		1,209,864		1,041,987
Strong bolivar		180		10,233
Other currencies		59,371		102,433

(*)       See the composition of the others currencies in Note 8 Trade, other accounts receivable and non-current accounts receivable.

b)         Liabilities

Liabilities information is detailed in the table within Note 3 Financial risk management.

45

NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON-CURRENT ACCOUNTS RECEIVABLE

	As of			As of
	December 31,			December 31,
	2016			2015
	ThUS$			ThUS$
Trade accounts receivable		1,022,933			685,733
Other accounts receivable		170,264			182,028
Total trade and other accounts receivable		1,193,197			867,761
Less: Allowance for impairment loss		(77,054	)		(60,072	)
Total net trade and  accounts receivable		1,116,143			807,689
Less: non-current portion – accounts receivable		(8,254	)		(10,715	)
Trade and other accounts receivable, current		1,107,889			796,974

The fair value of trade and other accounts receivable does not differ significantly from the book value.

The maturity of these accounts at the end of each period is as follows:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Fully performing		896,040		577,902
Matured accounts receivable, but not impaired
Expired from 1 to 90 days		38,969		28,717
Expired from 91 to 180 days		9,303		10,995
More than 180 days overdue (*)		1,567		8,047
Total matured accounts receivable, but not impaired		49,839		47,759
Matured accounts receivable and impaired
Judicial,  pre-judicial collection and protested documents		34,909		24,304
Debtor under pre-judicial collection process and  portfolio sensitization		42,145		35,768
Total matured accounts receivable and impaired		77,054		60,072
Total		1,022,933		685,733

(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision.

46

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	2016		2015
	ThUS$		ThUS$
Argentine Peso		82,770		71,438
Brazilian Real		551,264		191,558
Chilean Peso		101,041		62,796
Colombian peso		16,454		13,208
Euro		21,923		30,006
US Dollar		312,394		349,153
Strong bolivar		43		7,225
Other currency (*)		30,254		82,305
Total		1,116,143		807,689

(*) Other currencies
Australian Dollar	5,487	26,185
Chinese Yuan	271	4,282
Danish Krone	151	164
Pound Sterling	3,904	7,228
Indian Rupee	303	3,070
Japanese Yen	2,601	4,343
Norwegian Kroner	184	221
Swiss Franc	1,512	1,919
Korean Won	4,241	4,462
New Taiwanese Dollar	662	3,690
Other currencies	10,938	26,741
Total	30,254	82,305

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	%

47

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	)

Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.

Historic and current re-negotiations are not relevant and the policy is to analyze case by case in order to classify them according to the existence of risk, determining whether it is appropriate to re-classify accounts to pre-judicial recovery. If such re-classification is justified, an allowance is made for the account, whether overdue or falling due.

The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.

As of December 31, 2016

As of December 31, 2015

Gross  exposure

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

1,022,933

(77,054

)

945,879

685,733

(60,072

)

625,661

Other accounts receivable

170,264

-

170,264

182,028

-

182,028

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.

48

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	2016		2016
					ThUS$		ThUS$
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		538		167
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	CLP		14		14
96.810.370-9	Inversiones Costa Verde Ltda. y CPA.	Controller	Chile	CLP		2		-
Foreign	TAM Aviação Executiva e Taxi Aéreo S.A.	Related director	Brazil	BRL		-		2
	Total current assets					554		183

(b)       Accounts payable

					As of		As of
			Country		December 31,		December 31,
Tax No.	Related party	Relationship	of origin	Currency	2016		2015
					ThUS$		ThUS$
Foreign	Consultoría Administrativa Profesional S.A. de C.V.	Associate	Mexico	MXN		170		342
65.216.000-K	Viajes Falabella Ltda.	Related director	Chile	CLP		46		68
79.773.440-3	TAM Aviação Executiva e Taxi Aéreo S.A.	Related director	Brazil	BRL		28		-
65.216.000-K	Comunidad Mujer	Related director	Chile	CLP		13		10
78.591.370-1	Bethia S.A. and Subsidiaries	Related director	Chile	CLP		6		5
79.773.440-3	Transportes San Felipe S.A	Common property	Chile	CLP		4		-
Foreign	Inversora Aeronaútica Argentina	Related director	Argentina	US$		2		22
	Total current liabilities					269		447

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary.

49

NOTE 10 - INVENTORIES

The composition of Inventories is as follows:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Technical stock		191,864		192,930
Non-technical stock		49,499		31,978
Total		241,363		224,908

The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence, as per the following detail:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Provision for obsolescence Technical stock		31,647		13,303
Provision for obsolescenceNon-technical stock		3,429		2,589
Total		35,076		15,892

As of December 31, 2016, the Company recorded ThUS$ 167,365 (ThUS$ 160,030 at December 31, 2015) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

50

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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)   Other financial assets
Private investment funds		536,991		448,810		-		-		536,991		448,810
Deposits in guarantee (aircraft)		16,819		16,532		56,846		58,483		73,665		75,015
Guarantees for margins of derivatives		939		4,456		-		-		939		4,456
Other investments		-		-		522		638		522		638
Domestic and foreign bonds		-		157,575		-		-		-		157,575
Other guarantees given		140,733		6,160		44,757		30,337		185,490		36,497
Other		5,935		1,237		-		-		5,935		1,237
Subtotal of other financial assets		701,417		634,770		102,125		89,458		803,542		724,228
(b)   Hedging assets
Interest accrued since the last payment date  of Cross currency swap		64		397		-		-		64		397
Fair value of foreign currency derivatives (*)		1,259		9,888		-		-		1,259		9,888
Fair value of fuel price derivatives		10,088		6,293		-		-		10,088		6,293
Subtotal of hedging assets		11,411		16,578		-		-		11,411		16,578
Total Other Financial Assets		712,828		651,348		102,125		89,458		814,953		740,806

(*) The foreign currency derivatives correspond to forward and combination of options.

The types of derivative hedging contracts maintained by the Company at the end of each period are described in Note 19.

51

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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
(a)  Advance payments
Aircraft leases		37,560		33,305		14,065		22,569		51,625		55,874
Aircraft insurance and other		14,717		12,408		-		-		14,717		12,408
Others		4,521		16,256		1,573		33,781		6,094		50,037
Subtotal advance payments		56,798		61,969		15,638		56,350		72,436		118,319
(b)  Other assets
Aircraft maintenance reserve (*)		51,576		99,112		90,175		64,366		141,751		163,478
Sales tax		102,351		158,134		40,232		45,061		142,583		203,195
Other taxes		500		4,295		-		-		500		4,295
Contributions to Société Internationale  de Télécommunications Aéronautiques ("SITA")		406		505		591		547		997		1,052
Judicial deposits		-		-		90,604		67,980		90,604		67,980
Others		611		6,001		104		1,159		715		7,160
Subtotal other assets		155,444		268,047		221,706		179,113		377,150		447,160
Total Other Non - Financial Assets		212,242		330,016		237,344		235,463		449,586		565,479

(*) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.

These amounts are calculated based on performance measures, such as flight hours or cycles, are paid periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.

In some cases (five lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. Since the acquisition of TAM in June 2012, the cost of aircraft maintenance has been higher than the related maintenance reserves for all aircraft.

As of December 31, 2016, LATAM had ThUS$ 141,751 in maintenance reserves (ThUS$ 163,478 at December 31, 2015), corresponding to two aircraft with contracts that establish periodic payments and whose expiration date is in 2017 and 21 aircraft that maintains remaining balances, which will be liquidated in the next maintenance or return.

Aircraft maintenance reserves are classified as current or non-current depending on the dates when the related maintenance is expected to be performed (Note 2.23)

52

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, 2016 and December 31, 2015 are detailed below:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Current assets
Aircraft		281,158		263
Engines and rotables		29,083		1,697
Other assets		26,954		-
Total		337,195		1,960
Current liabilities
Other liabilities		10,152		-
Total		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 were determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.

(a) Assets reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale

In the period ended December 31, 2016, two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 aircraft, two Boeing 777 aircraft, eight A330 spare engines, A330 rotables and two buildings were reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale.

During the period ended December 31, 2016, two Airbus A319 aircraft, one Airbus A320 aircraft and two Airbus A330 aircraft were sold. Additionally an A330 spare engine and D200 rotables were sold.

As a result, an adjustment of US $ 55 million was recorded to write down these assets to their net

53

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	2016			2015
Boeing 777 Freighter		2	(*)		-
Airbus A330-200		4			-
Airbus A320-200		1			-
ATR42-300		1			1
Total		8			1

(*) One aircraft leased to DHL.

NOTE 14 - INVESTMENTS IN SUBSIDIARIES"

(a) Investments in subsidiaries

The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.

Detail of significant subsidiaries and summarized financial information:

			Ownership
			As of		As of
	Country of	Functional	December 31,		December 31,
Name of significant subsidiary	incorporation	currency	2016		2015
			%		%
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		95.85660		94.99055
Transporte Aéreo S.A.	Chile	US$		99.89804		99.89804
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.	Ecuador	US$		100.00000		100.00000
Aerovías de Integración Regional, AIRES S.A.	Colombia	COP		99.19056		99.01646
TAM S.A.	Brazil	BRL		99.99938		99.99938

The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.

54

Summary financial information of significant subsidiaries

													Results for the period
	Statement of financial position as of December 31, 2016												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

													Results for the period
	Statement of financial position as of December 31, 2015												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	)

(*) Corresond to consolidated information of TAM S.A. and Subsidiaries.

55

(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	2016		2015		2016			2015
			%		%		ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		3,360			4,426
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10605		957			974
Promotora Aérea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		51.00000		51.00000		3,162			3,084
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0.70422		0.70422		515			(1,386	)
Lan Argentina S.A.	0-E	Argentina		0.13440		1.00000		(311	)		29
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		1			5
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		(905	)		(811	)
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.80944		0.98307		436			540
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		1,104			1,256
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		80,313			72,884
Total								88,644			81,013

			As of		As of		For the period ended
		Country	December 31,		December 31,		December 31,
Incomes	Tax No.	of origin	2016		2015		2016			2015
			%		%		ThUS$			ThUS$
Lan Perú S.A	0-E	Peru		30.00000		30.00000		(649	)		1,521
Lan Cargo S.A. and Subsidiaries	93.383.000-4	Chile		0.10196		0.10605		(7	)		(69	)
Promotora Aerea Latinoamericana S.A. and Subsidiaries	0-E	Mexico		51.00000		51.00000		96			1,349
Inversora Cordillera S.A. and Subsidiaries	0-E	Argentina		0.70422		0.70422		364			281
Lan Argentina S.A.	0-E	Argentina		0.13440		1.00000		77			61
Americonsult de Guatemala S.A.	0-E	Guatemala		1.00000		1.00000		(4	)		1
Americonsult Costa Rica S.A.	0-E	Costa Rica		1.00000		1.00000		-			5
Linea Aérea Carguera de Colombiana S.A.	0-E	Colombia		10.00000		10.00000		(106	)		14
Aerolíneas Regionales de Integración Aires S.A.	0-E	Colombia		0.80944		0.98307		(140	)		(335	)
Transportes Aereos del Mercosur S.A.	0-E	Paraguay		5.02000		5.02000		146			431
Multiplus S.A.	0-E	Brazil		27.26000		27.26000		41,673			37,283
Total								41,450			40,542

56

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,
	2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$
Airport slots		978,849		816,987		978,849		816,987
Loyalty program		326,262		272,312		326,262		272,312
Computer software		157,016		104,258		419,652		324,043
Developing software		91,053		74,887		91,053		74,887
Trademarks (1)		57,133		52,981		63,730		52,981
Other assets		-		-		808		808
Total		1,610,313		1,321,425		1,880,354		1,542,018

Movement in Intangible assets other than goodwill:

	Computer									Trademarks			Other
	software			Developing			Airport			and loyalty			assets
	Net			software			slots (2)			program (1) (2)			Net		Total
	ThUS$			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

(1) After the extensive integration work following the combination between LAN and TAM, during which there has been solid progress in the homologation of the optimization processes of its air connections, in addition to the restructuring and modernization of the fleet of aircraft, the Company has resolved adopt a unique name and identity, and announce that the brand of the group will be LATAM ", which would unite all companies under a single image.

Given the above, we have proceeded to review the brands useful life, concluding that these should go from an indefinite to defined useful life. The estimated new useful life is 5 years, equivalent to the period for finishing all the image changes necessary.

(2) See Note 2.5

57

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of December 31, 2016 amounts to ThUS$ 270,041 (ThUS$ 220,593 at December 31, 2015).

NOTE 16 – GOODWILL

The Goodwill amount at December 31, 2016 is ThUS$ 2,710,382 (ThUS$ 2,280,575 at December 31, 2015). Movement of Goodwill separated by CGU it includes the following:

				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

The Company has two cash- generating units (CGUs), “Air transportation” and, “Coalition and loyalty program Multiplus”. The CGU "Air transport" considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, and in a developed series of regional and international routes in America, Europe and Oceania, while the CGU "Coalition and loyalty program Multiplus” works with an integrated network associated companies in Brazil.

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of expected cash flows, 5 years after tax, which are based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated using the estimated growth rates, which do not exceed the average rates of long-term growth.

Management establish rates for annual growth, discount, inflation and exchange for each cash generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based on past performance and management's expectations over market developments in each country where it operates. The discount rates used are in American Dollars for the CGU "Air transportation" and Brazilian Reals for CGU "Program coalition loyalty Multiplus", both of them before tax and reflect specific risks related to each country where the Company operates. Inflation and exchange rates are based on available data for each country and the information provided by the Central Bank of each country, and the fuel price is determined based on estimated production levels, competitive environment market in which they operate and its business strategy.

58

As of December 31, 2016 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$/US$	3.9 - 4.4	3.9 - 4.4
Discount rate based on the weighted average cost of capital (WACC)	%	8.27 - 9.27	-
Discount rate based on cost of equity (Ke)	%	-	12.3 - 13.3
Fuel Price from futures price curves commodities markets	US$/barril	61-76	-

(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		Ke		growth rate
	%		%		%
Air transportation CGU		9.27		-		1.0
Coalition and loyalty program Multiplus CGU		-		13.3		4.0

In none of the previous cases impairment in the cash- generating unit was presented.

59

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

The composition by category of Property, plant and equipment is as follows:

	Gross Book Value				Acumulated depreciation						Net Book Value
	As of		As of		As of			As of			As of		As of
	December 31,		December 31,		December 31,			December 31,			December 31,		December 31,
	2016		2015		2016			2015			2016		2015
	ThUS$		ThUS$		ThUS$			ThUS$			ThUS$		ThUS$
Construction in progress (*)		470,065		1,142,812		-			-			470,065		1,142,812
Land		50,148		45,313		-			-			50,148		45,313
Buildings		190,771		131,816		(60,552	)		(40,325	)		130,219		91,491
Plant and equipment		10,099,587		9,683,764		(2,350,045	)		(2,392,463	)		7,749,542		7,291,301
Own aircraft		9,436,684		9,118,396		(2,123,025	)		(2,198,682	)		7,313,659		6,919,714
Other (**)		662,903		565,368		(227,020	)		(193,781	)		435,883		371,587
Machinery		39,246		36,569		(26,821	)		(21,220	)		12,425		15,349
Information technology equipment		163,695		154,093		(123,981	)		(110,204	)		39,714		43,889
Fixed installations and accessories		178,363		179,026		(94,451	)		(90,068	)		83,912		88,958
Motor vehicles		96,808		99,997		(67,855	)		(64,047	)		28,953		35,950
Leasehold improvements		192,100		124,307		(87,559	)		(70,219	)		104,541		54,088
Other property, plants and equipment		3,005,981		3,279,902		(1,177,351	)		(1,150,396	)		1,828,630		2,129,506
Financial leasing aircraft		2,905,556		3,151,405		(1,152,190	)		(1,120,682	)		1,753,366		2,030,723
Other		100,425		128,497		(25,161	)		(29,714	)		75,264		98,783
Total		14,486,764		14,877,599		(3,988,615	)		(3,938,942	)		10,498,149		10,938,657

(*) It includes pre-delivery payments to aircraft manufacturers for ThUS$ 434,250 (ThUS$ 1,016,007 as of December 31, 2015)

(**) Mainly considers rotable and tools.

60

(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

(1) During the first half of 2015 three Airbus A340 aircraft were sold.

During the second half of 2015 seven Dash-200 aircraft were sold.

During the second half of 2015 two Airbus A319 aircraft were sold.

(2) During the first quarter of 2016 one Airbus A330 aircraft were sold.

(3) During 2016 two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 and two Boeing 777 aircraft were reclassified to non-current assets and disposal group classified as held for sale (See Note 13).

61

(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	2016			2015			2016		2015		2016			2015
Boeing 767	300ER		34			34			3		4		37			38
Boeing 767	300F		8	(1)		8	(1)		3		3		11	(1)		11	(1)
Boeing 777	300ER		4			4			6		6		10			10
Boeing 777	Freighter		-			2	(2)		2		2		2			4	(2)
Boeing 787	800		6			6			4		4		10			10
Boeing 787	900		4			3			8		4		12			7
Airbus A319	100		36			38			12		12		48			50
Airbus A320	200		93			95			53		59		146			154
Airbus A320	NEO		1			-			1		-		2			-
Airbus A321	200		30			26			17		10		47			36
Airbus A330	200		-			8			-		2		-			10
Airbus A350	900		5			1			2		-		7			1
Total			221			225			111		106		332			331

(1) Three aircraft leased to FEDEX

(2) One aircraft leased to DHL

(c) Method used for the depreciation of Property, plant and equipment:

	Method	Useful life (years)
		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.

The depreciation charged to income in the period, which is included in the consolidated statement of income, amounts to ThUS$ 744,552 (ThUS$ 745,519 at December 31, 2015). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income.

62

(d) Additional information regarding Property, plant and equipment:

(i) Property, plant and equipment pledged as guarantee:

In the period ended December 31, 2016, direct guarantees by five Airbus A319-100 aircraft, two Airbus A320-200 aircraft, one Airbus A320 NEO aircraft, four Airbus A321-200 aircraft, four Airbus A350-900 aircraft and one Boeing 787-9 aircraft were added.

Description of Property, plant and equipment pledged as guarantee:

			As of				As of
			December 31,				December 31,
			2016				2015
Creditor of	Assets		Existing		Book		Existing		Book
guarantee	committed	Fleet	Debt		Value		Debt		Value
			ThUS$		ThUS$		ThUS$		ThUS$
Wilmington	Aircraft and engines	Airbus A321 / A350		596,224		722,979		374,619		478,667
Trust Company		Boeing 767		811,723		1,164,364		907,356		1,220,541
		Boeing 787		739,031		899,445		712,059		834,567
Banco Santander S.A.	Aircraft and engines	Airbus A319		50,671		91,889		58,527		95,387
		Airbus A320		462,950		709,788		524,682		749,192
		Airbus A321		32,853		44,227		36,334		45,380
BNP Paribas	Aircraft and engines	Airbus A319		134,346		228,384		154,828		229,798
		Airbus A320		128,173		181,838		145,506		192,957
Credit Agricole	Aircraft and engines	Airbus A319		26,014		37,389		37,755		84,129
		Airbus A320		71,794		144,157		115,339		214,726
		Airbus A321		40,609		93,110		50,591		97,257
				-						-
JP Morgan	Aircraft and engines	Boeing 777		-		-		215,265		263,366
Wells Fargo	Aircraft and engines	Airbus A320		252,428		333,419		279,478		348,271
Bank of Utah	Aircraft and engines	Airbus A320 / A350		670,826		709,280		240,094		312,573
Natixis	Aircraft and engines	Airbus A320		45,748		66,738		56,223		81,355
		Airbus A321		377,104		514,625		413,201		542,594
Citibank N. A.	Aircraft and engines	Airbus A320		111,243		166,370		127,135		172,918
		Airbus A321		42,867		70,166		49,464		73,122
HSBC	Aircraft and engines	Airbus A320		-		-		53,583		64,241
KfW IPEX-Bank	Aircraft and engines	Airbus A319		7,494		6,360		-		-
		Airbus A320		28,696		36,066		13,593		16,838
Airbus Financial Services	Aircraft and engines	Airbus A319		30,199		33,823		-		-
PK AirFinance US, Inc.	Aircraft and engines	Airbus A320		54,786		46,341		62,514		48,691
Banco BBVA	Land and buildings			50,381		69,498		-		-
Total direct guarantee				4,766,160		6,370,256		4,628,146		6,166,570

The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying value of the goods provided as guarantees.

Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at December 31, 2016 amounted to ThUS$ 913,494 (ThUS$ 1,311,088 at December 31, 2015). The book value of assets with indirect guarantees as of December 31, 2016 amounts to ThUS$ 1,740,815 (ThUS$ 2,001,605 as of December 31, 2015).

63

(ii) Commitments and others

Fully depreciated assets and commitments for future purchases are as follows:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Gross book value of fully depreciated property,  plant and equipment still in use		116,386		129,766
Commitments for the acquisition of aircraft (*)		15,100,000		19,800,000

(*) Acording to the manufacturer’s price list.

Purchase commitment of aircraft

	Year of delivery
Manufacturer	2017		2018		2019		2020		2021		2022		Total
Airbus S.A.S.		5		16		14		16		21		2		74
A320-NEO		5		5		8		8		8		-		34
A321		-		1		-		-		-		-		1
A321-NEO		-		6		2		6		5		-		19
A350-1000		-		-		2		2		8		2		14
A350-900		-		4		2		-		-		-		6
The Boeing Company		1		-		6		2		2		-		11
Boeing 777		-		-		2		-		-		-		2
Boeing 787-9		1		-		4		2		2		-		9
Total		6		16		20		18		23		2		85

In April 2015 the change of eight Boeing 787-8 aircraft for eight Boeing 787-8 aircraft was signed.

In September 2015 the change of six Airbus A350-900 aircraft for six Airbus A350-1000 aircraft was signed. Additionally, in November 2015 the change of six Airbus A350-900 aircraft to six Airbus A350-1000 aircraft was signed. In April 2016 the change of four Airbus A320 NEO aircraft to four Airbus A321 NEO aircraft was signed. In August 2016 a cancellation of 12 Airbus A320 NEO aircraft and the change of two Airbus A350-900 to two Airbus A350-1000 were signed.

As of December 31, 2016, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., 54 aircraft Airbus A320 family, with deliveries between 2017 and 2021, and 20 Airbus aircraft A350 family with deliveries between 2017 and 2022 remain to be received.

The approximate amount is ThUS$ 12,400,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 4 Airbus A350 aircraft.

In May 2016 the change of four Boeing 787-8 aircraft for four Boeing 787-9 aircraft was signed.

As of December 31, 2016, and as a result of different aircraft purchase contracts signed with The Boeing Company, a total of nine Boeing 787 Dreamliner aircraft, with delivery dates between 2017 and 2021, and two Boeing 777 with delivery expected for 2019 remain to be received.

64

The approximate amount, according to the manufacturer's price list, is ThUS$ 2,700,000.

(iii) Capitalized interest costs with respect to Property, plant and equipment.

		For the periods ended
		December 31,
		2016			2015
Average rate of capitalization of capitalized interest costs	%		3.54			2.79
Costs of capitalized interest	ThUS$		(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	2016		2015
Agonandra Statutory Trust	Airbus A320	200		-		2
Becacina Leasing LLC	Boeing 767	300ER		1		1
Caiquen Leasing LLC	Boeing 767	300F		1		1
Cernicalo Leasing LLC	Boeing 767	300F		2		2
Chirihue Leasing Trust	Boeing 767	300F		-		2
Cisne Leasing LLC	Boeing 767	300ER		2		2
Codorniz Leasing Limited	Airbus A319	100		2		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
Forderum Holding B.V. (GECAS)	Airbus A320	200		-		2
Garza Leasing LLC	Boeing 767	300ER		1		1
General Electric Capital Corporation	Airbus A330	200		3		3
Intraelo BETA Corpotation (KFW)	Airbus A320	200		1		1
Juliana Leasing Limited	Airbus A320	200		-		2
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
Petrel Leasing LLC	Boeing 767	300ER		1		1
Pilpilen Leasing Limited	Airbus A320	200		4		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
TMF Interlease Aviation B.V.	Airbus A330	200		-		1
TMF Interlease Aviation II B.V.	Airbus A319	100		-		5
TMF Interlease Aviation II B.V.	Airbus A320	200		-		2
Tricahue Leasing LLC	Boeing 767	300ER		3		3
Wacapou Leasing S.A	Airbus A320	200		1		1
Total				50		66

65

Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.

Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircrafts, perform maintenance on the aircrafts and update the airworthiness certificates at their own cost.

Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of December 31, 2016 the Company had fifty aircrafts (sixty six aircraft as of December 31, 2015).

As of December 31, 2016, as a result of the transfer plan fleet of TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company declined its number of aircraft leasing in five Airbus A319-100, eight Airbus A320-200 and one Airbus A330-200 aircraft.

The book value of assets under financial leases as of December 31, 2016 amounts to ThUS$ 1,753,366 (ThUS$ 2,030,723 at December 31, 2015).

The minimum payments under financial leases are as follows:

	As of December 31, 2016							As of December 31, 2015
	Gross					Present		Gross					Present
	Value		Interest			Value		Value		Interest			Value
	ThUS$		ThUS$			ThUS$		ThUS$		ThUS$			ThUS$
No later than one year		285,168		(32,365	)		252,803		360,862		(47,492	)		313,370
Between one and five years		704,822		(43,146	)		661,676		1,003,237		(75,363	)		927,874
Over five years		43,713		(120	)		43,593		95,050		(1,406	)		93,644
Total		1,033,703		(75,631	)		958,072		1,459,149		(124,261	)		1,334,888

NOTE 18 - CURRENT AND DEFERRED TAXES

In the period ended December 31, 2016, the income tax provision was calculated for such period, applying the rate of 24% for the business year 2016, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.

Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System" is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System" the top rate would reach 25% in 2017.

As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System"(*), unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System"(*). This decision was taken in the last quarter of 2016.

66

On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System"(*) and could not elect to use the other system.

Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities, always correspond to the same entity and tax authority.

(*) The Partially Integrated Taxation System is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.

(a) Current taxes

(a.1) The composition of the current tax assets is the following:

	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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provisional monthly payments (advances)		43,821		43,935		-		-		43,821		43,935
Other recoverable credits		21,556		20,080		20,272		25,629		41,828		45,709
Total assets by current tax		65,377		64,015		20,272		25,629		85,649		89,644

(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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Income tax provision		9,632		19,001		-		-		9,632		19,001
Additional tax provision		4,654		377		-		-		4,654		377
Total liabilities by current tax		14,286		19,378		-		-		14,286		19,378

67

(b) Deferred taxes

The balances of deferred tax are the following:

	Assets						Liabilities
	As of			As of			As of			As of
Concept	December 31,			December 31,			December 31,			December 31,
	2016			2015			2016			2015
	ThUS$			ThUS$			ThUS$			ThUS$
Depreciation		11,735			(14,243	)		1,387,760			1,116,748
Leased assets		(35,922	)		(25,299	)		203,836			226,003
Amortization		(15,820	)		(5,748	)		61,660			65,416
Provisions		222,253			210,992			(59,096	)		(167,545	)
Revaluation of financial instruments		-			709			(3,223	)		(7,575	)
Tax losses		202,536			212,067			(1,126,200	)		(797,715	)
Intangibles		-			-			430,705			364,314
Others		(202	)		(1,883	)		20,317			11,919
Total		384,580			376,595			915,759			811,565

The balance of deferred tax assets and liabilities are composed primarily of temporary differences to be reversed in the long term.

Movements of Deferred tax assets and liabilities

(a) From January 1 to December 31, 2015

	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	)

68

(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	)

Deferred tax assets not recognized:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Tax losses		115,801		15,513
Total Deferred tax assets not recognized		115,801		15,513

Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization of future tax benefit By the above at December 31, 2016, the Company has not recognized deferred tax assets of ThUS$ 115,801 (ThUS$ 15,513 at December 31, 2015) according with a loss of ThUS$ 340,591 (ThUS$ 45,628 at December 31, 2015).

69

Deferred tax expense and current income taxes:

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Current tax expense
Current tax expense		87,307		92,916
Adjustment to previous period’s current tax		2,083		(395	)
Total current tax expense, net		89,390		92,521
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences		73,814		(270,904	)
Total deferred tax expense, net		73,814		(270,904	)
Income tax expense		163,204		(178,383	)

Composition of income tax expense (income):

	For the period ended
	December 31,
	2016			2015
	ThUS$			ThUS$
Current tax expense, net, foreign		80,600			89,460
Current tax expense, net, Chile		8,790			3,061
Total current tax expense, net		89,390			92,521
Deferred tax expense, net, foreign		119,175			(280,445	)
Deferred tax expense, net, Chile		(45,361	)		9,541
Deferred tax expense, net, total		73,814			(270,904	)
Income tax expense		163,204			(178,383	)

70

Profit before tax by the legal tax rate in Chile (24% and 22.5% at December 31, 2016 and 2015, respectively)

	For the period ended						For the period ended
	December 31,						December 31,
	2016			2015			2016			2015
	ThUS$			ThUS$			%			%
Tax expense using the legal rate (*)		65,449			(89,472	)		24.00			22.50
Tax effect of rates in other jurisdictions		16,333			(21,803	)		5.99			5.48
Tax effect of non-taxable operating revenues		(62,419	)		(106,381	)		(22.89	)		26.75
Tax effect of disallowable expenses		132,469			38,677			48.58			(9.73	)
Other increases (decreases) in legal tax charge		11,372			596			4.17			(0.15	)
Total adjustments to tax expense using the legal rate		97,755			(88,911	)		35.85			22.35
Tax expense using the effective rate		163,204			(178,383	)		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, 2016 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.

Deferred taxes related to items charged to net equity:

	For the period ended
	December 31,
	2016			2015
	ThUS$			ThUS$
Aggregate deferred taxation of components of other comprehensive income		(33,774	)		(17,192	)
Aggregate deferred taxation related to items charged to net equity		(807	)		(992	)

71

NOTE 19 - OTHER FINANCIAL LIABILITIES

The composition of Other financial liabilities is as follows:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Current
(a) Interest bearing loans		1,814,647		1,510,146
(b) Hedge derivatives		24,881		134,089
Total current		1,839,528		1,644,235
Non-current
(a) Interest bearing loans		6,790,273		7,516,257
(b) Hedge derivatives		6,679		16,128
Total non-current		6,796,952		7,532,385

(a) Interest bearing loans

Obligations with credit institutions and debt instruments:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Current
Loans to exporters		278,164		387,409
Bank loans (1)		290,810		80,188
Guaranteed obligations		578,014		591,148
Other guaranteed obligations		1,908		32,513
Subtotal bank loans		1,148,896		1,091,258
Obligation with the public		312,043		10,999
Financial leases		268,040		324,859
Other loans		85,668		83,030
Total current		1,814,647		1,510,146
Non-current
Bank loans		294,477		564,128
Guaranteed obligations		4,180,538		4,122,995
Other guaranteed obligations		254,512		-
Subtotal bank loans		4,729,527		4,687,123
Obligation with the public (2)		997,302		1,294,882
Financial leases		754,321		1,015,779
Other loans		309,123		518,473
Total non-current		6,790,273		7,516,257
Total obligations with financial institutions		8,604,920		9,026,403

72

(1) On September 29, 2016 TAM Linhas Aéreas S.A. obtained financing for US $ 200 million, guaranteed with 18% of the shares of Multiplus S.A., percentage adjustable depending on the shares price. Additionally, TAM obtained a Cross Currency Swap for the same amount and period, in order to convert the commitment currency from US$ to BRL.

(2) On June 9, 2015 LATAM Airlines Group S.A. has issued and placed on the international market under Rule 144-A and Regulation S of the securities laws of the United States of America, unsecured long-term bonds in the amount of US$ 500,000,000, maturing 2020, interest rate of 7.25% per annum.

As reported in the Essential Matter of May 20 and June 5, 2015, the Issuance and placement of the Bonds 144-A shall be: (i) finance the repurchase, conversion and redemption of secured long-term bonds issued by the company TAM Capital 2 Inc., under Rule 144-A and Regulation S of the securities laws of the United States of America, maturing 2020; (ii) in the event there is any remnant fund other general corporate purposes. The aforementioned bonds TAM Capital 2 Inc. were redeemed in whole (US$ 300,000,000) through a process of exchange for new bonds dated June 9, 2015 and then the remaining bonds were redeemed by running the prepay dated June 18, 2015.

All interest-bearing liabilities are recorded using the effective interest rate method. Under IFRS, the effective interest rate for loans with a fixed interest rate does not vary throughout the loan, while in the case of loans with variable interest rates, the effective rate changes on each date of reprising of the loan.

Currency balances that make the interest bearing loans:

	As of		As of
	December 31,		December 31,
Currency	2016		2015
	ThUS$		ThUS$
Brazilian real		1,253		3,387
Chilean peso (U.F.)		203,194		210,423
US Dollar		8,400,473		8,812,593
Total		8,604,920		9,026,403

73

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	US$		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	US$		30,000		-		-		-		-		30,000		30,183		-		-		-		-		30,183	At Expiration		2.39		2.39
97.030.000-7	ESTADO	Chile	US$		40,000		-		-		-		-		40,000		40,098		-		-		-		-		40,098	At Expiration		1.91		1.91
97.003.000-K	BANCO DO BRASIL	Chile	US$		70,000		-		-		-		-		70,000		70,323		-		-		-		-		70,323	At Expiration		3.08		3.08
97.951.000-4	HSBC	Chile	US$		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.	US$		-		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.	US$		-		-		28,911		-		-		28,911		3		-		28,911		-		-		28,914	Quarterly		1.86		1.86
97.036.000-K	SANTANDER	Chile	US$		-		-		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.	US$		-		-		-		500,000		-		500,000		2,291		-		-		489,885		-		492,176	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		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.	US$		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.	US$		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.	US$		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.	US$		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	US$		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.	US$		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.	US$		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.	US$		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.	US$		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	US$		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.	US$		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	US$		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.	US$		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	US$		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	-	US$		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	US$		-		-		256,860		-		-		256,860		1,908		-		254,512		-		-		256,420	Quarterly		2.85		2.85
Financial leases
0-E	ING	U.S.A.	US$		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	US$		1,754		5,403		-		-		-		7,157		1,780		5,403		-		-		-		7,183	Quarterly		1.85		1.85
0-E	CITIBANK	U.S.A.	US$		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.	US$		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.	US$		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.	US$		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.	US$		4,680		9,447		-		-		-		14,127		4,713		9,448		-		-		-		14,161	Quarterly		2.57		2.57
0-E	RRP ENGINE	England	US$		-		-		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.	US$		-		-		26,214		-		-		26,214		185		-		26,214		-		-		26,399	At Expiration		2.35		2.35
0-E	CITIBANK (*)	U.S.A.	US$		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.

74

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	US$		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	US$		-		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	US$		-		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	US$		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	US$		118		164		-		-	-		282		119			164		-		-		-		283	Monthly		2.50		2.50
0-E	GENERAL ELECTRIC CAPITAL CORPORATION	U.S.A	US$		3,771		5,075		-		-	-		8,846		3,794			5,075		-		-		-		8,869	Monthly		2.30		2.30
0-E	KFW IPEX-BANK	Germany	US$		579		1,544		-		-	-		2,123		583			1,544		-		-		-		2,127	Monthly/Quarterly		2.80		2.80
0-E	NATIXIS	France	US$		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	US$		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	US$		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

75

Interest-bearing loans due in installments to December 31, 2015

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	US$		100,000		-		-		-		-		100,000		100,183		-		-		-		-		100,183	At Expiration		1.00		1.00
97.036.000-K	SANTANDER	Chile	US$		100,000		-		-		-		-		100,000		100,067		-		-		-		-		100,067	At Expiration		1.44		1.44
97.030.000-7	ESTADO	Chile	US$		55,000		-		-		-		-		55,000		55,088		-		-		-		-		55,088	At Expiration		1.05		1.05
97.004.000-5	CHILE	Chile	US$		50,000		-		-		-		-		50,000		50,006		-		-		-		-		50,006	At Expiration		1.42		1.42
97,003,000-K	BANCO DO BRASIL	Chile	US$		70,000		-		-		-		-		70,000		70,051		-		-		-		-		70,051	At Expiration		1.18		1.18
97.951.000-4	HSBC	Chile	US$		12,000		-		-		-		-		12,000		12,014		-		-		-		-		12,014	At Expiration		0.66		0.66
Bank loans
97.023.000-9	CORPBANCA	Chile	UF		17,631		52,893		105,837		34,774		-		211,135		18,510		52,892		104,385		34,635		-		210,422	Quarterly		4.18		4.18
0-E	BLADEX	U.S.A.	US$		-		7,500		27,500		15,000		-		50,000		134		7,500		27,125		14,875		-		49,634	Semiannual		4.58		4.58
0-E	DVB BANK SE	U.S.A.	US$		-		-		153,514		-		-		153,514		14		-		153,514		-		-		153,528	Quarterly		1.67		1.67
97.036.000-K	SANTANDER	Chile	US$		-		-		226,712		-		-		226,712		650		-		226,712		-		-		227,362	Quarterly		2.24		2.24
Obligations with the public
0-E	BANK OF YORK	U.S.A.	US$		-		-		-		500,000		-		500,000		2,383		-		-		486,962		-		489,345	At Expiration		7.77		7.25
Guaranteed obligations
0-E	CREDIT AGRICOLE	France	US$		29,633		88,188		204,722		54,074		12,410		389,027		30,447		88,189		203,286		54,074		12,410		388,406	Quarterly		1.83		1.66
0-E	BNP PARIBAS	U.S.A.	US$		8,162		25,012		70,785		75,028		140,410		319,397		9,243		25,012		70,335		74,917		140,407		319,914	Quarterly		2.29		2.22
0-E	WELLS FARGO	U.S.A.	US$		30,895		93,511		255,536		264,770		536,039		1,180,751		34,933		93,511		227,704		252,054		525,257		1,133,459	Quarterly		2.27		1.57
0-E	WILMINGTON TRUST	U.S.A.	US$		-		48,264		85,183		90,694		451,555		675,696		5,691		48,263		81,867		88,977		448,016		672,814	Quarterly		4.25		4.25
0-E	CITIBANK	U.S.A.	US$		17,042		51,792		143,168		150,792		254,208		617,002		18,545		51,792		133,740		146,362		249,406		599,845	Quarterly		2.40		1.64
97.036.000-K	SANTANDER	Chile	US$		5,233		15,862		43,552		45,416		49,606		159,669		5,514		15,862		41,434		44,599		49,281		156,690	Quarterly		1.47		0.93
0-E	BTMU	U.S.A.	US$		2,714		8,250		22,801		24,007		39,182		96,954		2,897		8,250		21,336		23,376		38,789		94,648	Quarterly		1.82		1.22
0-E	APPLE BANK	U.S.A.	US$		1,333		4,055		11,211		11,828		19,715		48,142		1,478		4,056		10,483		11,513		19,515		47,045	Quarterly		1.72		1.12
0-E	US BANK	U.S.A.	US$		14,483		43,948		120,924		126,550		285,134		591,039		17,232		43,948		102,607		117,968		277,195		558,950	Quarterly		3.99		2.81
0-E	DEUTSCHE BANK	U.S.A.	US$		4,767		14,667		32,449		25,826		58,989		136,698		5,342		14,666		32,448		25,826		58,989		137,271	Quarterly		3.40		3.40
0-E	NATIXIS	France	US$		11,698		35,914		97,434		83,289		241,088		469,423		12,351		35,914		97,434		83,289		241,088		470,076	Quarterly		2.08		2.05
0-E	HSBC	U.S.A.	US$		1,374		4,180		11,533		12,112		24,384		53,583		1,504		4,180		11,533		12,112		24,384		53,713	Quarterly		2.40		1.59
0-E	PK AIRFINANCE	U.S.A.	US$		1,882		5,846		17,171		19,744		17,871		62,514		1,937		5,846		17,171		19,744		17,871		62,569	Monthly		2.04		2.04
0-E	KFW IPEX-BANK	Germany	US$		653		2,028		5,314		3,958		1,640		13,593		655		2,028		5,314		3,958		1,640		13,595	Quarterly		2.45		2.45
-	SWAP Aviones llegados	-	US$		502		1,360		2,521		765		-		5,148		502		1,360		2,521		765		-		5,148	Quarterly		-		-
Other guaranteed obligations
0-E	DVB BANK SE	U.S.A.	US$		8,054		24,438		-		-		-		32,492		8,075		24,438		-		-		-		32,513	Quarterly		2.32		2.32
Financial leases
0-E	ING	U.S.A.	US$		8,108		23,191		36,868		26,831		-		94,998		8,894		23,191		36,066		26,682		-		94,833	Quarterly		5.13		4.57
0-E	CREDIT AGRICOLE	France	US$		1,666		5,131		7,158		-		-		13,955		1,700		5,131		7,158		-		-		13,989	Quarterly		1.28		1.28
0-E	CITIBANK	U.S.A.	US$		4,687		14,447		41,726		36,523		-		97,383		5,509		14,447		40,684		36,330		-		96,970	Quarterly		6.40		5.67
0-E	PEFCO	U.S.A.	US$		15,246		46,858		108,403		22,407		-		192,914		16,536		46,858		106,757		22,324		-		192,475	Quarterly		5.37		4.77
0-E	BNP PARIBAS	U.S.A.	US$		9,956		30,678		81,373		31,100		-		153,107		10,494		30,678		79,983		30,958		-		152,113	Quarterly		4.08		3.64
0-E	WELLS FARGO	U.S.A.	US$		4,519		13,784		38,531		41,238		23,556		121,628		4,919		13,784		37,247		40,819		23,486		120,255	Quarterly		3.98		3.54
0-E	DVB BANK SE	U.S.A.	US$		4,567		13,873		14,127		-		-		32,567		4,625		13,873		14,127		-		-		32,625	Quarterly		2.06		2.06
0-E	BANC OF AMERICA	U.S.A.	US$		674		2,096		-		-		-		2,770		676		2,096		-		-		-		2,772	Monthly		1.41		1.41
Other loans
0-E	BOEING	U.S.A.	US$		-		-		151,362		-		-		151,362		2,294		-		151,363		-		-		153,657	At Expiration		1.80		1.80
0-E	CITIBANK (*)	U.S.A.	US$		19,361		60,251		174,178		196,210		-		450,000		20,485		60,251		174,178		192,932		-		447,846	Quarterly		6.00		6.00
	Total				611,840		738,017		2,291,593		1,892,936		2,155,787		7,690,173		641,578		738,016		2,218,512		1,846,051		2,127,734		7,571,891

(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.

76

Interest-bearing loans due in installments to December 31, 2015

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	US$		115		356		1,031		1,162		689		3,353		132		356		1,031		1,162		689		3,370	Monthly		6.01		6.01
Obligations with the public
0-E	THE BANK OF NEW YORK	U.S.A.	US$		-		-		300,000		-		500,000		800,000		7,506		1,110		301,722		5,171		501,027		816,536	At Expiration		8.17		8.00
Financial leases
0-E	AFS INVESTMENT IX LLC	U.S.A.	US$		1,972		6,085		17,540		17,908		-		43,505		2,176		6,085		17,540		17,908		-		43,709	Monthly		1.25		1.25
0-E	AIRBUS FINANCIAL	U.S.A.	US$		3,370		10,397		20,812		15,416		-		49,995		3,461		10,396		20,813		15,416		-		50,086	Monthly		1.43		1.43
0-E	CREDIT AGRICOLE-CIB	U.S.A.	US$		4,500		-		-		-		-		4,500		4,528		-		-		-		-		4,528	Quarterly		3.25		3.25
0-E	DVB BANK SE	U.S.A.	US$		118		355		282		-		-		755		120		355		282		-		-		757	Monthly		1.64		1.64
0-E	GENERAL ELECTRIC CAPITAL CORPORATION	U.S.A.	US$		3,654		11,137		8,970		-		-		23,761		3,697		11,137		8,970		-		-		23,804	Monthly		1.25		1.25
0-E	KFW IPEX-BANK	Germany	US$		3,097		6,401		15,186		12,215		-		36,899		3,163		6,401		15,186		12,215		-		36,965	Monthly/Quarterly		1.72		1.72
0-E	NATIXIS	France	US$		2,505		5,387		17,359		19,682		70,087		115,020		3,476		5,387		17,360		19,682		70,088		115,993	Quarterly/Semiannual		3.85		3.85
0-E	PK AIRFINANCE US, INC.	U.S.A.	US$		1,276		21,769		-		-		-		23,045		1,316		21,769		-		-		-		23,085	Monthly		1.75		1.75
0-E	WACAPOU LEASING S.A.	Luxemburg	US$		383		1,101		2,617		14,267		-		18,368		418		1,101		2,617		14,267		-		18,403	Quarterly		2.00		2.00
0-E	SOCIÉTÉ GÉNÉRALE MILAN BRANCH	Italy	US$		8,148		25,003		71,311		208,024		-		312,486		9,552		25,003		71,311		208,024		-		313,890	Quarterly		3.63		3.55
0-E	BANCO IBM S.A	Brazil	BRL		217		651		860		-		-		1,728		217		651		860		-		-		1,728	Monthly		14.14		14.14
0-E	HP FINANCIAL SERVICE	Brazil	BRL		168		529		185		-		-		882		169		529		185		-		-		883	Monthly		10.02		10.02
0-E	SOCIETE GENERALE	France	BRL		85		256		434		-		-		775		85		256		434		-		-		775	Monthly		14.14		14.14
	Total				29,608		89,427		456,587		288,674		570,776		1,435,072		40,016		90,536		458,311		293,845		571,804		1,454,512
	Total consolidated				641,448		827,444		2,748,180		2,181,610		2,726,563		9,125,245		681,594		828,552		2,676,823		2,139,896		2,699,538		9,026,403

77

(b) Hedge derivatives

	Current liabilities				Non-current liabilities				Total hedge 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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Accrued interest from the last date of interest rate swap		2,148		4,329		-		-		2,148		4,329
Fair value of interest rate derivatives		9,578		33,518		6,679		16,128		16,257		49,646
Fair value of fuel derivatives		-		56,424		-		-		-		56,424
Fair value of foreign currency derivatives		13,155		39,818		-		-		13,155		39,818
Total hedge derivatives		24,881		134,089		6,679		16,128		31,560		150,217

The foreign currency derivatives exchanges are FX forward and cross currency swap.

Hedging operation

The fair values of net assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below:

	As of			As of
	December 31,			December 31,
	2016			2015
	ThUS$			ThUS$
Cross currency swaps (CCS) (1)		(12,286	)		(49,311	)
Interest rate swaps (2)		(16,926	)		(44,085	)
Fuel options (3)		10,088			(50,131	)
Currency forward - options US$/GBP$ (4)		618			7,432
Currency forward - options US$/EUR$ (4)		109			1,438
Currency options R$/US$ (4)		(1,752	)		933
Currency options CLP/US$ (4)		-			85

(1) Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate and the exchange rate US$/UF and US$/BRL of bank loans. These contracts are recorded as cash flow hedges and fair value.

(2) Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3 months LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedges.

(3) Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges.

(4) Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$ and US$/GBP. These contracts are recorded as cash flow hedges.

78

During the periods presented, the Company only maintains cash flow hedges and fair value (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will impact results in the next six months from the consolidated statement of financial position date, meanwhile in the case of interest rate hedging, the hedges will impact results over the life of the related loans, which are valid initially for 12 years. The hedges on investments will impact results continuously throughout the life of the investment, while the cash flows occur at the maturity of the investment. In the case of currency hedges through a CCS, are generated two types of hedge accounting, a cash flow component by US$/UF and US$/BRL, and other fair value by US$ floating rate component.

During the periods presented, no hedging operations of future highly probable transaction that have not been realized have occurred.

Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.

The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:

	For the period ended
	December 31,
	2016			2015
	ThUS$			ThUS$
Debit (credit) recognized in comprehensive income during the period		127,390			80,387
Debit (credit) transferred from net equity to income during the period		(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,
	2016		2015
	ThUS$		ThUS$
Current
(a) Trade and other accounts payables		1,117,926		1,025,574
(b) Accrued liabilities at the reporting date		475,142		458,383
Total trade and other accounts payables		1,593,068		1,483,957

79

(a) Trade and other accounts payable:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Trade creditors		868,833		758,783
Leasing obligation		10,446		18,784
Other accounts payable		238,647		248,007
Total		1,117,926		1,025,574

The details of Trade and other accounts payables are as follows:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Aircraft Fuel		188,276		148,612
Boarding Fee		149,880		175,900
Airport charges and overflight		90,327		94,139
Handling and ground handling		87,406		88,629
Other personnel expenses		81,632		72,591
Professional services and advisory		79,270		63,302
Land services		74,260		80,387
Marketing		61,053		45,997
Services on board		44,589		32,993
Leases, maintenance and IT services		44,287		25,558
Suppliers' technical purchases		40,305		52,160
Crew		29,074		23,834
Maintenance		25,962		18,573
Achievement of goals		17,801		15,386
Distribution system		15,710		17,531
Airlines		13,264		3,890
Aircraft and engines leasing		10,446		19,146
Aviation insurance		7,694		7,655
Communications		7,500		6,731
SEC agreement (*)		4,719		-
Others		44,471		32,560
Total trade and other accounts payables		1,117,926		1,025,574

(*) Provision made for payments of fines, on July 25, 2016 LATAM reached agreements with the U.S. Department of Justice ("DOJ") U.S. and the Securities and Exchange Commission ("SEC") both authorities of the United States of America, in force as of this date, regarding the investigation on payments by LAN Airlines S.A. made in 2006-2007 to a consultant who advised on the resolution of labor matters in Argentina. The amount to the SEC agreement is ThUS$ 6,744 plus interests of ThUS$ 2,694.

As of December 31, the balance payable to the SEC is ThUS $ 4,719.

80

(b) Liabilities accrued:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Aircraft and engine maintenance		244,949		246,454
Accrued personnel expenses		113,785		108,058
Accounts payable to personnel (*)		89,523		81,368
Others accrued liabilities		26,885		22,503
Total accrued liabilities		475,142		458,383

(*) 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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Provision for contingencies (1)
Tax contingencies		1,425		1,297		313,064		350,418		314,489		351,715
Civil contingencies		993		1,476		56,413		37,555		57,406		39,031
Labor contingencies		225		149		29,307		15,648		29,532		15,797
Other		-		-		15,046		11,910		15,046		11,910
Provision for European
Commision investigation (2)		-		-		8,664		8,966		8,664		8,966
Total other provisions (3)		2,643		2,922		422,494		424,497		425,137		427,419

(1) Provisions for contingencies:

The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.

The civil contingencies correspond to different demands of civil order filed against the company.

The labor contingencies correspond to different demands of labor order filed against the company.

The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.

81

(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.

(3) Total other provision at December 31, 2016, and at December 31, 2015, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3.

Movement of provisions:

				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

(1) The accumulated balance includes US$ 115 million as judicial deposit granted as guarantee, related to the “Fundo Aeroviário” (FA). This deposit was made with the purpose of suspending the application of the tax credit. The company is discussing over the Tribunal the constitutionality about the requirement made by FA in a legal action. Initially it was covered by the effects of a precautionary measure, meaning that, the company was not the obligation to collect the tax as long as there no judicial decision in this regard. However, the decision taken by a judge in the first instance was publicized in an unfavorable published, reversing the precautionary measure. As the legal claim is still in progress (TAM appealed this first decision), the company needed to make the judicial deposit for the suspension of the enforceability of the tax credit; it deposit was classified in this category deducting the existing provision for that purpose. Finally, if the final decision is favorable to the company, the deposit already made will return to TAM. On the other hand, if the tribunal confirms the first decision, such deposit will be converted in a definitive payment in favor of the Brazilian Government. The procedural stage at December 31, 2016 is disclosed in Note 31 in the case role N° 2001.51.01.012530-0.

82

(2) European Commission Provision:

This provision was established because of the investigation brought by the Directorate General for Competition of the European Commission against more than 25 cargo airlines, including Lan Cargo S.A., as part of a global investigation that began in December 2007 regarding possible unfair competition on the air cargo market. This was a joint investigation done by the European and U.S.A. authorities. The global investigation concluded when Lan Cargo S.A. and its subsidiary, Aerolíneas Brasileiras S.A. (“ABSA”) signed a Plea Agreement with the U.S.A. Department of Justice. The General Direction of Competition it imposed fines totaling € 799,445,000 (seven hundred and ninety nine million four hundred and forty-five thousand Euros) for infringement of European Union regulations on free competition against eleven (11) airlines, among which you can find LATAM A irlines Group S.A. and Lan Cargo S.A. Jointly, LATAM Airlines Group S.A. and Lan Cargo S.A., have been fined in the amount of € 8,220,000 (eight million two hundred twenty thousand Euros) for said infractions, which was provisioned in the financial statements of LATAM Airlines Group S.A. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. appealed the decision before the Court of Justice of the European Union. On December 16, 2015 The European Commission does not appeal the sentence, but can issue a new decision correcting the failures specified in the Judgment and it has a period of 5 years which is fulfilled in 2021 the Court European resolved the appeal and annulled the European Commission. The procedural stage at December 31, 2016 is disclosed in Note 31, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries.

NOTE 22 - OTHER NON-FINANCIAL LIABILITIES

	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,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Deferred revenues  (*)		2,655,086		2,423,703		213,781		272,130		2,868,867		2,695,833
Sales tax		19,402		10,379		-		-		19,402		10,379
Retentions		45,542		33,125		-		-		45,542		33,125
Others taxes		7,465		11,211		-		-		7,465		11,211
Dividends		25,518		3,980		-		-		25,518		3,980
Other sundry liabilities		9,232		7,635		-		-		9,232		7,635
Total other non-financial liabilities		2,762,245		2,490,033		213,781		272,130		2,976,026		2,762,163

(*) Note 2.20.

The balance comprises, mainly, deferred income by services not yet rendered and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:

LATAM Pass is the frequent flyer program created by LAN to reward the preference and loyalty of its customers with many benefits and privileges, by the accumulation of kilometers that can be exchanged for free flying tickets or a wide range of products and services. Customers accumulate LATAM Pass kilometers every time they fly with LAN, TAM, in companies that are members of oneworld® and other airlines associated with the program, as well as when they buy on the stores or use the services of a vast network of companies that have an agreement with the program around the world.

83

Thinking on people who travel constantly, TAM created the program LATAM Fidelidade, in order to improve the passenger attention and give recognition to those who choose the company. By using this program, customers accumulate points in a variety of programs loyalty in a single account and can redeem them at all TAM destinations and related airline companies, and even more, participate in the Red Multiplus Fidelidade.

Multiplus is a coalition of loyalty programs, aiming to operate activities of accumulation and redemption of points. This program has an integrated network by associates including hotels, financial institutions, retail companies, supermarkets, vehicle rentals and magazines, among many other partners from different segments.

NOTE 23 - EMPLOYEE BENEFITS

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Retirements payments		49,680		42,117
Resignation payments		10,097		8,858
Other obligations		22,545		14,296
Total liability for employee benefits		82,322		65,271

(a) The movement in retirements and resignation payments and other obligations:

			Increase (decrease)								Actuarial
	Opening		current service			Benefits			Change		(gains)		Currency			Closing
	balance		provision			paid			of model		losses		translation			balance
	ThUS$		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		19,900			(4,536	)		-		1,687		-			82,322

84

The principal assumptions used in the calculation to the provision in Chile are presented below:

	As of
	December 31,
Assumptions	2016	2015
Discount rate	4.54%	4.84%
Expected rate of salary increase	4.50%	4.50%
Rate of turnover	6.16%	6.16%
Mortality rate	RV-2009	RV-2009
Inflation rate	2.86%	2.92%
Retirement age of women	60	60
Retirement age of men	65	65

The discount rate is determined by reference to free risk 20 years Central Bank of Chile BCP bond. Mortality table RV – 2009, established by Chilean Superintendency of Securities and Insurance and inflation rate performance curve of Central Bank of Chile instruments long term BCU and BCP.

The obligation is determined based on the actuarial value of the accrued cost of the benefit and it is sensibility to main actuarial assumptions used for the calculation. The Following is a sensitivity analysis based on increased (decreased) on the discount rate, increased wages, rotation and inflation:

	Effect on the liability
	As of			As of
	December 31,			December 31,
	2016			2015
	ThUS$			ThUS$
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.		(5,665	)		(4,669	)
Change in the accrued liability an closing for decrease of 100 p.b.		5,952			5,345
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.		6,334			5,309
Change in the accrued liability an closing for decrease of 100 p.b.		(5,644	)		(4,725	)

(b) The liability for short-term:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Profit-sharing and bonuses (*)		89,523		81,368

(*) Accounts payables to employees (Note 20 letter b)

85

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,
	2016		2015
	ThUS$		ThUS$
Salaries and wages		1,549,402		1,631,320
Short-term employee benefits		132,436		171,366
Termination benefits		79,062		51,684
Other personnel expenses		190,233		218,435
Total		1,951,133		2,072,805

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Aircraft and engine maintenance		347,085		371,419
Fleet financing (JOL)		-		35,042
Provision for vacations and bonuses		12,080		10,365
Other sundry liabilities		226		224
Total accounts payable, non-current		359,391		417,050

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 Capital of the Company is managed and composed in the following form:

The paid capital of the Company at December 31, 2016 amounts to ThUS$ 3,149,564 (*) divided into 606,407,693 common stock of a same series (ThUS$ 2,545,705, divided into 545,547,819 shares as of December 31, 2015), a single series nominative, ordinary character with no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.

86

(*) Include a deduction for issuance costs ThUS$ 4,793 and adjustment by 10,282 placement shares for ThUS$ 156.

(b) Subscribed and paid shares

As of December 31, 2015, the Company's subscribed and paid-in capital was represented by 545,558,101 shares, all common shares, without par value.

On August 18, 2016, the Company held an extraordinary meeting of shareholders in which it was approved to increase the capital by issuing 61,316,424 shares of payment, all ordinary shares, without par value. As of December 31, 2016, 60,849,592 shares had been placed against this increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the end of the preferred subscription period, which expired on, December 2016, raising the equivalent of US$ 304,996,850; And (b) 30,349,907 additional shares subscribed on December 28, 2016, earning the equivalent of US $ 303,499,070.

As a result of the last placement, as of December 31, 2016, the number Company shares subscribed and paid amounts to 606,407,693.

At December 31, 2016, the Company's capital stock is represented by 608,374,525 shares, all common shares, without no par value, which is divided into: (a) the 606,407,693 subscribed and paid shares mentioned above; And (b) 1,966,832 shares pending subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plans; And (ii) 466,832 correspond to the balance of shares pending placement of the last capital increase.

It should be noted that during the year the Company's capital stock was expressed in 613,164,243 shares, all ordinary shares, without nominal value, that is, 551,847,819 shares already authorized at the beginning of the year and 61,316,424 shares authorized in the last Capital increase dated August 18, 2016. However, on December 21, 2016, the deadline for the subscription and payment of 4,789,718 shares that were destined to compensation plans for workers expired, so that the Company's capital stock was reduced to 608,374,525 shares.

The following table shows the movement of the authorized and fully paid shares described above:

Movement of authorized shares	Nro. Of
	shares
Autorized shares as of January 1, 2015		551,847,819
No movement of autorized shares during 2015		-
Authorized shares as of December 31, 2015		551,847,819
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

(*) See Note 34 (a.1)

87

Movement fully paid shares
				Movement
				value		Cost of issuance
increase (decrease) through transfers and other changes				of shares		and placement			Paid- in
	No of			(1)		of shares (2)			Capital
	shares			ThUS$		ThUS$			ThUS$
Paid shares as of January 1, 2015		545,547,819			2,552,066		(6,361	)		2,545,705
No movement of paid shares  during 2015		-			-		-			-
Paid shares as of December 31, 2015		545,547,819			2,552,066		(6,361	)		2,545,705
Paid shares as of January 1, 2016		545,547,819			2,552,066		(6,361	)		2,545,705
Placement capital increase
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)		3,160,718		(11,154	)		3,149,564

(1)        Amounts reported represent only those arising from the payment of the shares subscribed.

(2)        Decrease of capital by capitalization of reserves for cost of issuance and placement of shares established according to Extraordinary Shareholder´s Meetings, where such decreases were authorized.

(3)        At December 31, 2016, the difference between authorized shares and fully paid shares are 1,966,832 shares, of which 1,500,000 correspond to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 34(a.1)) and 466,832 correspond to the shares issued and unsubscribed from the capital increase approved at the Extraordinary Shareholders' Meeting held on August 18, 2016.

(4)         In Janury 2014, these 10,282 shares were placed and charged to the Compensation plan 2011 (See Note 34 (a.1))

(c)        Treasury stock

At December 31, 2016, the Company held no treasury stock, the remaining of ThUS$ (178) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares which held in its portfolio.

(d)         Reserve of share- based payments

Movement of Reserves of share- based payments:

88

			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

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

Balance of Other sundry reserves comprises the following:

	As of			As of
	December 31,			December 31,
	2016			2015
	ThUS$			ThUS$
Higher value for TAM S.A. share exchange (1)		2,665,692			2,665,692
Reserve for the adjustment to the value of fixed assets (2)		2,620			2,620
Transactions with non-controlling interest (3)		(25,911	)		(25,891	)
Cost of issuance and placement of shares		9			(4,793	)
Others		(2,129	)		(2,949	)
Total		2,640,281			2,634,679

(1) Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012.

(2) Corresponds to the technical revaluation of fixed assets authorized by the Superintendence of Securities and Insurance in 1979, in Circular N° 1529. The revaluation was optional and could be taken only once, the reserve is not distributable and can only be capitalized.

(3) The balance at December 31, 2016, correspond to the loss generated by the participation of Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition 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).

89

(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	)

(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.

90

(f.2) Cash flow hedging reserve

These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.

(g) Retained earnings

Movement of Retained earnings:

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

(h) Dividends per share

	Minimum mandatory		Final dividend
	dividend		dividend
Description of dividend	2016		2015
Date of dividend		12/31/2016		12-31-2015
Amount of the dividend (ThUS$)		20,766		-
Number of shares among which the dividend is distributed		606,407,693		545,547,819
Dividend per share (US$)		0.0342		-

As of December 31, 2016 and 2015, the Company has not been paid dividends.

NOTE 26 - REVENUE

The detail of revenues is as follows:

	For the periods ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Passengers LAN		4,104,348		4,241,918
Passengers TAM		3,773,367		4,168,696
Cargo		1,110,625		1,329,431
Total		8,988,340		9,740,045

91

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,
	2016		2015
	ThUS$		ThUS$
Aircraft fuel		2,056,643		2,651,067
Other rentals and landing fees		1,077,407		1,109,826
Aircraft rentals		568,979		525,134
Aircraft maintenance		366,153		437,235
Comissions		269,296		302,774
Passenger services		286,621		295,439
Other operating expenses		1,424,595		1,293,320
Total		6,049,694		6,614,795

(b) Depreciation and amortization

Depreciation and amortization are detailed below:

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Depreciation (*)		910,071		897,670
Amortization		50,257		36,736
Total		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, 2016 is ThUS$ 345,651 and ThUS$ 345,192 for the same period of 2015.

(c) Personnel expenses

The costs for personnel expenses are disclosed in Note 23 liability for employee benefits.

(d) Financial costs

The detail of financial costs is as follows:

92

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Bank loan interest		352,405		331,511
Financial leases		32,573		42,855
Other financial instruments		31,358		38,991
Total		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.

(e) Restructuring Costs

As part of the ongoing process of reviewing its fleet plan, in December 2015 the company recognized a negative impact on results of US$ 80 million before tax associated with the output of the rest of the A330 fleet, including engines and technical materials is recognized. These expenses are recognized at “Other Gain and Loses” of the Consolidated Statement of Income by Function.

NOTE 28 - OTHER INCOME, BY FUNCTION

Other income by function is as follows:

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Coalition and loyalty program Multiplus		174,197		154,958
Tours		133,575		113,225
Aircraft leasing		65,011		46,547
Customs and warehousing		24,548		25,457
Maintenance		17,090		11,669
Duty free		11,141		16,408
Other miscellaneous income		113,186		17,517
Total		538,748		385,781

93

NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the Chilean peso, Argentine peso, Colombian peso and Brazilian real.

The functional currency is defined as the currency of the primary economic environment in which an entity operates and in each entity and all other currencies are defined as foreign currency.

Considering the above, the balances by currency mentioned in this note correspond to the sum of foreign currency of each of the entities that make LATAM Airlines Group S.A. and Subsidiaries.

(a) Foreign currency

The foreign currency detail of balances of monetary items in current and non-current assets is as follows:

	As of		As of
Current assets	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Cash and cash equivalents		201,416		182,089
Argentine peso		4,438		11,611
Brazilian real		9,705		8,810
Chilean peso		30,221		17,739
Colombian peso		1,137		1,829
Euro		1,695		10,663
U.S. dollar		128,694		112,422
Strong bolivar		61		2,986
Other currency		25,465		16,029
Other financial assets, current		14,573		124,042
Argentine peso		12		108,592
Brazilian real		734		1,263
Chilean peso		585		563
Colombian peso		-		1,167
U.S. dollar		12,879		12,128
Strong bolivar		76		22
Other currency		287		307

94

	As of		As of
Current assets	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Other non - financial assets, current		107,789		126,130
Argentine peso		16,086		14,719
Brazilian real		20,158		15,387
Chilean peso		1,619		10,265
Colombian peso		713		486
Euro		1,563		1,983
U.S. dollar		50,157		61,577
Strong bolivar		3		-
Other currency		17,490		21,713
Trade and other accounts receivable, current		251,204		247,229
Argentine peso		54,356		30,563
Brazilian real		30,675		11,136
Chilean peso		90,482		55,169
Colombian peso		9,720		1,195
Euro		21,923		30,006
U.S. dollar		14,086		29,937
Strong bolivar		43		7,225
Other currency		29,919		81,998
Accounts receivable from related entities, current		554		181
Chilean peso		554		181
Tax current assets		28,198		22,717
Argentine peso		1,798		2,371
Brazilian real		2,462		5
Chilean peso		6,333		3,615
Colombian peso		1,418		1,275
Euro		273		14
U.S. dollar		177		1,394
Peruvian sol		14,387		12,572
Other currency		1,350		1,471
Total current assets		603,734		702,388
Argentine peso		76,690		167,856
Brazilian real		63,734		36,601
Chilean peso		129,794		87,532
Colombian peso		12,988		5,952
Euro		25,454		42,666
U.S. Dollar		205,993		217,458
Strong bolivar		183		10,233
Other currency		88,898		134,090

95

	As of		As of
Non-current assets	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
Other financial assets, non-current		26,772		20,767
Argentine peso		-		22
Brazilian real		2,769		1,478
Chilean peso		83		77
Colombian peso		285		162
Euro		6,966		614
U.S. dollar		14,920		16,696
Other currency		1,749		1,718
Other non - financial assets, non-current		19,069		60,215
Argentine peso		142		169
Brazilian real		6,029		4,454
U.S. dollar		8,309		50,108
Other currency		4,589		5,484
Accounts receivable, non-current		7,356		9,404
Chilean peso		7,356		4,251
U.S. dollar		-		5,000
Other currency		-		153
Deferred tax assets		2,110		2,632
Colombian peso		117		336
Other currency		1,993		2,296
Total  non-current assets		55,307		93,018
Argentine peso		142		191
Brazilian real		8,798		5,932
Chilean peso		7,439		4,328
Colombian peso		402		498
Euro		6,966		614
U.S. dollar		23,229		71,804
Other currency		8,331		9,651

96

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
Current liabilities	December 31,			December 31,		December 31,			December 31,
	2016			2015		2016			2015
	ThUS$			ThUS$		ThUS$			ThUS$
Other financial liabilities, current		287,175			94,199		455,086			141,992
Chilean peso		55,962			54,655		108,010			52,892
U.S. dollar		231,213			39,544		347,076	(*)		89,100
Trade and other accounts payables, current		585,149			482,402		16,097			14,981
Argentine peso		20,838			20,772		907			2,072
Brazilian real		40,740			37,572		27			16
Chilean peso		60,701			40,219		12,255			10,951
Colombian peso		9,049			5,271		578			155
Euro		23,445			5,275		5			618
U.S. dollar		374,431			310,565		962			839
Strong bolivar		761			2,627		-			-
Peruvian sol		33,701			28,293		1,093			87
Mexican peso		1,535			15,248		-			225
Pound sterling		1,769			7,819		246			-
Uruguayan peso		6,899			6,005		-			-
Other currency		11,280			2,736		24			18
Accounts payable to related entities, current		220			447		-			-
Chilean peso		23			83		-			-
U.S. dollar		8			22		-			-
Other currency		189			342		-			-
Other provisions, current		-			-		511			457
Chilean peso		-			-		28			21
Other currency		-			-		483			436
Tax liabilities, current		(145	)		36		2,442			9,037
Argentine peso		-			-		2,501			9,036
Brazilian real		(3	)		-		-			-
Chilean peso		-			-		(25	)		-
U.S. dollar		-			27		-			-
Other currency		(142	)		9		(34	)		1

97

	Up to 90 days					91 days to 1 year
	As of		As of			As of		As of
Current liabilities	December 31,		December 31,			December 31,		December 31,
	2016		2015			2016		2015
	ThUS$		ThUS$			ThUS$		ThUS$
Other non-financial liabilities, current		33,439		40,432			-		-
Argentine peso		13,463		(2,387	)		-		-
Brazilian real		430		4,297			-		-
Chilean peso		14,999		32,228			-		-
Colombian peso		578		145			-		-
Euro		168		2,706			-		-
U.S. dollar		684		(3,238	)		-		-
Strong bolivar		2		2,490			-		-
Other currency		3,115		4,191			-		-
Total current liabilities		905,838		617,516			474,136		166,467
Argentine peso		34,301		18,385			3,408		11,108
Brazilian real		41,167		41,869			27		16
Chilean peso		131,685		127,185			120,268		63,864
Colombian peso		9,627		5,416			578		155
Euro		23,613		7,981			5		618
U.S. dollar		606,336		346,920			348,038		89,939
Strong bolivar		763		5,117			-		-
Other currency		58,346		64,643			1,812		767

(*) See Note 19.a (2)

98

	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
Non-current liabilities	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2016		2015		2016		2015		2016		2015
	ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
Other financial liabilities, non-current		178,793		561,217		747,218		328,480		41,785		571,804
Chilean peso		59,177		104,385		16,189		34,635		-		-
U.S. dollar		119,616		456,832		731,029		293,845		41,785		571,804
Accounts payable, non-current		195,333		239,029		268		168		28		8
Chilean peso		10,178		8,058		268		168		28		8
U.S. dollar		183,904		229,005		-		-		-		-
Other currency		1,251		1,966		-		-		-		-
Other provisions, non-current		39,513		27,780		-		-		-		-
Argentine peso		635		797		-		-		-		-
Brazillian real		23,541		11,009		-		-		-		-
Chilean peso		38		-		-		-		-		-
Colombian peso		569		198		-		-		-		-
Euro		8,664		8,966		-		-		-		-
U.S. dollar		6,066		6,810		-		-		-		-
Provisions for employees benefits, non-current		68,774		56,306		-		-		-		-
Brazilian real		28		-		-		-		-		-
Chilean peso		68,380		56,306		-		-		-		-
U.S. dollar		366		-		-		-		-		-
Other non-financial liabilities, non-current		3		-		-		-		-		-
Colombian peso		3		-		-		-		-		-
Total non-current liabilities		482,416		884,332		747,486		328,648		41,813		571,812
Argentine peso		635		797		-		-		-		-
Brazilian real		23,569		11,009		-		-		-		-
Chilean peso		137,773		168,749		16,457		34,803		28		8
Colombian peso		572		198		-		-		-		-
Euro		8,664		8,966		-		-		-		-
U.S. dollar		309,952		692,647		731,029		293,845		41,785		571,804
Other currency		1,251		1,966		-		-		-		-

99

	As of			As of
General summary of foreign currency:	December 31,			December 31,
	2016			2015
	ThUS$			ThUS$
Total assets		659,041			795,406
Argentine peso		76,832			168,047
Brazilian real		72,532			42,533
Chilean peso		137,233			91,860
Colombian peso		13,390			6,450
Euro		32,420			43,280
U.S. dollar		229,222			289,262
Strong bolivar		183			10,233
Other currency		97,229			143,741
Total liabilities		2,651,689			2,568,775
Argentine peso		38,344			30,290
Brazilian real		64,763			52,894
Chilean peso		406,211			394,609
Colombian peso		10,777			5,769
Euro		32,282			17,565
U.S. dollar		2,037,140			1,995,155
Strong bolivar		763			5,117
Other currency		61,409			67,376
Net position
Argentine peso		38,488			137,757
Brazilian real		7,769			(10,361	)
Chilean peso		(268,978	)		(302,749	)
Colombian peso		2,613			681
Euro		138			25,715
U.S. dollar		(1,807,918	)		(1,705,893	)
Strong bolivar		(580	)		5,116
Other currency		35,820			76,365

100

(b) Exchange differences

Exchange differences recognized in the income statement, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2016 and 2015, generated a debit of ThUS$ 121,651 and a charge ThUS$ 467,896, respectively.

Exchange differences recognized in equity as reserves for currency translation differences for the period ended December 31, 2016 and 2015, represented a debit of ThUS$ 494,362 and a charge ThUS$ 1,409,439, respectively.

The following shows the current exchange rates for the U.S. dollar, on the dates indicated:

	As of December 31,
	2016		2015		2014
Argentine peso		15.84		12.97		8.55
Brazilian real		3.25		3.98		2.66
Chilean peso		669.47		710.16		606.75
Colombian peso		3,000.25		3,183.00		2,389.50
Euro		0.95		0.92		0.82
Strong bolivar		673.76		198.70		12.00
Australian dollar		1.38		1.37		1.22
Boliviano		6.86		6.85		6.86
Mexican peso		20.63		17.34		14.74
New Zealand dollar		1.44		1.46		1.28
Peruvian Sol		3.35		3.41		2.99
Uruguayan peso		29.28		29.88		24.25

101

NOTE 30 - EARNINGS / (LOSS) PER SHARE

	For the period ended
	December 31,
	2016		2015
Basic earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)		69,220		(219,274	)
Weighted average number of shares, basic		546,559,599		545,547,819
Basic earnings / (loss) per share (US$)		0.12665		(0.40193	)

	For the period ended
	December 31,
	2016		2015
Diluted earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)		69,220		(219,274	)
Weighted average number of shares, basic		546,559,599		545,547,819
Weighted average number of shares, diluted		546,559,599		545,547,819
Diluted earnings / (loss) per share (US$)		0.12665		(0.40193	)

In the calculation of diluted earnings per share have not been considered the compensation plan disclosed in Note 33 (a.1), because the average market price is lower than the price of options.

102

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.	In implementation stage in Switzerland, the conviction stated that Variglog should pay the principal, interest and costs in favor of AAI. It keeps the embargo of Variglog funds in Switzerland with AAI. In Brazil a Settlement Agreement was signed and it is awaiting for approval from the Bankruptcy Court of that country and Variglog has asked Switzerland to recognize the judgment that declared the state of judicial recovery and subsequent bankruptcy.	17,100 Plus interests and costs
Lan Argentina S.A.	National Administrative Court.	36337/13	ORSNA Resolution No. 123 which directs Lan Argentina to vacate the hangar located in the Airport named Aeroparque Metropolitano Jorge Newberry, Argentina.	On February 25, 2016, Lan Argentina S.A. and ORSNA informed the Court of their decision to put an end to the lawsuit and guarantee use of the hangar by Lan. The parties agreed to maintain the precautionary measure in effect allowing Lan to use the hangar indefinitely until the parties reach a final agreement. The court agreed, so the precautionary measure was extended indefinitely. Resolution 112/2016 of the National Airport Regulatory Agency (ORSNA) was published on December 30, 2016, which terminated the hangar dispute. This latest resolution repealed the previous resolution, 123/16, that ordered vacation of the LAN hangar at AEP. Consequently, the legal structure created by the ORSNA through the 2012 Resolution was left without any effect in 2016. Apart from the matter now having been resolved both materially and judicially, this resolution puts a definitive end to the hangar dispute.	-0-

103

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 LATAM in only one of those four routes; and the ruling section (which mentions one single conjoint infraction). On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of THUS$ 8,664. (8.220.000 Euros) This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the resolution, but rather confirmed, on May 20, 2016, that it will issue a new decision curing the rulings specified in the Decision. It has a period of 5 years to do this, or until 2021.	8,664

104

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.	10,438
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.	11,140

105

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Tam Linhas Aéreas S.A.	Department of Federal Revenue of  Brazil	19515.722556/2012-21	Alleged irregularities in the SAT payments for the periods 01/2009 to 13/2009.	A judgment by the Administrative Council of Tax Appeals (CARF) has been pending since February 27, 2015.	2,151
Tam Linhas Aéreas S.A.	Department of Federal Revenue of Brazil	19515.721155/2014-15	Alleged irregularities in the SAT payments for the periods 01/2010 to 13/2010.	A decision was rendered in favor of Tam Linhas Aéreas S.A. on August 22, 2016.  The Attorney General has said it will not appeal.	25,515
Tam Linhas Aéreas S.A.	Department of Federal Revenue of Brazil	19515.720476/2015-83	Alleged irregularities in the SAT payments for the periods 01/2011 to 12/2012	A judgment by CARF is pending since April 12, 2016.	52,414
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$115. The court decision requesting that the Expert make all clarifications requested by the parties in a period of 30 days was published on March 29, 2016. The plaintiffs’ submitted a petition on June 21, 2016 requesting acceptance of the opinion of their consultant and an urgent ruling on the dispute. No amount additional to the deposit that has already been made is required if this case is lost.	115,265
Tam Linhas Aéreas S.A.	Administrative Council of Tax Appeals	19.515.002963/2009-12, 19515.722555/2012-86, 19515.721154/2014-71, 19515.720475/2015-39	Collection of contributions to the Aviation Fund for the periods from 01/2004 to 12/2004, from 12/2006 to 12/2008, from 01/2009 to 12/2010, and from 01/2011 to 10/2012.	A judgment is pending by CARF since February 5, 2016.	65,788

106

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Tam Linhas Aéreas S.A.	Internal Revenue Service of Brazil.	16643.000087/2009-36	This is an administrative proceeding arising from an infraction notice issued on 15.12.2009, by which the authority aims to request social contribution on net income (CSL) on base periods 2004 to 2007, due to the deduction of expenses related to suspended taxes.	The appeal filed by the company was dismissed in 2010. In 2012 the voluntary appeal was also dismissed. Consequently, the special appeal filed by the company awaits judgment of admissibility, since 2012.	22,225
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.	43,341
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 LAN COLOMBIA AIRLINES initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LAN COLOMBIA AIRLINES arising from breach of contractual obligations of the aircraft HK-4107. The June 20th , 2013 AIRES SA And / Or LAN AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LAN COLOMBIA AIRLINES customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.	This case is being heard by the 45th Civil Court of the Bogota Circuit. In an interim decree issued August 16, 2016, the hearing under article 101 was set for February 2, 2017, this hearing was postponed at request of the parties and the Judge must resolve on a new date. When a reconciliation will be attempted, facts of the case will be set, the parties will conduct depositions and evidence will be decreed. The Federal Court of the State of Florida decided on March 26, 2016 to approve Lan Colombia Airlines’s request to suspend the proceedings in the USA until the claim under way in Colombia is decided. The U.S. Court judge also closed the case administratively. The Federal Court of Appeal ratified the case closing in the U.S.A. on April 1, 2015. On October 1, 2015, Regional One petitioned that the U.S. court reopen the case. Lan Colombia Airlines presented its arguments and the Court sustained them on August 23, 2016, ratifying the closing of the case in the United States, so it continues to be closed.	12,443

107

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.	53,967
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.	89,624
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.	Early stage. Eventually could affect the operations and control of working hours of employees. The company won in the first instance, but an appeal by the Union is expected.	16,211
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.	104,423

108

Company	Court	Case Number	Origin	Stage of trial	Amounts Committed (*)
					ThUS$
Tam Linhas Aereas S.A.	1° Civil Court of Comarca of Bauru/SP.	0049304-37.2009.8.26.0071/1	That action is filed by the current complainants against the defendant, TAM Linhas Aéreas S / A, for receiving compensation for material and moral damages suffered as a result of an accident with one of its aircraft, which landed on adjacent lands to the Bauru airport, impacting the vehicle of Ms. Savi Gisele Marie de Seixas Pinto and William Savi de Seixas Pinto, causing their death. The first was the wife and mother of the complainants and the second, son and brother, respectively.	Currently under the enforcement phase of the sentence. ThUS$4.770 in cash was deposited in guarantee. A procedural agreement was made for 23 million reals (ThUS$7,057) on September 23, 2016.	7,057
Aerolinhas Brasileiras S.A.	Labor Court of Campinas.	0010498-37.2014.5.15.0095	Lawsuit filed by the National Union of aeronauts, requiring weekly rest payment   (DSR) scheduled stopovers, displacement and moral damage.	An agreement for ThUS$2,732 was reached with the Union on August 2, 2016. Payment is now being made.	16.365
TAM Linhas Aéreas S.A.	Sao Paulo Labor Court, Sao Paulo	0000009-45.2016.5.02.090	The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.	The case will be closed next month because the Ministry of Labor withdrew its complaint.	15,917

- In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2016, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 21.

- The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.

(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

109

II. Governmental Investigations.

1) On July 25, 2016, LATAM reached agreements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) regarding the investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a consultant advising it in the resolution of labor matters in Argentina.

The purpose of the investigation was to determine whether these payments violated the U.S. Foreign Corrupt Practices Act (“FCPA”) that: (i) forbids bribery of foreign government authorities in order to obtain a commercial advantage; and (ii) requires the companies that must abide by the FCPA to keep appropriate accounting records and implant an adequate internal control system. The FCPA is applicable to LATAM because of its ADR program in effect on the U.S. securities market.

After an exhaustive investigation, the DOJ and SEC concluded that there was no violation of the bribery provisions of the FCPA, which is consistent with the results of LATAM’s internal investigation. However, the DOJ and SEC consider that LAN accounted for these payments incorrectly and, consequently, infringed the part of the FCPA requiring companies to keep accurate accounting records. These authorities also consider that LAN’s internal controls in 2006-2007 were weak, so LAN would have also violated the provisions in the FCPA requiring it to maintain an adequate internal control system.

The agreements signed, included the following:

(a)   The agreement with the DOJ involves: (i) entering into a Deferred Prosecution Agreement (“DPA”), which is a public contract under which the DOJ files public charges alleging an infringement of the FCPA accounting regulations. LATAM is not obligated to answer these charges, the DOJ will not pursue them for a period of 3 years, and the DOJ will dismiss the charges after expiration of that 3-year period provided LATAM complies with all terms of the DPA. In exchange, LATAM admitted events described in the DOJ charges for infringement to the FCPA rules on accounting records and agreed to pay the negotiated fine explained below and abide by other terms stipulated in the agreement; (ii) clauses in which LATAM admits that the payments to the consultant in Argentina were incorrectly accounted for and that at the time those payments were made (2006-2007), it did not have adequate internal controls in place; (iii) LATAM’s agreement to have an outside consultant monitor, evaluate and report to the DOJ on the effectiveness of LATAM’s compliance program for a period of 27 months; and LATAM’s agreement to continue evaluating and reporting directly to the DOJ on the effectiveness of its compliance program for a period of 9 months after the consultant’s work concludes; and (iv) paying a fine estimated to total approximately ThUS$ 12,750.

(b)   The agreement with the SEC involves: (i) accepting a Cease and Desist Order, which is an administrative resolution of the SEC closing the investigation, in which LATAM will accept certain obligations and statements of fact that are described in the document; (ii) accepting the same obligations regarding the consultant mentioned above; and (iii) paying the sum of ThUS$ 6,744, plus interest of ThUS$ 2,694.

110

As at December 31, 2016, a balance of ThUS$ 4,719 was payable to the SEC, as reported in Note 20 - Trade payables and other payables.

2) LATAM Airlines Ecuador was given notice on August 26, 2016 of an investigation of LATAM Airlines Ecuador and two other airlines begun, at its own initiative, by one of the Investigative Departments of the Ecuadoran Market Power Control Commission, limited to alleged signs of conscious parallelism in relation to specific fares on one domestic route in Ecuador from August 2012 to February 2013. The Investigative Department had 180 days (due February 21, 2017) extendable for another 180 days, to resolve on whether to close the investigation or file charges against two or more of the parties involved, only event in which a process will be opened. On February 21, 2017, the period of 180 days was extended for another 180 days requesting additional information. LATAM Airlines Ecuador is cooperating with the authority and has hired a law firm and an economist expert in the subject to advise the company during this process.

3) LATAM received two Information Requests from the Central-North Metropolitan Region Prosecutor’s Office, one on October 25, 2016 and the other on November 11, 2016, requesting information relating to the investigation of payments made by Lan Airlines S.A. to a consultant advising it on the solution to labor matters in Argentina in the years 2006-2007. The information requested in both Requests has been provided.

NOTE 32 - COMMITMENTS

(a) Loan covenants

With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis. Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership and disposal of assets.

The Company and its subsidiaries do not maintain financial credit contracts with banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries.

On March 30, 2016, LATAM structured a Revolving Credit Facility granted by with aircraft, engines, spare parts and supplies for a total amount available of US$ 325 million, this line includes restrictions minimum liquidity level as the consolidated company and individual level as for companies LATAM Airlines Group S.A. and TAM Linhas Aereas S.A.

At December 31, 2016, the Company is in compliance with all indicators detailed above.

111

(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	2016		2015
Aircraft 76B-26329 Inc.	Boeing 767		1		1
Aircraft 76B-27615 Inc.	Boeing 767		1		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		1
Avolon Aerospace AOE 20 Limited	Airbus A320		1		1
Avolon Aerospace AOE 6 Limited	Airbus A320		1		1
Avolon Aerospace AOE 62 Limited	Boeing 777		1		1
AWAS 5125 Trust	Airbus A320		-		1
AWAS 5178 Limited	Airbus A320		-		1
AWAS 5234 Trust	Airbus A320		1		1
Baker & Spice Aviation Limited	Airbus A320		1		1
Bank of America	Airbus A321		2		3
CIT Aerospace International	Airbus A320		2		2
ECAF I 1215 DAC	Airbus A320		1		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		3
GFL Aircraft Leasing Netherlands B.V.	Airbus A320		1		1
IC Airlease One Limited	Airbus A321		1		-
International Lease Finance Corporation	Boeing 767		-		1
JSA Aircraft 38484, LLC	Boeing 787		1		1
JSA Aircraft 7126, LLC	Airbus A320		1		-
JSA Aircraft 7128, LLC	Airbus A321		1		-
JSA Aircraft 7239, LLC	Airbus A321		1		-
JSA Aircraft 7298, LLC	Airbus A321		1		-
Macquarie Aerospace Finance 5125-2 Trust	Airbus A320		1		-
Macquarie Aerospace Finance 5178 Limited	Airbus A320		1		-
Magix Airlease Limited	Airbus A320		1		2
MASL Sweden (1) AB	Airbus A320		-		1
MASL Sweden (2) AB	Airbus A320		-		1

112

		As of		As of
		December 31,		December 31,
Lessor	Aircraft	2016		2015
MASL Sweden (7) AB	Airbus A320		-		1
MASL Sweden (8) AB	Airbus A320		1		1
Merlin Aviation Leasing (Ireland) 18 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		-
NBB-6658 Lease Partnership	Airbus A321		1		1
NBB-6670 Lease Partnership	Airbus A321		1		1
Orix Aviation Systems Limited	Airbus A320		5		2
PAAL Aquila Company Limited	Airbus A321		2		-
PAAL Gemini Company Limited	Airbus A321		1		-
SASOF II (J) Aviation Ireland Limited	Airbus A319		1		1
Shenton Aircraft Leasing Limited	Airbus A320		1		1
SKY HIGH V LEASING COMPANY LIMITED	Airbus A320		-		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		6		7
SMBC Aviation Capital Limited	Airbus A321		2		2
Sunflower Aircraft Leasing Limited	Airbus A320		-		2
TC-CIT Aviation Ireland Limited	Airbus A320		1		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		3		3
Wells Fargo Bank North National Association	Airbus A320		2		2
Wells Fargo Bank Northwest National Association	Airbus A320		7		7
Wells Fargo Bank Northwest National Association	Airbus A330		-		2
Wells Fargo Bank Northwest National Association	Boeing 767		3		3
Wells Fargo Bank Northwest National Association	Boeing 777		6		6
Wells Fargo Bank Northwest National Association	Boeing 787		11		7
Wells Fargo Bank Northwest National Association	Airbus A350		2		-
Wilmington Trust Company	Airbus A319		1		1
Total			111		106

The rentals are shown in results for the period for which they are incurred.

113

The minimum future lease payments not yet payable are the following:

	As of		As of
	December 31,		December 31,
	2016		2015
	ThUS$		ThUS$
No later than one year		533,319		513,748
Between one and five years		1,459,362		1,281,454
Over five years		1,262,509		858,095
Total		3,255,190		2,653,297

The minimum lease payments charged to income are the following:

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Minimum operating lease payments		568,979		525,134
Total		568,979		525,134

In the first quarter of 2015, two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, two Airbus A320-200 aircraft were returned. In the second quarter of 2015, two Airbus A321-200 aircraft and one Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A320-200 aircraft and two Airbus A330-200 aircraft were returned. In the third quarter of 2015, five Airbus A321-200 aircraft and one Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A330-200 aircraft was returned. In the fourth quarter of 2015, one Airbus A330-200 aircraft was returned.

In the first quarter of 2016, two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand and one Airbus A320-200 aircraft was returned. In the second quarter of 2016, three Airbus A321-200 aircraft were leased for a period of ten years each and two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A320-200 aircraft and one Boeing 767-300ER aircraft were returned. In the third quarter of 2016, three Airbus A321-200 aircraft and one Airbus A320- NEO aircraft were leased for a period of ten years each, and one Airbus A350-900 aircraft was leased for a period of twelve years. On the other hand and one Airbus A320-200 aircraft was returned. In the fourth quarter of 2016, one Airbus A350-900 aircraft was leased for a period of twelve years and one Airbus A321-200 aircraft was leased for a period of ten years. On the other hand, three Airbus A320-200 aircraft and two Airbus A330-200 aircraft were returned.

The operating lease agreements signed by the Company and its subsidiaries state that maintenance of the aircraft should be done according to the manufacturer’s technical instructions and within the margins agreed in the leasing agreements, a cost that must be assumed by the lessee. The lessee should also contract insurance for each aircraft to cover associated risks and the amounts of these assets. Regarding rental payments, these are unrestricted and may not be netted against other accounts receivable or payable between the lessor and lessee.

114

At December 31, 2016 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.	Two letter of credit		7,530	Sep 17, 2017
Wells Fargo Bank North N.A.	Lan Cargo S.A.	One letter of credit		5,000	May 25, 2017
Bank of America	LATAM Airlines Group S.A.	Three letter of credit		1,044	Jul 2, 2017
Engine Lease Finance Corporation	LATAM Airlines Group S.A.	One letter of credit		4,750	Oct 8, 2017
GE Capital Aviation Services Ltd.	LATAM Airlines Group S.A.	Eight letter of credit		34,665	Feb 7, 2017
International Lease Finance Corp	LATAM Airlines Group S.A.	Three letter of credit		1,450	Feb 4, 2017
ORIX Aviation Systems Limited	LATAM Airlines Group S.A.	One letter of credit		3,255	Aug 31, 2017
SMBC Aviation Capital Ltd.	LATAM Airlines Group S.A.	Two letter of credit		13,569	Aug 14, 2017
Wells Fargo Bank	LATAM Airlines Group S.A.	Nine letter of credit		15,160	Feb 8, 2017
CIT Aerospace International	Tam Linhas Aéreas S.A.	One letter of credit		6,000	Oct 25, 2017
RBS Aerospace Limited	Tam Linhas Aéreas S.A.	One letter of credit		13,096	Jan 29, 2017
Wells Fargo Bank North N.A.	Tam Linhas Aéreas S.A.	One letter of credit		5,500	Jul 14, 2017
				111,019

(c) Other commitments

At December 31, 2016 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.	Four letter of credit		1,705	Aug 5, 2017
Corporación Peruana de Aeropuertos y Aviación Comercial	Lan Perú S.A.	Six letter of credit		3,813	Jan 31, 2017
Lima Airport Partners S.R.L.	Lan Perú S.A.	Twenty two letter of credit		3,805	Mar 3, 2017
Superintendencia Nacional de Aduanas y de Administración Tributaria	Lan Perú S.A.	Four letter of credit		33,500	Mar 20, 2017
Aena Aeropuertos S.A.	LATAM Airlines Group S.A.	Four letter of credit		2,014	Nov 15, 2017
American Alternative Insurance Corporation	LATAM Airlines Group S.A.	Six letter of credit		3,490	Apr 5, 2017
Deutsche Bank A.G.	LATAM Airlines Group S.A.	One letter of credit		30,000	Mar 31, 2017
Dirección General de Aeronáutica Civil	LATAM Airlines Group S.A.	Fifty two letter of credit		18,477	Jan 31, 2017
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador	LATAM Airlines Group S.A.	One letter of credit		5,500	Jun 17, 2017
JP Morgan Chase	LATAM Airlines Group S.A.	One letter of credit		10,000	Jun 17, 2017
Metropolitan Dade County	LATAM Airlines Group S.A.	Ten letter of credit		2,553	Mar 13, 2017
The Royal Bank of Scotland plc	LATAM Airlines Group S.A.	One letter of credit		5,000	May 20, 2017
4ª Vara Mista de Bayeux	Tam Linhas Aéreas S.A.	One insurance policies guarantee		1,060	Mar 25, 2021
6ª Vara Federal da Subseção	Tam Linhas Aéreas S.A.	Two insurance policies guarantee		24,969	Jan 4, 2018
8ª Vara Federal da Subseção de Campinas SP	Tam Linhas Aéreas S.A.	One insurance policies guarantee		12,894	May 19, 2020
Conselho Administrativo de Conselhos Federais	Tam Linhas Aéreas S.A.	One insurance policies guarantee		6,704	Oct 20, 2021
Fundação de Proteão de Defesa do Consumidor Procon	Tam Linhas Aéreas S.A.	Two insurance policies guarantee		3,276	Jan 21, 2021
União Federal Vara Comarca de DF	Tam Linhas Aéreas S.A.	Two insurance policies guarantee		2,696	Nov 9, 2020
União Federal Vara Comarca de SP	Tam Linhas Aéreas S.A.	One insurance policies guarantee		19,557	Feb 22, 2021
				191,013

115

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	2016			2015
						ThUS$			ThUS$
96.810.370-9	Inversiones Costa Verde Ltda. y CPA.	Related  director	Chile	Tickets sales	CLP		6			15
65.216.000-K	Comunidad Mujer	Related  director	Chile	Services provided for advertising	CLP		(12	)		(10	)
				Tickets sales	CLP		9			2
78.591.370-1	Bethia S.A and subsidiaries	Related  director	Chile	Services received of cargo transport	CLP		(394	)		(259	)
				Services received from National and International Courier	CLP		(285	)		(227	)
				Services provided of cargo transport	CLP		192			30
65.216.000-K	Viajes Falabella Ltda.	Related  director	Chile	Sales commissions	CLP		(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		3			7
87.752.000-5	Granja Marina Tornagaleones S.A.	Common shareholder	Chile	Tickets sales	CLP		76			117
Foreign	Consultoría Administrativa Profesional S.A. de C.V.	Associate	Mexico	Professional counseling services received	MXN		(2,563	)		(1,191	)
Foreign	Inversora Aeronáutica Argentina	Related  director	Argentina	Leases as lessor	ARS		(264	)		(269	)
				Revenue billboard advertising maintaining	US$		-			1
Foreign	TAM Aviação Executiva
	e Taxi Aéreo S/A	Related  director	Brazil	Services provided by sale of tickets	BRL		2			2
				Services proviived of cargo transport	BRL		(122	)		(63	)
				Services received at airports	BRL		7			5

116

The balances of Accounts receivable and accounts payable to related parties are disclosed in Note 9.

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.

(b) Compensation of key management

The Company has defined for these purposes that key management personnel are the executives who define the Company’s policies and major guidelines and who directly affect the results of the business, considering the levels of Vice-Presidents, Chief Executives and Directors (Senior).

	For the period ended
	December 31,
	2016		2015
	ThUS$		ThUS$
Remuneration		16,514		17,185
Management fees		556		547
Non-monetary benefits		778		864
Short-term benefits		23,459		19,814
Share-based payments		8,085		10,811
Total		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.

117

	Number
	of share
	options
Share options in agreements of share- based payments, as of January 1, 2015		4,202,000
Share options granted		406,000
Share options cancelled		(90,000	)
Share options in agreements of share- based payments, as of December 31, 2015		4,518,000
Share options in agreements of share- based payments, as of January 1, 2016		4,518,000
Executives resign options (*)		(4,172,000	)
Share options expired		(346,000	)
Share options in agreements of share- based payments, as of December 31, 2016		-

These options was valued and recorded at fair value at the grant date, determined by the "Black-Scholes-Merton”. The effect on income to December 2016 corresponds to ThUS$ 2,989 (ThUS$ 10,811 at December 31, 2015).

(a.2) Compensation plan 2013

At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, in conformity with the stipulations established in Article 24 of the Corporations Law. With regard to this compensation, a defined date for implementation does not exist.

(b) Compensation plan 2016-2018

The company implemented a retention plan long-term for executives, which lasts until December 2018, with a vesting period between October 2018 and March 2019, which consists of an extraordinary bonus whose calculation formula is based on the variation the value to experience the action of LATAM Airlines Group S.A. for a period of time.

This benefit is recognized in accordance with the provisions of IFRS 2 "Share-based Payments" and has been considered as cash settled award and therefore recorded at fair value as a liability, which is updated to the closing date of each financial statement with effect on profit or loss.

	Unit bases granted
Units bases,
balance at December 31, 2016		4,719,720

118

The fair value has been determined on the basis of the best estimate of the future value of the Company share multiplied by the number of units granted bases.

At December 31, 2016, the carrying amount of ThUS$ 4,442, is classified under "Administrative expenses" in the Consolidated Statement of Income by Function.

(c) Subsidiaries compensation plans

(c.1) Stock Options

TAM Linhas Aereas S.A. and Multiplus S.A., both subsidiaries of TAM S.A., have outstanding stock options at December 31, 2016, which amounted to 96,675 shares and 394,698 shares, respectively (at December 31, 2015, the distribution of outstanding stock options amounted to 394,698 for Multiplus S.A. and 96,675 shares TAM Linhas Aéreas S.A.).

TAM Linhas Aéreas S.A.

	4th Grant
Description	05/28/2010		Total
Outstanding option number as December 31, 2015		96,675		96,675
Outstanding option number as December 31, 2016		96,675		96,675

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, 2015		102,621		255,995		159,891		518,507
Outstanding option number as December 31, 2016		84,249		173,399		137,050		394,698

The Options of TAM Linhas Aéreas S.A., under the plan's terms, are divided into three equal parts and employees can run a third of its options after three, four and five years respectively, as long as they remain employees of the company. The agreed term of the options is seven years.

For Multiplus S.A., the plan's terms provide that the options granted to the usual prizes are divided into three equal parts and employees may exercise one-third of their two, three and four, options respectively, as long as they keep being employees of the company. The agreed term of the options is seven years after the grant of the option. The first extraordinary granting was divided into two equal parts, and only half of the options may be exercised after three years and half after four years. The second extraordinary granting was also divided into two equal parts, which may be exercised after one and two years respectively.

Both companies have an option that contains a "service condition" in which the exercise of options depends exclusively on the delivery services by employees during a predetermined period. Terminated employees will be required to meet certain preconditions in order to maintain their right to the options.

119

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	2016		2015		2016		2015
TAM Linhas Aéreas S.A.		-		-		96,675		96,675
Multiplus S.A.		-		-		394,698		518,507

In accordance with IFRS 2 - Share-based payments, the fair value of the option must be recalculated and recorded as a liability of the Company once payment is made in cash (cash-settled). The fair value of these options was calculated using the “Black-Scholes-Merton” method, where the cases were updated with information LATAM Airlines Group S.A. There is no value recorded in liabilities and in income at December 31, 2016 (at December 31, 2015 not exist value recorded in liabilities and in incomes).

(c.2) Payments based on restricted stock

In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 ordinary, registered book entry securities with no face value, issued by the Company to beneficiaries.

The quantity of restricted stock units was calculated based on employees’ expected remunerations divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to the restricted stock when the following conditions have been met:

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.

120

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, 2015		91,103		119,731		-			(34,924	)		175,910
From January 1
to December 31, 2016		175,910		138,282		(15,811	)		(60,525	)		237,856

NOTE 35 - STATEMENT OF CASH FLOWS

(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,
	2016			2015
	ThUS$			ThUS$
Guarantees		(51,559	)		(2,125	)
Fuel hedge		(50,029	)		(243,587	)
Currency hedge		(39,534	)		1,802
Court deposits		(33,635	)		(6,314	)
Change reservation systems		-			11,000
DOJ fine		(12,750	)		-
Tax paid on bank transaction		(10,668	)		(7,176	)
Fuel derivatives premiums		(6,840	)		(20,932	)
SEC agreement		(4,719	)		-
Bank commissions, taxes paid and other		(769	)		(5,137	)
Hedging margin guarantees		1,184			87,842
Others		50			-
Total Other inflows (outflows) Operation flow		(209,269	)		(184,627	)
Recovery loans convertible into shares		8,896			20,000
Certificate of bank deposits		-			3,497
Tax paid on bank transaction		(3,716	)		(12,921	)
Others		(4,337	)		-
Total Other inflows (outflows) Investment flow		843			10,576
Aircraft Financing advances		(125,149	)		(28,144	)
Loan guarantee		(74,186	)		-
Settlement of derivative contracts		(29,828	)		(35,891	)
Credit card loan manager		-			3,227
Early redemption of bonds TAM 2020		-			(15,328	)
Guarantees bonds emission		-			(26,111	)
Others		-			2,490
Total Other inflows (outflows) Financing flow		(229,163	)		(99,757	)

121

(c) Dividends:

	For the periods ended
	December 31,
	2016			2015
	ThUS$			ThUS$
Multiplus S.A		(40,823	)		(34,632	)
Lan Perú S.A		(400	)		(400	)
Total dividends paid (*)		(41,223	)		(35,032	)

(*) Dividends paid to minority shareholders

NOTE 36 - THE ENVIRONMENT

LATAM Airlines Group S.A. manages environmental issues at the corporate level, centralized in Environmental Management. There is a commitment to the highest level to monitor the company and minimize their impact on the environment, where continuous improvement and contribute to the solution of global climate change problems, generating added value to the company and the region, are the pillars of his administration.

One function of Environmental Management, in conjunction with the various areas of the Company, is to ensure environmental compliance, implementing a management system and environmental programs that meet the increasingly demanding requirements globally; well as continuous improvement programs in their internal processes that generate environmental and economic benefits and to join the currently completed.

The Environment Strategy LATAM Airlines Group S.A. is called Climate Change Strategy and it is based on the aim of being a world leader in Climate Change and Eco-efficiency, which is implemented under the following pillars:

i. Carbon Footprint

ii. Eco-Efficiency

iii. Sustainable Alternative Energy

iv. Standards and Certifications

For 2016, were established the following topics:

1. Advance in the implementation of an Environmental Management System;

2. Manage the Carbon Footprint of our emissions by ground operations;

3. Corporate Risk Management;

4. Corporate strategy to meet the global target of aviation to have a carbon neutral growth by 2020.

Thus, during 2016, we have worked in the following initiatives:

- Advance in the implementation of an Environmental Management System for main operations of the Company, with an emphasis on Santiago. It is highlighted that the company during 2016 has recertified a certified management system, under ISO 14.001 at its facility in Miami.

122

- Certification of stage 2 of IATA Environmental Assestment (IEnvA), the most advanced of this certification, been the third airline in the world to achieve this certification.

- Preparation of the environmental chapter for reporting sustainability of the Company, to measure progress on environmental issues.

- Answer to the Dow Jones Sustainability Index 2016 questionnaire, which the company responds annually.

- Measurement and external verification of the Corporate Carbon Footprint.

It is highlighted that in the 2016 LATAM Airlines Group maintained its selection in the index Dow Jones Sustainability in the global category, being the only two airlines that belong to this select group.

NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS

On January 18, 2017, the Company was notified of a civil suit filed by Inversiones Ranco Tres S.A., represented by Mr. Jorge Enrique Said Yarur against LATAM Airlines Group S.A., for supposed non-compliance of contractual obligations from the social contract of the Company, as well as the directors Ramón Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza and main executives of the Company, Enrique Cueto Plaza and Ignacio Cueto Plaza, for the supposed noncompliance of their duties as directors and main executives of the Company. LATAM has hired specialist lawyers to answer the lawsuit. On March 10, 2017, the Court rejected the dilatory exceptions presented by LATAM.

On March 8th, 2017, LATAM received a third Requirement of Information from the Central-North Metropolitan Region Prosecutor’s Office requesting information relating to the investigation of payments made by Lan Airlines S.A. to a consultant advising it on the solution to labor matters in Argentina in the years 2006-2007.

Subsequent at December 31, 2016 until the date of issuance of these financial statements, there is no knowledge of financial facts or otherwise, that could significantly affect the balances or interpretation thereof.

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at December 31, 2016, have been approved by the Board of Director’s in an extraordinary meeting held on March 15, 2017.

123

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 16, 2017	LATAM AIRLINES GROUP S.A.
	By:	/s/ Enrique Cueto
	Name:	Enrique Cueto
	Title:	Latam Airlines Group CEO

124